Decentralized Autonomous Organizations
Blog everyday November #11
Let's just start this discussion with the biggest of disclaimers. I am not a lawyer, I've not taken the Bar, I'm not certified in any jurisdiction to give legal advice. But that doesn't mean I haven't done a little bit of research and due diligence into this arena.
Legal Challenges
It seems like there is only one jurisdiction that people are scared of in this field. We have countries like India and Ecuador that have banned bitcoin... and roughly nobody seems to care; then we have the USA which doesn't issue regulations, they just take people and projects to court or outright sanction technology. What the US does have is very well defined rights and the oldest legal precedents of any constitutional republic.
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances. -- First Amendment to the US Constitution
This is kind of a show stopper in my view. Speech is basically anything the courts have continually ruled. Bernstein v. Department of Justice established that software is protected speech and scrapped export control of encryption algorithms... which until that time were classified as a munition. Citizens United v. Federal Election Commission opined that money is speech and corporations can exercise that right with basically unlimited campaign finance donations. Which in my unqualified view basically covers everything that cryptocurrencies are or ever will be.
DAO IRL
Let's imagine that software didn't exist, that encryption didn't exist... but you wanted to form a cooperative business. Cooperative businesses have some terrific income tax laws as the goal of the organization isn't profit, and earnings are distributed to it's members... a refund for underutilized membership dues. Co-Ops are in several sectors of the economy, all the way through insurance and credit unions, which means talking about a DAO in these terms isn't far from an established reality.
How can we organize our co-op with out having leaders?
Let's imagine that our town had a public square or forum where you could bring your wares. A flea-market or farmers market would probably be a good example here. When you arrive you have your invoices and also a copy of the books that everybody else maintains as a condition of the co-op. You run around the market, talk with your fellows, check the final numbers and a spot check of a few random balances... knowing that any errors would compound. After everybody has had their coffee you sit in a circle and discuss your needs and resources. Let's say you need 2 woods, but have an extra bushel of wheat, everybody can record that in their ledger and at the close of the business the resources are allocated according to the agreed upon bylaws. There is an excess of a few items, the sheep all get sold at a market value and the proceeds are equitably distributed.
At this point income tax might come into play. But the entire proceedings and all of the process was just an exercise of free speech, free assembly, and depending on how the results are published (publicly)... free press.
The SEC likes to come around from time to time and wonder... is this a security? Well... here we have to wonder why the SEC can get involved at all... as citizens united establishes that money is speech, and therefore not subject to regulation. In the case of our co-op it should be abundantly clear that if Joe is sick for market on Saturday, his bricks won't make it to market, and he also won't receive any ore.
Decentraliztion
There are certainly a few extra steps in the proceedings when it comes to DAOs. Software and encryption being key but protected components. The most important thing to keep in mind when wondering if you are dealing with the murky waters of securities or the protected areas of speech are if any parties future efforts are key to the success of the endeavor. When all the software is open-sourced, anybody can improve it and run it. When the key's are held at large, and anybody can hold them and if somebody losses their keys there are protections for that. We are now in a place where single points of failure don't exist... and in my unqualified view, a place where securities law doesn't apply.
As a technical person I know that geofencing is pointless... nearly every video you watch on YouTube shows you how to avoid them to watch an out of region show on Netflix. A great many things are pointless... terms and conditions are often unenforceable, how a user interacts with a DAO could be from a website or their cli-wallet. I guess this is just to say, trust absolutely no one. No provider, no client, no account, period. Only once something is signed and accepted by the community is it to be trusted. This view point will save you from a great many headaches by understanding that block chains are really good at record keeping; but using them in no way guarantees a certain outcome. Back to the co-op... even on a global scale we can't ensure sufficient food production it seems, grapes change their flavors with the conditions and some years just aren't a good vintage for wines.
I hope we can all find some "assemblies" where our inputs are valued. Working together raises our collective productivity.