Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Angela C. Walch: The Case for Treating Developers as Fiduciaries in Public Blockchains

Episode Date: September 19, 2018

The expectation has become widespread that blockchains will end up underpinning major societal infrastructures. The narrative in the blockchain space is that networks are decentralized and trustless and thus regulation should not apply to networks directly. Legal scholar Angela C. Walch has been questioning terms like decentralization and trustlessness and argues that blockchains shift the need for trust rather than remove it. Her controversial ideas include that key developers of open-source project should be treated as fiduciaries and held accountable for the consequences of their work. Angela Walch is a professor of law at St Mary University School of Law and a Research Fellow at the Center for Blockchain at UCL. She is a graduate of Harvard College and Harvard Law School and has been doing academic work on legal issues surrounding public blockchains since 2013. Topics covered in this episode: How she became interested in Bitcoin and issues around the narratives of decentralization and trustlessness How her work has been received in the blockchain space The problematic lack of a clear definition of terms like trustless, immutable and decentralized Why blockchains should be looked at as trust-shifting, not trustless The definition and role of fiduciaries in society Why blockchain developers could be considered fiduciaries The practical implications and difficulties of regulating blockchain developers as fiduciaries How the SEC’s stance on blockchains connects with the question of developers being fiduciaries Her personal views on the value and promise of blockchain tech Episode links: Angela Walch Angela C. Walch - St. Mary's Law Angela Walch – Medium In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains The Path of the Blockchain Lexicon (and the Law) Open-Source Operational Risk: Should Public Blockchains Serve as Financial Market Infrastructures? Coin-Operated Capitalism paper Journal of Financial Technology Introducing: The Journal of Financial Technology – Angela Walch – Medium Thank you to our sponsors for their support: Simplify your hiring process & access the best blockchain talent . Get a $1,000 credit on your first hire at toptal.com/epicenter. Deploy enterprise-ready consortium blockchain networks that scale in just a few clicks. More at aka.ms/epicenter. This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/253

This is Epicenter, episode 253 with guest, Angela Walsh. Hey, we're core organizing a live event at the San Francisco Blockchain Week. It's called SF Blockchain Epicenter, and it'll be October 8th and 9th at the Hilton Union Square. You come see members of the Epicenter team and a lot of familiar faces from the show. There are reduced rates for developers, and you can learn more at sFblockchainweek.io. This episode of Epicenter is brought you by TopTown. TopTal is addressing the talent shortage in the blockchain space, connecting companies of all sizes with the world's best blockchain engineers. If you're looking to scale your team, check out toftal.com slash Epicenter.

And by Microsoft Azure. Configure and deploy a consortium network in just a few clicks with pre-built configurations and enterprise-grade infrastructure. Spend less time on blockchain scaffolding and more time building your application. Learn more at AKA.m.m.S.E.E.E.S.E.E.E. Hi, welcome to Epicenter, the show which talks about the technologies projects and startups driving decentralization and the global blockchain revolution. My name is Sebastian Quichu. And my name is Brian Fabian Crane. We're here today with Angela Walsh. She's a professor of law at St. Mary University School of Law in San Antonio. She's also a research fellow at the Blockchain Center or Center for Blockchain at University College London. And she's a kind of

prolific author of papers that are all critical of blockchain or looking at some of the downsides or some of the, you know, maybe ways in which the common narratives around blockchain should be questioned. And so, yeah, I look forward to talking with you about that today. Thank you. I'm excited to be here. And yes, I do write a lot of stuff that's kind of critical or ask hard questions, I like to think.

Very good. So when did you first learn about Bitcoin and blockchain and start, how did it start kind of rising your interest? Okay, so I was transitioning from practice. I was a corporate lawyer for a while, and I was transitioning to practice and had become very interested in money, how money works, how law helps to constitute what money is, how money can break, all those types of questions. And I was very interested in researching that area for my kind of, you know, research as a professor. So I was looking at, you know, thinking about how the doctor, worked and stuff and heard of Bitcoin, I would say, kind of like fall of 2011, early 2012. And didn't dig in at that point. But once I was in academia for real, I dug in, I would say, early 2013. And the questions around the governance grew my attention very early.

I was so interesting to me going to, I went to a, I remember my first Bitcoin. conference in the summer of 2013 in New York. And it was an early crowd. I remember meeting like Marco Centauri there and some other people who have continued to kind of be prominent people in the space. And the conversation was about, oh, and we're talking about this new Bitcoin foundation that we're forming. And I was, my, the question in my head was, wait a minute, how can you be a voice of a technology that is, you know, decentralized and who gets the right to be the voice? and to say things that are on behalf, purported to me on behalf of this technology

and decentralized community. So those questions drew my interest early on. And then since then I've just kind of been along for the ride. When I see things that don't make sense to me where maybe the discussion around something doesn't match real world events, I write about it or talk about it in hopes of drawing attention to it

and fleshing out inconsistencies, which I see as potential risks in many cases. So what has the reaction been coming out of the blockchain community to your work? It varies. Early on, I would say there was a lot of strong pushback that I shouldn't even be saying anything because I just don't understand anything. I clearly, since I'm not a technologist, I can't possibly get it. And I am not a technologist, and that's absolutely fair that I don't understand certain things that technologists do. But they also maybe don't understand certain things that I do. So I think that's

one of the challenges in this space is for many, many disciplines to come together and try to communicate. So I've gotten a lot of bad feedback on Twitter, I would say, and I've spoken at conferences, and when I speak to tech people, they often hate what I'm saying. And come, up to me later and say, I don't, I don't remember what you said, but I know I hated it. So I, I guess I'm just keeping on saying things despite that. And there are plenty of tech people in this space, actually. I, I've met and had good discussions with. And I think, you know, I count a number of them as friends and critical thinkers as well. So it's a mixed bag, I would say. Is this sort of a reaction something that you see in maybe other areas of technologies,

sort of in the broader fintech space, or is this like purely something you see around sort of blockchain conferences or these types of events? Well, okay, so my argument about software developers as fiduciaries, I think, has, you know, it has resonance in the blockchain space, and this is where, you know, I started thinking about that idea originally, but I do think it has a lot larger, much larger implications. And I think it actually needs to be looked at in, you know, maybe in open source, important open source software projects generally. And we can talk about that a little bit more. But so I, I feel like when I'm at tech, when I'm at tech conferences, blockchain has like probably a strongest reaction, but

any software developer or anyone involved in software development is probably going to have a strong reaction to the coders of fiduciaries idea. When I talk to lawyers, I've been kind of calling out hype where I see it in the space and inconsistencies and people kind of mindlessly, I would say, evangelizing for things that they don't necessarily understand. And I point, I point. point that out in a variety of settings. I've pointed it out at legal conferences. And the feeling that I get from talking to people is that, okay, it's very different from what we're

used to hearing about blockchain and maybe some wool being pulled off of their eyes. I don't know. That's my hope anyway. So you mentioned these inconsistencies already. So what are in your opinion, in your eyes, the biggest inconsistencies that people talk about when talking about blockchain

in the broader context of the law? So, I mean, one of the big inconsistencies are things that I think of as problematic and we haven't gotten a good understanding of yet is really this, what does decentralized governance mean? And as I said, early on, it was very interesting to me that the conversation around Bitcoin and then other blockchains was, you know, that it was just this software that miraculously

was running on this network of computers. And it just worked. And it was the narrative was very much that there were not people involved with it, that it was tech doing this. Right. And again, not a technologist, but questions like, well, what happens is there's a bug? Surely someone's fixing it. Who is doing this where, you know, they're making changes to the software over time. any updates and stuff. So I feel like there was, and there still is resistance to this in some ways. There, there was, it's been a long time coming, the realization that governance is actually happening in blockchains through the development of software. And this, this conversation hasn't, is, is also still in progress. But I think there, there are similar arguments that significant validators,

and minors in the space also function as fiduciaries. The paper that I've written here, the in-depth paper is looking at software developers in this light, but I need to write and I have half written, you know, one about minors and other validators as fiduciaries. So inconsistencies in thinking that because we have this, you know, a lot of computers, somehow the running of the system is necessarily decentralized. I think they're starting to be more clarity in descriptions of these systems. That governance happens in different levels, right? And decentralization is relevant in different places.

Decentralization can refer to the number of nodes in a network. It can refer to concentration of the validators in a network. It can refer to how the software development process happens, right? Is that centralized? Is it decentralized? What does decentralized even mean? So governance, decentralization is a term that I think is, that's what I'm working on right now. So it's top of mind trying to figure out what that actually means.

And then I see just like a lot of words used as basic descriptors of the technology, immutable, secure, reflects truth, trustless. I think all of those are widely repeated, including an actual. academic works in reports by governments and nonprofits, et cetera, as being characteristics of blockchain technology. And they're stated as characteristics of blockchain, whether we're talking about public blockchains or permission blockchains, whatever, as if they're universal, regardless of the flavor of technology that you're using. And that's just not right. And yet the discussion continues. And I think it can have significant consequences when we expect the technology to do things for us that it just doesn't do. Great. No, I think that was a great kind of overview.

Now, you've mentioned a few times the term fiduciaries, and I think this idea of developers as fiduciaries is probably the most controversial idea you have. And then also an idea that, you know, if kind of people went along with it and regulated to spend it along with it would have enormous consequences. Can you talk a little bit about, you know, what are fiduciaries and why is that relevant in the blockchain context? Sure. Okay. So the paper that I have out right now, and I've been thinking about this for a long time, I guess I'm just slow on this point to actually get the analysis out. But fiduciaries are, they're an important part of our lives, generally. And people that we think of as fulfilling the fiduciary role commonly are people like lawyers.

Lawyers are fiduciaries of their clients. Doctors are fiduciaries of their patients. You know, some people view like pastors and stuff as fiduciaries of the, you know, the members of their church or whatever. Souls of the church members. Yeah. Yeah. Yeah.

We could have a very interesting discussion about that. Totally unrelated to blockchain stuff. But fiduciaries basically are people that you put trust in. You essentially trust them to give you their expertise in different ways. They may hold money on your behalf. They do things that are of great importance for other people. And in my paper, I use a framework that Tamar Frankel, who's a very prominent, well-respected law.

professor who has developed really a theory of fiduciary law, I use her description of what a general description of what a fiduciary is and compare that to what I see software developers doing in these blockchains. And a crucial part of a fiduciary is because you're trusting in them, you are enabling them to make decisions for you that affect you. And that is putting power into their hands. Okay. So I think that people in the software development part of public blockchains, people who are thinking and doing research in what kind of policies the software should reflect, people who are figuring out how the software would reflect those policies and actually doing the coding, perhaps, of reflecting that, and then reviewing, right? There's a lot of my understanding.

not being a software developer, there's a lot of different steps that go into it. It's not just someone sits down and spits out code, right? There's, especially in systems that purport to transfer value and do significant things for people, the software development process is extremely important. And fiduciary, I think these people are acting as fiduciaries in that users of these systems, the ones who, you know, own the cryptocurrencies or cryptocurrencies, assets that trade on these things, potentially people that are building businesses on top of that, using these public blockchains as infrastructure for various things,

they are relying very strongly on the software developers to do two things. One, to be good at what they're doing, to be competent. But that's not all. They're also relying on these software developers to be trustworthy and to not do things for their own, benefit over the benefit of the public who's essentially using these systems, meaning you wouldn't want a software developer for Ethereum or for Bitcoin to be taking bribes from a particular minor or government to push a certain change to the network, right, to talk it up.

I think people in the blockchain space would be horrified to hear of that happening. But no one owes you that duty unless there's something like that. like a fiduciary. In your paper, you, you make reference to Tamar Frankel's scholarly fiduciary law. And there's four attributes. And so you sort of mentioned them during your description. Could you just sort of like go through them one by one? Because it's interesting to me, this, how these attributes, it sort of reminds me at the

Howie test in a sense where one. looks at an entity and, you know, poses these questions. And if they, if they answer yes to these questions, then one could assume that they are a fiduciary. So if we could just go through this again, so we have them top of mind and then sort of. Yeah, let's go through them one by one. Okay. So, um, uh, Frankel says that all fiduciaries share a certain set of attributes. Okay. And the first attribute she says they have is that they generally offer services, um, instead of products. The services are usually socially desirable and often require expertise. Okay.

So she gives examples of things like legal services, teaching, asset management, corporate management, etc. Okay. So people offering services based on their expertise. And the way that I see that applying to software developers is that, well, clearly they are providing services, right? The services of creating the code, if they are the originators of a blockchain system, but also maintaining and continuing to review the code, right, and figuring out what changes are necessary.

And there is no doubt that the services that the developers for systems like Bitcoin and Ethereum, Zcash and others, that all those require very significant expertise, right, that it takes a long time for someone to develop the necessary expertise to credibly do. the development. And actually, right, we've seen that even those who have created these systems still don't have full understanding of them, right? With the parity, the parity bug and the different ones that have shown up in Ethereum, it's been the ones who created the systems that, you know, they're not foolproof yet, right? So it requires lots of expertise. And actually there's, there was a computer science paper that I cite in my paper that talks about,

software developers, the blockchain software developers, actually having a higher standard of, like, developing a blockchain software engineering standard or something like that, because it is such a demanding role to play. So, services that require expertise. Okay. The second factor is that in order to perform the services effectively, the fiduciaries have to be entrusted with property or power. Okay. So you could see that in the context of, you know, run in the mill fiduciaries like lawyers that, you know, the client is entrusting the lawyer with power over their most private information, for one, that you're turning over, you're telling your lawyer the full truth. You may entrust an escrow agent with your property, right, and trust that they're not going to abscond with it. So that's how we see it in the general fiduciary world. And in the blockchain world, I see software developers entrusted with power, certainly. And I think there's actually an argument that they're entrusted with property potentially as well.

The power is that, well, not everybody can read the software code that people are, that people write for these blockchains. I understand that they're all generally open source. So the code is available, but people are not reviewing that on a day-to-day basis. I guarantee you, like 90% of the users of Bitcoin or Ethereum are not reviewing the actual underlying software code. So they are trusting that software developers are doing it right and doing it in accordance with the ethos of the community. there's an argument that these people are actually even entrusted with property in the sense that we're now viewing these cryptocurrencies as assets, right? There's been discussion, the legal world, okay, are they commodities? What are they?

There are these things that have value. So I get a lot of pushback on this argument, but I think that these digital assets are completely reliant on the ongoing skill and, you know, good works of the software developers, right? If they screw up, if they put a bug in, if they fail to come to agreement as a group and don't repair a critical emergency, then the property is kind of gone, right? Or loses all its value. The digital assets value is very much tied to what these software developers do. And we can go into more examples of that.

I cite a few in my paper, but I could have cited, I feel like many, many more. But crisis moments to me in general are the ones that reveal the power that people are exercising. Okay, so the third factor that Frankel identifies as being one of fiduciaries is that trusting these fiduciaries poses risks to, she calls them entrusters. Okay, so the people who are relying on the fiduciaries, it, it, poses risk to them that the fiduciaries are not going to be trustworthy. They may run off with the property that you give them. They may not perform the services they promised to adequately. They might misuse the property that you give them. And I've talked about this a little bit already, I think, but if the software developers are not trustworthy, basically the people who are using the system

are using it under false pretenses, right? If Vitalik or Vlad are, you know, taking bribes from the Russian government or something like that, which I'm not accusing them of doing it any way, but it would be relevant for the users of the Ethereum community to know this, right? If there are secret backdoor deals and one is getting paid by someone, people should know that. And right now, there is, there's nothing that obligates them to do that unless we consider them to have some sort of duty to the people using these systems. Okay. Number four, there is a likelihood that the entruster will fail to protect itself from the risks involved in fiduciary relationships.

The markets may also fail to protect them from these risks. And the cost for the fiduciaries of establishing their trustworthiness might be higher than their benefits from their relationships. Okay, this one has a lot of stuff embedded in it. So I'm going to kind of simplify it for purposes of this conversation. Basically, I think that users of these systems, to me, the ICO market demonstrates this beautifully, that they will fail to protect themselves from the risks involved in this fiduciary relationship. Okay. People have been investing in, you know, so-called public blockchains like crazy over the past year.

in a lot of initial coin offerings. And a recent study that came out from the University of Pennsylvania talked about how the code in these, in many, many ICOs, actually bears no relation to the promises made in white papers or in ads for the ICOs, right? Things like they will have a vesting provision for the founders or they will take away all founder control within the code. Well, when they reviewed the software code and the white paper or whatever else making new promises,

generally, they found that there were big gaps. In many cases, the code, again, as I said, bore no resemblance. The market certainly didn't protect these people. They didn't protect themselves, right? So no protection was happening for people who were buying in, into these ICOs. And I feel it's easy to tar. There's clearly a lot of fraud in the ICO space over the past year. And I don't want to get distracted by that because I feel like these issues are not just relevant to what are clearly fraudulent fly-by-night ICOs. I think they're actually relevant to

even the more legitimate projects like Bitcoin, like Ethereum, like Zcash, which have very serious technologists involved. So I think, and as I explore in my paper, I think there are very strong arguments actually that software developers in the broad sense that I'm talking about actually fulfill all of these characteristics. And there's one thing that I do, want to be sure to mention while I'm thinking about it. And one of the pushbacks that I get about this idea is that people don't see them as fiduciaries because they feel like the fiduciary has to have a personal relationship with, like there has to be a personal relationship between the person serving as a fiduciary and the person relying on them. And I'm viewing this

more as a kind of fiduciary almost of the public. There's ideas about fiduciaries such as, you know, some people argue that politicians are fiduciaries or judges are fiduciaries of the public and kind of have a, the public places, a trust in them. So I don't think it necessarily has to be a one-on-one relationship between a user and a developer for there to be a fiduciary relationship. I think it can be a broader relationship, one to many, actually.

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But let's say we actually went ahead with your suggestion and says, okay, we do treat the mass fiduciaries. What would that practically mean? Because that is a legal term, right, with all kinds of implications. Yes, you're right. It is. And there are many implications like practical ones. There's a lot of practical questions about it.

And in the paper, I explore some of the costs and benefits. of this because I don't think it's by any means like an easy conclusion to decide that, okay, well, they are doing things that make them look an awful lot like fiduciaries. Do we actually go ahead and treat them like that in a legal sense? So some of the big questions around this are, you know, how do you identify which software developers, which people in this process are actually functioning as fiduciaries? Is it just the people who are supervising the research? Is it just the people who are doing the review of the code?

Some of the pushback I get is that describing software developers. I've used the term coders as fiduciaries. I get a lot of pushback because people think that the term coders just sounds like the scribe, right? And not the brain power that's going into creating the code. So, you know, those are big questions. which ones actually would be treated as fiduciaries, figuring out who is actually going to benefit from this legal categorization, right? Is it anyone who owns or has ever owned potentially the cryptocurrency of the system? Is it, can we extend it to people who have built businesses

on the system, like exchanges or wallet companies who absolutely are similarly, relying on the developers to do a good job and not cheat. So identifying those parties is important. And I mean, of course, there would be challenges to, you know, figuring out what to blame people for, right? Which bit of code is the one that caused all the problems? That could be also an area of controversy. But there are, and I think you're getting at, there are larger potential social consequences to this categorization, right? Software has a huge role in how society runs today. It runs a lot of our most important infrastructures, right? Nuclear weapons systems, the internet itself, like all of these things run on software. And blockchains want to run important things. I mean,

that's one of the things that people are excited about them for, right? They want them to be used for important social systems. If you are, if, if you decide to treat software developers of these systems, which are kind of bubbling up, there's this, you know, great, um, activity and entrepreneurship in the area, if you're treating those software developers as fiduciaries, then are you going to stifle everything and no one's going to do any development at all, right? Because they are worried about the liability that they may face, right? If someone can sue you for screwing up, you're probably not going to want to do anything. And, I think this really gets at some of these larger questions that we're wrestling with in tech now, right?

What should accountability be for people who create really important systems and mess up? Tech has had a lot of protection. I would almost call it a subsidy in the sense that people who have created software have been very much insulated from liability. And if you look at any agreement, a software licensing agreement, you will see tons of disclaimers. And if you look at any of the open source software license agreements that the software for the blockchains is tied to, you will see full disclaimers of all sorts of liability, right? And that the developers are basically responsible for nothing. So I don't think the discussion stops just looking at what the license agreements say. I think that this is actually a policy question, right?

Fine. So the contracts have said that no one bears any liability. Is that okay in a situation where so much trust is being placed on these people to, you know, take care of? large amounts of value, should we impose more things that can't be disclaimed, potentially? So, yeah, basically, I would be described as an innovation killer by any tech person if you want to boil it down. Yeah, I mean, one of the things that stand out to me is that your proposals don't seem very practical to me, right?

So what we've seen in the blockchain space is that it's a global thing, right? And then of course you can start and run these projects from anywhere. And even if you look at something like at token sales, which I think the case there that there's some regulation applied seems, you know, fairly straightforward in comparison. But, you know, they're very mobile, they can move around. And so it seems like here, if let's say the US said, okay, developers are fiduciaries, this would just push, you know,

innovation abroad or people would find ways to route around. let's say you said, okay, but only those who have commit access, they are fiduciaries, then people will probably figure out some way to like, so nobody else commit access, but still things get committed, or like, I'm sure people would immediately route around it. So do you think there's actually, like, what do you think is realistically possible? Yeah, those are all very good points. I mean, people definitely respond to laws that are passed by trying to get around them. Absolutely. And we're seeing some of that play out in the laws that are being developed in the blockchain space already, right? There's kind of, there's some regulatory competition happening, I would say. Some jurisdictions have decided they really want to incentivize people to do this type of software development and creation of these businesses in their jurisdiction, like in Malta or in Bermuda or Gibraltar and crypto.

Crypto Valley, right, in Switzerland. So the multi-jurisdictional, the global aspect of it is certainly an important consideration. I don't know. I don't think it's impossible that we could come to consensus on the fact that software developers fulfill an important role. And I don't, okay, so I feel like we're early in the conversation on this as well. And it's sort of, I see it being part of my job as an academic to ask hard questions, to describe things in ways that I'm seeing them. And for the world then to figure out, well, yeah, do we need a change in this area? It would be a really important change.

But it's not necessarily out of line with what we're seeing in the larger tech conversation. For the longest time, the conversation around social media. media platforms and all these big tech platforms like Google and Amazon and Facebook and stuff has been, you know, let them go. Let them go. They are doing so much good for the world. All the real, real excitement as the internet and social media were developing that this is good, good, good, good. We're seeing a real change, I think, in tone in the conversation. and things that would have been impossible to imagine that maybe Facebook could be broken up

or maybe it will be regulated in different ways. Those were impossible to imagine just a few years ago. But I don't think they're impossible to imagine now. And I think that the tide can shift very rapidly. And I see the blockchain conversation kind of intersecting with that and that one of the arguments that blockchain supporters often make is that, okay, well, we can

use blockchains to essentially fix all the bad things about tech that have emerged, right? The extreme centralization that we've seen in these platforms, the concentrations of power, and doing things in a decentralized way is going to be what solves

the problem. And that may well be true. But I think we need to ask hard questions about, well, what do we mean by decentralized. Just slapping this label on something decentralized, does that absolve people and are we comfortable that we understand how power works in those systems such that we're not just handing power to a different set of people rather than, you know, dispersing it or making a meaningful change. I'd like to bring up, who regulates fiduciaries in the U.S.?

Is there a sort of a governing body like the SEC decides what is or isn't a security? Is there regulator that decides what is and what is not as fiduciary? No. So a fiduciary characterization or categorization could come in different ways. Okay. It could come from just common law. So in the U.S., a lot of our law is made just by courts deciding actual disputes between people, right? They decide cases. And over time, the law very gradually might shift. And that's generally what happens with the development of fiduciary law. Now, it also can happen through a legislature making a decision that a certain party is a fiduciary. Okay. So in some of our statutes, certain parties are treated as fiduciaries.

Like in there's a, ERISA is a statute in the U.S. that governs like employee retirement plans and certain parties acting within that are de facto fiduciaries, right? there's just been a big a big tussle in the U.S. about whether certain investment advisors are fiduciaries, okay? And it was passed into law that they would be, and now I think it's been taken back. So it can also come from a legislature. But just because a court hasn't found it to be the case doesn't mean that they couldn't view, you couldn't be persuaded by arguments. like those that I'm making, that, well, this sure looks like fiduciaries that we see in other contexts. Maybe we're going to treat one like that in this case. It's certainly not impossible for the law to move gradually over time or to persuade, right, lawmakers that they are fiduciaries. And to your question,

like, how might, I think it's getting at, you know, like, how might this manifest? We know to look to the SEC for what is a security, right? And we've seen a ton of discussion about that over the past year or two. And this, this very much relates. I see the SEC having made in that the speech that got a lot of attention by Hinman earlier this summer where he said that, you know, based on his read now, Ethereum may, you know, leaving aside how it was initially issued and it's, you know, its initial ICO, right? I guess that's initial initial initial, but it's initial fundraising. It may have been a security then. He didn't say for sure, but it doesn't look like one now because it's sufficiently decentralized. Okay, I see that being exactly the same conversation that we're

having here because making a conclusion about whether something is sufficiently decentralized is talking about how power works in that system. So the conclusion there seems to be that people are no longer needed to make important decisions to keep the system running and at least a central group of people are not. And we're going to say it's sufficiently decentralized. Well, that means to me that, oh, well, maybe we don't see any fiduciaries operating there, okay? People who have positions of trust and power.

So as you might guess, I completely disagree with that analysis. but it's absolutely interconnected these conversations about power in these systems. Yeah, I mean, to me it seems that, you know, on the one hand, you're obviously correct that, you know, just calling something blockchain or even something having this blockchain data structure that it sort of absolves you from all responsibility. Like that that obviously doesn't make any sense. And I think there are plenty of, you know, for example, remember a while ago there was this article about LISC, I don't know if you read that, but in LISC, they have.

have this sort of this proof of stake blockchain, but there's two cartels that control the entire network and they figured out basically some way to like punish and push out anybody who doesn't agree with them. So essentially have like two sort of organizations, you know, governing that blockchain. And so, you know, it seems obvious to me that like to some things, you know, you should probably should really treat as, okay, you know, these people are responsible for what happens there. But then at the same time, when you look at something like Bitcoin, and I guess that is also where this SEC comments go, like then there's other things where, yeah, it's sufficiently decentralized whatever that means so that you don't treat it like that. So, but you disagree with

this one, too, so you don't think there's this kind of line. Yeah. Well, so I do think it's important to recognize that decentralization is something on a spectrum, right? Things are more, some things are more decentralized, some things are more centralized, I guess less decentralized. And we kind of have to figure out what we're measuring in that sense. For me, a lot of it comes down to looking at how the software is developed and who actually plays a role in that and who makes a decision. You mentioned commit access earlier. I think that's actually a hugely important thing, right?

Someone is making a decision there about what actually ends up in the code that is going to be released. someone is without their password, it's not going to get in. I mean, of course. What am I missing there? People get mad at me for that. So what am I missing? I think what you're missing that, you know, most blockchain people would point out is

that, okay, like let's say somebody changes that, that Bitcoin repo or the code there. But it's still afterwards, you know, active decision of like, you know, a minor, whether they actually use that code to operate that code. But, you know, of course, it is a blurry line and it certainly is influenced. That's true. Yeah. Yeah. So I'm still messing with this idea, but I feel like the conversation has been sort of like,

unless someone has absolute control and dictatorship, we're going to say that they have no power. Right. So because there are checks and balances in these systems, right, you could argue that the minors are validations. or validators are kind of a check in some ways on the developers and vice versa, right? So in our system of government, right, just because Congress has to have a signature by the president to put in the U.S. to put something into law, it doesn't mean that Congress doesn't have any power, right? There are checks and balances, but people are still exercising power and we still want people,

and we still expect those people to be accountable and owed duties, despite the fact that they don't have absolute control. Of course, this is all, you know, potentially out the window with how all of everything is in chaos with the governments anyway. But, but I think that is something that's important that's often left out of the discussion. So there's one thing that we sort of alluded to in the conversation, but not directly. And that is that this, this idea that software developers should be fiduciaries doesn't only apply to blockchains, but that it might also apply to all open source software. So if we go back to the four, the four characteristics of a fiduciary, you know, you could potentially apply those questions to something like Linux and argue that

the benevolent dictators or Linus Torvalds or whoever are also fiduciaries in that sense. Now, if if that were to be the case, if jurisprudence in the U.S. or anywhere else were to establish that software developers in any case, in any type of open source software, regardless of the licensing or have you are in fact fiduciaries. What do you think this would do to the software industry? Is this something that's desirable in today's world? Open source software, basically that just runs everything that we do. Yes, it's everywhere.

And I think it's something that we would need to think very carefully about. I don't think for one, I don't think it's every open source software project. I think there maybe we, you know, there needs to be some nuance to it. in the sense of how critical it is, like how many people are relying on it potentially, right? We saw that it was a problem, right? In the case of just heart bleed, for one, right? A really important piece of open source software infrastructure,

functioned as infrastructure, right? There's a critical bug in it, and it turned out, well, it happened because no one was really looking at it and only had like one or two people, you know, responsible for it and whoa this is critical infrastructure and nobody's doing anything for it. So I feel like we need to take this stuff seriously. And in the past, accountability for important stuff, that makes you take it more seriously. If I may interject there, I think so that that example is interesting, right?

So Hartley, you know, SSL block, like many people actually in the blockchain space have used that as an example of like, exactly why blockchain and token sales and is so important because there the problem wasn't that nobody was responsible. The problem was there was no money, no money, exactly. So if you now treated the developers as fiduciary, they actually there, I think they would be much less likely to go in there and mess something with it. So it seems like your proposal would almost certainly be counterproductive in terms of reducing funding, interest and work. on all of this infrastructure. And then I don't think in general,

it's not like there was some malicious person in Hartbleed that they didn't, you know, if you had given them some legal obligation, they would have done a better job. But it's just that there wasn't enough attention. I think that we need to rethink that whole governance structure potentially generally, that whether it's okay, whether for society, right, whether it's a good idea for society,

kind of from a risk management perspective to use this governance model where people do it kind of, you know, just on their own and their free time for things that are critical to the ongoing operation of the world and our economies, right? It's so, and this has that the heart bleed issue, as you probably know, led to this creation of this,

like I think it's called the core infrastructure initiative or something like that, where a bunch of tech companies have now contributed funding and are trying to provide funding for, to identify open source software projects that function as infrastructure and to provide some more funding, but it's a work in progress. And I agree with you that the token sales and stuff are groping, are trying to get to a solution to this problem, the funding issue that is relevant here.

But the funding of the core protocols of Bitcoin and Ethereum remains an issue. despite all this idea about, you know, ICOs fixing this problem, right? I see it talked about as a continuing issue. Who should pay the Bitcoin Core developers? Should it be companies within the ecosystem? Should they be sponsored? I don't know, but they're very important people from the perspective of every single person who relies on this system.

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and how Microsoft is advancing blockchain usability and enterprise, check out AKA.m.S. slash epicenter and start building today. We'd like to thank Microsoft Azure for their support of Epicenter. So you wrote another paper titled The Path of the Blockchain Lexicon and the Law. And this paper explores the ever-changing and evolving and sometimes confusing lexicon used in the blockchain space. And blockchain space, blockchain industry, blockchain ecosystem, There lies at least one sort of terminology that we can't even agree on.

And specifically how all this changing Lesicon poses confusion and potentially threatening for regulators. Could you give us a high-level overview of this paper and we can sort of dive into the... Sure. So you've done a pretty good description, but basically the paper is trying to draw attention to the fact that the The lingo in blockchain world is all over the place. Nobody knows what a blockchain is versus a distributed ledger. Nobody knows what a smart contract is. Nobody knows what any of these terms that have already come up in our conversation today,

what does decentralized mean? What does immutable mean? What does secure mean? What does trustless mean? What do any of these mean? And people are using them as if they do. And I think that leads to mass confusion about the capabilities of the technology. and it makes it really hard for people to get down to the facts.

Okay. What can this type of technology, this flavor of technology actually do? Can I rely on it to actually create a record that is going to be permanent and impossible to change? Well, I would argue no, generally, but certainly some blockchains or things that go by the name blockchain, they vary in their ability to make this claim, right? It's all spectrums, but the terminology in the space often speaks in terms of absolutes, okay, right? Unchangeable, unhackable, permanent, secure, right? Those are all like absolutes. It's decentralized instead of the spectrum idea. And I think that that all of this has significant consequences. I framed the paper

in terms of the trouble that it can cause for regulators in that you have to be able to understand the facts about what you're regulating in order to make good decisions about it. But it's certainly much broader than just regulators, right? It's every policymaker evaluating how to treat the technology and also whether to adopt it at all, right? So anyone making decisions about the technology

is affected by the problematic language in the space. And unfortunately, language is this kind of weird thing, right? You can't get rid of terms just because they seem to be used badly. We kind of get stuck with them and maybe we figure it out in the end and come up with a better lingo. But right now it's a mess. And we're seeing a lot of different initiatives to try to pin down the terminology more.

But that's, of course, a challenge because the technology is moving at, such a pace, right? The experimentation is happening so rapidly. So it's, it's really hard to know when you can actually pin down, pin something down, like into a standard, into a defined terminology. And just the pace of it, like, I feel like I'm running as fast as I can and just, you know, grasping it to try to understand anything. It's impossible to stay on top of things in this space because of the pace. And I think that all creates potential for, um, a lot of bad decisions. And the reason I kind of try to draw attention to this is because these systems are talked

about as being useful for lots of critical functions, critical to social, like our societies, like voting, right, or finance. And you better know what you're putting in and not have a mistaken impression of it when you're dealing with big social systems. So of course, you're totally right, right? The terminology is very hard and decentralized is a great example of that. Like, what's the practical takeaway from this observation? Like, what can we do about this?

I guess the practical takeaway is be extremely skeptical in that anyone who is considering adopting this, any regulator who is considering how to treat this, anyone and everyone should be extremely skeptical and critical of everything they hear or read about the technology. So basically join my team. So recognize that words don't mean what you think they mean, right? And you need to dig further. You can't take anything at face value, unfortunately. And that includes academic work from the most prominent of forms, right? Stuff that it just, you would think that you could rely on. But from my perspective, can't. It uses all the language that is misleading. So be skeptical. So can we speak about the

example of the term immutability? Like, how do you think of that term? Sure. Okay. I think it's completely wrong because I think it's, again, one of those absolute terms. So the lay meaning of immutable would be unchangeable, right? It can never be changed. And the term is omnipresent in the discussion around blockchain technology. I feel like it's starting to shift a little bit, and I don't know if I've had anything to do with that, but I'm happy that I feel like it's starting to shift. But I think it's inaccurate for a few reasons. And one of those is that we have definitely seen even in public blockchains, which to me have the certainly much more than any permission blockchain would have a stronger claim of being harder to change. I feel like permission blockchains, I see them as just joint venture databases, and it's hard for them to claim that they have actually any of the attributes that public blockchains have.

I see them as just totally different beasts, and it's bizarre to me that they go by the same name at all. But, okay, so, but just focusing on public blockchains, we've seen instances where the record that was created was not immutable. It was not unchangeable. in fact, it was altered. I mean, people, I always go back to one instance being the 2013 fork in Bitcoin, which was caused by different software being run by different portions of the validating network, different nodes running different versions. And some miners, you know, had to essentially abandon a chain that they'd already earned money on

when the core developers decided, nope, that's wrong. we're going to go to this chain. We're going to choose which of the split ledgers is authoritative, which one is actually Bitcoin. And a small group of people decided which one it was and went there. So a ledger that appeared legitimate that should have been immutable and used forever, right, was rejected as no good. I see the post-Dow fork telling us a similar story, right?

The fact that the decision was made to treat the hack as a theft was an active decision made and it affected the record that appears in what is now called Ethereum. I mean, just technically speaking, right? So, I mean, I guess in the Bitcoin case, it is true, right, that you had two different chains and then one of them sort of, you know, never made it into history. But in the Ethereum case, I mean, the record wasn't, you know, retroactively changed. It's just that, I guess, the reversibility in a way of transaction was sort of. It was changed in a way that was not in accordance with the rules that people thought there was for the changeability for the record.

Right. It was certainly not in accordance with, you know, the sort of Ethereum vision or description of code is law. and being above the reproach or sort of the control of ordinary people and developers. That's true. Exactly. Yeah. So I see those as kind of disproving the idea of immutable. So it's always very interesting to me that people continue to use the term.

And then my other critique of it is that a lot of these features that we use to describe the technology, the record that created by the technology, right, this immutable or scurricular. or whatever, are ones that they're like emergent properties, okay, of these complex systems. So somehow when we put together this particular consensus mechanism and certain cryptography and whatever all else these ingredients are, we get this magical record that's immutable and secure and reflects the truth and all that. Okay. So I analogize it in my paper to baking a cake. Okay.

You put this group of ingredients together. You treat it a particular way. You run it a particular way and you get these great properties. Okay. What we're seeing with the development in the blockchain space is tons of experimentation, right? Everything, every possible thing is being varied from the consensus mechanism to, yeah, who are validators, who are developers, what cryptography is being used. everything is up for grabs, right? But people still persist in talking about every system that might be considered a blockchain

as giving rise to the same miraculous set of immutable records, these magical emergent properties. So it's as if you change the ingredients of the cake, you change the temperature you bake it at, you change how long you bake it at, and you're still expecting to get the same cake in the end. I think that is, doesn't make sense. I think you're expecting to get a cake, just whether or not it'll be a cake that you particularly want to eat or not is what's put into question. I want to come back on this idea of immutability because I sort of see immutability as something that you can apply that property and think of it in different ways given the context. So I would tend to agree with what Brian was saying earlier, that the data itself continues to exist. However, from the point of view of a user, you know, were those transactions, were those transactions?

actions immutable, whereas the money in your wallet is still there or not. And I sort of see blockchains, I analogize them in the following way, is that we used to think that the earth was flat. There was a consensus around that, and the majority of people were to think that the earth was flat. And at some point, there was a change in consensus. And so, you know, one considered that to be sort of a fork. And the majority of people now think, although there's still a small majority,

of people that think the Earth is flat, and the majority of people now think the Earth is round. So you could consider that as the chain with the most validators. Now, we still all agree that at some point we thought the Earth was flat, we just don't think that's true anymore, but the information and the data is still there.

So to me, that sort of resembles what happened with the Ethereum Heart Fork. The data still exists, it continues to exist, just the consensus and the majority of people. Yeah, yeah. No, I absolutely see that argument. I think it intertwines in an interesting way with the governance conversation. Because kind of like what we were talking about earlier, right? It changed in ways that were not in line with how people expected it to be able to change, right? So the change happened, that the change taking away the money from, the, right, the hacker or whatever, the thief, that change was not in line with the rule. So I, there's some interesting conflation here that maybe I'm making with immutability and governance.

I think they're intimately related, though. I'm not sure quite how to articulate that. But I think immutable is the wrong term because humans remain in charge. of the system. And I think that term is part of the way that people talk about

these systems as not involving humans, right? Tech is going to fix these problems. We don't have to trust in humans. It's tech. It's running away from human flaws. We've escaped the human flaws, so the tech is going to just do these things for us.

And immutable acts as if the humans who are running the system can't continue to make decisions about it and they do and will. And I think maybe slightly more appropriate term might be auditable. Because regardless of the changes that occur, the shifts in consensus, the data. You can see where you went. You can see where you went and where you've been. You can always audit that information. I think that may be more helpful.

Yeah, I have a suggestion for a guest for you, actually, an archivist. Yeah, Victoria Lemieux is an archivist, a digital archivist at the University of British Columbia. And these are record keeping systems, right? But there's not enough archivists in the conversation who actually know what record keeping is all about. So she is an expert on blockchains and records. And I think you would enjoy. Yeah, she's awesome. Great.

Now, I would love to dive in a little bit on your, so you know, you've written a lot of these academic papers looking at some of the, you know, maybe flaws or questionable aspects of the blockchain discussion. Like, what's your personal stance on this? Do you feel like this is, you know, some sort of insane hype and it needs to be deflated or do you think there really is great promise in blockchain and will have a lot of great effects? Like, how do you think about this? I'm unconvinced, I think, at the moment of the great potential for the tech. I'm still needing convincing. The reason I think that I'm so interested and have wanted to contribute to the conversation here is, as I've said, because people want to use it for socially significant things. And I feel that if you're going to use something for big things, you need to make sure that you're having a, that you're putting in the right amount of thinking to it, that you're scrutinizing every conclusion, every assumption, everything.

And I don't otherwise see that happening to the extent I think it should. So that's kind of the role that I've been trying to fill in the space. I think bottom line, I'm feeling like private blockchains, or these permission blockchains, whatever you want to call them, from technologists who I trust and believe are credible in the space, these are nothing revolutionary. They're stuff that we've been able to do for a long time, but the marketing around blockchain and stuff

has made people more interested in doing it potentially. But I'm skeptical that they have the capabilities that people ascribe to them, and that they, I'm hoping that we don't end up in a situation because, where because policymakers believe that they have certain, capabilities and adopt them for important, very important systems. I mean, there are, there is a, you know, strong push to do blockchain-based voting, which I, again, another topic for a show for you. But the, again, the cryptographers and the people who are respect in the space are like,

no, that's crazy for many, many reasons. So I'm skeptical of private blockchains. On the public blockchain side, I think it's very interesting. I think, The governance and the idea of humans doing something in this way is very interesting. But right now, I feel like they can't actually be useful for things of social importance unless they get governance worked out because governance, I think, is a core flaw. And no matter whether you're talking about the on-chain stuff or off-chain governance, it's all experimental at this point. So unless you figure out the governance, they're too unstable, I think, for anything.

that more than a small group of people can rely on. So that's where I am right now. Okay, but then I guess you are looking positively on, you know, many blockchain projects today, you know, explicitly think about governance and talk about governance mechanisms. So you do think that's... Well, I think that's a step forward to acknowledge that governance is inevitable and has to happen.

But we'll see what happens. The deal is, so you can look at governance over time in a number of ways, right? I guess every governance method we have is a work in progress, right? We like to think that democracy is perfect, but now we're finding out about, you know, how much of, in the U.S., right, how much of democracy is, you know, stuff that's actually written into a constitution versus just norms that have put limits on the behaviors that we think are acceptable. So maybe I'm romanticizing, you know, or overstating what we know about governance generally in other contexts. But I think that it's really important for people designing governance systems in blockchain systems to learn from what humans have done before and to bring multiple disciplines to it, to bring history to it. because I think just throwing it out as in, we know better. We know better is it's, it, it was it waste time and it's potentially harmful.

Yeah. So, so you've written a bunch of paper. What's coming up for you? Are there still some, you know, some big, really important areas that you feel you want to look at in the next years? So I'm thinking a lot about decentralization. Right now. I'm working on a paper kind of trying to. to deconstruct the term and think about its potential legal implications, whether we're

thinking about something that's decentralized as a way of a code word for, we don't have to worry about power that's being exercised and something that can claim to be decentralized. So I'm working on a paper on that. I've been, I'm teaching a course totally devoted to cryptocurrencies, blockchain, and the law this semester. So trying to stay on top of that is fun. And there's just so much going on in the space that it's hard to figure out what to prioritize and spend your time on. There's just, there's, I have probably 50 papers that I have ideas for and want to write. But, you know, time, time, time. So before we wrap up, I just wanted to ask you about this initiative that

you're a part of, which is the Journal of Financial Technology, which that also includes some other guests that we've had on the show before. Could just briefly tell us about that and what's going on with that? Sure. So in the past year, a group of academics from a bunch of different places around the world have gotten together to try to create the field of FinTech financial technology as a real academic discipline. And I'm on it for the law and kind of in regulation side. There are mathematicians, computer scientists, economists, people in finance. And it's, it recognizes that this

field is interdisciplinary by nature and that the different disciplines need to be talking to one another so that we can understand what's going on, right? We can each inform the conversation in different ways. So it, I mean, it is intended. to bring pieces from, you know, the perspective of their discipline. So you would expect to see articles written like larvae articles. You would expect to see one's economics ones written like economics, papers, et cetera. So I don't know that we all speak the same language so we can fully understand which each other is saying, but I think it's important to at least get us all in the same room.

So that's what that's what the goal is. So if people have papers, look up Journal for Financial Technology. I think it's the JFT.com. send us something we'll have links for that in the show notes of course and also the you were mentioning a paper earlier by the my researchers at the university at Penn State University of Pennsylvania I think it's the it's the coin operated capitalism one right yeah so we'll also link to that in the show notes great great cool well thanks so much for joining us today Angela I was it was great speaking with you I think you you know certainly

doing important work that's you know needed then sort of a balance in the blockchain space and that I look forward to more paper by you. Thank you. It was a real pleasure to talk with you guys. Thank you. Cool. And of course we're going to have links to a whole bunch of her papers in the show notes. If you want to check that out and also her website, just check out the show notes. And thanks so much for our listener for once again tuning in. If you want to support the show, you can leave us an iTunes review that helps new people find the show. You can of course watch YouTube videos on YouTube.com slash episode.

and Bitcoin and yeah we look forward to being back next week