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Global Networks 19, 3 (2019) 329–348. ISSN 1470–2266. Global Networks © 2018 Global Networks Partnership & John Wiley & Sons Ltd 329

The soft spot of hard code: blockchain technology, network governance and pitfalls of

technological utopianism

MORITZ HÜTTEN

Darmstadt Business School, Haardtring 100, 64295 Darmstadt, Germany

[email protected]

Abstract The emerging blockchain technology is expected to contribute to the trans- formation of ownership, government services and global supply chains. By analysing a crisis that occurred with one of its frontrunners, Ethereum, in this article I explore the discrepancies between the purported governance of blockchains and the de facto control of them through expertise and reputation. Ethereum is also thought to exemplify libertarian techno-utopianism. When ‘The DAO’, a highly publicized but faulty crowd- funded venture fund was deployed on the Ethereum blockchain, the techno-utopianism was suspended, and developers fell back on strong network ties. Now that the block- chain technology is seeing an increasing uptake, I shall also seek to unearth broader implications of the blockchain for the proliferation or blockage of global finance and beyond. Contrasting claims about the disruptive nature of the technology, in this article I show that, by redeeming the positive utopia of ontic, individualized debt, blockchains reinforce our belief in a crisis-ridden, financialized capitalism.

Keywords BITCOIN, BLOCKCHAINS, CRYPTOLOGY, CYBERPUNKS, CYPHERPUNKS, DAO, DLT, ETHEREUM, HARD FORK, SMART CONTRACTS, TECHNO-UTOPIANISM

When an unidentified individual or group named Satoshi Nakamoto (2008) introduced Bitcoin in October 2008, most members of the cryptography mailing list on which the original Bitcoin whitepaper was published were sceptical at best (Finney 2013). It was developed as a peer-to-peer payment system to challenge central bank control and the incumbents of the global financial system. Despite its initially cautious reception, over the years Bitcoin has gained followers and gathered momentum, for it has been fuelled by the discontent caused by the financial crisis of 2007/8.

Aside from seeking to build a global payment system, Bitcoin is characterized by openness (owed to its goal to achieve decentralization), general access for anyone wanting to use it, and disintermediation. Bitcoin introduced not only a transnational payment network, but also a technology more generally capable of tracking any type

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of data entry in a publicly accessible, transparent, and immutable ledger – the block- chain. Bitcoin is often called an ‘open’ or ‘public’ blockchain. Various foreseeable applications of the blockchain now stray from that path. For example, a consortium or private party seeking an easier, more controllable and accountable blockchain run (Buterin 2015) is more focused on streamlining business and maintaining control than on realizing a political goal. Prospective applications of the blockchain technology, or more generally the broader concept of the distributed ledger technology (DLT),1 now go far beyond transnational payments, with some observers forecasting significant transformations for the operations of global supply chains (Casey and Wong 2017), land ownership (Shin 2017), and the ‘internet of things’ (Dickson 2016). In contrast to this outright co-optation or reinterpretation of the blockchain technology – for a detailed discussion, see Hütten and Thiemann (2018) – other projects have followed the more utopian ambitions of Bitcoin for harnessing blockchains to promote individual freedoms and (digital) self-determination. Public blockchains are intended to operate in a decentralized and distributed fashion, with participants staying ‘honest’ through economic incentives and proper procedures.

The emergence and proliferation of blockchain technology has had a contradictory reception. While some might almost celebrate Bitcoin and the blockchain as a ‘grass- roots’ movement and see the blockchain as a disruptive and possibly revolutionary technology with which to challenge the dominance of governments and banks alike (Swan 2015), the ‘old guard’ might not be all that troubled by such a daring reputation. Central banks, government agencies and the business community might well regard the blockchain and DLT as a promising side of research in their quest to streamline their activities and transition their services to the digital realm (Economist 2015). To consider the contradictory but expanding uptake of blockchain technology so far, we need to scrutinize claims about the coming ‘blockchain revolution’ (Tapscott and Tapscott 2016) to understand how it might affect global finance and global supply chains, and where the utopianism of its more idealistic advocates is heading. By analysing a crisis that hit a frontrunner of the public blockchain technology, Ethereum, I explore how well public blockchains live up to their utopian ideals, and discrepancies between the proclaimed governance of blockchains and existing de facto control through expertise and reputation. I see Ethereum as exemplifying a libertarian techno-utopianism. When the highly publicized but faultily crowdfunded venture fund called ‘The DAO’ (an instance of a decentralized autonomous organization) was deployed on the Ethereum blockchain, the techno-utopianism was suspended, and developers fell back on strong network ties. Throughout this article I examine how the suspension of the techno-utopianism was conducted and what broader implications this holds for the future of open blockchain technology. Adopting the blockchain without maintaining the utopian promises of inclusion, democratization and participation could set broader developments in motion.

A Blockchain case: Ethereum

A highly gifted programmer called Vitalik Buterin invented Ethereum, which is one of the most prominent open access blockchains. In 2014, the Ethereum Foundation, a

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Swiss non-profit organization, successfully collected more than 25,000 Bitcoins (then worth about US$ 15 million) through decentralized crowdfunding. The foundation pre- sold about 50 million ‘Ether’, the native token of the then to be launched Ethereum blockchain (Buterin 2014). While Bitcoin had already implemented more complex functions like timed transactions and multi-signature transactions, it also deliberately limited its function to process peer-to-peer payment transactions (Campbell-Verduy and Goguen 2018b in this issue). Expanding on the concept of Bitcoin, Ethereum was meant to function as a blockchain capable of processing more advanced interactions between two or more parties delivering a ‘Turing-complete’ programming environment not restricted to a few selected functions. Ethereum was designed as an open access blockchain capable of executing so-called smart contracts. At the time, its CCO Stephan Tual described Ethereum as a ‘censorship-proof “world computer” that anyone can program, paying exclusively for what they use and nothing more’ (Tual 2015). To understand what makes Ethereum different from Bitcoin requires a deeper examination of the concept of smart contracts.

The concept of the smart contract came from Nick Szabo (1997) and, ever since, it has caused confusion and been criticized for its ambiguity. While the term ‘contract’ evokes associations with the legal concept of a contract, the resemblance is limited. Two dominant, rough concepts are in use – smart contracts as smart contract code, and smart contracts as smart legal code (Stark 2016). One can understand a smart contract code as a complex code stored on a blockchain, which, once created, can act autono- mously when called on to perform an action. Such a smart contract code might even hold balances of cryptocurrencies or control other smart contracts. A smart contract code can also be called a ‘smart agent’ or ‘software agent’ (Stark 2016) to exemplify a merger of some autonomy and/or process of automatization. A smart legal code makes a specific case for a smart contract code in which the smart contract might be utilized to automatize and streamline an exchange, but it includes some traditional legal lan- guage to clarify responses to unforeseen events or similar situations. Occasionally, the term ‘smart contract’ is used more vaguely to describe a murky combination of both conceptualizations; thus, it describes something that fits the definition of a smart con- tract code, but at the same time expects it to substitute for a legal code driven by a rather superficial understanding of law. Furthermore, concepts of smart contracts exemplify the fiction of law being a politically neutral construction, while the law is a product of human convictions and interaction (Milhaupt and Pistor 2008: 22).

Like Bitcoin, the Ethereum blockchain is updated by a decentralized network of computers called ‘miners’, which provide the computational power to run it. Unlike Bitcoin, however, the ‘miners’ not only authenticate transactions, but also run the smart contracts’ executable code. While smart contracts can in theory operate without a blockchain, doing so can cause problems of possible downtimes and code manipulation (Buterin 2013). Indistinct terms like ‘cloud’ servers obscure the underlying physical server architecture and usually describe the centralized server farms that large com- panies like Amazon or Google often run. Contrasting this centralization of control, open blockchains in general and Ethereum in particular are meant to provide dependable and distributed networks for executing transactions and more complex programs.

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Beyond the presumed gains in efficiency, Ethereum promises empowerment and social mobility, for anyone can freely access its blockchain, deploy programs and be judged by the quality of his or her work regardless of formal titles or financial means other than access to the internet and a device like a personal computer. In fact, the promises of empowerment in many blockchain projects echo earlier enthusiasm seen when personal computers proliferated. Personal computers fuelled the expectation that they would put the means of production in the hands of a self-educated working class able to utilize these devices to climb the social ladder by becoming advanced knowl- edge workers (Dyer-Witheford 2015: 9). However, promises of empowerment through technology are often problematic and the seemingly frictionless brave new world of digital interaction frequently reproduces or amplifies familiar patterns of exploitation, elitism and exclusion on gender and racial grounds – or rather inclusion via exclusion creating a global precariat of cybernetic capitalism (Dyer-Witheford 2015; Economist 2017; Huws 2014). Hence, we must ask how much the ‘blockchain revolution’ can contribute to the empowerment of civil society, especially to its most vulnerable mem- bers. Algorithms are step-by-step procedures for solving mathematical problems predominantly by computers. While the blockchain is an emergent technology and its future implementation in society unclear (Campbell-Verduyn 2018a), some scholars already suggest the emergence of a new subset of law, a lex cryptographia, marking a merger of legal and algorithmic governance with algorithms structuring the conduct and interaction of agents (Wright and De Filippi 2015).

Scholars should develop a better understanding of the visions and convictions embedded in this technology. In contrast to the need to separate technology from politics, it is important to examine blockchains as an organic whole consisting of the technical, scientific, social, economic and political considerations of engineers who combine scientific, technical and sociological analyses when envisioning technological innovation (Callon 1993). Nigel Dodd (2015, 2017), for example, has repeatedly argued that one should view Bitcoin and the blockchain as a social movement to pro- mote a utopian vision for society. While many techno-activists in the blockchain community pride themselves on creating technological fixes for political problems, the utopian vision embedded in this technology is anything but apolitical. Claims about the profound future impact of blockchains and subsequent social advancement (Swan 2015) must be scrutinized to unearth the foreseeable and unforeseeable consequences and downsides that the blockchain and its utopianism might introduce.

Cypherpunk utopias

Examining the utopianism of the blockchain demands that we further examine the (activist) context from which this technology emerged. Above all, the blockchain is a manifestation of the movement by activists called cypherpunks who promote the cause of digital freedom and digital self-determination secured by cryptography challenging government control. Cryptography is the science and study of writing, sending, receiv- ing, and deciphering secret messages, including authentication, digital signatures, the hiding of messages (steganography), cryptanalysis, and several other fields (May and

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Hughes 1992). Cryptography is commonly associated with secrecy and concealing information and identities, but it equally concerns verifying the authenticity of inform- ation and identity claims. Cryptography is about securely exchanging information while keeping hostile third-parties from eavesdropping or manipulating information. Ciphers are procedures consisting of well-defined steps for the encryption or decryption of messages. They have been around for over two millennia and works on cryptography often start with the so-called Caesar’s cipher, a comparatively simple cipher encrypting and decrypting messages by shifting letters. Cryptography has advanced ever since to produce ever more complex ciphers. At the onset of the twentieth century, cipher machines entered the scene, such as the infamous Enigma machine that the German navy used in the Second World War (Kruh and Deavours 2002).

Until the 1970s, advanced cryptography was predominantly used for military com- munication (Holden 2017). In fact, cryptography was a closely guarded secret with most of the research in the field conducted by the National Security Agency (NSA) and the export of cryptographic devices strictly prohibited (Levy 2001). However, for various reasons, the NSA’s control of cryptographic research weakened from the 1970s onwards. Furthermore, as the use of computers became more widespread there was a growing need for secure communication for commercial use and this created a general demand for encryption technology. IBM produced a symmetrical encryption algorithm called Data Encryption Standard (DES) that would become the US government stan- dard, although there was some controversy over the NSA’s involvement in developing it (Levy 2001). This development occurred alongside the unrelated work of two cryp- tologists, Whitefield Diffie and Martin Hellman (1976), who engaged the academic community with their article ‘New directions in cryptography’ (Holden 2017; Lopp 2016). Shortly before, in December 1975, Ralph C. Merkle published an article in which he declared that the modern digital computer could create ciphers that were practically unbreakable (Merkle 1978: 1). The US counterculture movement and the Watergate scandal greatly increased awareness of the dangers of insecure communi- cation channels and government overreach (Holden 2017: 208). Advocates of publicly available encryption viewed cryptography as a tool for protecting civil liberties and individual freedoms. Later, cryptologist David Chaum (1983) wrote about crypto- graphically secured electronic payment systems and pseudonymous reputation systems. Chaum discussed how downsides of electronic payments like the danger of a third party collecting extensive data on individual conduct could be curbed, while maintaining the advantages, such as traceable proofs of payment.

Towards the end of 1992, a small group interested in data privacy and public accessibility to strong cryptographic tools set itself up in the San Francisco Bay Area; it called its members ‘cypherpunks’, a merger of the terms ‘cipher’ and ‘cyberpunk’ (Lopp 2016), the latter being a literary genre that developed in the 1980s. Cyberpunk merges science-fiction scenarios with the cultural pessimism and aggressive rebellion of punk culture envisioning a post-nation-state world in which global networks and transnational corporations have become the dominant forces. Cypherpunks subse- quently expanded into the market anarchism envisioned by cyberpunk literature, but counterbalanced powerful institutions and corporations with cryptography that

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empowered individuals to maintain privacy and independence. One of the founding members, Timothy C. May, had circulated a ‘Crypto anarchist manifesto’ alluding to how he expected cryptography to secure individual freedom from government control and proclaiming that ‘a specter is haunting the modern world, the specter of crypto anarchy’ (May 1988). Among others, Wei Dai, a computer engineer who developed some of the core concepts that would form the foundation for Bitcoin, described his fascination with crypto-anarchy as follows: ‘unlike the communities traditionally associated with the word “anarchy”, in a crypto-anarchy, the government is not temporarily destroyed but permanently forbidden and permanently unnecessary’ (Dai 1998).

For the cypherpunks, the state was the most threatening danger and cryptography was the tool that would liberate them from government oppression. In the 1990s, ten- sion between cypherpunks and government officials built up and resulted in so-called ‘crypto wars’ (Lopp 2016). US government officials tried to ban secure commercial and private encryption. Eventually, cryptography was removed from the United States Munitions List (USML) and this gave way to the commercialization of and public access to cryptography. Nonetheless, tension persisted because the cypherpunk acti- vists’ vision conflicted with the government’s goal to gain authority over the internet. John Barlow (2001), a renowned activist, founding member of the Electronic Frontier Foundation and former member of the Grateful Dead published an article stating that digital natives would self-govern cyberspace without government intervention. While comparatively secure encryption is still available to the public, the smouldering conflict with governments remained and resurfaced with the ‘war on terror’, fuelled by fears of terrorists utilizing secure encryption to conceal their activities.

Drawing on the bigger picture, cypherpunk ideology is nested in the ‘Californian ideology’ of the tech-entrepreneurs of Silicon Valley. The ‘Californian ideology’ merges the anarchism of the New Left and the entrepreneurial zeal of the New Right with an optimistic techno-determinism (Barbrook and Cameron 2001). However, engineers in Silicon Valley did not start out as the resolute capitalists they have now become. Radio club hobbyists and various utopian communes flourished in the region long before the formation of cypherpunk and even before the rise of Silicon Valley. The radio club hobbyists had a culture of shared knowledge and democratic beliefs. Through their lively interaction, they cultivated a unique set of skills and expertise centred on building the radio devices and fostering a DIY hands-on mentality towards technological problems (Lécuyer 2007). Firms drew on the expertise the hobbyists cul- tivated and this, in turn, led to the emergence of some of the most advanced firms in developing microtube technologies in the region. Contradicting modern tales of the lonesome genius innovator, government spending heavily backed these developments, especially through the US military, which, until the 1970s, was the biggest market for advanced microtubes and the microprocessors that eventually followed (Lécuyer 2007).

Yet, when technology advanced and microprocessors replaced microwave tubes, an ideological shift accompanied the technological rupture. The earlier socialist leaning engineers who were promoting utopian ideals of displacing the segregation between workers and capital gave way to a different breed of microprocessor engineers. The next generation of engineers was meritocratic and resolutely capitalist (Lécuyer 2007:

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296). Along with the need for more highly-skilled labour came experimentation with unconventional working conditions, an increase in flexibility, profit sharing and new methods of financing, all of which served to augment the wealth of even the middle- class engineers. The earlier dependence of these entrepreneurs on vast government spending to blaze the path for their technological innovations was quickly forgotten (Mazzucato 2015). In a similar fashion, the surging digitalization gave rise to the concept of masculinized ‘immaterial labour’, as perpetuated by the male icons of the industry, which stands in stark contrast to frequently unwaged and underrecognized female labour (Dyer-Witheford 2015). Highly-skilled female labour was crucial for the development of cryptography; for example, women working for the Women’s Royal Naval Service at Bletchley Park, the ‘nerve centre’ of the British Intelligence establishment during the Second World War, but their importance was not fully recognized at the time (Hicks 2017: 25).

Beneath the glamorous façade of Silicon Valley’s billionaire owners and high- technology labour aristocracy lies a burgeoning and precarious labour force involved in the dangerous and toxic work associated with the production of microprocessors (Dyer-Witheford 2015: 61). Much of the myth of a frictionless process seems to stem from forgetting about the actual physical labour in which it is grounded. This contra- diction seems to be right at the heart of the Silicon Valley mindset, strikingly illustrated by the contrast between Apple HQ, where future Apple products are designed, and the Foxconn factories where the actual production is happening (Dyer-Witheford 2015: 37). Crypto-anarchism often better exemplifies this egoistic entrepreneurial mindset than the broader social concerns of classical leftist concepts of anarchism.

The question then is what kind of utopia springs from this ideological background? Brett Scott (2014) dubbed the emergence of the blockchain the birth of the ‘techno- leviathan’, or the vision of a deified crypto-sovereign forming the foundation for free individuals interacting in a (digital) world beyond coercion. Blockchain enthusiasts claim that governments might still exist, but they must earn their keep by becoming economically rational and cost-effective (Swan 2015). While many advocates of Bitcoin downplay the importance of the politics involved, critical scholars like David Golumbia (2015: 119) argue that Bitcoin is so strongly imbued with political ideals that it is best analysed as ‘politics masquerading as technology’. Marcella Atzori (2017) highlighted the danger of hidden forms of centralization being injected into open networks. The reception of the blockchain technology touches on the broader debate on techno-utopianism vs dystopian outlooks regarding emergent technologies such as high frequency trading and those using big data (Campbell-Verduyn et al. 2017). While advocates of a techno-utopian outlook emphasize efficiency gains and societal wealth and raise hopes that technology might transcend politics, critics question the neutrality of technology and call the public to consider the dangers of overbearing control and opaque techno-governance (Campbell-Verduyn et al. 2017). The debate is open-ended, and we do not yet know how blockchain technology will develop in the coming years; the critiques of technological utopias that emphasize the possible downsides of novel technologies are highly persuasive. In the next section, I shall examine more closely how this ideology manifested in a concrete application.

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A cypherpunk utopia in the making: the case of ‘The DAO’

Over the course of 2016, a team of programmers from Slock.it, a high-profile start-up in the Ethereum ecosystem, launched what was supposed to be prototypical for a newly emerging form of democratically governed, globally operating, decentralized organiza- tion. The team, which sought to replace management with a merger of algorithmic governance and human stakeholder voting, called its creation ‘The DAO’, an acronym for decentralized autonomous organization (Buterin 2013). While neither Slock.it nor Buterin made the connection explicit, the concept of a DAO is clearly grounded in the reductionist organizational theory of Michael Jensen and William Meckling (1976), a point that Wright and De Filippi (2015: 15) also raised. Jensen and Meckling believed it possible to reduce organizations to a nexus of human participants and contracts. Reducing organizations to such a bare minimum falls short of accounting for some of their more complex aspects and reduces agents to simplistic, insufficiently socialized homo oeconomini (Atzori 2017: 56), but it nonetheless lends itself well to translation into a formal programming code.

‘The DAO’ resembled a crowdfunded venture fund, an experiment in organizational governance grounded in algorithmic authority (DuPont 2018). Much of the concept hearkens back to the crypto-anarchism at the heart of the cypherpunk utopia, which envisions a world in which free and anonymous individuals voluntarily bind themselves to contracts of their choosing that allow them to pursue personal wealth and advance- ment as a society without centralized control. Echoing Lawrence Lessig’s infamous statement that in cyberspace ‘code is law’ (Lessig 2006: 5), the binding agreements of ‘The DAO’ were set forth not in legal contracts, but in the form of a programming code deployed on the Ethereum blockchain. According to Dupont (2018), ‘The DAO’ could be understood as a pseudo-legal organization run by an assemblage of human and ‘robot’ participants. ‘Robot’ participants existed insofar as humans were meant to interact with algorithmic rules that self-execute and automatically respond in a predefined manner to human input. Human agents could become stakeholders by investing some of their Ether, the Ethereum blockchain’s native token, for an initial decentralized crowdfunding phase of 28 days. In return, they would receive tokens representing proportional voting and ownership rights in the DAO and granting them access to future profits (Jentzsch 2015: 2). Between 10,000 and 20,000 people invested in ‘The DAO’, which equipped it with about 11.5 million Ether valued at a total of US$ 160 million at the time (DuPont 2018). A subsequent price hike of Ether further increased the DAO’s holding to the equivalent of US$ 250 million.

However, to share out profits or avoid a hostile majority vote exploiting a minority, the DAO allowed stakeholders to split from the main organization to create a ‘child DAO’ under its control (Jentzsch 2015: 2). Setting up a ‘child DAO’ was supposed to invalidate the original DAO tokens and, after a 28-day waiting period, allow investors to cash in their profits or stake. Some community members voiced concerns about the split function introducing vulnerabilities that might allow someone to conduct a so- called ‘race to empty’ attack (Vessens 2016). In such a case, the attacker would use the split function to call repeatedly to withdraw the Ether function before the DAO tokens

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he or she was holding could be updated, which effectively allowed the attacker to drain funds without holding the corresponding tokens. While one of the founders of Slock.it, Stephan Tual (2016), assured the community that no DAO funds were at risk, on 17 June 2016 someone did execute a ‘race to empty’ attack to drain the DAO’s funds.

Analysing crisis: the failure of the DAO

The ambitious DAO experiment never got the chance to make an investment. Shortly after it became operational, an unidentified hacker exploited a flaw in the code and began to drain the DAO’s funds by launching a ‘race to empty’ attack. While the DAO was technically a third-party project and the flaw did not endanger the Ethereum block- chain directly, a broad alliance of developers and stakeholders insisted on the attack being countered to protect the funds and demanded an intervention to reclaim the ‘stolen’ funds on the DAO’s behalf. For ‘The DAO’, proposing such an intervention was highly controversial and contradicted virtually all the public statements and discussions that had preceded the attack.

In comparing the controversy, both Ethereum and the DAO were very specific about the rules of their respective projects. Ethereum’s official website (www.ethereum.org) describes it as a ‘decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third- party interference’ (emphasis added). Similar statements are found in the DAO’s terms of use, which claim that ‘nothing in this explanation of terms or in any other document or communication may modify or add any additional obligations or guarantees beyond those set forth in the DAO’s code. … The DAO’s code controls and sets forth all terms of the DAO Creation.’ Both descriptions leave strikingly little wriggle room. Ethereum promises a strictly neutral and immutable platform removed from any intervention on behalf of any third party. The DAO website clearly states that descriptions in writing are educational only and that the programming code alone will determine the DAO’s actual intention. Essentially, anyone investing in ‘The DAO’ is supposed to agree to the conditions set out in the programming code rather than in any written terms of use. While it is doubtful that such an agreement would hold up in a court of law, the DAO is nonetheless clear about the conditions, and in another section warns investors of risks including the possible loss of all funds through unforeseen errors and attack vectors. Some members of the Ethereum community even argue that the presumed ‘theft’ of funds by the hacker was not even ‘theft’ but in line with the DAO’s terms, since they state that whatever the code allows someone to do would be the intention of the code.

When the attack commenced, contrary to all previous statements, a broad alliance calling for action emerged and sparked a battle over how to interpret the event at hand. A narrow majority favoured intervention, but a substantial minority wishing to uphold the previous statements and agreement to abstain from intervening on anyone’s behalf, opposed it. The latter group viewed intervention on the DAO’s behalf as the enforce- ment of a special group interest. The potential conflicts of interest inherent in some developers of Ethereum serving as both Slock.it advisors and DAO investors further complicated the situation. Surprisingly, the two groups clear descriptions did little to

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calm the situation. Instead, both argued that they were acting in accordance with their original statements on their preferred option and were in line with the ‘true’ principles of both Ethereum and the blockchain. The DAO’s technical specifications meant that the attacker had to wait out the 28-day prescribed time window before being able to assume control of the funds by siphoning them from ‘The DAO’ to a ‘child DAO’.

Various options initially seemed feasible; these ranged from counter-attacks by so- called white hat hacker groups seeking to return the funds to the original stakeholders, a softfork to censor the hacker’s transactions and a hardfork to dismantle the DAO altogether. The counter-attack group was able to stall the hacker’s attempts to gain con- trol of the funds but was unable to redeem them permanently. A softfork would have required miners to refrain from processing the hacker’s transactions and generally would have maintained the previous status quo, but it turned out to be unsustainable for various reasons. Eventually, the hardforking option was discussed. This entailed most of the miners switching to an alternative version of the blockchain in which the DAO hack had been undone, thereby altering the supposedly immutable blockchain and permanently departing from the previous status quo.

Because of the controversial nature of either decision, debates erupted on public Ethereum forums like the Reddit subforum r/Ethereum. Groups in favour of intervening on behalf of the DAO argued for a hardfork, while the opposing group argued against such an intervention. Each group developed its own crisis narrative.

A pro-fork group favouring undoing the DAO took what it proclaimed to be a pragmatic stance on blockchain governance. Its members viewed themselves as rational actors choosing self-defence over ‘zealously’ sticking to principles (sjalq 2016), capable of acting if needed (HoboRobo 2016), and claiming community consensus to be the ultimate arbiter on the proper state of the blockchain (yeshe257 2016). They argued that the project was still in an early stage and should be fixed along the way. The pro-fork group was opposed by a smaller anti-fork group in favour of keeping the Ethereum blockchain unchanged. This anti-fork group voiced its concerns about ‘moral hazard’ resulting from community intervention (Rune4444 2016), disparaged attempts to rescue a faulty third-party project (TheBigJort 2016) and questioned whether the upside of intervening on behalf of the DAO could make up for the loss in trust in the dependability of the network (egimo 2016). It also argued that prior statements had stated that ‘code is law’ and that hard-forking would be a major departure from this agreement. Many of the arguments that the anti-fork group presented suggest that it viewed this intervention as a repetition of those that followed the financial crisis of 2007/8 in which the financial authorities rescued ‘too big to fail’ banks. Vitalik Buterin publicly posted that he favoured a hardfork (Buterin 2016). Various mock-posts emerged over the following days asking Buterin to fork over small losses that occurred sometime in the past through various mistakes.

Despite not having formal control of Ethereum, Buterin strongly influenced the community with his public statement. Furthermore, forking over the DAO prompts us to ask if there is a conflict of interest for community members who are supposed to be enforcing the integrity of the system but are also often involved in a substantial investment. Considering all previous publicly made statements, acting to rescue a third-

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party contract like the DAO was deemed to be a highly unlikely event, but when crisis struck, commitment to prior statements proved weak. In contrast to previous claims about decentralization and immutability, action was and could be taken quickly.

Closer scrutiny of the DAO hack and its aftermath reveals that what was supposed to represent a turning point in legal authority and algorithmic governance (or govern- ance by algorithms) collapsed into hurried private discussions and governance by narrow elite networks (DuPont 2018) in which the community served as a weak safe- guard. Following the decision to fork, the supposedly immutable public ledger that is the blockchain was altered, turning the DAO’s more complex contract into a simple withdrawal contract in which anybody holding DAO tokens could withdraw a corres- ponding amount of Ether. Consequently, ‘The DAO’ was undone, which created what one forum member called a very different ‘social contract’ from the one previously implied on the Ethereum website (carver 2016).

Many observers from the banking sector and other industries saw this as a ‘wake- up call’, a reminder that they should consider what the word ‘public’ means in the case of a public blockchain (cited in Rizzo 2016). Within the Ethereum community, many praised the outcome of this crisis episode as an exemplification of the great flexibility and practicability of Ethereum, while others saw it as a violation of principle and an instance of censorship (DuPont 2018).

Before the fork, developers and users thought that a minority chain might form but would quickly become unsustainable and die out. Instead, a minority refused the fork and continued to maintain the original Ethereum chain, indicating that control is more centralized than expected but not flawless or total. The unaltered version of Ethereum was first seen as a mere curiosity, but the reception quickly changed when one of the biggest cryptocurrency exchanges, Poloniex, opened the floor for trading a token now called Ethereum Classic. This shocked many members of the community by effectively creating a market for that token (Quentson 2016). Yet, operating as a minority chain seriously compromised the security of Ethereum Classic. Since the latter now operated on a fraction of the hash rate that had previously maintained the undivided Ethereum blockchain, it became vulnerable to a so-called 51 per cent attack. Some miners who openly supported the fork of Ethereum thought that the vulnerability was responsible for the attack on Ethereum Classic. Chinese miner Chandler Guo, a highly vocal proponent of attacking Ethereum Classic, Twittered: ‘I am Chandler Guo, a 51% attack on Ethereum Classic (ETC) is coming with my 98G hashrate’ (Guo 2016). While no noteworthy attack was conducted, and Guo later became an ETC supporter (Demartino 2016), this episode illustrated the problem previously discussed by Nicolas T. Courtois (2014) who problematized the ‘longest chain rule’ as a source of vulnerability for public blockchains running on a fraction of the hash power of the major public blockchains.

Over a year later, Ethereum and Ethereum Classic trade at prices many times higher than when the event occurred, and investors seem to have forgiven that moment of murky intervention. While the event had little impact on Ether pricing in the short run, one can only speculate on the future forms of public blockchain infrastructure. Many businesses and government agencies will certainly consider that question in their evaluations of what to make of public blockchains.

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Various forum members also reiterated the idea that this would be a lesson learned, but only months later another start-up, Bancor, again building on Ethereum, collected the equivalent of US$ 150 million in Ether, thus leaving one to question whether lessons had indeed been learned from ‘The DAO’. Following these events and various other initial coin offerings (ICO), the currently common form of crowdfunding block- chain projects, US regulators began to scrutinize these generous funding rounds (Engler 2017). Even more recently, the US Securities and Exchange Commission (SEC) has concluded that the DAO tokens were securities and cautioned ‘market participants that offers and sales of digital assets by “virtual” organizations are subject to the require- ments of the federal securities laws’ (SEC 2017).

The DAO crisis revealed that much of this presumably ‘new’ model of governance by algorithms could resort to very conventional responses when under stress. When the DAO’s faults became apparent, the Ethereum blockchain’s ostensibly binding rules were selectively relaxed for a project with close ties to semi-formal leaders of the Ethereum ecosystem and various stakeholders with conflicting interests between their own short-term investments and the integrity of the supporting blockchain. The res- ponse to crisis challenged previous claims about the neutrality of the platform and about having overcome focal points of control. Prior to the crisis, stakeholders and developers had agreed to extremely strict rules by submitting themselves to governance by algo- rithms (Campbell-Verduyn et. al. 2017) in the form of a highly automatized trustless blockchain. However, once the crisis set in, strict rules did not function as a backstop for guiding the community response, but instead were viewed as unreasonable and not binding and this therefore contributed to their suspension. Some attempts were made to generate a measure of ad hoc legitimacy imitating democratic procedure by posting non-binding voting polls on various forums and blogs. The dynamic stemmed from the assertion that the community mistook obscured de facto control for better and more responsive governance (D’Onofrio 2016).

From cypherpunk utopia to capitalist dystopia

Based on the analysis of ‘The DAO’ and expanding on Quinn DuPont’s (2018) research, some broader implications for the proliferation and impact of the blockchain technology can be unearthed. Following the experience with ‘The DAO’, we can better distinguish between the facts and fictions of the proclaimed ‘blockchain revolution’. Open/public blockchains have become a fast spreading technology trend, but on closer examination, claims of a ‘revolution’ are exaggerated. Analysis of crisis and its response reminds us that public blockchains, like most technologies, are subject to political influence. Ultimately, the question is what can we expect from the expansion of blockchain technology when it ceases to adhere to its more utopian promises?

To answer the question, we must remember the circumstances of the Bitcoin block- chain’s origins. In response to the accelerating financial crisis, Bitcoin promoted an alternative payment system as a critique of the selective suspension of binding rules for banks close to the ‘apex of power’ (Pistor 2013) that were bailed out at the public’s expense. More was at stake than the immediate survival of the global financial system;

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bailing out ‘too big to fail’ banks endangered a crucial supporting pillar of capitalist utopianism.

Contemporary capitalism ultimately contains its own utopian promises, including autonomy from society and upward mobility through performance. The flipside of this autonomy is the utopian notion of ontic, individualized, debt-grounding capitalism. Notions of debt under capitalism are very different from those of many pre-capitalist societies. Marcel Maus (1990), for example, describes a society that crucially draws on universal debt as enabling an ‘understanding of humans’ common participation in being’ (Featherstone 2017: 64). Capitalism knows no universal debt, and not having a universal debt to society eventually grants the individual autonomy from it. Ultimately, ontic, individualized debt lays the foundation for the autonomy of the individual at the centre of contemporary neoliberal and libertarian thought. As Featherstone (2017: 64) explained:

Ontological debt is universal, infinite, and inescapable, and as a consequence a condition of existence itself. By contrast, the ontic version of debt, which emerged with the money economy and has taken on new, democratic form in neoliberal society, is never universal, even though it seems to suture everybody into the late capitalist economy, because this world is made up of two classes, creditors and debtors. In much the same way that this new debt relation is particular, it is also finite in the sense that there is a view that eventually every debt must be repaid in full and debtors will escape their bonds, even if the state of indebtedness seems to stretch far off into the future.

Contrasting the reasoning of Hobbes (1966), for whom the sovereign must be the consequence of an otherwise (fictional) constant state of conflict resulting from unbound individuals encountering each other in libertarian thought, this conflict is suspended through the notion of open space. The blockchain sets the foundation for a pre-political society of individuals who are not yet citizens (Atzori 2017: 55). Liber- tarian thought does not seek to move on to citizenship but remains in a pre-political state that suspends conflict through notions of open space. The latter are crucial for libertarian fiction, whether it is science fiction set in space, the open space of the imagined Wild West, or unbound cyberspace (Mühlbauer 2006). Unable to resolve emerging conflicts because of its distaste for political institutions, libertarian ideology must press forward in search of new frontiers to colonize. At its inception, Bitcoin was lauded as a libertarian revolution freeing the individual from government oppression (Cox 2013). Originally, in nineteenth-century Europe, ‘libertarian’ was synonymous with left anarchist, but since then and following the Second World War, market radicals began to occupy the term and to shape something one could call ‘anarchism for the rich’ (Mühlbauer 2006: 156). David Golumbia (2015) analysed Bitcoin as a ‘distributed right-wing ideology’. Guardian reporter Jonathan Freedland identified the surging fel- lowship of Ayn Rand among the young tech-entrepreneurs intrigued by her lionization of ‘the alpha male capitalist entrepreneur, the man of action who towers over the little people and the pettifogging bureaucrats – and gets things done’ (Freedland 2017). For

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the heroes of Ayn Rand’s stories, even the market is too much society to deal with in that it hampers the unbound self-realization of the towering individual (Mühlbauer 2006: 160). However, this fascination with zealous, genius, entrepreneurial libertarian thought is precisely what fuels admiration for a reckless elite and lends itself to authori- tarian models (Mühlbauer 2006: 159).

The global financial crisis created a situation that transformed private debt into (almost) universal societal debt. The future horizon of unbound debt repayment was at the brink of collapsing into a primordial state of unbound universal and unpayable debt threatening the very core of neoliberal and libertarian autonomy from society. Various commentators make claims about the disruptive and even revolutionary nature of the blockchain. Yet, on closer examination, for Bitcoin and the blockchain, ‘revolutionary’ does not mean a challenge to capitalism but a challenge to its demise. At a point when the global financial system threatened to sink into universal and unaccounted debt with nobody knowing who owed what to whom, Bitcoin and the blockchain emerged as a promise of perfectly tracking every transaction and account balance in existence. More than anything, Bitcoin and blockchain technology promise to rekindle belief in indi- vidualized, ontic debt and, subsequently, the autonomy of the individual at the heart of neoliberal and libertarian thought. Ethereum followed the same utopian vision on a higher level of abstraction, essentially treating payments as a subclass of contracts. It promised to create a network automatically governed by a predefined protocol, forging a globally accessible opt-in society of individuals. The utopianism of Ethereum is much closer to the term ‘friction-free capitalism’ that Bill Gates (1995) coined.

David Golumbia (2015: 121) describes Bitcoin as a programme for ‘recruiting unin- formed citizens into a neoliberal and (nominally) anti-government political discourse’. Bill Maurer (2016) concluded that financial professionals like to see the blockchain as a tool for ‘re-risking’ finance so that it can move away from its ‘boring’, intellectually unstimulating fee business model. Overall, we must understand that the ‘blockchain revolution’ often fails to disrupt the neoliberal discourse but rather contributes to its redemption and to the wider ‘non-death of neoliberalism’ (Crouch 2011). Supporters of Bitcoin or Ethereum might not feel troubled by that insight at all, for many are sceptical of government control and endorse the ‘free market’. Yet, these supporters also turn to public blockchains like Ethereum or decentralized applications like ‘The DAO’ to deliver the infrastructure necessary for a brighter future under ‘friction-free capitalism’. Such expectations might turn against them when technological solutions fail to produce the desired results. Without the ambition to build better institutions on the blockchain, or when governance failure and murky decision-making processes are mistaken for ‘better’ governance, the ‘blockchain revolution’ might yield very disap- pointing results for its advocates. Eventually, public blockchains also face a recurring problem over the process of digitalization. When processes become digital, ‘tired’ ideas often become repackaged as ‘wired’ ideas (Ludlow 2001: 20). Brett Scott (2017) recently criticized the concept of the sharing economy for being simply an obscured granular rent economy. When more utopian and ambitious projects like ‘The DAO’ fail, the more ‘tired’ ideas remain fuelled by a technology that promises perfect score keeping in the form of an incorruptible ledger without living up to the expectations of

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a techno-utopia. Without thoughtful consideration of how to live up to ambitious goals of democratic participation and freedom from coercion, the blockchain risks rebranding relationships of capitalist exploitation into ‘wired’ euphemisms. We see the transform- ation of granular rent extraction into fancy micro-payments, and old-fashioned com- modification into blockchain tokenization. At the same time, the familiar patterns are perpetuated, such as the financialization of the everyday (van der Zwan 2014), attempts to exploit new markets for financial products by banking the unbanked, or the formaliz- ation of landownership in rural communities. Eventually, the blockchain could become not only the fixture for financial practice in the narrow sense Maurer described through re-risking finance, but in a broader sense for capitalist utopia by rekindling unrealistic expectations about future repayments of individualized, debt and unlimited commodi- fication.

Conclusion

In a recent interview, Christoph Jentzsch, a DAO inventor, criticized the blockchain developers’ for having become overly conservative since the DAO’s failure. Many projects have become more centralized, and most of the recent wave of ICOs have been greatly overfunded (Bergmann 2017). Technological advancement was long accom- panied by a hope that technology would not only streamline politics, but also possibly transcend it altogether. Yet, examining the crisis response to ‘The DAO’, hopes of a management-free system were disappointed because the response to crisis revealed strong de facto control by a programmer elite and weak commitment to principle when facing possible short-term losses by the community. Eventually, the public blockchain was all too human at its core, forming indeed the soft spot of a utopia of governance by hard code. The response to the crisis revealed that the public Ethereum blockchain has not transcended politics. The lack of proper procedures instead leads to a mimicry of the murky interventions that sparked discontent with the financial system. The outcome is in no way confined to the Ethereum blockchain, and after studying Bitcoin, other scholars (Atzori 2017; De Fillipi and Loveluck 2016; Musiani et al. 2018; Pelizza and Kuhlmann 2017) have reached similar conclusions.

Pre-crisis commitments to strict governance by algorithms and the credo that ‘code is law’ failed to hold up under pressure. Rather than supporting the community in troubled times, the strictness of the rules hampered the development of proper pro- cedures with which to handle the events. Under unforeseen circumstances, the commit- ments were viewed as overbearing and unreasonable, and ultimately fuelled the impression that compliance with the code was unrealistic. While some community members criticized the opaque elite governance, others mistook the quick response for dynamic decision making. The DAO episode also casts doubt on the capacity of open/ public blockchains to overcome the selective favouritism that originally fuelled discontent with the financial system and left some forum members wondering how big a project must be before the developers intervene on its behalf (andypant 2016).

More broadly, the old ideas and new crises that spread through technology pose implications for global finance and beyond. Increasingly, transnationally operating

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actors in the blockchain ecosystem work with policy makers, governments and firms around the world. While not long ago blockchains were primarily a source of concern for politicians, lawmakers and regulators, these actors are increasingly embracing a widespread use of its applications and forecast its possible role in ‘revolutionizing’ governance, democracy and the rule of law (Mizrahi 2017).2 Consequently, the pro- claimed blockchain ‘revolution’ merely becomes the evolution of the very institutions that Nakamoto, Buterin and others had meant to challenge.

Finally, this development also holds implications for the utopian aspects of block- chain technology. It is said that blockchains possibly improve the way services, public administration and companies are organized; they can make them more efficient and more decentralized, but only if we understand them as a tool with limitations and not as a replacement for political debate. We must keep in mind that technology cannot be a substitute for conscious debate on how democratization, inclusion, emancipation and self-determination can be achieved. Opportunities for empowerment must be created and defended; they are not a by-product of technology. Technology gadgetry cannot replace political struggle. The DAO crisis was a missed chance to have such a debate, with many discussants simply claiming that the technology was still new and would perform better next time. It was also a missed chance to think about the underlying techno-libertarian ideology and utopianism. Yet, critical debate must be injected into the blockchain community to challenge the inherent flaws and contradictions of the underlying ideology. My examination of the utopianism of Bitcoin that is still evident in various blockchain projects like Ethereum, reveals the dangers that originate from this utopianism and the now common framing of the blockchain as a powerful accounting tool. The blockchain runs the danger of becoming a fixture for the crisis of financialized capitalism, rekindling a belief in clearly bounded ontic debt with a promise of perfect accounting without bringing about better, more open and inclusive institutions. Instead, the blockchain could drive a belief in the moral virtue of ‘tired’ ideas of capitalist rent extraction and exploitation under the guise of ‘wired’ ideas of digital inclusion, radical entrepreneurship and unhampered self-realization.

Acknowledgements

I am grateful to Max Nagel for contributing to a presentation on the topic at the 2016 Intersections of Finance and Society Conference in London. I also thank Malcolm Campbell-Verduyn for his insightful and thorough comments on an earlier draft.

Notes

1. Because the technology is new, the terminology is not yet fully established. Sometimes the terms ‘blockchain’ and ‘DLT’ are used interchangeably; at other times DLT is used as a more general term for a distributed ledger but without any clear indication of whether it is indeed a blockchain.

2. This exemplifies the development in the EU, yet this development is in no way confined to the EU.

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