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Why crypto needs political philosophy
I was recently given the opportunity to experience a slice of the future. The good people of ₡ABIN, also known as CabinDAO or Creator Cabins, invited me to work on my projects at their cabin in the Texas Hill Country, near Austin. I spent a month there, which was among other things the perfect place to learn about the promises of the crypto-run decentralized web, or web3.
₡ABIN is a DAO — a decentralized autonomous organization. It exists on the Ethereum blockchain, using crypto "tokens'' that grant their holders membership privileges, and “smart contracts” that automatically manage some of its operations. DAOs offer intriguing prospects on how to run organizations. There is no rulebook: anybody can start one, and they can be run according to whatever their members want. ₡ABIN’s main goal, for instance, is to build a decentralized city to offer temporary physical homes where internet creators can live and work side by side.
DAOs can be seen as the latest experiment in the history of governance. They are a new answer to this fundamental question of political philosophy: how can you coordinate people to achieve some purpose?
As often happens when dealing with fundamental questions, it helps to go back to the classics. The philosopher Aristotle wrote extensively on politics in the 4th century BC, and has influenced political theory ever since. Anyone who wants to think about governance now, especially in the context of DAOs, should make sure they understand his thoughts about the various forms of government and their pitfalls. Only with careful thinking will DAOs manage to bring forth new and useful ways to coordinate human affairs.
I. Aristotle's 3+3 Regimes
In his books Politics and Nicomachean Ethics, Aristotle identifies three main forms of government, based on the number of rulers. A government of one person is a monarchy or royalty. A government by a small elite is an aristocracy. A government by a large number of people is a politeia, a term that doesn't have a standard English translation and gets variously called "polity," "republic," "constitutional government," or "timocracy," all of which are problematic terms for different reasons. We'll use polity, even if it's rather vague.
These regimes are the ideal forms. They assume that the ruler or rulers govern in a way that satisfies the common interest. When instead the ruler(s) govern primarily in their own interest, then we get the three perverted forms.
The perverted form of a monarchy is a tyranny, in which the tyrant extracts resources from the city for his own benefit. The perverted form of an aristocracy is an oligarchy, in which the small governing elite is primarily composed of wealthy people who just seek to keep their status. The perverted form of a polity is a democracy, in which the crude majority, or the mob, or the poor, control the government in the interest of their own leadership. Democracies tend to be plagued with extreme polarization, demagogy, and populism. By contrast, a polity is dominated by the middle class and follows other rules besides the simple will of the majority.
Now here’s the elegant (but perhaps oversimplified) bit. Aristotle thought that monarchy was the best form of government, followed by aristocracy, followed by polity. But for the perverted forms, the order is reversed: democracy is the best, or least bad; oligarchy comes next; and tyranny is the worst of the worst.
Since all ideal forms will get perverted at some point, this suggests that the polity/democracy pair is the best one, since its worst case isn't that bad. The mood of public opinion can be swayed; demagogues can be replaced by competent statesmen. Compare this to, say, an enlightened monarch who reigns well, but passes the throne to an incompetent prince who then becomes a tyrant and plunges his country into poverty for decades even as he feasts in his luxurious palace.
According to Aristotle, ideal monarchies and aristocracies are unattainable in practice. Most cities he observed in classical Greece were ruled by oligarchies and democracies. We can frame the goal of Aristotelian political science as avoiding tyranny and making the conditions favorable for polity. So as a general rule, government by the many is what you wanted to aim for — not because it is the best, but because it is the least bad, and the one furthest away from tyranny.
I assume Winston Churchill understood this when he quipped: “democracy is the worst form of government, except all the others that have been tried.”
II. Aristotle and the General Organization
One big caveat must be mentioned when dealing with Aristotle’s political philosophy: he was writing about Greek city-states. These cities had a few tens of thousands of citizens at most, and they were geographically small; at the same time, they were independent countries, and their government covered the full breadth of political life. This is quite different from both modern countries (which are far bigger and in which far more people have full citizen rights) and from general organizations like companies (which have a narrower scope and purpose).
Having said that, let’s go right ahead and apply the 3+3 model to general organizations anyway. What would be the analogues of each regime pair?
A monarchy or tyranny might be a private company owned by a single person, or a public company with a single majority shareholder. This owner is the boss; he makes all the decisions, and holds absolute power over the company. If he is good at his job, then the company will do very well, both in moneymaking and fulfilling, maybe, a grander vision. We're in the ideal case: the monarch is wise, knowledgeable, and able to execute. But the monarchy can devolve into a tyranny, perhaps when the company is bought by someone else, who decides to use it for her personal gain, with little regard for ethics, the original mission of the organization, or the well-being of her employees.
The largest real-life corporate example seems to be Dyson, the vacuum cleaner company, which is still owned fully by James Dyson. IKEA is or was arguably another one, having been fully under the control of its founder Ingvar Kamprad (through a complicated scheme of nonprofit organizations) until his death in 2018. I will make no comment as to whether these companies are monarchies or tyrannies.
An aristocracy or oligarchy could be a company run by a team of co-founders, or some organization in which key decisions are made by a powerful board of shareholders. Again, the ideal aristocracy (aristo = "best", so government by the best) can work well if the company brings together competent people to work together; but it becomes a less functional oligarchy if the directors on the board are only interested in getting cushy salaries while accomplishing nothing of importance.
Most public companies with multiple shareholders fall in this bin. For example, Jeff Bezos owns 11% of Amazon stock. This is enough to be the richest man in the world, but it doesn’t give him full control over the company (although, of course, the Amazon aristocracy/oligarchy can decide to give him most of the executive power if it so desires). Other big tech companies work like this too. Facebook is an exception — Mark Zuckerberg can be considered a monarch/tyrant because his shares’ disproportionate voting power give him a majority of votes in the company.
A polity or democracy would be a cooperative. All employees, or even, in some cases, all customers, can take part in the governing process of the coop if they choose to. This can be good (we're in the ideal polity case) if it leads to smart decisions for the organization's purpose and everyone who benefits from it. Or it can be bad if people start voting only in their own interest with no regard to the original mission, leading ultimately to the demise of the coop.
Mountain Equipment Coop (MEC), a Canadian cooperative that sold outdoor sports equipment, is both a good example of a coop and an example of a transition from a democratic regime to a more oligarchic one. (American readers may be more familiar with a similar organization in the US, Recreational Equipment, Inc., or REI.) For nearly 50 years, MEC functioned as a coop with the mission of selling gear to its members, but difficulties in 2020 led its directors to sell its assets to a private company, without consulting its membership — a clear example of a regime change.
III. Where Do DAOs Fit?
DAOs can vary widely in their structure, but they tend to be inherently democratic.
Let's take CabinDAO as an example. To be a full member of the DAO, you need a ₡ABIN token, which you can acquire by providing funding to the DAO — essentially buying ₡ABIN — or by performing useful work for the organization. If you do have at least one token, then you can access the DAO's private forum and get involved in all its decision processes. Thanks to blockchain and smart contract technology, there is nothing to prevent you from participating if you can prove to a computer that you have a token.
The technological backbone of DAOs is the reason they are a new phenomenon. Where a public company’s decision processes may require you to come in person to an annual shareholder meeting, a DAO’s key decisions are made online, using tools programmed for the task. There is much less friction to governance as a result, and less risk of power being exercised by a small minority of motivated people (as often happens in municipal governments and public companies with many shareholders).
The blockchain, a public record of all transactions using the Ethereum network, guarantees perfect transparency. The history of past votes is public and cannot be tampered with.
Smart contracts, which are algorithms that can execute a variety of tasks, allow a virtually infinite number of variations on voting systems and other procedures. For instance, CabinDAO’s decisions on Snapshot use quadratic voting. Instead of allocating votes to members in equal amounts or in perfect proportion to their tokens, the DAO grants voting power with diminishing returns according to a quadratic formula: 1 token gives 1 vote, but to get 2 votes you need 4 tokens, and you need 9 tokens to have 3 votes, and so on. This prevents someone with a large number of tokens to take control of the organization, since someone with 10,000 ₡ABIN could easily be outweighed by 100 members with a single one, or far fewer people who each hold several tokens. At the same time, it does give more power to people who have contributed more either in funds or labor, and who are more likely to have more context about the DAO.
This seems similar to Aristotle’s polity. The masses of people with only a few tokens can’t take over, avoiding populist democracy; neither can a single or a few individuals, avoiding oligarchy and tyranny.
Liquid democracy is another example of how DAOs can experiment with voting. It is the concept of allowing members to delegate their votes freely, even the votes other people have delegated to them. This superficially seems like it could turn a democratic institution into an oligarchy, if too few people gather too much of the total voting power (these people with large amounts of tokens are colloquially called “whales”). But again, algorithms step in. The implementation of a liquid democracy might allow you to delegate your vote automatically only in certain circumstances, maybe when there are few people voting anyway, or when the topic under discussion is something you personally care about.
Arguably this is a way to get closer to an ideal aristocracy, which according to Aristotle is better than a polity. If members delegate their votes in a fluid and changing way, identifying the people best equipped to take any given decision, then we get closer to government by “the best.”
Of course, DAOs are not exempt from governance problems. Bad rules can be written. Loopholes can be exploited. Hostile takeovers can be executed. The founder of the Ethereum network himself, Vitalik Buterin, often warns against problems of governance based on cryptocurrency tokens (for instance here).
That is why I wrote at the beginning that DAOs are an experiment. We don’t quite know what the best model to govern an organization is — but blockchains, tokens, and smart contracts give us new ways to try. And new ways to try are very valuable!
IV. From City-States to Decentralized Cities
A lot of the ideas in this essay come from a discussion I had with Jon Hillis, the founder and caretaker of CabinDAO, as we were creating some new trails in the forest around the cabin.
The mission statement of CabinDAO is to build a decentralized city — a community that exists in many physical spaces but shares a common culture and goals. Jon and other members are very explicit about drawing inspiration from ancient city-states. For instance, when Jon submitted a proposal to give him the official role of caretaker, he described his tasks along the model of Ancient Greek demarchoi, magistrates of local political units called demes.
Jon thinks that DAOs right now are at a similar stage as the earliest city-states in Greek history: they consist of a few hundred citizens, and they’re at the maturity level where they must figure out their rules. In other words, most DAOs are building new institutions and writing new constitutions. This is an opportunity that does not arise often, as companies tend to follow established models, and countries rarely reform their governments thoroughly.
In Ancient Greek city-states, the lawgiver was an almost legendary figure, highly respected among the people who benefitted from their institutions centuries later. The ancient Athenians had Solon. The ancient Spartans had Lycurgus. More modern examples include the founding fathers of the United States, such as Alexander Hamilton (yes I watched the musical recently, it’s very good, and a very relevant thing to do if you’re involved in a DAO).
DAOs are at the stage where their own lawgivers must rise. And wannabe lawgivers need to get as clear a picture as possible of the possible paths forward. Aristotle’s 3+3 model lays down the options elegantly and can help us make the best choices, now that the boons of technology give us new options to avoid the perverted regimes and home in on the best forms of government.