DAO-fork at odds with Ethereum terms and conditions

Last month, Antonio Madeire nicely summarized the discussion on the DAO-hack and the fork which brought Ethereum classic into being. I remember that my contribution to the discussion at that time was that the Ethereum developer community should not revert to a hard fork but to the judge and/or arbitration.

Governance and terms and conditions
The other day, I was discussing with Ian Grigg, a long time mutual topic of interest: making technology work by adding proper arbitration to smart contracts and agreements. This can even be done in code, as he had demonstrated way back in the 1990s in his ricardo system.

This prompted me to actually take a look at the Ethereum terms and references to see what it said about disputes. Well, have a look yourselves:

All disputes or claims arising out of, relating to, or in connection with the Terms, the breach thereof, or use of the Ethereum Platform shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules. All claims between the parties relating to these Terms that are capable of being resolved by arbitration, whether sounding in contract, tort, or otherwise, shall be submitted to ICC arbitration...... 

.... And so on.

What does this mean for Ethereum governance?
While I hugely appreciate the development of Ethereum and all the efforts that have gone into it. it does strike me that when push came to shove, the developers brushed aside their own terms and conditions. The use of Ethereum was instrumental to setting up the DAO, so why not revert to the ICC Arbitration?

My guess would be that, not being lawyers or into governance, the developers used the tools that came in handy and quickly. Alternatively, it might be the case that they might have invested in the DAO themselves quite considerably.

Regardless of the exact reasons behind not using the dispute resolution mechanism, the paradox is that, while there is a formal basis for dispute resolution under Ethereum, the likelihood exists that in future instances of trouble, the developers will again fork their way out of trouble.

Create an additional dispute resolution layer.
Any practical use and implementation of Ethereum should therefore come accompanied with additional agreements on dispute resolution, so that organisations that cooperate on the basis of the ethereum blockchain create their own governance basis.

The DAO - Ethereum incident: if you can't stand the heat, stay out of the kitchen !

Ok, I admit: I may be a payments or banking dinosaur and an old school kind of guy. I have personally witnessed the emergence of new payment methods (POS, I-pay, VbV, purse, online-purse, Paypal, EMV, etc) as well as the failure of banks (Icesave, DSB). And I have a keen interest in the history of banking and finance.

With this background I have been intrigued by the Ethereum-DAO incident and its further follow up. What now seems to happen is that an undemocratic, interest driven community that hasn't secured or enforced proper governance and safeguards, is taking the right in their own hands when some digital assets of theirs appear to move in different places than envisaged.

Lay-out of options to solve the issue
Pondering the issues at hand was stimulated by this very good presentation by Gavin Wood last Monday at the Dutch Blockchain Conference. See below



In the presentation Gavin Wood presents 3 options:
- do nothing
- soft fork by community
- hard fork by community.

How logical the 'community' approach appears to be, I couldn't escape at noticing that the concept of community is limited to those directly involved as owners/investors in ether. All of those people were aware that they're investing in a very speculative, new technology and digital asset.

Gavin introduces the concept of moral consensus by the people, rather than the machine, to solve the issue. This consensus is not really the people, he explains, but the miners. In my view this means that the bottom line is that the interested actors take the right into their own hands to cheat the attacked back out of his possessions.

What's missing: the legal consensus
What's truly missing in the discussion is a fundamental fourth 'community' option:
- owners of 'stolen' ether  call the police (in whichever jurisdiction) so that a judge may determine whether or not this is a theft or otherwise.

Any system existing on earth, is always under some jurisdiction which allows formal legal arbitrage on differences of opinions as to whether this is theft. And lacking the proper arbitrage rules in this obviously not so smart contract, this is the domain where the Ether and DAO community should revert to.

Any other road than turning to the formal/legal mechanisms to solve this issue, constitutes a power batlle between interested parties. One party claimed to offer autonomous smart contracts without human intervention (but slides back as soon as they lose money on it) and another party took them up on the offer and fights back to keep the first party to their offer.

If you can't stand the heat, stay out of the kitchen
From a macro point of view, I don't see a reason why a response in forking by the ethereum community is justified. We're just witnessing a private, risky enterprise doing not-so-smart-things with not-so-smart contracts. This will mean that a limited remit of private investors (that know that they are risk investors) lose their assets to someone else.

As tough as it may be to see someone mess up your assets/system in front of your own eyes, it is hoewever the ultimate consequence of a philosophy in which one proclaims that is exclusively the machine that drives the asset moves.

So as this all happens, you just better buckle-up, take the hit and make sure there are no more accidents waiting around the corner. And if you're not up for it, it's time to leave the play under the motto: If you can't stand the heat, better stay out of the kitchen. When seen from a financial history perspective this whole incident is just one silly drip in the ocean of follies that has ever occured.

Up next: proof it or put in arbitrage
In a practical sense, the lesson is easy. Either have full formal proof of smart contracts, allowing you to  check all possible states of the implementation, or include an arbitration and third party mediation into the smart contract.

It's not a new concept: I've been speaking with Ian Grigg numerous times on the relevance of arbitration for smart contracts (see also his blog on this). So with this incident, the lesson will surely sink in somewhat faster, whether you're into the bitcoin blockchain or the new kid on the block.