Everyone loved The DAO. They couldn’t say enough about how it was going to change the future for the better.
And now, after the code-based crowdfunding platform was exploited with a perpetrator taking 3.6 million ether (valued at $60m at the time), The DAO has become the red-headed stepchild of the cryptocurrency community.
It’s a recognition that these new technologies are not all rainbows and revolution.
Technology has holes and gaps, negative impacts – both intended and unintended, and possible complications the industry must be cognizant of before telling people to sink their life savings into these startup projects.
The beneficial parts of The DAO have been discussed again and again; there’s no shortage of attention being paid to this distributed crowdfunding platform. It points to a more collaborative economy; for us, by us, like bitcoin.
Now there is talk that The DAO might be finished. The project might fail and along with that the hopes for ethereum as well.
I doubt it, but the community will have to start looking for ways to tackle the social issues that arise even with technologically superior platforms.
Votes as reputation
Because DAO tokens represent votes, users with the most tokens will have the most votes. At its core, this gives wealthier individuals more sway over decisions at the disadvantage of those in lower socioeconomic brackets, which could even stand to benefit more from advances in technology.
To be fair, early adopters bought into The DAO at 100 DAO tokens per ether (this payout declined over time), and as more people invested in the project, the value per token rose as well, leaving people up on their investment.
But early adopters do tend to be affluent, with more education, larger incomes and higher standards of living.
While The DAO gets labeled revolutionary more often than not, this income-based reputation is how the current political system works, and many are finding it appalling as the income gap widens.
As we’ve seen, this isn’t always the best process for the most constituents.
Silicon Valley provides a useful example, as venture capitalists throw enormous amounts of money at entrepreneurial projects they don’t know the details about. Sure, they have to take a risk on certain companies and business models, and that ultimately leads to some failures, but the rate of this is outrageous.
Plus, there are startups that would like to build technological solutions for the disenfranchised, but many of these projects have trouble getting funded since these users don’t provide a very profitable future return.
The problem with putting decision-making in the venture capital community’s hands is that its constituents typically come from similar backgrounds, meaning they won’t necessarily make good decisions for a broader swath of society.
This is highlighted in a Medium article called “The DAO: How to Not Fuck it Up” where Peter Thiel’s seven key questions to evaluating startups are mentioned, and not one of these questions asks whether consumers want or even need the products or services the startup is pitching.
This idea of using tokens as indicators of reputation for voting is also potentially harmful for next-generation social media platforms.
For instance, Steemit wants to create a social networking site where positive and accurate information is dispersed, but those adjectives are dependent on people voting. For sites that hope to gain momentum from cryptocurrency enthusiasts first, this could mean biased posts on the advantages of cryptocurrency get upvoted, while information about its flaws or weaknesses get downvoted or ignored, thus burying those stories for other users.
These projects highlight why attaching a monetary token to something like a vote can be problematic. Because money is a sought-after good, conflicts of interest and volatility can quickly arise.
For example, since creators of projects seeking funding can purchase DAO tokens, they might be more interested in putting all their votes towards their own proposal, instead of dispersing the funds based on what projects actually deserve investment.
A commenter on a recent CoinDesk report posted that The DAO is the final piece open-source projects have been looking for – "financial support for great ideas" – but the question remains, who decides what are great ideas?
The other issue that can emerge is that some token-holders will be ill-informed about the things they’re voting on. Again, another problem that already plagues systems today.
Speaking to Reuters, Stephen Tual, founder of Slock.it, the startup that wrote the code for The DAO, said:
"The DAO appeals to people who are tired of centralized projects where they have no say.”
But even within centralized projects, participants have some say. At the company level, shareholders push founders in certain directions, and within the current democratic political processes, most people get a vote.
Even if their preferred candidate doesn’t win, they can change the conversation.
People in the current system feel they have no say because the system has become so complex, convoluted and filled with barriers to entry. This current disillusionment is furthered by policy issues that are far more nuanced than the approval or disapproval choices people get to cast their ballot for.
The idea that technologists can code every human interaction is a popular one.
Maybe the human brain is a “computer” that acts depending on environmental stimulus which may one day be coded into a rule set. But I’d argue those cause and effect relationships are too intricate for code to handle.
Just putting a problem on a blockchain or into a decentralized system doesn’t necessarily provide a solution. If the process is still complex and convoluted, the system continues to have the same problems that our current, more centralized systems have.
Although, if done correctly (big caveat), decentralization does help eliminate the corruption of suppressing movements since the process typically strips one person or small groups of people from powerful authority positions.
With the recent DAO "attack", the Ethereum team has stepped back into that authority position – whether you believe rightfully so or not – to stop the “attacker” from moving the funds in the sub-DAO account and reversing the transactions to get DAO tokens back to its original owners.
This is seemingly at odds with the immutability the project touted, but acts as an example of why un-coded exceptions are sometimes needed.
Bailey Reutzel is a veteran finance reporter, most recently covering the intersection of tech and finance for PaymentsSource.
Her latest project Moneytripping is a Gonzo-style journalism project focused on exploring money, politics and finance in America.
Math problem image via Shutterstock