Ostrom Contracts

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Contextual Citation

David Dao:

"Inspired by Ostrom’s work on governing the commons, we propose a new class of AI-powered smart contracts which we formalize as “Ostrom contracts”. Ostrom contracts are token-based smart contracts coupled with intelligent environmental monitoring." (https://medium.com/@daviddao/decentralized-sustainability-9a53223d3001)


David Dao:

"One of the most fascinating opportunities about the rise of smart contracts is, that we now have accessible tools to efficiently engineer economic incentives in a cheap and scalable manner, thus democratizing mechanism design. This is truly powerful as, by distilling (crypto) incentives into code, we are now able to treat economics simply as software — allowing us to quickly prototype, beta test and iterate on “economies”." (https://medium.com/@daviddao/decentralized-sustainability-9a53223d3001)


David Dao:

"Let’s see why this particular class of smart contracts indeed implement (or at least approximate) Ostrom’s design principles:

Token-based Membership Model (DP 1)

A digital membership determines clear group boundaries and can be implemented by simply owning a “coin”. Membership models motivate people to cooperate with each other by lowering their fear of being exploited (they can simply sell their coin and leave the group). However, there is an incentive to stay in the group as coins can provide you with access to either a natural common resource or/and valuable group benefits (e.g. a shared and easy-to-access marketplace, more decision power, additional income, etc.).

Decision Making with Blockchain Governance … (DP 2, 3)

Smart contracts enable fast decision making with low overhead. Members of the group can interactively propose guidelines and actions and vote on all proposals, thus determining their own rules and adapting them in a quick manner. Blockchain governance is in itself a ground breaking topic. Besides a classical majority vote, there are some really cool and exciting new decision making methods, enabled by smart contracts ...

Increasing Stakes and Smart Contract Judge (DP 5, 6)

Ostrom’s DP 5 and 6 suggest that groups can govern itself best if there are graduated sanctions to prevent repeated rule breaking and low-cost access to a platform to resolve disputes (e.g a court).

In case of a smart contract: If a rule violation is detected (e.g through monitoring) — we can invoke a self-enforcing contract that subtracts a fee from a deposit of a certain player. The sanction can either be invoked after voting or automatically from the sensor.

For more complicated disputes, a smart contract can also be used as a judge that is invoked or a challenge/response game can be implemented, where one group of actors is given the opportunity to submit evidence that fact X is false, and if no one submits evidence within some period of time, then X is assumed to be true.

Programmable Censorship Resistance and Complexity (DP 7, 8)

Finally, the decentralized and self-enforcing nature of blockchain-based smart contracts formally guarantees that decisions, made within the framework are executed without censorship from authorities. Furthermore, smart contract architectures can be arbitrarily complex, allowing the development of intricate governance structures without limits in granularity.

Intelligent Machine Monitoring & Learning

The last part of the puzzle is to implement Ostrom’s DP 4: A monitoring system, that is trusted. Thus, Ostrom proposed that trust can be ensured if the monitoring system itself is carried out by community members — usually implemented via patrols and checks.

However, think about the most inaccessible Amazon rainforest or the vast landscape of the African Sahel region. It is impossible for a group of humans to constantly monitor such a large amount of territory. This is where scalable automation can be of great potential. In the following, we showcase a number of potential research projects in wildlife monitoring, patrol planning and prediction with great promise." (https://medium.com/@daviddao/decentralized-sustainability-9a53223d3001)


Tightly Coupled vs. Loosely Coupled Ostrom Contracts

David Dao:

"Ostrom contracts aim to encourage cooperation and self-governance. Smart contracts serve as a transaction and governance medium for people to self-organize and vote. However, we differentiate between two options: In loosely coupled Ostrom contracts, this is where the power of smart contract ends. It is up to the community to enforce and implement voting results and punish rule violations.

Tightly coupled contracts go one step further and enforce execution. Everything would be automatic and there would be no human in the loop anymore. We think that full automation is extremely promising as it completely ensuring trust in the system (removing the need for all trusted third parties). However, such a system can have very dangerous side effects as the incoming data flow and AI (Oracle) have been shown to be vulnerable to biases and adversarial attacks."


David Dao:

"it is possible to implement complex political and economic ideas into code. Something which wasn’t imaginable ten years ago. Smart contracts allow us to execute computer functions while digitally sending money at the same time. This is powerful as it means that we can implement and possibly install economic systems anywhere and everywhere, just like a computer program.

Second, exactly this ability to quickly implement and try out different systems also allow us to run experiments and use scientific methods (empirical cryptoeconomics) to evaluate, reiterate and possibly improving upon different variations of economies.

Finally, the dawn of AI in many of our daily applications means that we can (and will) also use intelligent agents to augment smart contracts in the future. Combining intelligence with incentives promises to align human self-interest with social good."