By deploying such an immutable contract to be the custodian of customer funds, such an entity is essentially making a hard/inescapable precommitment to doing for users, whatever the contract happens to do. In a sense, the central entity's owner is not the true custodian of people's locked funds; rather, the contract itself is, and the contract can be independently audited by anyone who cares, before anyone begins using it, to prove that it will only ever be able to act in the public interest, rather than in the corporation's interest.
The central entity get to initially craft those rules however they like, and so can certainly design the contract to act favorably to them; but then the contract gets (immutably) deployed, and everyone else then gets the opportunity to look at the rules of the contract-as-deployed, to decide for themselves if they're equitable. If they're not, nobody will bother to interact with the contract.
But crucially, this "community of node operators" consists of a multilateral coalition of people and companies operating under every different society / government jurisdiction on the planet, with no single government that can compel enough operators at once to actually get the majority required to compel the state of the blockchain to change.
In other words, blockchains are systems with democratic recourse, but not authoritarian recourse. They can be altered from the bottom up to fix problems caused by immutability, if basically "a referendum run against a representative sampling of the population of Earth" agrees with the alteration; but they cannot be commanded to change from the top down, just because some individual entity with a conflux of power wants it to happen. No legal system can force a smart contract to do what you like; but common sense and human empathy can still override bad machine decisions when necessary.
I vote for rule of law, 100%.
> In other words, blockchains are systems with democratic recourse, but not authoritarian recourse.
No, "lawful" and "authoritarian" are not synonyms. No, letting people "vote" with their money is not democracy.
You pervert the meanings of the words sufficiently that you have literally reversed their meanings. Laws are created by the people's representatives, who are elected democratically.
I didn't say they were. But laws that the majority of the public agree with / would enforce themselves if given the chance, don't really need to be laws; in such cases, bottom-up action (not in a lynch-mob sense, but in a "petition that literally everyone signs, so people just agree amongst themselves to make it happen" sense) will correspond 1:1 with what any government optimizing for "the public good" would institute top-down as law. You can ignore the existence of bottom-up-supported top-down laws when speaking about the interface between "law" and decentralized technology, because regardless of whether the law can influence the decentralized system, the cultural zeitgeist of societal pressure that underlies the law, still can.
As such, it's only laws that the majority don't agree with — i.e. top-down dictated laws in authoritarian societies, un-audited regulations from corrupt bureaucracies, etc — where things behave differently in a decentralized system than they would under rule of law.
(Good secondary example of this: BitTorrent trackers. The majority of people seemingly don't agree with the sort of corporate IP "use rights" that underlie the illegality of media piracy; so most/all BitTorrent trackers do nothing to prevent the sharing of copyrighted materials. But the majority of people do generally agree that CSAM is unethical to distribute; and so public BitTorrent tracker operators do bother to prevent their nodes from enabling the sharing of such files.)
Also, I think you're potentially forgetting that there are multiple "rules of law" to talk about here. A decentralized system is inherently a single system shared across participants who exist under multiple countries — i.e., a multilateral system. If you want "rule of law" to pertain to such a system's logic, then whose rule of law would that be? Do you want China, Russia, and Saudi Arabia to all have a say in what transactions you're allowed to do?
(To be very pedantic, a world government could easily dictate what happens on a blockchain, because they would have authority over every single node operator. So one could technically say that blockchains aren't abandoning the rule of law per se... but rather are just holding "the rule of law" to a very high standard — ignoring any law that everyone on earth can't all agree on.)
> No, letting people "vote" with their money is not democracy.
Nobody said anything about voting, or money. Blockchains exist on a lower level than the abstractions they enact. Fundamentally, changes are made to how a blockchain works not because people vote, or stake, or whatever else; but rather because blockchain-node-software operators voluntarily opt in to upgrading their nodes to versions/variants that have a given feature, and then to enabling a proposed hard-fork upgrade point that makes that feature happen.
These blockchain node operators are peers in a network, and the "democracy" they participate in is one of voluntarism — i.e. choosing to run a piece of node software that encodes particular rules, or not; choosing to validate/mine for a particular network, or not. Networks that people don't care for, die, because people voluntarily stop running the nodes. Network changes (which really means "node software changes") that people don't like, don't get adopted by node operators, because doing so is always an explicitly opt-in process.
This isn't representative democracy. This is direct democracy. Each software change is a default-deny referendum, "proposed" by coding it into a piece of node-software, which operators "sign" by upgrading+configuring their node software. The network only changes if enough people actually do upgrade+configure their node software, for the fork block that was created using the novel code to reach fixation in the network over the fork block that would be created by anyone in the network still running the old code.
If you store a lot of cash in your home safe, eventually you will need more space - this is one reason banks exist. If you try to move a lot of cash quickly from one person or location to another, you will have a hard time - this is another reason banks and money transfer exists. If somebody breaks into your home safe, they probably will have immediate access to your cash - see smart contract wallets[1] and social recovery wallets[2] as an example of a more secure "crypto safe."
I agree that a concern in blockchain is that regulation and services may restrict users ability to withdraw to the base layer, see my other comment[3]. To me this is not a failing of the blockchain. It would be like governments restricting the use of internet or E2EE chat protocols - which is happening in some parts of the world - this does not mean the protocols have failed to meet their goals.
[1] https://www.argent.xyz/learn/what-is-a-smart-contract-wallet...
Uh, that’s a pretty big “if”, right? It’s completely up to the custodian whether you can withdraw or not, and we’ve seen several large platforms freeze withdrawals recently (and then fold). To an average individual, the hypothetical possibility of withdrawing to the “base layer” is at best a marginal improvement over the existing financial system; hardly a revolution.
Many advocates of decentralization and blockchain do not want to support centralized services like Celsius.
This is an area that laws and regulation could be added to protect users. If a service is holding user funds, there should be recourse to allow those users to withdraw the funds to a base layer, or if the funds are at risk of being frozen as we see with Celsius, this should be more clearly indicated. FDIC style insurance could be addressed in some hypothetical future crypto banks, giving users further protection.
From that, additional applications can also be built on top - multi signatory accounts, a social graph, ownership of digital property, decentralized exchange and lending services, escrow, crowdfunding, and more.
Using blockchains for money is just about the most absurd solution a society can come up to the problems of financial centralization. Money is a form of power and the solutions to power problems are always political.
We need a financial system that protects individual privacy while reducing the options for money laundering, tax evasion, bribes, fraud and all the types of crimes motivated by money. There is a inherent contradiction in these requirements, the hope that a private actor or some non-accountable peer to peer algorithm can find a good political compromise is an ideological pipe dream.
Sure, but what’s an actual real world use where that’s a good thing? For domain names it’s exceptionally useful that a stolen, infringing, or fraudulent domain can be recovered through the legal system.
Useful for who? It is often useful for large companies with powerful legal teams who will try to exert control over domain name registrars as they see fit.[1]
The nice thing with the blockchain is that you have the choice. If you want your asset to be recoverable through the legal system and courtroom decisions, it can be put into a centralized custodian. If you want to maintain complete ownership of that asset even though you risk not being able to recover it if somebody steals it from you, you might like to hold it non-custodially.
It is very possible that laws end up being defined around ownership of blockchain assets to give them a stronger degree of legal and intellectual property.
[1] https://domainnamewire.com/2022/03/08/meta-platforms-and-nam...
People who use DNS to resolve any service they rely on and expect to end up at that service, rather than on some hijacked version, which is essentially everyone who uses the DNS system.
Your linked examples are of companies attempting to put themselves beyond the reach of the legal system, which doesn't really counter the pervasive idea that crypto is only useful for breaking the law and for speculation.
1. ENS ownership is held by a 5-of-7 multisig. Attacker would need to socially engineer 5 entities instead of just one, Namecheap. Users can also clearly see when ENS ownership changes as it’s broadcast to the network.
2. ENS is set to a 100 year expiry and ownership records are then set to the burn address. Now, short of faulty RPC or frontends, there is no way that the domain can point to a different address.
My previously linked example was that of Meta entering into a court battle with a domain name registrar, who has full control over these records and may decide to alter them to avoid paying the cost of defending themselves in court. See [2] which is loosely related to this discussion of centralized services exerting control over name aliases. In a hypothetical blockchain application where usernames are secured with ENS or another smart contract, there would be limited recourse for anybody except the owner of these aliases to be able to transfer ownership.
[1] https://coingape.com/crv-tanks-over-10-as-attackers-stole-57...
[2] https://www.nytimes.com/2021/12/13/technology/instagram-hand...
And to prevent that takeover by a single entity (AKA 51% attack) it uses a very expensive (as in processing power) mechanism - proof-of-work to delegate the right of adding new transactions to the chain. And that makes is unscalable because as the network grows, you need more processing power. It flies in the face of economies of scale. It's a feature not a bug but that also makes it unsuitable for any business use cases.
Like any other market, consolidation will eventually lead to 2-3 whales will end up controlling majority of the nodes and can control an entire chain. In fact some of the new age blockchain startups are straight up centralized. What they are peddling is anything but a shared, permission-less and trust-less blockchain.
Ethereum has successfully merged Proof of Stake on all of its test networks, and is aiming for a complete merge on the main network some time next month.
You can read about the economics of it here:
Until the government decides to blacklist your account.
Ethereum is only decentralised until it isn't.
To compare, imagine an E2EE chat app built on Matrix protocol is blacklisted in your country. Anybody attempting to use it is treated as criminal, and the app will not be accepted into your country's App Stores. Does this mean the Matrix protocol has failed to deliver on its goals of end-to-end encryption?
In practical terms, it is very possible that a government can "shut down" the usefulness of a blockchain for many people. They could go as far as to criminalize any person who is found to be hosting their own blockchain nodes, or sending or receiving message packets to an RPC without first going through a centralized and permissioned service. If this were to happen, people would not willingly be using a blockchain out of fear of prosecution. Some countries like China and Russia seem to be moving in that direction, and some might argue the US too with their strong-arm censorship of Tornado Cash and all things related to it.
That's what decentralised means.
q.e.d.
The DAO is a more interesting scenario. Users deposited into a smart contract that had a bug. This happens often in DeFi - see all the recent bridge hacks. The difference with the DAO is that the users were able to withdraw their assets because of a blockchain hard fork.
A better way to understand blockchains is as a base settlement layer: they are a shared, permissionless and open source protocol that is resistant to takeover by a single entity.
What this means is that a company, like Meta or Coinbase or even a US bank, can build a centralized platform that lets users manage their crypto assets. But as long as users can still withdraw into a non custodial address, they have the option to escape to that neutral base layer.
This is a different design than what we see currently in the web and banking sector. You can hold ETH or an ENS domain with nothing but a private key. But with a .com domain, if you want to withdraw from GoDaddy, you will be forced to transfer that into another centralized service like Namecheap that will also extract rent. There is no “neutral base layer” with traditional digital assets.