Blockchain as a Challenge to the Regulatory State
Discussion
Toby Shorin, Sam Hart, Laura Lotti:
"Software may be eating the world, but it’s a world already consumed by law. Through law, humans become legal persons with rights, “nature” is defined and protected, and order is sought across land and sea. Pervasive and plastic, law is the essential institutional technology of the modern nation state. While the nature of law is still an object of scholarly debate, its chief feature is clearly the regulation of behavior. The law imposes standards of conduct that uphold communal values and protect liberties. Likewise, the law enforces sanctions that deter or punish acts of harm.
The law of the state is not the only force that regulates the res publica. In his landmark 1998 article, Lawrence Lessig discussed how a total of four forces—law, markets, social norms, and the architecture of the built environment—govern daily life. Norms dictate what is socially admissible; markets regulate economic exchange through the mechanisms of price; while architecture acts to delimit space and orient flows of people and information. Finally, the law regulates behavior through the instruments of institutional privilege and enforcement. Together these forces determine the space of the possible, given the material, social, and economic circumstances. “We the people” are just “pathetic dots” subject to these four regulatory powers.
Of the four forces at play, law occupies the supreme position within the state. Lessig strove to show how law bends the other regulatory forces to its will, regulating through them. For instance, the law regulates via markets when Japan institutes high taxes on foreign rice imports, ensuring Japanese consumers eat domestically-grown rice. Having lived through a global pandemic, we are all familiar with the public health campaigns that created social standards around mask-wearing and vaccination: the law’s regulation via norms. And insofar as technologies constitute a part of our digital “built environment,” the law attempts to regulate them as well.
However the power to regulate through other forces often becomes the power to regulate all. Take the Digital Millennial Copyright Act (DMCA) for example, which made it illegal to access content locked by Digital Rights Management, reinforcing the grey market for digital piracy. While the DMCA was a controversial and ultimately failed policy, it reveals the law’s expansionary tendency. The law is inclined to grow to the size of its container, regulating new technologies and social phenomena as they arise, even if lawmakers have not fully understood their significance.
The architects of social contract theory—among them Grotius, Locke, and Rousseau—could not have anticipated a modern regime in which the law seeps into all corners of life. But the law’s predominance is an inevitability. The law does not merely punish and constrain; it may also empower and provide assurance. Through the law, minority rights can be protected and conflicts between parties can be adjudicated. And although the moral arc of the law does not always bend toward justice, the law nonetheless provides a base layer of perceived neutrality, including clear pathways for citizens to update the rules of the game. If the state, as Max Weber claimed, is a human community that successfully maintains a monopoly on the legitimate use of violence, the rule of law is the tool that the state uses to achieve that end.
Lessig himself is wary of his own ideas’ implications:
- The regulation of this school is totalizing. It is the effort to make culture serve power, a “colonization of the lifeworld.” Every space is subject to a wide range of control; the potential to control every space is the aim.
But today the state’s sovereignty is being challenged. While this process started long before crypto, blockchains escalate this struggle to an entirely new level. Indeed, the regulatory complex composed of state, federal reserve, and “too-big-to-fail” banks is precisely what cryptocurrencies undermine. But in order to understand just how blockchains introduce a new type of regulatory regime, we need to turn to their fundamental novelty: censorship resistance."
(https://otherinter.net/research/three-body-problem/)
Crypto-Based Censorship Resistance as Law and State Resistance
Toby Shorin, Sam Hart, Laura Lotti:
"While the state is still the only social body to claim the exclusive legitimacy of its regulatory power, a host of competing interests, technologies, and economies of scale encroach on the supposed sovereignty of law. International commerce is increasingly mediated through private dispute resolution centers instead of through international agreements. Meanwhile, the alliance between global finance and software challenges state regulation of markets altogether; when Elizabeth Truss' plan to cut $50bn in taxes caused the UK bond market to implode, she was forced to resign from the prime ministership after only 44 days. But if international finance has proliferated new regulatory bodies, its twin in power and influence is the internet.
Since its inception, the “architecture” of the world wide web has made the landscape of contemporary governance yet more complex. More than a medium for communication, the internet is a transmission layer for new regulatory powers. Networked computation enables the creation and expansion of new norms, markets, and architectures, implemented at multiple levels of abstraction. Social media platforms, for instance, have their own semi-automated free speech policies ignorant of the state’s, while the content of social media includes distinct normative regimes, including e-ideologies and morally coded diets. Remote work introduces new affordances for citizenship arbitrage, while internet-disseminated subcultures create imagined communities as strong as any national identity. The law of the state, even in regions like China where law is tightly coupled with the internet, is usually left playing catch-up.
15 years ago, a new contender entered the arena: cryptocurrencies. In some ways, cryptocurrency protocols recapitulate the regulatory innovations of the internet. But they also generalize the censorship-resistant properties of previous networked technologies like BitTorrent and PGP. Crypto protocols cannot be tampered with by middlemen or higher authorities. And while the long arm of the law can force Facebook to open our DMs for inspection, or seize a pirated e-book host, as long as there are miners out there running nodes, Bitcoin and Ethereum assets are accessible and inalienable; computed state is irreversible. In other words, these protocols have no regard for the law. Cryptocurrency protocols are monetary and contractual media without the need or validation of state authorities. They have created a new sort of regulatory institution, one which is not only resistant to censorship but resistant to law itself.
This is not to say that crypto protocols are just technologies for criminal, lawless activities. Law-resistance is also what fuels the positive vision of improving legacy organizations and confronting social coordination problems by designing ground-up credibly neutral institutions—money systems, banks, and commons. By “law-resistant,” we therefore mean to say that Bitcoin and subsequent crypto protocols are resistant to the regulatory base framework that, in Lessig’s model, operates as a pervasive totality. As blockchains resist the state’s law, they also institute a regulatory regime of their own. And without law able to intervene, the remaining three forces are free to regulate the institutional ecosystem of crypto protocols without a unifying arbiter. Let’s look some of the novel institutional dynamics that protocols make possible."
(https://otherinter.net/research/three-body-problem/)