Blockchain Governance: North Korea, Tornado Cash, and Trust
The Blockchain Socialist | 2025-05-04 | 59:34
How can digital cash truly be “trustless”? What does it mean that blockchain offers a new paradigm of the “rule of code”? How are decisions made when a blockchain system faces an emergency, and who gets to make those decisions? I spoke to Wessel Reijers and Morshed Mannan, both great thinkers and recent authors of the book Blockchain Governance (by Primavera De Filippi, Wessel Reijers and Morshed Mannan). We discussed the history of the legal and philosophical implications that bl...
Top Keywords
No salient keywords identified yet for this episode.
Transcript
Speaker 0
0:00 – 0:21
So what does it mean for blockchain to be a trustless technology? How can we think about these concepts of trust and confidence? And it happened to be that the concept of trust is both in important in in legal discourse, of course, but it's also a very interesting philosophical concept. We cannot trust this system because it can be arbitrarily like individuals can make arbitrary decisions.
Speaker 1
0:21 – 0:52
When people say, you know, crypto is trustless, blockchains are trustless, In reality, it's you're trusting you're trusting the machine or you're trusting those who contributed to the machine that you are, you know, sending crypto through or whatever else. But they sold $1,500,000,000 the biggest hack ever in the world of anything, and it went to North Korea. So, you know, I think there's there's something to learn for everyone. So we end up having this
Speaker 2
0:52 – 1:35
clash between endogenous legitimacy and exogenous legitimacy here. But what's interesting, once you start looking into a little bit of the discussions that have been unfolding, the communities that they have been discussing this online, some of them, you know, really end up falling along the typical type of geopolitical lines where many Americans end up feeling that, you know, this is just another example of, you know, North Korea trying to harm us in some way. Is it possible to sanction, code? And that was, you know, the for the first time, an issue that was raised by the tornado cash case.
Speaker 1
1:40 – 2:31
Hey, everyone. You're listening to the Blockchain and Socials podcast. I'm Josh. And this time, I am here with two guests, Wessel Ryers and Morshed Mannen. I think, Morshed, you're probably, like, four time champion in, in being on the podcast, maybe, third or fourth. But they are scholars and authors of a recent book that came out called Blockchain Governance with Primavera De Filippi. So there are three authors. I'm really curious how you managed to have three authors in one book and do all that. One just with me was hard enough for mine, but we can get into it. So, yeah, maybe for the people who don't know your they're not aware of your fame, would you guys like to maybe give a quick introduction to who you are, your field of research, and then we can talk about, like, why why you got into into writing this book?
Speaker 0
2:31 – 3:21
Cool. Should I start? Yeah. So hi. I'm I'm I'm Wessel. I'm currently doing a postdoc in in Germany in this small city called Badaborn. And my background is in philosophy and ethics of technology, broadly speaking, but I'm especially interested in the in capital political technology. So I've I've done I've been on the ERC project together with with Moshe on blockchain governance. And I've also done work on, for example, the Chinese social credit system. And currently, I'm I'm mostly interested in in investigating the relationship between civic virtue as one of the kind of core concepts of political philosophy and the way civic virtue is mediated by social technical systems like the social credit system. So I've moved a little bit away from blockchain, but I'm still very much interested in it. Hi. My name is Morshed. I am
Speaker 2
3:22 – 4:20
a lecturer in global law and digital technology at Edinburgh Law School at the University of Edinburgh. I only joined the university in November. Before that, I was also part of the Blockchain GA VRC project hosted by CERSA and the European University Institute. So I moved from Florence at the, you know, very end of the year. And, you know, along with working on the governance of and by blockchain technologies, I am really interested in the cooperative governance of digital technologies and, you know, sort of legal aspects of how you govern these technologies via cooperatives, as well as, recently, especially I've been doing more work on the governance of digital commons and data commons and so on. And I'm really glad to be on the podcast again. Thank you for having us, Josh.
Speaker 1
4:21 – 4:25
Yeah. Of course. So we got we got philosophy
Speaker 0
4:25 – 6:05
on one side. We got the law on the other. What what brings it together? Why do you guys why do you guys have this shared interest in blockchain and why why why write about it? Yeah, that's a great question actually. So I I think we could we come we come at it and meet from different perspectives. I mean, my my old background is that I did my master thesis on the topic of digital money, and so I was mostly interested in money itself and the philosophy of money. And from there on, I, of course, stumbled upon Bitcoin. It was 2013 or '12, I think. And only later I got into in touch with with Primavera and with Moshe, where Primavera was organizing this koala event. And one of the the themes there was the theme of trust. So what does it mean for blockchain to be a trustless technology? How can we think about these concepts of trust and confidence? And it happened to be that the concept of trust is both in important in in legal discourse, of course, but it's also a very interesting philosophical concept. And not only in philosophy is is it being discussed, but also in sociology. So it's got this this concept that actually sits at the intersection of so many different disciplines, and that is so important in all these different disciplines. And that's actually how it started to or kind of cooperation started from there. But then we found out there are so many other, actually, well, intersections between law and philosophy. For example, in one of the chapters where we discuss this this this kind of tension between legal positivism and decisionism, there is also a background discussion in philosophy or legal philosophy that that that we are all all three of us are interested in and that plays a role in the in the story that we tell in the book. And I'll just add that
Speaker 2
6:06 – 7:17
this has continued from, you know, when we first met in 2017 in Florence and we first started working on a paper that essentially looks at the possibility of a state of exception, emerging on, on Ethereum. Starting from that all the way to a much more recent, you know, work where we look at how the topic of constitutionalism emerged in blockchain communities and how legal theory, political theory, and of course, even economists have been looking at constitutions. And then thinking of how those concepts and theoretical frames can be applied to blockchain constitutions as they've come to be known. And it it's just been a very rich body of, you know, there's been a really rich body of work that I think can come from looking at this particular topic from our different backgrounds, including, you know, of course, Primavera herself, who has an interdisciplinary background and works in areas of law that are also different from my own specialization.
Speaker 1
7:24 – 8:20
Yeah. So I think there's definitely, yeah, a lot of legal and philosophical questions when and, I mean, anyone sort of thinks about blockchains. It kind of definitely questions a lot of things that we take for granted of what institutions can and and can do. I think it's been, like, a pretty common theme throughout the show. Of course, they're this I mean, you know, they're they're they're hand in hand. The legal and philosophical questions around around crypto are are quite strong. And this was quite evident, especially in, like, very early philosophical and legal thought in the crypto and and blockchain space, you know, for better or for worse. So I'm curious from you guys' perspective, like, just broadly, what how do you guys characterize the kind of early legal thought around blockchains and how has it shifted since then?
Speaker 0
8:21 – 9:54
So it's interesting. So I I don't think there was a lot of legal thought at the beginning. Correct me if I'm wrong. Are you philosophic? Exactly. Yeah. So so there there is of course this this this background in cyber libertarianism itself being a very rich and all but but at the same time quite limited point of view, of course, where I mean, in in the book we actually go at this question through the the the notion of immortality, which might seem a bit strange, but it's also something that was a big theme. For example, in the excorpian community and also how Finni, like so we we talk about how how immortality played a role in in in kind of the ideology that sits behind kind of the technology or the the idea of digital cash. And and even today, we see that kind of the strong connection because even now there's this, like, when there's events being organized, there's a connection with the longevity movement, the idea that or the interest at least in prolonging human life and and kind of becoming immortal. But in a way, like, Blockchain is trying to be to be the flip side of that. So we want to prolong human life, but at the same time, we want to have these lasting collective institutions that are not controlled by any particular individual. So these kind of immortal institutions that that I have no central point of control and no central point of failure. So so we we start the book from from from that perspective and going into it also how these how how this topic is being discussed on on the early mailing list. And maybe, Moshe, you want to also add to that?
Speaker 2
9:54 – 15:21
Or Yeah. I mean, I think, you know, when we started, you know, using this example, I think the there's an interesting tension between, you know, the goal of this technology and trying to create what we in a in a very a chapter that appears just a little bit afterwards where we talk about the emergence of the rule of code where it's you know, you are able to prevent any sort of sovereign emerging that is able to, you know, by doing so, not be subject to the same laws that are applicable to everyone else. And blockchain system somehow being able to realize, this, you know, ambition to to a to an extent as we and, of course, we also point out where that isn't actually the case as well. But by identifying this goal of the rule of code, we are also trying to draw analogies with what what is, you know, one of the, important norms in legal theory. Right? Like, the the rule of law and then drawing comparisons between the rule of law and the rule of code. What's interesting is that in some of the legal literature about what are the conditions for the rule of law, there are some very interesting similarities with what we would later, I guess, come to see as being properties for a distributed system. So the idea that a rule of law has to have distributed authority and not have just authority controlled in, you know, one executive. First, the idea of the separation of powers, but then, you know, even going beyond that to having instance a judiciary where you're able to have, judges who are and courts who are based in different territories, who have different jurisdictions are and are able to also, in a way, balance each other out, administrative agencies that are also able to have, in some cases, overlapping power, but also a way of acting as checks and balances towards each other. Essentially, you know, this idea of a a a polycentric system of governance that we would see as being an attribute of a rule of law system according to, you know, someone like Vincent Ostrom. When we think that this particular type of system was being discussed several decades before, you know, the the Bitcoin blockchain was created. It's interesting to consider that example in light of what are the properties that we see as being conducive to the rule of code in blockchain networks. And one of the objectives of the book is also also to see to what extent, those conditions actually remain in blockchain in in blockchain networks and thus the rule of code actually mirroring the rule the conditions for the rule of law and where that actually doesn't exist and where we see the possibility of a rule by law or just a breakdown of these sorts of rule of code systems altogether. Yeah. I think that that that was sort of one of the ways in which we went from thinking of some of the, you know, philosophical and ideological motivations ending up sort of also affecting our view of legal concepts that are relevant for understanding blockchain systems. I'll add one other thing about the immortality point because I feel there's still we're still at the, you know, starting point of thinking about the implications of, you know, blockchain systems potentially being immortal, quote unquote, or existing in perpetuity, or digital assets existing in perpetuity. Because of the fact that when we think of, you know, legal theory in the law, at least in in in in quite a few common law jurisdictions, it's common to have a rule against perpetuities, which means that you have a legal rule that limits how long someone can control property after they die. And it's interesting because there was a, an idea that you didn't want to have, for instance, a dead landlord being able to control how long property continued to be dictated by them after they passed away as some you know, as as being socially desirable. This was not considered to be socially desirable. And so now given that we are creating a myriad, digital assets which can outlive the those who've created it, those who who are using it, those who own it, that raises, I think, really interesting questions about this as well, that through technical means, we are sort of circumventing this rule against perpetuities. And this is an issue that I think we we haven't really completely come to to terms with about what the full implications of this are. It's it's I mean, it's something that some people are, I think, starting to think about. But yeah.
Speaker 0
15:22 – 18:03
So we we started this whole discussion by by reading actually Luhmann, and Luhmann has this kind of systems theory approach to to the question of trust. And he makes this distinction between trust and confidence because he's also trying to understand how the phenomenon of trust has kind of developed with the rise of modernity, like with the with the the coming of the nation state and industrial revolution and the kind of this difference between yourself and your mind chef. And for him, the idea of trust is this kind of close interpersonal kind of relationship where there is vulnerability if you trust somebody, a sense of risk taking if you trust somebody. Whereas with confidence, there is kind of a shared expectation that something will be the case, but there is no addressee, for example, involved. And there is no taking a vulnerable position. So there's, like, these two different kind of attitudes that we have towards the world around us. And we we started to ask this question because the trustlessness is like it's like an an an unfinished answer, basically. You know? So it's it's it's if you say, like, okay. Blockchain is a technology, then the the follow-up question would be immediately, like, so what does it offer instead? And this is where this work of Lumen is very informative, I think, because it's it it does kind of show us that, like, because it's it's more systems theory approach. And so like other institutions in a way, blockchain offers us this this confidence. But in in in in much more in in in a much greater sense than common institutions because common institutions as is also, like, the the criticism from from, like, early Bitcoin, like, being pitted against the financial crisis, saying basically that, okay. We have these these institutions that are supposed to produce confidence in the financial system, but at the same time, we cannot trust the system because it can be arbitrary. Like, individuals can make arbitrary decisions. For example, not allowing payments to that's gonna at that time, WikiLeaks, for example. And and this so so so this in this is overcome in a way by Bitcoin and by blockchain technology by by by being this confidence machine. However, at the same time, what we also argue here is that it doesn't mean that trust disappears into the background or disappears altogether. It it's it's it becomes a more distributed phenomenon. So it's so trust in this sense is is distributed across actors that are part of the blockchain of a blockchain network, including develop and mining nodes, etcetera. So that's the kind of the argument that we that we try to make in this in this particular chapter is that there is this dynamism also between confidence and trust and that in order to make this work, we need to consider the question of governance.
Speaker 2
18:05 – 20:10
I mean, with I think Vesco already gave a good explanation of how we see the creation of a of a confidence machine and the the role that trust continues to play. I think one of the ways in which we've been to extend this and apply this concept in in other areas is to look at how the type of consequences that this leads to. Also in terms of things like legal liability. Right? So one of the ways in which you see this claim of trustlessness being frustrated is when you, you know, start seeing litigation where you have founders, core developers, and other key network participants being, you know, the defendants of different sorts of claims. Where in the first instance, it might be argued that, oh, you know, this is a mistake in terms of a misunderstanding, the particular role that this network participant has in, the governance of a blockchain based system or a protocol. But fundamentally, it's almost a gateway from talking about trust in the sort of sociological and philosophical sense to really start applying interestingly in that legal theories on trust to the system. Because, for instance, if we look at one of the cases that we've been discussing both in in our work generally as well as in in the book a bit is this tulip trading case where Craig Wright made essentially the allegation via his tulip trading company that core developers are fiduciaries of Bitcoin users. Now the idea of being
Speaker 1
20:11 – 20:15
And Craig Craig Wright, just to say maybe for people is the guy who is
Speaker 2
20:16 – 23:02
Australian guy who's claiming to be Satoshi, who is probably a scammer. Right. And and He keeps he keeps going with Right. And so late so later on later on, it was, you know, what I'm describing more recently was something that the courts dismissed because the some of the claims were withdrawn by Craig Wright. And there seems to be now really even stronger evidence in the than in the past that he was, you know, basically making false claims about his identity, as you're saying. But anyway, before the all of that happened, when this fiduciary issue arose, you are basically trying to understand if there is a trust relationship between the users of the network and the the developers. And so I think one of the reasons why this particular framing of looking at it as a confidence machine where trust still has a role in a different way is very generative and also start us trying to understand how and to what extent we can start seeing trust relationships actually merging also in in the sense of the law, in the sense of whether there is, for example, a fiduciary relationship or not. In our view, at least, you know, I can speak for myself and, Primavera in this because of some of the work we've done on this topic. When we start thinking of this in the context of, for instance, this tulip trading matter where you have the question of the fiduciary duties of, developers, we don't think that there is this trust, you know, naturally being by default imposed on the developers because of the nature of the, developers' work, the nature of how they join and contribute in this particular system. There isn't the and thus, there shouldn't be this sort of positive or negative duty, arising from that relationship. But to all of that is to say that you wouldn't be able to come to this conclusion if you do not have a particular, focus on how this system actually operates, how trust and confidence interplay with one another. Because otherwise it's easy to draw in some cases quite simplistic conclusions that, oh, there must be a trust relationship being created between, let's say, someone who owns Bitcoin and those you know, open source developers who are contributing to the Bitcoin protocol.
Speaker 1
23:05 – 24:03
Yeah. I think to me, that's like a really interesting framing framing of this idea of trust and trustlessness because, yeah, I think they're the the common kind of retort, I think, is kind of more or less correct when people say, you know, crypto is trustless, blockchains are trustless. In reality, it's you're trusting you're trusting the machine or you're trusting those who contributed to the machine that you are, you know, sending crypto through or or whatever else. And the the the question is much more complicated than just the marketing around around blockchains being trustless. And, yeah, there's this there's something about I think I don't know. I think it would take me too long to make the connections, but there is, like, very clearly a connection between wanting immortality and not trying to minimize humans as much as possible or, like, acknowledging humans in the loop as much as possible.
Speaker 2
24:03 – 25:14
Maybe maybe I can clarify this. It's a slightly long point that might be made a little bit more, but where I think even in the instances where there is a type of trust relationship or or that there is, let's say, some type of, trusted actor merging within these, you know, multiple groups of stakeholders that are participating and maintaining a blockchain network. I think the example that I was trying to give with this, you know, tulip trading, but there's also been this discussion with respect to other cases as well a little bit. The there you know, for that to, you know, rise to the level of, for example, a developer being a fiduciary is something that is is a higher bar and is something that is significant because of these sorts of liability and cost type of questions. And so I think, yeah, that's the that's the Yeah. Huge legal thing. You know? So it's I want to distinguish between basically the trust relationship and the the like, that there is some trusting happening with whether that is fiduciary like or not.
Speaker 0
25:16 – 25:17
Yeah. Mhmm.
Speaker 1
25:20 – 27:15
Yeah. I've been I've been I've been reading this book actually recently. I'm almost done with it called revolutionary mathematics. And I buy and in it, one of the things that I got that I was really fascinated by was, like, the first time in mathematics that they actually allowed computers to to provide a proof for, like, some sort of mathematical proof, like, problem that it was, like, physically impossible for a single human to go through each and every, you know, know, scenario in which this would prove this mathematical theorem correct or not, that they had to use a computer. The first time they did that was, like, a really big deal. But it, like, is this epistemological, you know, conundrum because then it's like, well, we're trusting the computers that they did everything right, and we're trusting that the math behind it is right, and there's still but it effectively works. So as I've been, like, trying to bridge this in the in the crypto example as well just because of the amount of computation that's involved in all these things and the amount of trust that we imbue it with, you know, at the same time. But so the next the next kind of concept I want to touch upon that you guys do in your book is legitimacy. So I'm not sure exactly, you know, what is the best way to kind of like frame the where legitimacy comes from and why is it important necessarily, but it is something that is talked a lot by people like Vitalik Buterin, especially who I think it feels like to me because you need this, like, you need to there needs to be this, like, appearance of decentralization, but at the same time, there also needs to be, like, a direction that people go in. There needs to be some sort of, like, unification of, like, we're going to do this, we're going to go here. And I feel like legitimacy is meant to kind of, like, bridge that gap, you know, in the blockchain space.
Speaker 0
27:16 – 32:38
But, yeah, I guess what what what kind of framing do you guys look at this concept of legitimacy through when it comes to the blockchain space? Yeah. That's a that's a great question. I I maybe maybe it's actually good to start with the next question because we started to talk about legitimacy and legality when we when we discussed this notion of the state of state of exception and and instead of emergency. Because we we actually started with the work from a Canadian legal scholar, legal philosopher, David Diesenhaus, who wrote a lot about the kind of early debates between kind of central legal philosophers in the twentieth century, especially Hanskelson and Karl Schmidt. And he and here, the question of legitimacy hinges upon this this idea of whether you can have kind of a a legal order that is that is based on legality and thereby producing legitimacy basically. So default. Whether legitimacy needs more substantive moral underpinning or whether it can be procedurally produced in a way. So if if we if we would have these two kind of perspectives, one could say that it's not completely honest to to actually take this because there's also, like, characterization of Karl Schmidt when he talks about Hans Kelsen. But when he talks about kind of Kelsen's legal positivism, he says, it's kind of a machine that runs itself. So the idea here is that that the legal system is is devised in such a way that it becomes kind of a logically deductive system whereby the validity of a particular law gains its validity from a higher order law. And in order for this to work, Hans Kelsen needs to presuppose that there is something called the basic norm, which itself sits beyond the system and grants it validity, so to say. But then if once we have this postulate as a kind of as a legal philosopher, then you can stop worrying about the content of those laws because it's all the way down is question of validity. And so so so in that sense you can not worry about these thick moral questions that pop up when we talk about legitimacy. Because often we talk about legitimacy, we say, okay, there are these regimes that seem legitimate because people accept their obedience to those regimes, you know. Even in like extreme cases where it's like a terrible dictatorship or a totalitarian regime. And those are kind of limiting cases where we say, okay, what here we need to say something at least even if these regimes are based on like, even if they have these kind of nicely working legal orders, we we have to say something about more kind of substantive moral issues. And this is also where the debate between kind of Schmidt and comes in, even though Schmidt is actually not a moralist, but he he he attacked the system or more on the basis of a different understanding of temporality because he's his basic claim is that a positive legal order by becoming kind of a timeless order, because it's unable in the end of the day to anticipate new events. That's that's what a state of exception comes in. So Schmidt's argument is basically that it it insufficiently, is capable of dealing with emergencies. So, unexpected events that challenge the very foundations of a legal order. And it's such like the DowHack, you need it. That's that's that's the the second one is the DowHack. Yeah. Exactly. So this that's also why it's so interesting in discussing in discussing these kind of cases where blockchain is involved and and to to shorten the argument because, Schmidt basically says that in those cases, in in a positive legal order, you will see what what he calls the coalescence of private interests. So there are private interests that then start to take care of the content. You know? So they, you know, the the system is about validity, but they start to take care of the content, which means that they can negotiate and coalesce around a particular direction of decision making. So they they create this kind of decision making agency that emerges out of this out of the legal positive system, basically. And that's the segue into, indeed, the DAO hack where we discussed the DAO hack and, how in a way, the move that was made by the attacker siphoning off all this cryptocurrency was in a way a valid move. It was a move that belonged to the kind of hierarchy of rules inside of the system. There's also, like, what he later client or even though I'm not sure whether it was actually the attacker himself, but, like, what was claimed later on was it a Reddit post or well, I even forgot. But but the point here is that that influential actors within the Ethereum community were able then to mobilize themselves and to create this kind of sovereign agency emerging out of this coalescence of private interests. Thereby also getting to the point where a hard work where a hard fork sorry. For I did the back. For a hard fork was actually some music in the background. Where a hard fork was actually possible and it was it was implemented. So that that's like the long story to to say how actually we started to talk about legitimacy through this notion of the state of exception and how this notion of the state of exception is actually applicable to blockchain, which we can illustrate by means of the DAO attack. And with that said, maybe I actually have to I think I have to to leave because my my son is a bit very sad.
Speaker 2
32:39 – 32:41
So Thanks so much, Vesula.
Speaker 0
32:42 – 32:47
Yeah. Sure. No worries. Thank you too. Thanks, Vesula. It was really nice. Okay. Thanks. Okay. Bye bye. Appreciate it. Bye.
Speaker 2
32:48 – 42:09
Yeah. I'm Bye. Okay. So so I'll add a little bit to this. So one point that's relevant for thinking about sovereignty and in relation to the state of exception is Schmidt's idea that the sovereign is he who decides on the exception. And that can be, you know, this event can be interpreted in in in different ways, but one of the ways of interpreting this is the sovereign is the one who identifies that, you know, an exception even exists, that there is an emergency of some sort that is shaking the foundations of this legal order that we are thinking of. And if we imagine a system that is purportedly a machine that runs itself, that relies on purely, you know, on chain governance has no sovereign as it as it claims, then did this there is supposedly no sovereign who would be able to decide on the exception. But clearly, when we apply this to an actual type of emergency situation like the Dow attack, this coalescence of private interests that Wessel talked about sort of shows that there is still a decision making agency. Even if that is not amounting to a sovereign, there is still coalescence of interest that is able to make decisions about the exception in ways that were not conceived of when designing the on chain governance system, for instance. And so when we talk about governance minimization, when we talk about a lot of these different terms that have emerged over the years of trying to create a pure, positivist legal system, Another term of course is, you know, the code is law. You end up both framing legitimacy as a particular type of legality. But that not only has an issue of being vulnerable to states of exception and vulnerable to criticisms that they lack a sort of moral equality to it, but they also raise a very interesting issue when it comes to what we call exogenous and endogenous legitimacy. Because for some, irrespective of whether this is desirable or not, there is, you know, an adherence to this idea of this very procedural positivist notion of how, you know, on chain governance should operate, that there should be minimal off chain governance and so on. That continues to have a particular type of appeal and a particular reason why, you know, a group of people might even want to be participants in a a blockchain based system. So essentially, the endogenous legitimacy of that system is predicated on adhering to, you know, these processual values that you actually maintain the process and thus, you know, show respect to that particular value. That can come into conflict with exogenous legitimacy where you are the system is not just reliant on the acceptance of, you know, a particular set of network participants, but is also affected by, decisions, perceptions, pressures created by actors external to the network who can, you know, have at least indirect influence. So I'm thinking of, you know, states being a particularly important example. So if your if a particular blockchain based system has, let's say, endogenous legitimacy, but lacks exogenous legitimacy, that can also create particular tensions. If for instance, you know, a particular system might be seen as endogenously legitimate, but is carrying out activities that are widely considered to be illegal in several states, then there is definitely trade offs that are happening that affect, the, you know, the governance of the system ultimately. But, of course, have knock on effects onto the network participants within the system as well. And so that doesn't necessarily mean that exogenous legitimacy has to trump endogenous legitimacy and so on. But it's almost an awareness of how these different conceptions of legitimacy interplay with one another and have an effect on one another. I think an interesting example of this Mhmm. Is also in the context of discussion on decentralization, which you mentioned at the very beginning. Because decent like, the idea of decentralization might be like a process. And also, of course, in some cases, you can also see it as being a particular way of framing an ideology. But the idea that, you know, you want to that you you see a particular system as being endogenously legitimate because it is decentralized might be something that network participants hold dear because that is why they joined that system in the first place. Interestingly, in certain instances, this might also curtail well with the interest of external, let's say, regulators and thus be endogenously legitimate when the law, for instance, supports the effort of creating a decentralized network or encourages the decentralized systems or decentralized transactions. So if, for instance, we think of the implications of the Howey test. The idea that, you know, the fourth limb of that test, which I think many of your listeners are familiar with because it's talked about all the time, The idea that, you know, you are not relying on the efforts of others, you know, for is is one of the ways in which you can try to argue that what, you know, asset that you are, issue issuing a particular type of contract that is being created through your network, that these are not investment contracts can be made on the basis of arguing that there is no reliance on the efforts of others, the the this fourth limb of the the Howey test. So by making the argument that this fourth limb doesn't exist, you are in a way also arguing for decentralization. Because the way in which you can show that there is no hierarchical management is by having more more co participation, more co management. And so in a way, having a more decentralized governance process is a way of trying to avoid, you know, a particular token or some other type of agreement being classified as an investment contract and thus as a potentially as an unregistered security. So the idea there would be that in a way, the law creates a particular incentive for a system to remain, or not not necessarily remain, but to be decentralized. And in a way that can dovetail well with the goal of the community itself to be decentralized too. The problem, of course, is in reality, as we've seen with a lot of cases in recent times, that there is, you know, the difficulty in going from point a to point b. So to actually become decentralized, there is this problem that you have this period in which you have founders in which there are people who are, you know, being relied upon by others, which leads to, you know, almost a type of chicken and an egg problem of, like, how do you get to decentralization when at some point there is some group of people who are making certain decisions that appear centralized. That sort of long story and maybe, I don't know, Josh, you could trim that a little bit, but it's it's basically the idea that you have an interest in endogenous legitimacy as well as the possibility that exogenous legitimacy can also coincide with that endogenous legitimacy.
Speaker 1
42:13 – 44:38
I think there's, yeah, there's there's a lot there. I mean, one of the maybe we can talk about, maybe for like our last ten minutes, about a couple of real world examples where this kind of plays out to maybe make this more real for people. Like, I think the the biggest one just because it's recent and I'm, like, so surprised that it hasn't really been talked about so much in the mainstream at all is the is the $1,500,000,000 with a b hack by North Korea of a big exchange. I believe it was called Bybit, where they were able to steal the funds from this exchange, not through a smart contract exploit, actually, but through an exploit of the front end that they were using for their multisignature wallet for SAFE. And the basically, this analysis that safe ran on how it actually happened was that someone from Lazarus Group, the hacker group of North Korea, was able to hack into a particular computer by one of the developers that had some sort of higher level of, access to the to the platform, to the to to the front end of the platform. It's like important to understand that, like, you know, that there is nothing in the back end in, like, the thing that actually makes the money crypto move. There's nothing wrong there. It was only that they showed wrong information in the front end of the Bybit signers of this multisig, where they thought they were doing a completely different transaction. But they sold $1,500,000,000, the biggest hack ever in the world of anything, and it went to North Korea. So, you know, I think there's there's something to learn for everyone, I think, in this situation. I'm, like, so curious. None none of my Jusha appreciating friends have have talked about this at all, and neither has the mainstream media, really. It's only in, like, the crypto world. But, yeah. So there's something where it feels like there is, I mean, in that case, there is like, endogenous legitimacy in that it happened whether the signers intended to or not. They thought they were doing something something completely different, but I'm sure there's probably a large swath of the population who would be like, that was an illegitimate thing for them to do. But Well, I mean,
Speaker 2
44:39 – 47:52
it's a it's a nice illustration, right, about, I think, what I was trying to get at where, you know, for a large number of crypto users who who live in The US, you know, despite however they might feel about US laws, they know that there are a wide range of sanctions that are placed on any sort of transaction with North Korea and especially North Korean state actors. And I think there, you end up having this interesting tension between sorry. One second. Can I pause for a second? One second. So there there can be, like, tension between the between, you know of of course, see like, thinking about the legitimacy of these sanctions in the first place, where it might be the case that, you know, US crypto users agree that the the sanctions should be in place. There might be others who disagree that sanctions should be used at all because of all of these very open questions about the efficacy of sanctions, how sanctions affect individuals, whether, you know, whether it's a proper tool, how long sanctions could exist and so on. So there's a question also, you know, of the legitimacy of sanctions altogether. But certainly, we see this dynamic between, you know, exogenous legitimacy where the state doesn't think there should be a certain type of transaction being made possible, you know, through hacking or through, you know, just normal transactions as well. So they would see, you know, this type of transfer of wealth, essentially. However, we're trying to strip it of any particular type of normative connotation to North Korea as being exogenously illegitimate. While there might be those who follow this more code is law type of, you know, belief who think that, well, you know, this there shouldn't be particular guardrails here for this and that given that they were able to benefit from this exploit, you know, that's perfectly endogenously legitimate. So we end up having this clash between endogenous legitimacy and exogenous legitimacy here. But what's interesting, once you start looking into a little bit of the discussions that have been unfolding, the communities that they have been discussing this online, some of them, you know, really end up falling along the typical type of geopolitical lines where many Americans end up feeling that, you know, this is just another example of, you know, North Korea trying to harm us in some way. And there, these sort of national like, a type of nationalism almost type starts to emerge as well, where there is this feeling of grievance that is based really, you know, on a particular understanding of national politics.
Speaker 1
47:57 – 48:38
Yeah, that is that is true. I mean, I wonder I was actually actually about to look up whether Bybit because I think it might be I'm not sure if it's an Asian exchange. I've never used it so I'm not entirely sure. But, yeah, but I think that's still that's still correct. Yeah, and so one of the maybe last concept we should cover is this one of illegality. So we have like things that are things that are legal, things that are illegal or against the law. And then there are things that are illegal that you've talked about before in some of your writing that I've that I've read before, which is kind of like the secret third thing that not many people are aware is an
Speaker 2
48:38 – 48:40
option. I mean, it's not Maybe
Speaker 1
48:41 – 48:44
we can explain that a bit and connect it over. Yeah. I mean, here,
Speaker 2
48:45 – 53:11
illegality is a concept that has been used in slightly different ways by different scholars. So, you know, you have some who are critical theorists in the humanities who have used it in a particular sense. You have legal some legal scholars who who have used it in, a slightly different way than than, you know, humanity scholars have. So in our work, we particularly looked at the work of Hans Lindell, who has a entire, you know, book that is dedicated to talking about illegality and has many different illustrations of illegal behavior. Out of the interest of time, I'm not going to, you know, sort of recap all of that. What I'd sort of try to hone in on is the fact that rather than it being something that is widely accepted, I think a lot of lawyers would sort of bristle at the claim that there is even such a thing as illegality. They're very comfortable with the legal illegal distinction. I think what what we find generative about the idea of illegality is that there are certain types of behavior that, you know, it challenges the boundaries of how legal and illegal behavior or actions are drawn. And Linda talks about, you know, material, subjective, temporal am I missing? Temporal, subjective, material. The fourth one is eluding, but it'll come to me. Boundaries where and, you know, when you have these like, these boundaries are constituting, you know, a legal order, you end up having this possibility that, particular activities end up pushing against how those boundaries are drawn. So if you think of an example that, you know, Lindell mentions and we also refer to, we think of, like, the actions of a refugee or and even, let's say, not even a refugee, a particular type of economic migrant, where refugees at least are able to undertake act certain activities that on on route might be perceived as being illegal until they are able to make an asylum claim and become part of, let's say, an international refugee law protective regime. You have also these other types of migrants who, again, just through their behavior are, you know, challenging how we a distinction between what is considered to be legal conduct and what is considered to be illegal conduct. Some of that determination only really happens exposed where there might be, for instance, a part of their journey which is done legally, and then they, you know, do another part of their journey that is done in a way that is that is perceived to be illegal. And the point is is whether this type of activity or action can be considered as being illegal because it makes us think about how this type of boundary is drawn in the first place. Similarly, if we think think of another really, I think, you know, really crystallizing type of example, Think of slavery in the like, slavery and the abolition movement, where there were slaves who were part of this process of demanding their own emancipation, where that act act at a particular point of time might have been illegal for slaves to, you know, demand their own emancipation. But their particular act what problematized this, you know, legal regime that existed at that time, and their act could be seen as being illegal in in in in what we are in in the way way we are talking about this. And so we give different examples of this. It almost sounds like like all
Speaker 1
53:12 – 53:15
yeah. I just say like all like all civil rights
Speaker 2
53:16 – 56:59
almost to some Right. A lot of disobedience a lot of civil disobedience might fall within this in different ways. I think quite a few of them would be not just those types of I mean, and something we talk about later is also the distinction between those acts that can be easily accommodated within a legal order because you just need to have a legal reform, and that's enough to basically accommodate this illegal action. And then there's, you know, a particular type of illegal action, which to accommodate that particular action, you need to change the legal order and its identity entirely. So you need to, you know, abolish, a particular type of property relation if you want to accommodate this particular type of action, or you have to introduce a completely new, type of legal regime that is beyond just a simple reform or amendment. So we make that distinction as well. It's sort of like the difference between just, you know, moving a boundary and actually what he what it can be called, like, the boundary becoming a fault line, where it needs to become something that re recasts a legal order entirely. An example of this that is controversial but is an interesting one, I think, in the blockchain context is about whether you can simply incorporate digital assets into current property law regimes by just categorizing them into existing categories of property or whether you need to create a third category or, you know, basically a new category of property to be able to accommodate digital assets. Because if you the implication of this is, you know, if you don't make this type of categorization, you have difficulty in placing it within, you know, what you do with property law. Right? Like, whether it's transferring legal rights and entitlements to it, whether it's inheritance, all of these different things that you use property law for. So there, you know, this distinction, like, there so so there, it would be the case that create the creation of, like, digital assets would be a type of illegal act because of the fact that it's, you know, raises this particular question in terms of, you know, what is the character of a particular property law regime. At least sort of that's one way of looking at it at it. There in fact, in our in our both some earlier work as well as in the book, we sort of find different examples of blockchain technologies being illegal by design in a sense because of the fact that a lot of their properties raise these sorts of provocations. One example we talk about is, for instance, the Tornado Cash, case, case both in the sense that, you know, it's an interesting case study of this problem, but also case in the sense of, you know, the litigation that's followed with respect to Tornado Cash, where you end up having, again, these types of questions where is it possible to sanction code. And that was, you know, the for the first time, an issue that was raised by the tornado cash case. That itself is a result of, you know, the particular type of, well, what we could consider a type of illegal activity that Tornado Cash was engaged in. And all of the litigation in a way that follows is, in a way, the state trying to make sense of this illegality.
Speaker 1
57:02 – 57:13
Right. Right. Allegility, it sounds like to me almost like the making sense of things that are blurry, almost like when they're in the gray zone. That's kind of how we get Yeah. I mean,
Speaker 2
57:14 – 58:17
I I think it's I I like to think of it in this sort of almost agonistic type of sense as well a little bit. I may I think, you know, people diverge a bit. Some people almost think of it as, like, unregularability. I don't know if Mhmm. That is completely captures what it does. I think the part of it leading to questioning what the status quo is is an important aspect of it. I don't think it's just about, unregulability. That might be an a part of it, but I don't think it's, you know, one, I don't think that that it's as simple as to saying something is unregulable, but it's also, I think, this sort of provocative part that is important in understanding, you know, why we talk about illegality and why we see this particular type of trend emerging in many different domains. Right? So I mentioned the property one. I mentioned this one with respect to, you know, tornado cash and sanctions. You can you you can see this in multiple domains in which blockchain based systems are being used.
Speaker 1
58:20 – 58:44
Mhmm. Mhmm. Nice. Well, I just wanna say thank you so much for coming on and and speaking about the book. It's called Blockchain Governance. It's published through MIT Press, I believe. I can leave a link in there. And, yeah, if you want to continue these types of conversations and learn more about these concepts, they're in the book. I don't know if Morisha, do you have any last things to to plug before we go?
Speaker 2
58:45 – 59:14
No. Not in particular. Please follow chain gov on social media. They they are at blockchaingov on x, and blockchaingov also has a newsletter that it's posted on LinkedIn. And the website of blockchaingov is blockchaingov.eu. Please feel free to contact us if you'd like to explore any of the themes in the book or, you know, want to discuss Blockchain Governance in any way. Thank you so much.