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Blockchain Technology

Stanford University_121121A
[Stanford University - Andrew Brodhead]


- Overview

Like the Internet itself, the blockchain is decentralized and anyone can freely participate in the operation of the network. But unlike the stateless internet, blockchain records are cryptographically protected. Blockchains can also transfer state and value through non-fungible tokens (NFTs) and host self-executing code called “smart contracts.” When all these advantages are combined, the impact of blockchain on 21st century commerce -- from automating insurance to fundamentally optimizing supply chains -- is practically immeasurable. 

If I send you bitcoin, the transaction is simultaneously recorded on the 12,000+ computers, servers, and other devices running bitcoin. Everyone on the chain can see the transaction and no one can change or delete it. Alternatively, you can send me a non-fungible token (NFT) on the Ethereum blockchain, and the transaction is simultaneously recorded on all the computers (aka "nodes") running Ethereum. 

These two examples roughly explain what blockchain technology is: a way to maintain an immutable record of transactions on multiple computers, so that new transactions cannot be recorded on one computer without simultaneously being recorded on all on other computers. Blockchain applications have gone far beyond cryptocurrencies and NFTs, as governments and industries, from healthcare to agriculture to supply chain operations, are leveraging the technology to improve efficiency, security, and trust.


- Blockchain Governance

Blockchain technology is described by many terms — "decentralized," "permissionless," "autonomous" — which can lead users to make assumptions about governance. For example, they might think that this is a wonderland for libertarians and anarchists, or that all members have an equal say in how the blockchain works. In reality, blockchain governance is a very, very complex thing with significant ethical, reputational, legal and financial implications. The creators of the blockchain decide who has power; how they get it; what oversight (if any) is there; and how decisions are made and implemented. 

A quick look at two cases, one infamous and one in progress, is instructive. These events show how important it is to build blockchains and the governance of applications running on them with great care and diligence.


- Decentralized Autonomous Organization (DAO)

The first Decentralized Autonomous Organization (DAO), a hedge fund originally called "The DAO", runs on the Ethereum network. Depending on the amount of money they put into the joint venture (especially ether), members have varying amounts of voting power. When The DAO was hacked in 2016, extracting about $60 million worth of ether from the fund, members took a very different view of what to do and whether the hack constituted a "theft" Morphological position. One camp argues that the ill-gotten gains of bad actors exploiting software vulnerabilities should be returned to the rightful owners. Another camp believes that DAOs should avoid reversing fraudulent transactions, but simply fix the bug and keep the chain running. The group believes that "code is law" and "blockchains are immutable", so hackers act according to the code and there is nothing unethical about it. The former camp eventually won and established a "hard fork" that directed funds to recovery addresses where users could get their investment back, essentially rewriting the history of the blockchain. 


-  Juno Governance 

The second example is the controversy over Juno governance of another DAO. In February 2021, Juno conducted an "airdrop" (sending free tokens to community members to increase engagement) on its network. One wallet holder figured out how to play around with the system and received a large portion of the tokens, worth over $117 million at the time. In March 2022, a proposal was made to withdraw the majority of the "whale" tokens to an amount considered to be a fair share of the airdrop. A month later, the proposal officially passed with 72% of the vote, resulting in the withdrawal of all but 50,000 whale tokens. The whale threatened to sue Juno by claiming he was investing other people's money. 



[More to come ...]


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