Australia’s lawmakers want to regulate decentralized autonomous organisations (DAO). Oleksii Konashevych, a three-part series contributor, discusses the dangers of stifling DAOs’ growth and suggests possible solutions.
First, registration as a business is necessary to regulate a decentralized autonomous organisation (DAO). Who remembers why this registry is necessary? Who will question the need for registration of a blockchain-based DAO?
The government was historically a trusted third party who, through its public agency (i.e., a Registry Office), kept records about companies: who is in control, their address, constitution, shareholders and shares, etc. The registry will be the source of truth in any legal dispute or issue. If a company engages in illegal business, registration can be cancelled. Taxation also requires registration. This data is kept by the public registry, which ensures its authenticity and safety.
Similar: DAO regulation Australia: Issues & Solutions, Part 1
The registry is now electronic and requires reliable infrastructure, such as software and data centers, cybersecurity, and other measures. There are also formal requirements and rules for registration. Each record is checked against these rules. This is all the responsibility of the registry office.
Let’s now see what a Blockchain is. This technology can provide unprecedented protection for electronic records. There is no way to alter a record once it is published on a trusted blockchain. Users can publish and manage their data directly on the blockchain, without any intermediary.
With blockchains, at most two functions of the registry offices become redundant
* Users can make their own records.
* The registry infrastructure is not maintained by the registrar.
This can be the most worrying part for retrogrades and bureaucrats. The maintenance of the ledger infrastructure is not in everyone’s hands. It is an open, self-organized, and self-governing network without any authority. Despite 14 years of success, many people don’t believe or accept this is what is happening.
A DAO registration does not require a registry. The blockchain acts as the registry.
Similar: Decentralization and DAOs, current Web3 concerns
Which blockchain and what role regulation plays
Not every blockchain is reliable, I should add. Here comes the role and responsibility of the government when it comes to regulation. First, permissioned and private ledgers are not blockchains as Satoshi Nakamoto intended. They are not immutable or decentralized. Their design assumes that there is an controlling body. This effectively makes them a centralized technology. I have written about this in Private distributed ledger technology (or public blockchain).
The second issue is blockchains themselves. Even though blockchains are designed to be decentralized, open networks, there’s a huge difference between a network that has three nodes and a network that has three thousand. They will be resilient to cyberthreats at different levels.
The government’s role is to establish regulations and standards to ensure that everyone understands that the record they publish on Ethereum will be immutable and protected worldwide by thousands of running nodes. You can rely on the goodwill of the cartel if you publish it on a private distributed ledger network.
This concludes the discussion. Blockchain is the registry. There is no need to have an external registry database. The blockchain network is self-sustaining, so there is no government need to maintain it. Blockchain users can publish and manage records without the need for a registry. However, standards must exist that enable us to identify reliable blockchain systems.
Today, registration procedures have become extremely formalized. I can’t recall any registration procedure being left to the discretion of registrars. All rules can and should be governed using algorithms. This removes the clerk from the record-making process. It is actually automated and electronic in the majority of cases.
This is different because it must be used as a requirement to develop a compliant DAO. If you wish to work in Australia, make sure that your code and smart contacts conform with these standards.
Related: In the mind of blockchain developers: Building a social DApp that is free to use
There are two options for creating a company. You can either create your own company constitution or a charter. If you choose to replaceable rules (in certain European countries it is called a “model company constitution”), you will have to do so.
True DAOs will operate under the principle that “code is law”, as Larry Lessig stated. It is impossible to have replaceable rules written in human languages. However, the rules can be and should be digitally executed in the form a machine code that is run and executed by computers.
If DAOs try and rely on code and textual rules, complications can occur. Consistency is the main concern. The main concern is consistency. If the legal text and machine code are not identical, the computer will not be able to interpret or read the text. Instead, it will execute the machine codes.
Even more, records on a Blockchain are immutable. You cannot alter the history of transactions, revoke transactions, or modify a deployed code. This problem will be discussed in Part 3. The discrepancy is the problem. The potential for legal conflict could arise from equal legal force in the code and text. The whole idea of DAOs will be destroyed if lawmakers give the written text absolute supremacy over the machine code.
Related: The DAO, a disruptive concept for many industries in 2022, is a major idea
It is best that regulators do not require DAOs to use human language in their legal documents. Although it may seem absurd, there will be temptation for politicians and bureaucrats be paternalistic in order to protect customers. However, this is part of the emerging digital economy. Anyone who wants to harness the power of blockchain technology must be able to experiment. We will still have traditional forms of business and old-fashioned registry systems, but nobody is forced to try this.
Blockchain’s disintermediation and decentralization can increase efficiency in the economy and lower multiple risks. The industry should be allowed to develop the “code-is-law” paradigm. This is a potential way for society to have a better future.
This path is not without its pitfalls. If we want a bright future, we will need to get past them. However, crypto anarchy is not something I support. This is Part 3.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Oleksii Konashevych holds a PhD in Law, Science, and Technology and serves as the CEO of The Australian Institute for Digital Transformation. He presented the concept of a new type of property registries that is based on blockchain technology in his academic research. He proposed title tokens, and supported it by technical protocols for smart laws. This will enable full-featured legal management of digital property rights. He also created a cross-chain protocol to allow multiple ledgers to be used in a blockchain estate registry. This protocol was presented to the Australian Senate 2021.