The Governed Blockchain
Trust resolves the hard errors
Fixing a black swan that devastates your new blockchain-based business, but maybe not that of others, is a big ask of the community. For your counterparty and your community to make themselves vulnerable to your misfortunes, on your say so, requires trust. They will need to trust you are telling the truth while they agree and implement emergency changes that put all at risk. For example, the 2013 Bitcoin hard fork incident was handled because once the emergency was spotted, trust allowed the key stakeholders to come to consensus quickly[Narayanan, 2015].
Controversially, it only took a very few miners to switch their software version back and force the chain back to the earlier fork - contrary to how we expected decentralisation to play out. A similar process launched the 2016 Ethereum DAO repair, but with less success - although the trust in the dominant stakeholders was enough to make adecision, it wasn't enough to follow through toimplementation. Not all of the community put full trust in the decision, and fought the patch to war cries of “code is law.” The Ethereum forked into two, becoming Etherea.
Before we ask how the goal should be met we need to be comfortable with the existence of the goal - to solve for the black swan. The challenge for new business is to understand whether the environment supports the resolution of these serious errors: is your counterparty willing to work quickly and fairly to resolve errors? Is your blockchain resilient to external hacks, both before and after? Will a miner return a fat finger error that would otherwise send you broke? Which event has happened in Bitcoin.
Can you repair a broken smart contract? As of the time of writing, the Etherea do not know the answer to that, and worse, they do not know what happens to a real contract after forking[Grigg, 2017b].
These are billion dollar questions - but they are also hundred dollar questions. Although we came to the question via the utter disaster known as the black swan, for a business, the question is broader: Can you fix problems? How? And how costly? Which latter admits that there is no guaranteed fix, but this we already know - business conducts analysis of its risks.
And, this question ultimately reduces to another question: are you with me or against me?
To be cooperative or adversarial?
Huch nobHa'bogh verenganpu''e' yIvoqQo'
Don't trust Ferengi who give back money
The incidents above, both successful and debacled, suggest that fixing problems is possible, even if controversial. Business wants us to be able to handle several classes of failure, and in principle, we want detailed answers to a greater or lesser degree for the failures listed above (II. "Error, be gone!").
The choice is stark: Cooperate or Fight.
We can cooperate to solve problems, if we have trust, as did the core devs in 2013.
Or, if we expect insufficient trust on the part of the others, we can fight, as we found with the Mt.Gox, the DAO, the "classics", and a thousand other hacks. Without the expectation of cooperation, in an environment of untrust, your capital can be stolen or destroyed by those who are smarter or more adept than you.
Worse, if you can't beat ‘em, you join them: you play it fast, footloose and fancy free, and steal or destroy the capital of others. Either way, the blockchain of adversaries may live on but your own financial future is likely nasty, brutish and short.
To Win or to Lose?
There are other ways to look at this divide. Here’s several taken from varied disciplines.
The master negotiator seeks a good trade for both parties in a process calledwin-win. This goal of sharing the win with your other party assumes that there will be follow on trades in some sense - you want your other party to be happy to come back, and also to spread your reputation for fairness far and wide. She wants the same.
As well as routine business, this theory suggests that cooperative trade with win-win negotiating should be the basis of family and employment negotiations, simply because both of these guarantee that there are new negotiations coming soon.
The alternate to win-win is calledwin-lose. For me to win, you must lose, and vice-versa. This negotiation occurs when there is no apparent follow on trade. The problem with this approach is that, for one side to win, the other side has to lose. If you don’t know which it is, then it’s probably you.
Hence this adversarial approach is reserved for shady business. Especially buying houses, used cars and lawsuits in court are the places where the decision is done on the day, and there is little or no benefit in the future to not fighting for every last crumb.
When we can both take something positive from our trade, economists call itproduction, because something extra has been produced by our combined efforts. For example, if one of us has a kitchen, one can provide some ingredients, another has a recipe, and one can cook, we can come together to bake a cake - or cookies, or pie, you pick. The result is that now we have a pie, and that’s better than before. We have produced, and now we cansharethe fruits of that production.
The alternate is calledallocation: when someone (else?) has cooked a pie, and we only get to decide who gets which portion. This pie is made, there is no sensible play where we can make a larger pie out of a smaller one. Assuming that we don't walk out with the same sized slice of pie, then one of us is likely to win a bigger slice, and the other must walk out with a smaller slice!
Game Theory 博弈理論
If a game results in growth it is called anet-positive game. The players come out with a better situation than that which they entered.
The alternate to the net-positive is called thezero-sum gamein which the value at the beginning is the same as at the end. Who benefitted and who lost?
Political Theory 政治理論
Capitalism[Gupta, 2014]: Nationally enforced rule of law creates skin in the game for everyone that goes beyond the current trade. Dishonest statements or lack of integrity can be brought to complaint, but all are vulnerable to the system.
Anarchy: Voluntary rules of interaction leaves no skin in the game beyond the present stake, thus allowing the sharp trader to out-compete the dumb trader. All are vulnerable tocaveat emptor.
For the entrepreneur, all of these views end up on the same side of the fence - she wants to be on the left side so she can get some certainty about the safety of her investment. In particular, she wants to have her damages looked at in the event of disaster, even if the nominal result of “you lost” is all she gets back.
Taming the Black Swan
For Alice the trader to know that Bob the entrepreneur is on her side of the fence when disaster strikes is a question oftrust. Building a productive business in complex space, over the long term raises the fear of her capital being raided - can she trust her community to be there when she needs them to help?
Trust then is a desirable property. But where does she find it? Is Trust a place, a service or a religion? Can the entrepreneur buy it at the supermarket like I buy beer?
Thinking about when you and I find trust with each other helps to set a framework[Grigg, 2016]. Game theory tells us that to build up the big trust, we need: