Australia’s lawmakers want to regulate decentralized autonomous organisations (DAOs). Oleksii Konashevych, a three-part series contributor, discusses the dangers of stifling DAOs’ growth and suggests possible solutions.
The majority of people don’t believe crypto anarchy will be the future. Although there are many positive aspects to company regulation or, at the very least, a good intent, it often results in red tape that hinders business. However, today, regulations and rules for corporations are well-written to the point that they can be included in machine code. The government has the responsibility of establishing mandatory standards for DAOs who wish to be able to trade in Australia.
Sometimes a written legal document is required. These situations are when the legal interaction is beyond the program’s code, and requires integration with real life. This requires formal legal documentation and a responsible person to deliver business promises to investors and consumers.
Two types of events can occur in a blockchain network: Internal. Transferring a token to exchange for cryptocurrency payments is one example. Because both elements, the token and cryptocurrency, are digital internal elements of the system, it can be automated. 2. External. External.
To illustrate, tokens issued by a businessman to a sheep flock must be written in human language. Sheep are not digital objects and therefore the legal condition cannot be part of the network. The digital rights of investors, let’s call them that, can and should be automated using a DAO. They don’t need any legal terms. A liable person must intermediate non-digital rights or obligations and describe them in a legal document. Many DAOs will possess both the digital on-chain and off-chain parts.
Similar: DAO regulation Australia: Issues & Solutions, Part 1
Let me give you an example. Let’s say that token investors are allowed to vote. The voting is electronically done on the blockchain and the smart contract executes the decision decentralized. It will not require any human assistance and doesn’t need a formalized legal document. However, this does not mean that it cannot be described in human language. This means that the description won’t prevail over the machine code on blockchain.
As a lawmaker, my goal is to adopt rules that reduce misinforming DAO investors. DAO investors cannot be promised anything by businessmen that isn’t encoded in smart contracts. This must be taken as deceit.
All cases in which the digital world touches reality or cannot function autonomously will require a legally binding disclosure.
The issue of immutability is often misunderstood. A blockchain cannot allow you to retroactively modify passed transactions or the deployed code of smart contracts. You don’t have to, though. It must be well designed.
You don’t have to change the records you already have, but you should be able add new records. Transactions are strictly chronological. This is because no one can alter the order of the blocks. If any legal circumstances change, it’s not possible to change the past. You simply add a new record. The sequence of records will only reflect the current state of affairs. This allows you to resolve legal disputes or correct simple mistakes. In the video, I explain how to design legal relationships correctly.
As well as this video, my academic papers also addressed the issue of an emergency brake — the need for a system to be reset if there is a problem. The technical standard proposed will allow for the redesign of a blockchain application and new rules for a DAO.
Similar: DAO regulation Australia: Issues & Solutions, Part 2
To be sustainable, a DAO solution must rely on third parties for governance and day-to-day operations. There are many situations where we absolutely need to rely on a trusted third party. How can a person transfer their inheritance after they die? It is unlikely that you will be able to develop a mature blockchain application. The question is how to hold intermediaries accountable, regardless of whether they are a state registrar, or an authorized professional (lawyer custodian broker, etc.). They will need to adhere to regulations and technical standards in order for them to function.
One important point should be noted. As a native unit in a blockchain, transactions with cryptocurrency are immutable and you cannot change it. This cannot be addressed, or at the very least it isn’t possible without compromising technology. All I have said about proper design concerns crypto tokens, smart contract, and DApps, which are built on top of a cryptocurrency.
Governments must rethink how they regulate in order to transition into the digital age. The DAO depicts the struggle to transform old-fashioned bureaucracy into automated procedures that are facilitated by smart law and smart contracts. This is commonly known as Code is Law. This shift calls for a review of established institutions, including the roles of licensing and public registries.
Some countries have already entered the race to regulate innovations. However, good intentions are not enough. They end up with red tape, which is why DAOs were created.
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.