DUPONT 2017 Preprint Algorithmic Governance PDF

Preprint self-archived version. Published version Bitcoin and Beyond, Routledge (2017).
Experiments in Algorithmic Governance: A history

and ethnography of The DAO, a failed
Decentralized Autonomous Organization
Quinn DuPont
University of Toronto
This chapter describes an emerging form of algorithmic governance, using the

case study of The DAO, a short-lived attempt to create a decentralized
autonomous organization on the Ethereum blockchain platform. In June, 2016,
The DAO launched and raised an unprecedented $150m USD in investment.
Within days of its launch, however, The DAO was exploited and drained of
nearly 3.7m Ethereum tokens, valued at about $70m USD.
This study traces the rise and fall of this emerging technology, and details the
governance structures that were promised and hoped for, and those that were
actually observed in its discourses. Through 2016-2017, these discourses were
collected from online discussions and subsequently analysed. Using computer-
assisted, qualitative analysis and coding, I traced the discursive strategies of the
developers and the community of investor, identifying: 1) questions of legal
authority, 2) tensions in practical governance, and 3) admissions of the inherent
complexity of bringing to life an algorithmic and experimental organizational
model.
This chapter describes a short-lived experiment in While the idea of decentralized autonomous
organizational governance that attempted to utilize organizations had been mooted since the early days
algorithmic authority through cryptocurrency and of cryptocurrencies, the launch of sophisticated
blockchain technologies to create a social and blockchain platforms with built-in programming
political world quite unlike anything we have seen interfaces gave enthusiasts a practical, technical
before. According to the visionaries behind the apparatus to realize their vision. In 2016, it seemed
project, by encoding the rules of governance for like decentralized autonomous organizations would
organizations and governments in a set of smart finally get their day, when a design built on the
contracts running on an immutable, decentralized, Ethereum platform (a distributed Turing-
and potentially unstoppable and public blockchain, complete computer), emerged from a small
new forms of social interactions and order would blockchain company called Slock.it. Slock.it wanted
emerge. This experiment was an example of a new their design to become a standard for future
form of organization, called a Decentralized decentralized autonomous organizations to build on,
Autonomous Organization, or DAO. The forms of and was backed by the imprimatur of industry
sociality that would emergethey promised heavyweights, including Vitalik Buterin himself, the
would be transparent, efficient, fair, and democratic. wunderkind and inventor behind Ethereum.
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DuPont, Quinn. Experiments in Algorithmic Governance: A history and ethnography of The DAO, a failed Decentralized Autonomous Organization
in Bitcoin and Beyond: The challenges and opportunities of blockchains for global governance (2017). [forthcoming]
The very model of simplicity, a mere 900 or so behaviour of the codes logic to rapidly drain the
lines of software source code, this design was given fund of millions of dollars worth of DAO tokens
the placeholder name of The DAO. The DAO (which were backed by ETH from the initial
was intended to allow cryptocurrency investors to crowdsale). Immediately, Slock.it, the leaders of the
directly fund and manage new enterprisesall to be Ethereum platform, numerous cryptocurrency
run on the Ethereum blockchain. The Ethereum exchanges, and other informal technical leaders
platform is new and expanded version of the Bitcoin stepped in to stem the bleedingshutting down
system in that it adds a layer of software on top of a exits through the exchanges, and launching
blockchain. Like Bitcoin, Ethereum is also counter-attacks. It is at precisely this point that we
comprised of decentralized mining computers, see the vision of future governance structures break
but whereas the Bitcoin miners primarily down, and devolve into traditional models of
authenticate transactions, the Ethereum miners socialityusing existing strong ties to negotiate and
authenticate and run executable code. Therefore, influence, argue and disagreeall with nary a line of
because The DAO was backed by Ethereum, code in sight. In the end, the whole project was
complex business logic could be programmed, and disbanded, with an inglorious hard fork rolling
once set in action, the organization would be back the ostensibly immutable ledger. i
virtually unstoppable. The blockchain would ensure This chapter details the governance structures
that all business transactions and organizational that were promised by the developers and
changes would be immutably recorded on a public community members involved in the making of The
ledger authenticated and controlled by a large, DAO, and in contrast, those that were observed in
decentralized network of computers. Moreover, its discourses before, during, and after the exploit.
because the organizations spawned by The DAO With the term governance, I intend a broad
were directly funded through digital token-holding scope: governance is the conduct of conduct
investors, each organization would be, in-effect, through the plurality of (human and non-human)
directly managed by its investors, as per the actors that are interdependent but lack the power or
investment stake of the individual (i.e., those authority to decide and enact solutions unilaterally
investors who contributed more tokens would get a and directly (Introna, 2016: 19), which enables a
correspondingly larger number of votes on broad set of governance options as risks and
organizational decisions). No need for messy and solutions (Saurwein et al., 2015). In analysing
inefficient human negotiationso it seemed! discourses, I mean the cohesive ensemble of
The DAO was launched on April 30, 2016, at ideas, concepts, and categorizations about a specific
10:00am GMT/UTC (by several anonymous object that frame that object in a certain way and,
submissions of the open source bytecode to the therefore, delimit the possibilities for action in
Ethereum blockchain), with a set funding or relation to it (Epstein, 2005: 2). The discourses
creation period of 28 days (A2be, 2016). As the surrounding The DAO reflect governance through
funding period came to a close (concluding May 28, its technical makeup, as a deeply embedded socio-
2016), The DAO went live with the equivalent of technical apparatus that permits, prohibits, enables,
about $150m USD in funding, breaking all existing disables, promotes, and limits courses of action.
crowdfunding records. Some 10,000 to 20,000 My goal in this chapter is not to discredit the idea
(estimated) people invested in The DAO, of decentralized autonomous organizations, but
contributing 11.5 million Ethereum tokens (known rather to highlight some of the ways that such
as ether, or ETH), which amounted to about 14% discourses and their operationalization do and do
of the total ETH supply. However, shortly after the not (currently) work. Thus, true believers in the
minimum two week debating period, on June 17, technology will see that the world is simply not yet
2016, The DAOs code was exploited by an ready for decentralized autonomous organizations,
unknown individual. This exploit used unintended or that Slock.its version was flawed (such criticisms
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were widespread well before its launch). Critics of triggering software or electromechanical (or IoT)
The DAOs utopia, on the other hand, will realize devices.
that human sociality crops up whenever humans are From the inception of Ethereum and its much
involved, and that existing governance structures are lauded decentralized autonomous organization
in fact well refined through thousands of years of concept there had been very little concrete
social commerce, government, and exchangenot development of DAOs until The DAO was
the idealistic, pre-social vision that arguably never launched. The DAO was an attempt to build a
existed. Either way, The DAO introduced and funding platform, similar to Kickstarter, but one
explored an interesting technology for that specifically used DAO (blockchain)
experimenting with governance issues and new technologies for its operation. Whereas Kickstarter
models of society. raises funds from many individuals through their
Visions of decentralized autonomous centralized administration, typically for the
organizations development of commercial products (often
rewarding the funders through a pre-sale
The DAO was a decentralized, crowdfunded, direct-
mechanism), The DAO sought to raise funds
management (or direct-democracy) organization and direction from peers (decentralized, peer-to-peer
investment platform. The DAO was the first high- crowdfunding). To raise funds for a pool of
profile realization of a Decentralized Autonomous investment (controlled by The DAO token holders),
Organization (DAO) running on the Ethereum the first stage of The DAO was a funding period or
platform (other DAOs exist, and existed). ii Whereas creation phase of 28 days (beginning April 30 and
The DAO had visions of being the DAO to end all concluding May 28, 2016), during which time
DAOs, most DAOs differentiate from one another anyone could exchange ETH cryptocurrency for
by offering slightly different functionality, market DAO tokens in return. During the initial funding
verticals, and governance structures. period the price of DAO tokens rose
In the original vision of decentralized programmatically (from an initial value of 1:100)
autonomous organizations, as proposed by Vitalik encouraging early buy-in (a masterful sales tactic,
Buterin, founder and member of the Ethereum encouraging people to act soon, limited supplies!);
Foundation, a DAO is a pseudo-legal organization formally, the price increase was to reward the riskier
run by an assemblage of human and robot (information-deficient) behavior of early investors.
participants. The robotic participants are algorithmic After the initial funding period, no more tokens
rules that run on the distributed Ethereum would be created, however, it would be possible to
blockchain, and automatically respond to inputs trade existing tokens on public cryptocurrency
according to programmed rules. Inputs can be exchanges.
varied in type, including fully autonomous sensors Tokens would be used to directly fund and
(e.g., a digital thermometer), online inputs (e.g., a control proposals on The DAO platform. Anyone
change in stock price), or real-world, external with a (refundable) minimum token deposit could
decisions by human agents.iii Based on these inputs create a proposal to be voted on by token holders.
and the pre-programmed logic stored on a Investors voted by allocating DAO tokens for
distributed blockchain, the idea is that a DAO specific proposals.iv Since tokens would be valuable
would automatically initiate action in an irreversible (comprised of exchange-convertible ETH
way (all changes would be written into an immutable cryptocurrency), voting for a proposal was
distributed ledger). Potential actions a DAO might conceptually the same as funding it, in much the
take include distributing cryptocurrency (such as same way that projects are funded on Kickstarter.
ETH, for fuel or payment), or making a Unlike Kickstarter, however, DAO voting members
computation and issuing an output, such as would have significant control over projects. Since
proposals were expected to be as transparent as
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possible (ideally, with their operational logic DAO worried about potential conflicts of interest
programmed into the blockchain), DAO voting between Slock.its development and control of The
members would directly control an organization by DAO and Slock.its status as potential hired
voting for (i.e., funding) specific decisions. For contractor.
example, voting members could decidedirectly Although vastly less popular than Slock.its
if a new employee was hired or not by using their proposal, a few other ideas for The DAO emerged,
votes to approve or deny the decision (or even, in including one by a French company hoping to
fact, use their tokens to directly pay the employee). create a ride-sharing vehicle (Mobotiq), and a
The level of management granularity would be set proposal for an online gaming system (Firstblood).
by the decentralized autonomous organization Given my own interest in understanding the
contract that runs on the blockchain, and projects dynamics of distributed funding and governance
could choose to have the minutia of decisions voted platforms, I also begun the process of setting up an
on by members, or decide to have only major organization that would use The DAO. My hope
decisions go to vote. Those members holding the was that in creating an environmental charity using
most tokensmajority stakeholderswould have The DAO, along with fellow researchers (at
greater influence over decisions.v University College Dublin and the University of
The DAO proposals California, Irvine), we would be able to study real-
world activities through participant observation. By
On May 28th, The DAO officially went live after participating in and observing The DAO
an initial 28 day funding period. During this community and its technology, we hoped to see how
creation phase the community of investors these new forms of economics and management
discussed proposals for how The DAO funds were being used. Unfortunately, none of these ideas
might be used. The proposal with clearly the most made it to the formal proposal stage prior to the
community support was Slock.its own: use The exploit.
DAO funds to hire Slock.it to design and
manufacture a smart lock system that would The DAO of whales
enable sharing economy members (such as The research groups that had loosely formed to
AirBnB homeowners) to programmatically grant study The DAO had been collectively studying
access to their homes to approved renters. Since cryptocurrencies and blockchain technologies since
The DAO was intended to fund the development of the early days of Bitcoin. We had observed many
this smart lock system, to be built by Slock.it, The early cryptocurrency challenges, such as when the
DAO token-holders would earn rent on each then-leading Mt GOX cryptocurrency exchange was
transaction that used the system. The proposal was hacked, Bitcoin went through violent price swings,
enticing to many investors because it used many and Silk Road facilitated the sale of drugs and guns
aspects of blockchain technology to accomplish it online. We also observed how cryptocurrencies were
primary function, such as, payment and granular transitioning away from cipherpunk ideologies, and
management of access that would function through away from use as an online replacement for cash.
smart contracts on the blockchain, in an open, Principally, I wondered if the emerging venture
immutable, and verifiable manner. That rent was capital backed blockchain companies would lead to
being extracted on each use did not seem to bother a new era of respectability or legitimacy for
many people interested in the idea of a sharing cryptocurrencies. At the time, it seemed like The
economy. That Slock.it developed a funding DAO was clearly a part of this trend of
platform for the primary purpose of enticing cryptocurrencies moving towards dominant capital
investors to fund their own enterprise was, however, (cf. Bichler and Nitzan, 2004), and I hoped that by
a concern for many in the community. Early on, studying the formation and operation of The DAO,
foreseeing future problems, commentators on The from the inside, we would see how such systems
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might facilitate new forms of democratic control irrevocably) disburse funds if certain programmed
and enable massively-crowdfunded financing. criteria were met, such as if an oil spill occurred in
The environmental charity I proposed was called the region. In this way, The DAO (on behalf of the
The DAO of Whales. Running on The DAO whales) would automatically hold humans financially
platform, the charity sought to directly and responsible for their actions, and redress any
autonomously care for a pod of orca whales in the negative events by funding appropriate
Pacific Northwest. The entire charity would run in a countermeasures (such as paying for oil cleanup). As
transparent fashion on the blockchain, and through the original author of the idea stated, This is not
a series of smart contracts, its primary function save the whales, its give the whales the tools to
would be to disburse funds to a scientific research save themselves (Schroeder, 2014).
group studying our adopted pod of orcas (the The Exploit
choice of research group to receive the funds would
In the months leading up to the post-funding,
also be decided through the voting mechanisms
launch date of The DAO, numerous community
supplied by The DAO). Using techniques made
members expressed worry about the security and
possible by blockchain technologies, the payments
governance of The DAO. One community member
from the charity would be automated, verifiable, and
called it an experiment in responsibility, and, in
censorship-resistant (or unstoppable, in the sense
general, it was becoming clear that Slock.it might
that the system would need to be changed or
not be the safe shepherd the community had hoped
eliminated). I believed that charity organizations, in
for (Ryan, 2016). The most pressing and vocal
particular, would benefit from these kinds of
critique came from cryptocurrency researchers Dino
capabilities, since charities are sometimes accused of
Mark, Vlad Zamfir, and Emin Gn Sirer, who
financial mismanagement and opaque governance.
released a whitepaper two days before the launch,
Additionally, to see how far I could push the on May 26, 2016, outlining eight possible security
idealistic vision of decentralized autonomous risks (Mark et al., 2016). Although these security
organizations, I proposed reviving the concept of a risks were based on game theory issues, rather than
deodand to create a human-whale-robot hybrid
actual code bugs, given the status of these
organization. A deodand is a medieval idea that researchers in the field, and the unexpected success
imbued all created things with legal status, which of The DAOs funding stage, their call for a
therefore would give rights and duties to all things, temporary moratorium was well supported in the
just like human law (the concept of the deodand has community. Nonetheless, Stephen Tual, founder
in the past led to legal cases where farm animals and COO of Slock.it (who had taken on a corporate
have had to stand trial for their crimeswhich, messaging role), assured the community that such
humorously, included being dressed in appropriate concerns would be addressed, and that there was no
clothing and sitting in the witness stand). For my need for panic.
human-whale-robot hybrid, The DAO would
Between June 5th and June 9th, 2016, another
legitimize the identity of the hybrid by realizing its
programmatic operation and economic issue was discovereda technical bug this time,
called a race to empty attackjust days before the
performance, in effect, creating a new kind of legal
first activities of The DAO were to begin (2016).vii
entity.vi
To address the rising tide of security issues, and to
Why whales? I was inspired by a science-fiction reassure an increasingly worried public, on June 13,
idea mooted in the Ethereum community Tual issued a statement about a 1.1 software update
(Schroeder, 2014), which imagined that a DAO to The DAO framework, which had been in the
might work as a kind of legal counsel on behalf of a
works for over a month (2016a). This updated
pod of whales. So, for example, to ensure their own version purported to address the game theory issues
safety, The DAO could automatically (and identified by Mark, Zamfir, and Sirer (2016), as well
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as technical fixes for other issues, including the Accounting for all of the various built-in delays, the
race to empty attack. However, during this time, earliest date token-holders could exit with their
Tual was also increasingly vocal that Slock.it did not funds was July 15, 2016. In the end, Slock.it would
own or run The DAOa fact they had begun not push back any dates; The DAO launched with
emphasizing as The DAO grew relatively large and the 1.0 framework and an upgrade path to 1.1
wealthyno doubt due to legal pressure to keep software (requiring community approval and
their role as hired contractor distinct from the review).
ostensibly leaderless DAO framework. Because of On June 17, 2016, an unknown attacker launched
the algorithmic governance structure, Tual reported a version of the race to empty exploit that had
to the community, the needed technical fixes been previously identified, and began draining The
(supplied for the most part by Slock.it) could not be DAO of funds (in the end, 3,641,694 ETH, or
implemented until a) The DAO token holders 31.6% in total, valued at about $60-70 million USD).
affirmatively voted for an upgrade (after a proposed The first warning came from a Reddit community
two-week community review), and b) Ethereum member, ledgerwatch, who wrote, I think
miners approved and implemented the change. TheDAO is getting drained right now
Meanwhile, as the Slock.it team was preparing (ledgerwatch, 2016b). Within hours, Ethereum
the version 1.1 update and trying to move it through Foundation member George Hallam roused key
the community governance process for upgrading, Ethereum developers and other pertinent members
the race to empty attack was out in the open. This of the community to an internal Slack
exploit would enable an attacker to utilize the split communication channel (some of whom were
function to exit the DAO while repeatedly calling a already well into a Friday night). The members
function to withdraw funds before the balance could confirmed the attack and started to strategize.
be updated. The attack had been tested by a similar Knowing that the attacker would want to convert
(but much smaller) DAO project called the stolen funds into traditional currency, the
MakerDAO, which confirmed that it was assembled group contacted several individuals in
executable, and had alerted The DAO developers charge at the major exchanges responsible for
about the security risk. On June 12, just prior to his trading ETH, and strongly requested that these
prepared statement about the launch of the version exchanges halt trading. Worried that shutting down
1.1 update, Tual issued a statement about this trading would cause panic and reputational damage,
security risk, insisting that no funds were at risk, and potentially suggest fiduciary malfeasance, some
and that the forthcoming 1.1 software update would exchanges resisted such a drastic action, but with
address this exploit (2016c). $150m USD and an existential crisis for the entire
With ostensibly no funds at risk, Tual and the Ethereum platform on the line, the major exchanges
Slock.it team pressed forward, insisting that The eventually relented. With nowhere to go, and
DAO would stick to its original schedule, but that counter-attacks in place, the attack relented and the
they might reconsider moving forward with new funds were effectively frozen for the time being
features and improvements until after the (due to the built-in security delay required for child
deployment of a DAO Framework 1.1, which was DAOs and splits from The DAO). At this point,
supposed to fix existing security issues (2016c). long-term strategies were discussed, blame was
According to Slock.it, all The DAO funds were safe, placed (the community excoriated Slock.it, and
at least for the time being, due to built-in debating especially Tual), and a countdown clock for a
periods for proposals and creating new child DAOs, solution was started.
and a seven-day delay window for the withdrawal- After the exploit
like split action (Christoph, 2016). Therefore,
Over the next month, Buterin publicly debated
Slock.it argued, token holdersmalicious or
solutions (which ranged from immediate counter-
otherwisecould not immediately exit The DAO.
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attacks, to complicated soft forks, to clean and refusing the hard forkthey split from the mainline
severe hard forks), the founder and CTO of Slock.it blockchain. This new blockchainstill susceptible
Christoph Jentzsch publically apologized, and The to The DAO-style attackswas dubbed Ethereum
DAO funds continued to be attacked (and blocked Classic and for a while gained a respectable
through technical countermeasures). The value of following, even being actively traded on exchanges.
ETH plummeted, and the community discovered Over time, the Ethereum community put The DAO
that an unknown individual had shorted the price of experiment behind them, and talk of decentralized
ETH prior to the exploit and made millions in the autonomous organizationspreviously a guiding
aftermath, fueling speculation that the true purpose light for blockchain platformswas thereafter
of the attack was to devalue ETH and make money tainted.
by short selling (some of the evidence for this short An Ethnographic Study of The DAO
sale, however, is circumspect, as it may have been a Governance
mere coincidence). Moreover, debates over
solutions raged online, driven by ideologies that saw Seeing that my attempt to engage in participant
any kind of hard fork as tantamount to an observation research by proposing The DAO of
existential deceit (a hard fork would effectively erase Whales charity was cut short when The DAO was
the event from the collective and supposedly ignominiously cancelled and erased by the hard fork,
immutable ledger). Even more curiously, a letter I then begun retrospectively studying the ideals and
purportedly written by the attacker circulated, imaginations of the community through their online
arguing that since The DAO was defined by its discourse. Over the following year (2016-2017), this
code, the exploit was nothing more than a clever course of study brought me into contact with the
(and legal) loophole (The Attacker, 2016).viii The discourses of hobbyist participants and investors,
letter writer and a vocal minority in the community amounting to an ethnography of digital culture
argued that code is law, echoing Lawrence focusing primarily on the Reddit community (which
Lessigs (1999) influential slogan. Therefore, they I had previously identified as a primary site of
argued, any effort to block the attacker would be discourse). My study covered online discourses in
morally wrong and against the very spirit of the period immediately before, during, and after The
decentralized autonomous organizations. DAO.
Within the next few weeks, with the political Numerous challenges occurred in my efforts to
clout of Buterin and the Ethereum Foundation ethnographically study The DAO. Very little
behind the decision, a hard fork version of the empirical research on cryptocurrencies and
Ethereum software was developed and released to blockchains exists today. The research that does
miners. This hard fork created a special exist is predominantly quantitative in nature, and
withdrawal-only contract on the Ethereum from a socio-economic perspective. The only
blockchain and moved all tokens to it. A majority of existing qualitative study of actors and communities
miners implemented this software, and the that I am aware of is Lustig and Nardis (2015)
blockchain ledger was updated to effectively erase analysis of the Bitcoin community. Consequently,
The DAO. The DAO, and its political vision, was there are very few research models to follow
dead. (qualitative research of online communities, in
general, remains a challenge), and there is scant
Moderates saw the hard fork as evidence of the
contextual data about these communities to help
flexibility and practicality of Ethereum and its
guide and ground my own research.
leaders, while the more ideological saw the hard fork
as censorship by a powerful cabal, or proof that Nonetheless, Lustig and Nardi (2015) do provide a
blockchain technology was unable to live up to its compelling snapshot of the composition, beliefs,
idealistic promises. For the minority of miners who and values of the Bitcoin community (and by
refused to update their Ethereum software extension, the larger cryptocurrency and blockchain
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community).ix In their study, they used Grounded larger Reddit community (organized around
Theory Methodology with an initial thirty-six thematic sub-Reddits) I found that the Ethereum
question online survey and a follow-up series of sub-Reddit (/r/Ethereum) was the most vibrant and
interviews (with participants identified from the interesting place for online discussion of The DAO
initial survey). Twenty-two participants were (unexpectedly, the /r/TheDAO sub-Reddit was less
interviewed, and Lustig and Nardi found (perhaps active). Therefore, I focused my data collection on
unsurprisingly) that most members of the the Ethereum Reddit community, but also
cryptocurrency and blockchain community believed researched broadly across blogs, technical websites,
algorithms were more trustworthy and authoritative and news media as well.
than existing socio-political institutions. Yet, the Data were retrieved using opportunistic search
views and values of the Bitcoin community were queries across the entirety of the Reddit platform
divided and complexLustig and Nardi reported (global searches), and by following links and leads in
that the community recognized that it is not an investigative manner with no predefined scope
enough to just trust in the code (2015: 751). This limitations. Additionally, data were collected from
complex and sometimes contradictory view of trust the Ethereum sub-Reddit systematically through
and authority meant that other Bitcoin users needed June/July 2016 (the two months surrounding the
to be trusted and consulted while using the exploit), using an online search tool to display sub-
cryptocurrency (especially when it came to matters Reddit posts in chronological order. Discussions of
of trading strategy), but that the technical structure
interest (determined by a quick initial skim read)
of Bitcoin (using a proof of work network of were captured as PDF files, and ingested to Atlas.ti
miners cryptographically authenticating software for later processing (seventy-three PDF
transactions) obviated worries about counterfeited documents, each ranging from a few pages to fifty-
coins or counterparty risk. Moreover, the plus pages, were ingested).
development of the Bitcoin software itself, Lustig Once the Reddit discussions were ingested into
and Nardi pointed out (2015: 751), required Atlas.ti, I performed a form of open coding for
complex socio-technical negotiations. qualitative content analysis. This method is similar
Research Method to the constant comparative method developed by
Glaser and Strauss (1967). I reflexively, iteratively,
My research used a variant of Grounded Theory
and interactively grouped, renamed, and abstracted
Methodology; specifically, I followed Merriam and
Tisdells (2016) Basic qualitative method. Merriam data while building towards categories (a form of
axial coding). My method of analysis was
and Tisdell characterise this method as richly
purposely loose and pragmatic, not high-minded
descriptive, emergent, and flexible. Key to this
Basic method is recognizing that existing bias analysis driven by formalities. Merriam and Tisdell
the expertise of the researcheris a strength to the espouse this deflationary view of qualitative data
analysis for their Basic method: Coding is
development of theory, by which the researcher
works from observed behaviours and discourses to nothing more than assigning some sort of shorthand
designation to various aspects of your data so that
thick theories of human and social interaction.
you can easily retrieve pieces of the data (2016). As
Data were collected from online sources, in a I developed categories, I constantly returned to the
retrospective fashion. Since The DAO had already data and reevaluated my codes and categories, using
ended, I used written traces of discourse from my existing insights about cryptocurrency discourses
several online sources. In my initial research, I to guide my decisions. I developed twenty-three
identified the Reddit community as being the richest codes over the seventy-three ingested documents (in
source of non-technical discourse, especially since addition to identifying 534 illustrative quotations). I
this community appeared to be comprised of both soon learned that chronology became the most
insiders and outsiders to The DAO. Within the critical axis of analysis (files were renamed in Atlas.ti
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using their origin date to facilitate ordering), since because it was shuttered before long-term dynamics
discourse about The DAO shifted significantly of governance could be further explored. Moreover,
before, during, and after the exploit. as a moment of crisis, the experimental goals that
Given the highly decentralized nature of the The DAO originally set out to achieve have yet to
underlying blockchain technology and be brought to fruition. Therefore, assessing the
cryptocurrencys origins in cipherpunk and Internet governance of The DAO, and seeking sensible
culture, I felt justified in focusing solely on online solutions and options for addressing risk (see
discourses for data collection, since my previous Saurwein et al., 2015), remains a significant
experience told me that blockchain communities are challenge.
especially well represented online. Nonetheless, the Of the many potential themes that emerged in the
Reddit community constitutes a very particular complex discourses on The DAO, I identified three
snapshot of larger cryptocurrency discourse, and has related to issues of governance: legal authority,
its own form of rhetoric and shared lore. As such, practical governance, and the experimental nature of
my study cannot be understood as fully using algorithmic systems for distributed action.
representative of all participants in The DAO. Legal authority
Moreover, Reddit discourse is semi-public and
pseudonymous in nature, and often has a Legal authority is now a well-known issue in the
performative quality.x Additionally, given the cryptocurrency and blockchain world. For years,
extensive, decentralized, and often secret nature of strong (idealistic) proponents of blockchain
cryptocurrency participants (and especially their technology have advocated that code is law.xi In
trading strategies), there is almost certainly a shadow the academic literature, this articulation of code is
element not at all represented in the public law has been described as a form of algorithmic
discourses that I investigated. In fact, my past authority; first identified by Clay Shirky (2009) and
experiences within the community suggest that a then later Frank Pasquale (as automated authority)
significant number of cryptocurrency users are (2011), among others. In much of this literature, in
primarily investors interested in little more than direct opposition to the idealistic proponents of
high-risk profit, and therefore are motivated by blockchain technology, the concept of algorithmic
economic incentives, which may also be authority is characterized critically, as tantamount to
underrepresented in the vibrant online discourses the biopolitical technologies that go about unknown
(with an inverse overrepresentation of idealist and by, and against the interests of, its subjects (Introna,
polemic discourses existing online). Nonetheless, my 2016).
analysis revealed hints at these and other complex Lustig and Nardi (2015) characterize the Bitcoin
motivations in the online communities. communitys beliefs about legal authority through
the lens of algorithmic authority. In their analysis,
Results they identified a complex array of views on
The DAO provides a compelling and rich snapshot algorithmic authority, and they found that according
of unrealized dreams, visions of new worlds, and those in the Bitcoin community, the presence of
quotidian struggle. Because The DAO ended in algorithmic authority is not uniformly negative.
disaster, the results also speak to literatures on crisis Similar views about the role of algorithmic authority
and the governance thereof. Specifically, I am drawn were also found in the discourses on The DAO. As
to Sammans analysis (2015) of crisis and historical I mentioned above, the person who purportedly
imagination, which conceives of crisis as both exploited The DAO also wrote a letter to the
overdetermined and indeterminate. In the case of community, arguing from this very position of
The DAO, there were numerous internal algorithmic authoritythat he or she rightfully
contradictions that overdetermined a single narrative claimed 3,641,694 ether by exploiting a feature
history, and The DAO remained indeterminate of The DAO that was designed to promote
9
decentralization (The Attacker, 2016). Others in rhetorically distancing itself from fiduciary
the community were also sympathetic to this view involvement of The DAO, seemingly for fear of
(despite sometimes being in a position to potentially legal reprisal (and many community members picked
lose a significant number of valuable tokens due to up on this maneuvering). A clear example of the
this very model of legal authority). latent tensions between utopia and reality was
Therefore, rather than simply adopt a critical, expressed by Tual in an early blog post (March 1,
normative position when assessing the community 2016), entitled DAOs, or how to Replace Obsolete
discourses on algorithmic authority, I reference a Governance Models (2016b). This blog post
model of algorithmic authority in terms of its announced the coming realization of a practical
governance relations (Campbell-Verduyn et al., technology for anyone, anywhere in the world to
2017). Using this model, I argue that the forms of set up a Decentralized Autonomous Organization
algorithmic authority present in the discourses on (later known as The DAO), which included the
The DAO properly exist in a continuumas proviso that if you create a DAO... [using our
governance through algorithms, governance with software] you will be responsible for its operation
algorithms, and governance by algorithms. (Tual, 2016b). Somewhat more skeptically, others
Those attuned to formal understandings of law noted that The DAO nonetheless involved real
will likely find the notion of algorithmic authority people (ledgerwatch, 2016a), which may or may not
as exemplified by the argument put forth in the be able to legally own assets given the unique
attackers lettergalling and borderline humorous. structure of ownership under existing law
As though intent could not or does not play an (Dunning_Krugerrands, 2016). Showing concern for
important role in law, or that a Terms of Service the ways that existing legal authority might impinge
Agreement (which the attacker also cites) could on their collective experiment, taxes, regulation, and
trump common sense and legal process. liability were also frequent points of conversation in
Nonetheless, the concept of algorithmic authority the community.
crystalizes a point that many in The DAO Many members of The DAO community saw
community heldThe DAO was supposed to their experiment as embarking on a new legal world,
represent a turning point in legal authority, where and devised strategies to make this world a reality.
code really does form a new legal regime. For Reddit community member ledgerwatch (and
example, IAMnotA_Cylon (2016) argued that later, the individual to first discover The DAO
Ethereum worked exactly as intended, and exploit), thought that the necessary legal
Polycephal_Lee (2016) argued that the exploit was framework for The DAO could be grown bottom
the protocol working as it was written. On the up... [from] within the current legal system
other hand, UntamedOne (2016) argued that we (ledgerwatch, 2016a). This individual then invoked
dont live in this idealistic cryptoanarchy world yet Lex mercatoria, or medieval merchant law, as a model
(emphasis added). For those in The DAO for how The DAO might find its legal footing
community, many (but certainly not all) saw The within the existing legal system (ledgerwatch, 2016a).
DAO as a realization of new form of legal authority. Presumably, medieval merchant law was a suitable
Nonetheless, the subsequent exploit also helped model on account of its rough-and-ready and
expose the tensions necessarily present in the space pragmatic way of dealing with legal issues (medieval
between algorithmic and existing, juridical legal merchant law sat outside of more formal legal
authority. processes). For The DAO, this kind of pragmatism
Some members of The DAO community became a form of real governance, as seen in the
expressed concerns about this tension. Early on, views of those community members who believed
these voices also included Slock.its, which the post-exploit hard fork was an example of
attempted to balance this legal tension by pragmatic, good governance.
10
Practical governance bailouts now (Eldakara, 2016). By accepting

On the continuum of governance made possible by centralized governance in the form of a hard fork,
algorithmic technologies, practical governance (or instead of sticking with flawed but pure algorithmic
governance of algorithms) is a key issue facing authority, itworks123 believed it was like saying
society today. The existence of autonomous we should delay democracy until things are perfect
weapons, self-driving cars, and, of course, The (itworks123, 2016). On the other hand, many
DAO, all throw into relief the challenge of socially community members pushed back against this logic,
integrating these technologies, through forms of risk perhaps motivated by saving their personal
management, internal design and development, investment stake in The DAO, or perhaps by a
market solutions, industry self-regulation, and state thicker sense of the social embeddedness of
and government regulation (Saurwein et al., 2015). technological systems. Summarizing this position,
DavidMc0 wrote, decentralized doesnt need to
Once the exploit of The DAO took place (June
mean static, stupid, or powerless against attackers
17, 2016), the previously existing ideals of
(DavidMc0, 2016).
algorithmic authority held by The DAO developers
and supporters were thrown into disarray, and the An important part of the model of practical
project entered crisis mode. Slock.it and others governance for The DAO rests on the view that it
attempted to assure a nervous public that the exploit made a break with past forms of governance and
did not threaten any funds and that it was business that the exploit merely highlighted the ways that
as usual (in the end, no funds were actually stolen) reality had not yet caught up to these new models.
(carloscarlson, 2016). Some of these community Looking toward technical developments that would
members saw the exploit as an expensive lesson in create forms of algorithmic authority enabling a
real life (Let the DAO burn wrote more robust and nuanced mode of governance,
GeorgesTurdBlossom, 2016), or perhaps one that redditbsbsbs writes: we can argue about full
would motivate further development in security for decentralization and autonomy post Serenity
decentralized autonomous organizations. Others, (redditbsbsbs, 2016). Here, Serenity is the name
however, thought that a solution lied in the of a point in the Ethereum development roadmap,
realization that, despite ideals and heaps of rhetoric but tellingly, also a rhetorical emblem of an
about decentralization and immutability, good imagined state of affairs, when algorithmic
governance was flexible and pragmatic. For instance, governance reaches peace and serenity.
some argued that this was a maturing of the Experiments in distributed action
ecosystem (Floersch, 2016) or a rite of passage From the earliest days of The DAO, many
(Sirer, 2016). For these individuals, which included community members acknowledged that the
Buterin, a hard fork was an obvious choice when enormous complexity of decentralized and
faced with an existential crisis of this nature algorithmic governance required a new kind of
(vbuterin, 2017). experimental science (dm1n1c, 2016) to map the
In these discussions, the issue of centralized uncharted territory The DAO was entering
governance emerged in parallel to factions in the (laughing__cow, 2016). This new science was
community. Hardliners saw Buterins and the understood as, and promised to be, governance by
Ethereum Foundations support of a hard fork as algorithms. Bringing to light this science of society,
tantamount to the bank bailouts following the 2008 however, required both a pioneering spirit and a
global credit crisis. DonaldCruz wrote, jokingly, new model of distributed action.
good thing we have a central authority to come to This logic and rhetoric of experiment,
the rescue when shit hits the fan (DonaldCruz, confusion, and newness pervaded discussions
2016). And Eldakara wrote, Ah..[sic] So about how action could be coordinated using a
decentralized protocols come with centralized decentralized technology platform. Summarizing the
11
tension between a sound investment and a recipe however, The DAO relied on a model of human
for chaos, one Reddit member noted that this kind behaviour and social constitution notionally based
of collective action is dependent on an on liberal ideologies, where humans act as rational,
experimental, first-of-its kind DAO platform self-interested, and untrusting agents (see Reijers et
(xxeyes, 2016). The DAO was also surprisingly al., 2016; Scott, 2014). Inevitably, however, when
complex in terms of coordinating actors, with governance of The DAO deviated from the
vigorous debates about the role of Slock.it, curators, expected course of events (those modelled in game
developers, miners, the Ethereum Foundation, and theory by the designers), the social actors fell back
the community of token holders. When the to traditional strong network ties. In doing so,
collective community is in charge, people worried, governance of The DAO discredited its ideological
where do rights and duties fall (cubefriendly, 2016)? underpinnings, and even exposed a worrisome lack
Coordinating interests and actions across a range of managerial prowess that would typically use
of actors with often very different incentives is a forms of rationalizing behaviour drawn from risk
central challenge to designing many decentralized management or crisis intervention.
information communication technologies, including The resolution of the exploit, through the
the Internet. The development of The DAO, as a eventual and final hard fork, was ultimately a hurried
model for future decentralized autonomous private discussion among known individuals, and
organizations, was an ideal site of exploration for bore little resemblance to game-theoretical modes of
experimenting with these incentive structures. One incentivizing and distributing action (see Hallam et
of the key actors in this regard is Vitalik Buterin, al., 2016). Despite The DAOs experimentation,
who has demonstrated a sophisticated, if at times operationalizing algorithmic governance in society
blinkered, view of incentive and distributed action. still requires awareness of implied and undeclared
In his online writing, he has come up with social goods (Levy, 2017), and any future design will
numerous game theoretical models to assure need to contend with these challenges.
honesty, compliance, and other means for Discussion
distributed action, which in turn, can be instantiated
in algorithms to produce authority and governance. I have not written with the goal of any strong
Buterins emerging and much-lauded Proof of conclusions to the many contentious issues present
Stake algorithm (replacing the now, much in The DAO or the broader themes revealed in this
maligned, Proof of Work algorithm originally chapter. Rather, I have identified some of the ways
used in Bitcoin) is one such direct result of this kind that governance was believed to function in
of musing. Perhaps because it is so amenable to decentralized autonomous organizations, and the
implementation in technical systems (a form of ways that it did function.
computationalism; Golumbia, 2009), game theory The DAO is an important artifact for attempting
has become a key way of modelling complex social to understand emerging forms of algorithmic
properties in blockchain and cryptocurrency authority, working through practical modes of
systems. governance for autonomous and decentralized
The exploit of The DAO, however, inevitably systems, and for understanding the ways that
belied much of this sophisticated game theory. The designing incentives and modelling action can fail.
exploit shone a light on the shortcomings of these Its emergence and technical structure formally
assumptions, or at least, reminded the actors of the relates to ongoing discussions about the ethics of
enormous complexity of socially-embedded systems. autonomous warfare, automated and high-frequency
It was believed that action could be coordinated finance, and big data. Despite the utopian rhetoric
through technology, or at least enhanced by it, with on the one hand, and the largely critical academic
the application or operationalization of games or literature on the other, what remains unclear with
bets. Beneath the methods of coordinating action, these technologies is whether they constitute an
12
extension of existing socio-technical apparatuses, or blockchain technologies more broadly as

are a decisive break with the past. What is clear, The apparatuses for socio-technical experimentation in
DAO proved, is that these technologies have society? That is, in the end, perhaps The DAO
significant potential for real impact and harm, and simply did not survive long enough to work out the
therefore ring early warning alarms for the critical kinks in a promising new kind of governance. Or,
investigation of modes of governance beyond those perhaps hype and exuberance got in the way of a
already designed. good idea, whose time will come someday, and first
After the exploit, The DAO was formally charted by these intrepid explorers?
shuttered, but in the conflictual community In this chapter I detailed the brief history of The
response that ensued there lies an interesting coda DAO, and offered an analysis of its modes of
to its broader narrative. When the hard fork was governance. To do so, I performed retrospective,
proposed as a fix to the exploit, a vocal minority ethnographic research of The DAO community by
opposed it. While it is not entirely clear who focusing on online discourse. I found three key
opposed the hard fork, in their opposition, many themes of governance emerge from this discourse:
miners declined to accept the hard fork software 1) the shift of legal authority from existing, juridical
and therefore continued to mine the old blockchain. authority to algorithmic authority; 2) the difficulty of
In doing so, the incentives (and capabilities) of the designing and governing algorithmic systems, and
miners became critically misaligned with the especially immutable and decentralized ones; and 3)
incentives of the majority of The DAO community. the challenging ethical terrain of experimentation
By mining the old blockchain, the miners forged a with forms of distributed action through
new cryptocurrency, later called Ethereum Classic autonomous, decentralized systems.
or ETC. Ethereum Classic would itself become a Acknowledgments
strange investment vehicle that created economic
value out of thin air (not unlike all Funding for this research was provided by the
cryptocurrencies), underpinned by nothing more University College Dublin Center for Innovation,
than vague idealism and a dogged interest in Technology, and Organization. I hold a small
financial returns. amount of cryptocurrency for research purposes,
including Ethereum and (previously) The DAO
In the end, I think Ethereum Classic represents
tokens.
the story of The DAO fairly well. For all the dreams
and visions contained in the rhetoric about The Thanks to Gianluca Miscione, Paul Ennis, Donncha
DAO, tracing the history of The DAO left me Kavanagh, and Bill Maurer for commentary and
wondering if more than a tiny handful of individuals guidance. Malcolm Campbell-Verduyn provided
ever actually believed in the possibility and true welcome editorial assistance. Initial qualitative
benefit of a decentralized autonomous organization. research on The DAO was also conducted by
It struck me that, like so many cryptocurrency and Melissa K. Wrapp and shared with me, providing an
blockchain technologies, The DAO might have invaluable aid in the early stages of this research.
been just a high-risk investment vehicle References and Notes
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Despite my cynicism, The DAO also introduced The DAO. DAOhub.org. Available from:
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experimenting with governance issues and new on-the-creation-of-the-dao/6377 (accessed 7
models of society. Indeed, perhaps this April 2017).
characterization can also be extended beyond
Bichler S and Nitzan J (2004) Dominant Capital and
matters of governance and beyond The DAO the New Wars. Journal of World-Systems Research
itselfshould we see cryptocurrencies and 10(2): 254327.
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Campbell-Verduyn M, Goguen M and Porter T Eldakara (2016) F*ck this DAO. reddit. Available
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carloscarlson (2016) No hard fork does NOT mean Epstein C (2005) The Power of Words in International
DAO holders lose all their ETH. This debate is Relations: Birth of an Anti-Whaling Discourse. MIT
being rushed - lets examine ALL options. reddit. Press.
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https://www.reddit.com/r/ethereum/comment Aftermath, Discussing the DAO Hack. ConsenSys
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Christoph (2016) How to split the DAO: Step-by- 31-aftermath-discussing-the-dao-hack-
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https://daowiki.atlassian.net/wiki/display/DA GeorgesTurdBlossom (2016) We want unstoppable
O/How+to+split+the+DAO%3A+Step-by- contracts. Let the DAO burn. reddit. Available
Step (accessed 7 April 2017). from:
cubefriendly (2016) The DAO does not invest in https://www.reddit.com/r/ethereum/comment
Slock.it, it will hire the slock.it team to build the s/4ozzdv/we_want_unstoppable_contracts_let_
USN (Universal Share Network) for the DAO. the_dao_burn/ (accessed 10 April 2017).
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tting_a_refund/ (accessed 10 April 2017). 10 April 2017).
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Autonomous Finance DAO. reddit. Available Vulnerability. reddit. Available from:
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s/4gz43z/the_dao_debate_the_ethereum_auton (accessed 9 April 2017).
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https://www.reddit.com/r/ethtrader/comments tting_a_refund/ (accessed 10 April 2017).
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laughing__cow (2016) To the community. reddit.
ent_there_wont/ (accessed 9 April 2017). Available from:
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https://www.reddit.com/r/ethereum/comment redditbsbsbs (2016) Ether Safe - But DAO

s/4p521a/to_the_community/ (accessed 10 cancelled. Were getting a refund. reddit.
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ledgerwatch (2016a) Dont wait for Slock.it DAO https://www.reddit.com/r/TheDao/comments
announcement - there wont be any. reddit. /4oisep/ether_safe_but_dao_cancelled_were_ge
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The Attacker (2016) An Open Letter. Pastebin.com.

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ment_highrisk/ (accessed 10 April 2017).
16
i Disbanded but not destroyed, The DAO lived on through a stubborn community of
idealistic miners who refused to accept the hard fork, thereby creating a classic version of
the Ethereum blockchain containing DAO and ETH tokens, which in turn gained a measure
of support and value.
ii At the time of writing, examples include MakerDAO, Wings DAO, Digix Global, Augur,
and TokenFunder.
iii It is even possible to have low-trust/high-honesty human input through an oracle
arrangement. In the context of blockchain human-machine organizations, these oracles can

use economically-incentivized prediction markets (e.g., TrustCoin, Augur), a game-theory
setup (e.g., SchellingCoin), or even just simple multiple-signature ledgers to reduce the
possibility of human cheating when reporting answers to oracle questions.
iv There is also a group of individuals misleadingly called curators, who are responsible
for the overall maintenance of The DAO platform, but despite their title they do not control
or curate which projects are funded.
v One known risk about this arrangement, however, is the possibility of the majority
robbing the minority. If a majority shareholder decided to create a rule that stipulated, say, all
funds were to be disbursed to majority stakeholders only, then this (majority) stakeholder
could also approve such a rule, and therefore rob the minority. Slock.it was aware of this
issue, and designed an odd split mechanism for funders to leave a DAO before decisions
could be implemented (which utilized built-in delays). The split mechanism was later used
during the exploit, but the built-in delays prevented the attacker from successfully exiting
The DAO with any funds.
vi The idea of a deodand is now part of legal lore, but with recent rulings such as Citizens
United v. Federal Election Commission, which effectively made it possible for corporations to
act like people (at least for campaign spending), I argue that the idea of a deodand is no
longer far-fetched.
vii A version of the attack was originally identified by Christian Reitwiessner, and reported
to key developers four days prior (Vessenes, 2016).

viii It must be stressed that it is very unlikely this letter is authentic. Nonetheless, the letter
beautifully crystalizes the views of many people in the community, and is therefore an
important source for understanding the dynamics of governance in The DAO.
ix One must, however, use caution when extrapolating between cryptocurrency and
blockchain communities, since each has its own history and values. For example, the Bitcoin
community is famously anti-authoritarian in comparison to Ethereum or, even more so, any
number of the financial technology organizations using blockchain and distributed ledger
technology. The latter tend to be incentivized to work within existing capital institutions,
whereas the former tend to want to replace the existing economic system.
17
x Performative discourse is an especially acute issue for cryptocurrency communities, which

suffer from a well known pump and dump problem. Individuals attempt to convince
others of the value or future value of a currency that he or she already owns a stake in (using
traditional rhetorical strategies or pseudo-scientific analytical projections), in order to drive
up the currency price and then sell at profit.
xi Although it is rarely appreciated in cryptocurrency and blockchain discourses, Lessigs
original (1999) version of the code is law slogan argued that algorithmic permissions
obviate the very category of lawnot that the code constitutes a new form of law. In Lessigs
version, if code prevents the activity in the first place (such as sharing an MP3 file under a fair
use / fair dealings exemption), then the appropriate laws do not even have a chance to be
invoked, since there is no (potentially illegal) action to be considered.
18

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Experiments in Algorithmic Governance: A history

This chapter describes an emerging form of algorithmic governance, using the

Practical governance bailouts now (Eldakara, 2016). By accepting

extension of existing socio-technical apparatuses, or blockchain technologies more broadly as

https://www.reddit.com/r/ethereum/comment redditbsbsbs (2016) Ether Safe - But DAO

The Attacker (2016) An Open Letter. Pastebin.com.

arrangement. In the context of blockchain human-machine organizations, these oracles can

to key developers four days prior (Vessenes, 2016).

x Performative discourse is an especially acute issue for cryptocurrency communities, which

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