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Global Networks 19, 3 (2019) 329–348. ISSN 1470–2266.
Global Networks © 2018 Global Networks Partnership & John Wiley & Sons Ltd 329
The soft spot of hard code: blockchain technology,
network governance and pitfalls of
technological utopianism
MORITZ HÜTTEN
Darmstadt Business School, Haardtring 100,
64295 Darmstadt, Germany
moritz.huetten@h-da.de
Abstract The emerging blockchain technology is expected to contribute to the trans-
formation of ownership, government services and global supply chains. By analysing a
crisis that occurred with one of its frontrunners, Ethereum, in this article I explore the
discrepancies between the purported governance of blockchains and the de facto
control of them through expertise and reputation. Ethereum is also thought to exemplify
libertarian techno-utopianism. When ‘The DAO’, a highly publicized but faulty crowd-
funded venture fund was deployed on the Ethereum blockchain, the techno-utopianism
was suspended, and developers fell back on strong network ties. Now that the block-
chain technology is seeing an increasing uptake, I shall also seek to unearth broader
implications of the blockchain for the proliferation or blockage of global finance and
beyond. Contrasting claims about the disruptive nature of the technology, in this article
I show that, by redeeming the positive utopia of ontic, individualized debt, blockchains
reinforce our belief in a crisis-ridden, financialized capitalism.
Keywords BITCOIN, BLOCKCHAINS, CRYPTOLOGY, CYBERPUNKS, CYPHERPUNKS,
DAO, DLT, ETHEREUM, HARD FORK, SMART CONTRACTS, TECHNO-UTOPIANISM
When an unidentified individual or group named Satoshi Nakamoto (2008) introduced
Bitcoin in October 2008, most members of the cryptography mailing list on which the
original Bitcoin whitepaper was published were sceptical at best (Finney 2013). It was
developed as a peer-to-peer payment system to challenge central bank control and the
incumbents of the global financial system. Despite its initially cautious reception, over
the years Bitcoin has gained followers and gathered momentum, for it has been fuelled
by the discontent caused by the financial crisis of 2007/8.
Aside from seeking to build a global payment system, Bitcoin is characterized by
openness (owed to its goal to achieve decentralization), general access for anyone
wanting to use it, and disintermediation. Bitcoin introduced not only a transnational
payment network, but also a technology more generally capable of tracking any type
Moritz Hütten
330
of data entry in a publicly accessible, transparent, and immutable ledger – the block-
chain. Bitcoin is often called an ‘open’ or ‘public’ blockchain. Various foreseeable
applications of the blockchain now stray from that path. For example, a consortium or
private party seeking an easier, more controllable and accountable blockchain run
(Buterin 2015) is more focused on streamlining business and maintaining control than
on realizing a political goal. Prospective applications of the blockchain technology, or
more generally the broader concept of the distributed ledger technology (DLT),1 now
go far beyond transnational payments, with some observers forecasting significant
transformations for the operations of global supply chains (Casey and Wong 2017),
land ownership (Shin 2017), and the ‘internet of things’ (Dickson 2016). In contrast to
this outright co-optation or reinterpretation of the blockchain technology – for a
detailed discussion, see Hütten and Thiemann (2018) – other projects have followed
the more utopian ambitions of Bitcoin for harnessing blockchains to promote individual
freedoms and (digital) self-determination. Public blockchains are intended to operate
in a decentralized and distributed fashion, with participants staying ‘honest’ through
economic incentives and proper procedures.
The emergence and proliferation of blockchain technology has had a contradictory
reception. While some might almost celebrate Bitcoin and the blockchain as a ‘grass-
roots’ movement and see the blockchain as a disruptive and possibly revolutionary
technology with which to challenge the dominance of governments and banks alike
(Swan 2015), the ‘old guard’ might not be all that troubled by such a daring reputation.
Central banks, government agencies and the business community might well regard the
blockchain and DLT as a promising side of research in their quest to streamline their
activities and transition their services to the digital realm (Economist 2015). To consider
the contradictory but expanding uptake of blockchain technology so far, we need to
scrutinize claims about the coming ‘blockchain revolution’ (Tapscott and Tapscott 2016)
to understand how it might affect global finance and global supply chains, and where
the utopianism of its more idealistic advocates is heading. By analysing a crisis that hit
a frontrunner of the public blockchain technology, Ethereum, I explore how well public
blockchains live up to their utopian ideals, and discrepancies between the proclaimed
governance of blockchains and existing de facto control through expertise and
reputation. I see Ethereum as exemplifying a libertarian techno-utopianism. When the
highly publicized but faultily crowdfunded venture fund called ‘The DAO’ (an instance
of a decentralized autonomous organization) was deployed on the Ethereum blockchain,
the techno-utopianism was suspended, and developers fell back on strong network ties.
Throughout this article I examine how the suspension of the techno-utopianism was
conducted and what broader implications this holds for the future of open blockchain
technology. Adopting the blockchain without maintaining the utopian promises of
inclusion, democratization and participation could set broader developments in motion.
A Blockchain case: Ethereum
A highly gifted programmer called Vitalik Buterin invented Ethereum, which is one of
the most prominent open access blockchains. In 2014, the Ethereum Foundation, a
The soft spot of hard code
331
Swiss non-profit organization, successfully collected more than 25,000 Bitcoins (then
worth about US$ 15 million) through decentralized crowdfunding. The foundation pre-
sold about 50 million ‘Ether’, the native token of the then to be launched Ethereum
blockchain (Buterin 2014). While Bitcoin had already implemented more complex
functions like timed transactions and multi-signature transactions, it also deliberately
limited its function to process peer-to-peer payment transactions (Campbell-Verduy
and Goguen 2018b in this issue). Expanding on the concept of Bitcoin, Ethereum was
meant to function as a blockchain capable of processing more advanced interactions
between two or more parties delivering a ‘Turing-complete’ programming environment
not restricted to a few selected functions. Ethereum was designed as an open access
blockchain capable of executing so-called smart contracts. At the time, its CCO
Stephan Tual described Ethereum as a ‘censorship-proof “world computer” that anyone
can program, paying exclusively for what they use and nothing more’ (Tual 2015). To
understand what makes Ethereum different from Bitcoin requires a deeper examination
of the concept of smart contracts.
The concept of the smart contract came from Nick Szabo (1997) and, ever since, it
has caused confusion and been criticized for its ambiguity. While the term ‘contract’
evokes associations with the legal concept of a contract, the resemblance is limited.
Two dominant, rough concepts are in use – smart contracts as smart contract code, and
smart contracts as smart legal code (Stark 2016). One can understand a smart contract
code as a complex code stored on a blockchain, which, once created, can act autono-
mously when called on to perform an action. Such a smart contract code might even
hold balances of cryptocurrencies or control other smart contracts. A smart contract
code can also be called a ‘smart agent’ or ‘software agent’ (Stark 2016) to exemplify a
merger of some autonomy and/or process of automatization. A smart legal code makes
a specific case for a smart contract code in which the smart contract might be utilized
to automatize and streamline an exchange, but it includes some traditional legal lan-
guage to clarify responses to unforeseen events or similar situations. Occasionally, the
term ‘smart contract’ is used more vaguely to describe a murky combination of both
conceptualizations; thus, it describes something that fits the definition of a smart con-
tract code, but at the same time expects it to substitute for a legal code driven by a rather
superficial understanding of law. Furthermore, concepts of smart contracts exemplify
the fiction of law being a politically neutral construction, while the law is a product of
human convictions and interaction (Milhaupt and Pistor 2008: 22).
Like Bitcoin, the Ethereum blockchain is updated by a decentralized network of
computers called ‘miners’, which provide the computational power to run it. Unlike
Bitcoin, however, the ‘miners’ not only authenticate transactions, but also run the smart
contracts’ executable code. While smart contracts can in theory operate without a
blockchain, doing so can cause problems of possible downtimes and code manipulation
(Buterin 2013). Indistinct terms like ‘cloud’ servers obscure the underlying physical
server architecture and usually describe the centralized server farms that large com-
panies like Amazon or Google often run. Contrasting this centralization of control, open
blockchains in general and Ethereum in particular are meant to provide dependable and
distributed networks for executing transactions and more complex programs.
Moritz Hütten
332
Beyond the presumed gains in efficiency, Ethereum promises empowerment and
social mobility, for anyone can freely access its blockchain, deploy programs and be
judged by the quality of his or her work regardless of formal titles or financial means
other than access to the internet and a device like a personal computer. In fact, the
promises of empowerment in many blockchain projects echo earlier enthusiasm seen
when personal computers proliferated. Personal computers fuelled the expectation that
they would put the means of production in the hands of a self-educated working class
able to utilize these devices to climb the social ladder by becoming advanced knowl-
edge workers (Dyer-Witheford 2015: 9). However, promises of empowerment through
technology are often problematic and the seemingly frictionless brave new world of
digital interaction frequently reproduces or amplifies familiar patterns of exploitation,
elitism and exclusion on gender and racial grounds – or rather inclusion via exclusion
creating a global precariat of cybernetic capitalism (Dyer-Witheford 2015; Economist
2017; Huws 2014). Hence, we must ask how much the ‘blockchain revolution’ can
contribute to the empowerment of civil society, especially to its most vulnerable mem-
bers. Algorithms are step-by-step procedures for solving mathematical problems
predominantly by computers. While the blockchain is an emergent technology and its
future implementation in society unclear (Campbell-Verduyn 2018a), some scholars
already suggest the emergence of a new subset of law, a lex cryptographia, marking a
merger of legal and algorithmic governance with algorithms structuring the conduct
and interaction of agents (Wright and De Filippi 2015).
Scholars should develop a better understanding of the visions and convictions
embedded in this technology. In contrast to the need to separate technology from
politics, it is important to examine blockchains as an organic whole consisting of the
technical, scientific, social, economic and political considerations of engineers who
combine scientific, technical and sociological analyses when envisioning technological
innovation (Callon 1993). Nigel Dodd (2015, 2017), for example, has repeatedly
argued that one should view Bitcoin and the blockchain as a social movement to pro-
mote a utopian vision for society. While many techno-activists in the blockchain
community pride themselves on creating technological fixes for political problems, the
utopian vision embedded in this technology is anything but apolitical. Claims about the
profound future impact of blockchains and subsequent social advancement (Swan
2015) must be scrutinized to unearth the foreseeable and unforeseeable consequences
and downsides that the blockchain and its utopianism might introduce.
Cypherpunk utopias
Examining the utopianism of the blockchain demands that we further examine the
(activist) context from which this technology emerged. Above all, the blockchain is a
manifestation of the movement by activists called cypherpunks who promote the cause
of digital freedom and digital self-determination secured by cryptography challenging
government control. Cryptography is the science and study of writing, sending, receiv-
ing, and deciphering secret messages, including authentication, digital signatures, the
hiding of messages (steganography), cryptanalysis, and several other fields (May and
The soft spot of hard code
333
Hughes 1992). Cryptography is commonly associated with secrecy and concealing
information and identities, but it equally concerns verifying the authenticity of inform-
ation and identity claims. Cryptography is about securely exchanging information
while keeping hostile third-parties from eavesdropping or manipulating information.
Ciphers are procedures consisting of well-defined steps for the encryption or decryption
of messages. They have been around for over two millennia and works on cryptography
often start with the so-called Caesar’s cipher, a comparatively simple cipher encrypting
and decrypting messages by shifting letters. Cryptography has advanced ever since to
produce ever more complex ciphers. At the onset of the twentieth century, cipher
machines entered the scene, such as the infamous Enigma machine that the German
navy used in the Second World War (Kruh and Deavours 2002).
Until the 1970s, advanced cryptography was predominantly used for military com-
munication (Holden 2017). In fact, cryptography was a closely guarded secret with
most of the research in the field conducted by the National Security Agency (NSA) and
the export of cryptographic devices strictly prohibited (Levy 2001). However, for
various reasons, the NSA’s control of cryptographic research weakened from the 1970s
onwards. Furthermore, as the use of computers became more widespread there was a
growing need for secure communication for commercial use and this created a general
demand for encryption technology. IBM produced a symmetrical encryption algorithm
called Data Encryption Standard (DES) that would become the US government stan-
dard, although there was some controversy over the NSA’s involvement in developing
it (Levy 2001). This development occurred alongside the unrelated work of two cryp-
tologists, Whitefield Diffie and Martin Hellman (1976), who engaged the academic
community with their article ‘New directions in cryptography’ (Holden 2017; Lopp
2016). Shortly before, in December 1975, Ralph C. Merkle published an article in
which he declared that the modern digital computer could create ciphers that were
practically unbreakable (Merkle 1978: 1). The US counterculture movement and the
Watergate scandal greatly increased awareness of the dangers of insecure communi-
cation channels and government overreach (Holden 2017: 208). Advocates of publicly
available encryption viewed cryptography as a tool for protecting civil liberties and
individual freedoms. Later, cryptologist David Chaum (1983) wrote about crypto-
graphically secured electronic payment systems and pseudonymous reputation systems.
Chaum discussed how downsides of electronic payments like the danger of a third party
collecting extensive data on individual conduct could be curbed, while maintaining the
advantages, such as traceable proofs of payment.
Towards the end of 1992, a small group interested in data privacy and public
accessibility to strong cryptographic tools set itself up in the San Francisco Bay Area;
it called its members ‘cypherpunks’, a merger of the terms ‘cipher’ and ‘cyberpunk’
(Lopp 2016), the latter being a literary genre that developed in the 1980s. Cyberpunk
merges science-fiction scenarios with the cultural pessimism and aggressive rebellion
of punk culture envisioning a post-nation-state world in which global networks and
transnational corporations have become the dominant forces. Cypherpunks subse-
quently expanded into the market anarchism envisioned by cyberpunk literature, but
counterbalanced powerful institutions and corporations with cryptography that
Moritz Hütten
334
empowered individuals to maintain privacy and independence. One of the founding
members, Timothy C. May, had circulated a ‘Crypto anarchist manifesto’ alluding to
how he expected cryptography to secure individual freedom from government control
and proclaiming that ‘a specter is haunting the modern world, the specter of crypto
anarchy’ (May 1988). Among others, Wei Dai, a computer engineer who developed some
of the core concepts that would form the foundation for Bitcoin, described his fascination
with crypto-anarchy as follows: ‘unlike the communities traditionally associated with
the word “anarchy”, in a crypto-anarchy, the government is not temporarily destroyed
but permanently forbidden and permanently unnecessary’ (Dai 1998).
For the cypherpunks, the state was the most threatening danger and cryptography
was the tool that would liberate them from government oppression. In the 1990s, ten-
sion between cypherpunks and government officials built up and resulted in so-called
‘crypto wars’ (Lopp 2016). US government officials tried to ban secure commercial
and private encryption. Eventually, cryptography was removed from the United States
Munitions List (USML) and this gave way to the commercialization of and public
access to cryptography. Nonetheless, tension persisted because the cypherpunk acti-
vists’ vision conflicted with the government’s goal to gain authority over the internet.
John Barlow (2001), a renowned activist, founding member of the Electronic Frontier
Foundation and former member of the Grateful Dead published an article stating that
digital natives would self-govern cyberspace without government intervention. While
comparatively secure encryption is still available to the public, the smouldering conflict
with governments remained and resurfaced with the ‘war on terror’, fuelled by fears of
terrorists utilizing secure encryption to conceal their activities.
Drawing on the bigger picture, cypherpunk ideology is nested in the ‘Californian
ideology’ of the tech-entrepreneurs of Silicon Valley. The ‘Californian ideology’
merges the anarchism of the New Left and the entrepreneurial zeal of the New Right
with an optimistic techno-determinism (Barbrook and Cameron 2001). However,
engineers in Silicon Valley did not start out as the resolute capitalists they have now
become. Radio club hobbyists and various utopian communes flourished in the region
long before the formation of cypherpunk and even before the rise of Silicon Valley.
The radio club hobbyists had a culture of shared knowledge and democratic beliefs.
Through their lively interaction, they cultivated a unique set of skills and expertise
centred on building the radio devices and fostering a DIY hands-on mentality towards
technological problems (Lécuyer 2007). Firms drew on the expertise the hobbyists cul-
tivated and this, in turn, led to the emergence of some of the most advanced firms in
developing microtube technologies in the region. Contradicting modern tales of the
lonesome genius innovator, government spending heavily backed these developments,
especially through the US military, which, until the 1970s, was the biggest market for
advanced microtubes and the microprocessors that eventually followed (Lécuyer 2007).
Yet, when technology advanced and microprocessors replaced microwave tubes, an
ideological shift accompanied the technological rupture. The earlier socialist leaning
engineers who were promoting utopian ideals of displacing the segregation between
workers and capital gave way to a different breed of microprocessor engineers. The
next generation of engineers was meritocratic and resolutely capitalist (Lécuyer 2007:
The soft spot of hard code
335
296). Along with the need for more highly-skilled labour came experimentation with
unconventional working conditions, an increase in flexibility, profit sharing and new
methods of financing, all of which served to augment the wealth of even the middle-
class engineers. The earlier dependence of these entrepreneurs on vast government
spending to blaze the path for their technological innovations was quickly forgotten
(Mazzucato 2015). In a similar fashion, the surging digitalization gave rise to the
concept of masculinized ‘immaterial labour’, as perpetuated by the male icons of the
industry, which stands in stark contrast to frequently unwaged and underrecognized
female labour (Dyer-Witheford 2015). Highly-skilled female labour was crucial for the
development of cryptography; for example, women working for the Women’s Royal
Naval Service at Bletchley Park, the ‘nerve centre’ of the British Intelligence
establishment during the Second World War, but their importance was not fully
recognized at the time (Hicks 2017: 25).
Beneath the glamorous façade of Silicon Valley’s billionaire owners and high-
technology labour aristocracy lies a burgeoning and precarious labour force involved
in the dangerous and toxic work associated with the production of microprocessors
(Dyer-Witheford 2015: 61). Much of the myth of a frictionless process seems to stem
from forgetting about the actual physical labour in which it is grounded. This contra-
diction seems to be right at the heart of the Silicon Valley mindset, strikingly illustrated
by the contrast between Apple HQ, where future Apple products are designed, and the
Foxconn factories where the actual production is happening (Dyer-Witheford 2015:
37). Crypto-anarchism often better exemplifies this egoistic entrepreneurial mindset
than the broader social concerns of classical leftist concepts of anarchism.
The question then is what kind of utopia springs from this ideological background?
Brett Scott (2014) dubbed the emergence of the blockchain the birth of the ‘techno-
leviathan’, or the vision of a deified crypto-sovereign forming the foundation for free
individuals interacting in a (digital) world beyond coercion. Blockchain enthusiasts
claim that governments might still exist, but they must earn their keep by becoming
economically rational and cost-effective (Swan 2015). While many advocates of
Bitcoin downplay the importance of the politics involved, critical scholars like David
Golumbia (2015: 119) argue that Bitcoin is so strongly imbued with political ideals that
it is best analysed as ‘politics masquerading as technology’. Marcella Atzori (2017)
highlighted the danger of hidden forms of centralization being injected into open
networks. The reception of the blockchain technology touches on the broader debate
on techno-utopianism vs dystopian outlooks regarding emergent technologies such as
high frequency trading and those using big data (Campbell-Verduyn et al. 2017). While
advocates of a techno-utopian outlook emphasize efficiency gains and societal wealth
and raise hopes that technology might transcend politics, critics question the neutrality
of technology and call the public to consider the dangers of overbearing control and
opaque techno-governance (Campbell-Verduyn et al. 2017). The debate is open-ended,
and we do not yet know how blockchain technology will develop in the coming years;
the critiques of technological utopias that emphasize the possible downsides of novel
technologies are highly persuasive. In the next section, I shall examine more closely
how this ideology manifested in a concrete application.
Moritz Hütten
336
A cypherpunk utopia in the making: the case of ‘The DAO’
Over the course of 2016, a team of programmers from Slock.it, a high-profile start-up
in the Ethereum ecosystem, launched what was supposed to be prototypical for a newly
emerging form of democratically governed, globally operating, decentralized organiza-
tion. The team, which sought to replace management with a merger of algorithmic
governance and human stakeholder voting, called its creation ‘The DAO’, an acronym
for decentralized autonomous organization (Buterin 2013). While neither Slock.it nor
Buterin made the connection explicit, the concept of a DAO is clearly grounded in the
reductionist organizational theory of Michael Jensen and William Meckling (1976), a
point that Wright and De Filippi (2015: 15) also raised. Jensen and Meckling believed
it possible to reduce organizations to a nexus of human participants and contracts.
Reducing organizations to such a bare minimum falls short of accounting for some of
their more complex aspects and reduces agents to simplistic, insufficiently socialized
homo oeconomini (Atzori 2017: 56), but it nonetheless lends itself well to translation
into a formal programming code.
‘The DAO’ resembled a crowdfunded venture fund, an experiment in organizational
governance grounded in algorithmic authority (DuPont 2018). Much of the concept
hearkens back to the crypto-anarchism at the heart of the cypherpunk utopia, which
envisions a world in which free and anonymous individuals voluntarily bind themselves
to contracts of their choosing that allow them to pursue personal wealth and advance-
ment as a society without centralized control. Echoing Lawrence Lessig’s infamous
statement that in cyberspace ‘code is law’ (Lessig 2006: 5), the binding agreements of
‘The DAO’ were set forth not in legal contracts, but in the form of a programming code
deployed on the Ethereum blockchain. According to Dupont (2018), ‘The DAO’ could
be understood as a pseudo-legal organization run by an assemblage of human and
‘robot’ participants. ‘Robot’ participants existed insofar as humans were meant to
interact with algorithmic rules that self-execute and automatically respond in a
predefined manner to human input. Human agents could become stakeholders by
investing some of their Ether, the Ethereum blockchain’s native token, for an initial
decentralized crowdfunding phase of 28 days. In return, they would receive tokens
representing proportional voting and ownership rights in the DAO and granting them
access to future profits (Jentzsch 2015: 2). Between 10,000 and 20,000 people invested
in ‘The DAO’, which equipped it with about 11.5 million Ether valued at a total of
US$ 160 million at the time (DuPont 2018). A subsequent price hike of Ether further
increased the DAO’s holding to the equivalent of US$ 250 million.
However, to share out profits or avoid a hostile majority vote exploiting a minority,
the DAO allowed stakeholders to split from the main organization to create a ‘child
DAO’ under its control (Jentzsch 2015: 2). Setting up a ‘child DAO’ was supposed to
invalidate the original DAO tokens and, after a 28-day waiting period, allow investors
to cash in their profits or stake. Some community members voiced concerns about the
split function introducing vulnerabilities that might allow someone to conduct a so-
called ‘race to empty’ attack (Vessens 2016). In such a case, the attacker would use the
split function to call repeatedly to withdraw the Ether function before the DAO tokens
The soft spot of hard code
337
he or she was holding could be updated, which effectively allowed the attacker to drain
funds without holding the corresponding tokens. While one of the founders of Slock.it,
Stephan Tual (2016), assured the community that no DAO funds were at risk, on 17
June 2016 someone did execute a ‘race to empty’ attack to drain the DAO’s funds.
Analysing crisis: the failure of the DAO
The ambitious DAO experiment never got the chance to make an investment. Shortly
after it became operational, an unidentified hacker exploited a flaw in the code and
began to drain the DAO’s funds by launching a ‘race to empty’ attack. While the DAO
was technically a third-party project and the flaw did not endanger the Ethereum block-
chain directly, a broad alliance of developers and stakeholders insisted on the attack
being countered to protect the funds and demanded an intervention to reclaim the
‘stolen’ funds on the DAO’s behalf. For ‘The DAO’, proposing such an intervention
was highly controversial and contradicted virtually all the public statements and
discussions that had preceded the attack.
In comparing the controversy, both Ethereum and the DAO were very specific about
the rules of their respective projects. Ethereum’s official website (www.ethereum.org)
describes it as a ‘decentralized platform that runs smart contracts: applications that run
exactly as programmed without any possibility of downtime, censorship, fraud or third-
party interference’ (emphasis added). Similar statements are found in the DAO’s terms
of use, which claim that ‘nothing in this explanation of terms or in any other document
or communication may modify or add any additional obligations or guarantees beyond
those set forth in the DAO’s code. … The DAO’s code controls and sets forth all terms
of the DAO Creation.’ Both descriptions leave strikingly little wriggle room. Ethereum
promises a strictly neutral and immutable platform removed from any intervention on
behalf of any third party. The DAO website clearly states that descriptions in writing
are educational only and that the programming code alone will determine the DAO’s
actual intention. Essentially, anyone investing in ‘The DAO’ is supposed to agree to
the conditions set out in the programming code rather than in any written terms of use.
While it is doubtful that such an agreement would hold up in a court of law, the DAO
is nonetheless clear about the conditions, and in another section warns investors of risks
including the possible loss of all funds through unforeseen errors and attack vectors.
Some members of the Ethereum community even argue that the presumed ‘theft’ of
funds by the hacker was not even ‘theft’ but in line with the DAO’s terms, since they
state that whatever the code allows someone to do would be the intention of the code.
When the attack commenced, contrary to all previous statements, a broad alliance
calling for action emerged and sparked a battle over how to interpret the event at hand.
A narrow majority favoured intervention, but a substantial minority wishing to uphold
the previous statements and agreement to abstain from intervening on anyone’s behalf,
opposed it. The latter group viewed intervention on the DAO’s behalf as the enforce-
ment of a special group interest. The potential conflicts of interest inherent in some
developers of Ethereum serving as both Slock.it advisors and DAO investors further
complicated the situation. Surprisingly, the two groups clear descriptions did little to
Moritz Hütten
338
calm the situation. Instead, both argued that they were acting in accordance with their
original statements on their preferred option and were in line with the ‘true’ principles
of both Ethereum and the blockchain. The DAO’s technical specifications meant that
the attacker had to wait out the 28-day prescribed time window before being able to
assume control of the funds by siphoning them from ‘The DAO’ to a ‘child DAO’.
Various options initially seemed feasible; these ranged from counter-attacks by so-
called white hat hacker groups seeking to return the funds to the original stakeholders,
a softfork to censor the hacker’s transactions and a hardfork to dismantle the DAO
altogether. The counter-attack group was able to stall the hacker’s attempts to gain con-
trol of the funds but was unable to redeem them permanently. A softfork would have
required miners to refrain from processing the hacker’s transactions and generally
would have maintained the previous status quo, but it turned out to be unsustainable for
various reasons. Eventually, the hardforking option was discussed. This entailed most
of the miners switching to an alternative version of the blockchain in which the DAO
hack had been undone, thereby altering the supposedly immutable blockchain and
permanently departing from the previous status quo.
Because of the controversial nature of either decision, debates erupted on public
Ethereum forums like the Reddit subforum r/Ethereum. Groups in favour of intervening
on behalf of the DAO argued for a hardfork, while the opposing group argued against
such an intervention. Each group developed its own crisis narrative.
A pro-fork group favouring undoing the DAO took what it proclaimed to be a
pragmatic stance on blockchain governance. Its members viewed themselves as rational
actors choosing self-defence over ‘zealously’ sticking to principles (sjalq 2016),
capable of acting if needed (HoboRobo 2016), and claiming community consensus to
be the ultimate arbiter on the proper state of the blockchain (yeshe257 2016). They
argued that the project was still in an early stage and should be fixed along the way.
The pro-fork group was opposed by a smaller anti-fork group in favour of keeping the
Ethereum blockchain unchanged. This anti-fork group voiced its concerns about ‘moral
hazard’ resulting from community intervention (Rune4444 2016), disparaged attempts
to rescue a faulty third-party project (TheBigJort 2016) and questioned whether the
upside of intervening on behalf of the DAO could make up for the loss in trust in the
dependability of the network (egimo 2016). It also argued that prior statements had
stated that ‘code is law’ and that hard-forking would be a major departure from this
agreement. Many of the arguments that the anti-fork group presented suggest that it
viewed this intervention as a repetition of those that followed the financial crisis of
2007/8 in which the financial authorities rescued ‘too big to fail’ banks. Vitalik Buterin
publicly posted that he favoured a hardfork (Buterin 2016). Various mock-posts
emerged over the following days asking Buterin to fork over small losses that occurred
sometime in the past through various mistakes.
Despite not having formal control of Ethereum, Buterin strongly influenced the
community with his public statement. Furthermore, forking over the DAO prompts us
to ask if there is a conflict of interest for community members who are supposed to be
enforcing the integrity of the system but are also often involved in a substantial
investment. Considering all previous publicly made statements, acting to rescue a third-
The soft spot of hard code
339
party contract like the DAO was deemed to be a highly unlikely event, but when crisis
struck, commitment to prior statements proved weak. In contrast to previous claims
about decentralization and immutability, action was and could be taken quickly.
Closer scrutiny of the DAO hack and its aftermath reveals that what was supposed
to represent a turning point in legal authority and algorithmic governance (or govern-
ance by algorithms) collapsed into hurried private discussions and governance by
narrow elite networks (DuPont 2018) in which the community served as a weak safe-
guard. Following the decision to fork, the supposedly immutable public ledger that is
the blockchain was altered, turning the DAO’s more complex contract into a simple
withdrawal contract in which anybody holding DAO tokens could withdraw a corres-
ponding amount of Ether. Consequently, ‘The DAO’ was undone, which created what
one forum member called a very different ‘social contract’ from the one previously
implied on the Ethereum website (carver 2016).
Many observers from the banking sector and other industries saw this as a ‘wake-
up call’, a reminder that they should consider what the word ‘public’ means in the case
of a public blockchain (cited in Rizzo 2016). Within the Ethereum community, many
praised the outcome of this crisis episode as an exemplification of the great flexibility
and practicability of Ethereum, while others saw it as a violation of principle and an
instance of censorship (DuPont 2018).
Before the fork, developers and users thought that a minority chain might form but
would quickly become unsustainable and die out. Instead, a minority refused the fork
and continued to maintain the original Ethereum chain, indicating that control is more
centralized than expected but not flawless or total. The unaltered version of Ethereum
was first seen as a mere curiosity, but the reception quickly changed when one of the
biggest cryptocurrency exchanges, Poloniex, opened the floor for trading a token now
called Ethereum Classic. This shocked many members of the community by effectively
creating a market for that token (Quentson 2016). Yet, operating as a minority chain
seriously compromised the security of Ethereum Classic. Since the latter now operated
on a fraction of the hash rate that had previously maintained the undivided Ethereum
blockchain, it became vulnerable to a so-called 51 per cent attack. Some miners who
openly supported the fork of Ethereum thought that the vulnerability was responsible
for the attack on Ethereum Classic. Chinese miner Chandler Guo, a highly vocal
proponent of attacking Ethereum Classic, Twittered: ‘I am Chandler Guo, a 51% attack
on Ethereum Classic (ETC) is coming with my 98G hashrate’ (Guo 2016). While no
noteworthy attack was conducted, and Guo later became an ETC supporter (Demartino
2016), this episode illustrated the problem previously discussed by Nicolas T. Courtois
(2014) who problematized the ‘longest chain rule’ as a source of vulnerability for public
blockchains running on a fraction of the hash power of the major public blockchains.
Over a year later, Ethereum and Ethereum Classic trade at prices many times higher
than when the event occurred, and investors seem to have forgiven that moment of
murky intervention. While the event had little impact on Ether pricing in the short run,
one can only speculate on the future forms of public blockchain infrastructure. Many
businesses and government agencies will certainly consider that question in their
evaluations of what to make of public blockchains.
Moritz Hütten
340
Various forum members also reiterated the idea that this would be a lesson learned,
but only months later another start-up, Bancor, again building on Ethereum, collected
the equivalent of US$ 150 million in Ether, thus leaving one to question whether
lessons had indeed been learned from ‘The DAO’. Following these events and various
other initial coin offerings (ICO), the currently common form of crowdfunding block-
chain projects, US regulators began to scrutinize these generous funding rounds (Engler
2017). Even more recently, the US Securities and Exchange Commission (SEC) has
concluded that the DAO tokens were securities and cautioned ‘market participants that
offers and sales of digital assets by “virtual” organizations are subject to the require-
ments of the federal securities laws’ (SEC 2017).
The DAO crisis revealed that much of this presumably ‘new’ model of governance
by algorithms could resort to very conventional responses when under stress. When the
DAO’s faults became apparent, the Ethereum blockchain’s ostensibly binding rules
were selectively relaxed for a project with close ties to semi-formal leaders of the
Ethereum ecosystem and various stakeholders with conflicting interests between their
own short-term investments and the integrity of the supporting blockchain. The res-
ponse to crisis challenged previous claims about the neutrality of the platform and about
having overcome focal points of control. Prior to the crisis, stakeholders and developers
had agreed to extremely strict rules by submitting themselves to governance by algo-
rithms (Campbell-Verduyn et. al. 2017) in the form of a highly automatized trustless
blockchain. However, once the crisis set in, strict rules did not function as a backstop
for guiding the community response, but instead were viewed as unreasonable and not
binding and this therefore contributed to their suspension. Some attempts were made to
generate a measure of ad hoc legitimacy imitating democratic procedure by posting
non-binding voting polls on various forums and blogs. The dynamic stemmed from the
assertion that the community mistook obscured de facto control for better and more
responsive governance (D’Onofrio 2016).
From cypherpunk utopia to capitalist dystopia
Based on the analysis of ‘The DAO’ and expanding on Quinn DuPont’s (2018)
research, some broader implications for the proliferation and impact of the blockchain
technology can be unearthed. Following the experience with ‘The DAO’, we can better
distinguish between the facts and fictions of the proclaimed ‘blockchain revolution’.
Open/public blockchains have become a fast spreading technology trend, but on closer
examination, claims of a ‘revolution’ are exaggerated. Analysis of crisis and its
response reminds us that public blockchains, like most technologies, are subject to
political influence. Ultimately, the question is what can we expect from the expansion
of blockchain technology when it ceases to adhere to its more utopian promises?
To answer the question, we must remember the circumstances of the Bitcoin block-
chain’s origins. In response to the accelerating financial crisis, Bitcoin promoted an
alternative payment system as a critique of the selective suspension of binding rules for
banks close to the ‘apex of power’ (Pistor 2013) that were bailed out at the public’s
expense. More was at stake than the immediate survival of the global financial system;
The soft spot of hard code
341
bailing out ‘too big to fail’ banks endangered a crucial supporting pillar of capitalist
utopianism.
Contemporary capitalism ultimately contains its own utopian promises, including
autonomy from society and upward mobility through performance. The flipside of this
autonomy is the utopian notion of ontic, individualized, debt-grounding capitalism.
Notions of debt under capitalism are very different from those of many pre-capitalist
societies. Marcel Maus (1990), for example, describes a society that crucially draws on
universal debt as enabling an ‘understanding of humans’ common participation in
being’ (Featherstone 2017: 64). Capitalism knows no universal debt, and not having a
universal debt to society eventually grants the individual autonomy from it. Ultimately,
ontic, individualized debt lays the foundation for the autonomy of the individual at the
centre of contemporary neoliberal and libertarian thought. As Featherstone (2017: 64)
explained:
Ontological debt is universal, infinite, and inescapable, and as a consequence a
condition of existence itself. By contrast, the ontic version of debt, which
emerged with the money economy and has taken on new, democratic form in
neoliberal society, is never universal, even though it seems to suture everybody
into the late capitalist economy, because this world is made up of two classes,
creditors and debtors. In much the same way that this new debt relation is
particular, it is also finite in the sense that there is a view that eventually every
debt must be repaid in full and debtors will escape their bonds, even if the state
of indebtedness seems to stretch far off into the future.
Contrasting the reasoning of Hobbes (1966), for whom the sovereign must be the
consequence of an otherwise (fictional) constant state of conflict resulting from
unbound individuals encountering each other in libertarian thought, this conflict is
suspended through the notion of open space. The blockchain sets the foundation for a
pre-political society of individuals who are not yet citizens (Atzori 2017: 55). Liber-
tarian thought does not seek to move on to citizenship but remains in a pre-political
state that suspends conflict through notions of open space. The latter are crucial for
libertarian fiction, whether it is science fiction set in space, the open space of the
imagined Wild West, or unbound cyberspace (Mühlbauer 2006). Unable to resolve
emerging conflicts because of its distaste for political institutions, libertarian ideology
must press forward in search of new frontiers to colonize. At its inception, Bitcoin was
lauded as a libertarian revolution freeing the individual from government oppression
(Cox 2013). Originally, in nineteenth-century Europe, ‘libertarian’ was synonymous
with left anarchist, but since then and following the Second World War, market radicals
began to occupy the term and to shape something one could call ‘anarchism for the
rich’ (Mühlbauer 2006: 156). David Golumbia (2015) analysed Bitcoin as a ‘distributed
right-wing ideology’. Guardian reporter Jonathan Freedland identified the surging fel-
lowship of Ayn Rand among the young tech-entrepreneurs intrigued by her lionization
of ‘the alpha male capitalist entrepreneur, the man of action who towers over the little
people and the pettifogging bureaucrats – and gets things done’ (Freedland 2017). For
Moritz Hütten
342
the heroes of Ayn Rand’s stories, even the market is too much society to deal with in
that it hampers the unbound self-realization of the towering individual (Mühlbauer
2006: 160). However, this fascination with zealous, genius, entrepreneurial libertarian
thought is precisely what fuels admiration for a reckless elite and lends itself to authori-
tarian models (Mühlbauer 2006: 159).
The global financial crisis created a situation that transformed private debt into
(almost) universal societal debt. The future horizon of unbound debt repayment was at
the brink of collapsing into a primordial state of unbound universal and unpayable debt
threatening the very core of neoliberal and libertarian autonomy from society. Various
commentators make claims about the disruptive and even revolutionary nature of the
blockchain. Yet, on closer examination, for Bitcoin and the blockchain, ‘revolutionary’
does not mean a challenge to capitalism but a challenge to its demise. At a point when
the global financial system threatened to sink into universal and unaccounted debt with
nobody knowing who owed what to whom, Bitcoin and the blockchain emerged as a
promise of perfectly tracking every transaction and account balance in existence. More
than anything, Bitcoin and blockchain technology promise to rekindle belief in indi-
vidualized, ontic debt and, subsequently, the autonomy of the individual at the heart of
neoliberal and libertarian thought. Ethereum followed the same utopian vision on a
higher level of abstraction, essentially treating payments as a subclass of contracts. It
promised to create a network automatically governed by a predefined protocol, forging
a globally accessible opt-in society of individuals. The utopianism of Ethereum is much
closer to the term ‘friction-free capitalism’ that Bill Gates (1995) coined.
David Golumbia (2015: 121) describes Bitcoin as a programme for ‘recruiting unin-
formed citizens into a neoliberal and (nominally) anti-government political discourse’.
Bill Maurer (2016) concluded that financial professionals like to see the blockchain as
a tool for ‘re-risking’ finance so that it can move away from its ‘boring’, intellectually
unstimulating fee business model. Overall, we must understand that the ‘blockchain
revolution’ often fails to disrupt the neoliberal discourse but rather contributes to its
redemption and to the wider ‘non-death of neoliberalism’ (Crouch 2011). Supporters
of Bitcoin or Ethereum might not feel troubled by that insight at all, for many are
sceptical of government control and endorse the ‘free market’. Yet, these supporters
also turn to public blockchains like Ethereum or decentralized applications like ‘The
DAO’ to deliver the infrastructure necessary for a brighter future under ‘friction-free
capitalism’. Such expectations might turn against them when technological solutions
fail to produce the desired results. Without the ambition to build better institutions on
the blockchain, or when governance failure and murky decision-making processes are
mistaken for ‘better’ governance, the ‘blockchain revolution’ might yield very disap-
pointing results for its advocates. Eventually, public blockchains also face a recurring
problem over the process of digitalization. When processes become digital, ‘tired’ ideas
often become repackaged as ‘wired’ ideas (Ludlow 2001: 20). Brett Scott (2017)
recently criticized the concept of the sharing economy for being simply an obscured
granular rent economy. When more utopian and ambitious projects like ‘The DAO’
fail, the more ‘tired’ ideas remain fuelled by a technology that promises perfect score
keeping in the form of an incorruptible ledger without living up to the expectations of
The soft spot of hard code
343
a techno-utopia. Without thoughtful consideration of how to live up to ambitious goals
of democratic participation and freedom from coercion, the blockchain risks rebranding
relationships of capitalist exploitation into ‘wired’ euphemisms. We see the transform-
ation of granular rent extraction into fancy micro-payments, and old-fashioned com-
modification into blockchain tokenization. At the same time, the familiar patterns are
perpetuated, such as the financialization of the everyday (van der Zwan 2014), attempts
to exploit new markets for financial products by banking the unbanked, or the formaliz-
ation of landownership in rural communities. Eventually, the blockchain could become
not only the fixture for financial practice in the narrow sense Maurer described through
re-risking finance, but in a broader sense for capitalist utopia by rekindling unrealistic
expectations about future repayments of individualized, debt and unlimited commodi-
fication.
Conclusion
In a recent interview, Christoph Jentzsch, a DAO inventor, criticized the blockchain
developers’ for having become overly conservative since the DAO’s failure. Many
projects have become more centralized, and most of the recent wave of ICOs have been
greatly overfunded (Bergmann 2017). Technological advancement was long accom-
panied by a hope that technology would not only streamline politics, but also possibly
transcend it altogether. Yet, examining the crisis response to ‘The DAO’, hopes of a
management-free system were disappointed because the response to crisis revealed
strong de facto control by a programmer elite and weak commitment to principle when
facing possible short-term losses by the community. Eventually, the public blockchain
was all too human at its core, forming indeed the soft spot of a utopia of governance by
hard code. The response to the crisis revealed that the public Ethereum blockchain has
not transcended politics. The lack of proper procedures instead leads to a mimicry of
the murky interventions that sparked discontent with the financial system. The outcome
is in no way confined to the Ethereum blockchain, and after studying Bitcoin, other
scholars (Atzori 2017; De Fillipi and Loveluck 2016; Musiani et al. 2018; Pelizza and
Kuhlmann 2017) have reached similar conclusions.
Pre-crisis commitments to strict governance by algorithms and the credo that ‘code
is law’ failed to hold up under pressure. Rather than supporting the community in
troubled times, the strictness of the rules hampered the development of proper pro-
cedures with which to handle the events. Under unforeseen circumstances, the commit-
ments were viewed as overbearing and unreasonable, and ultimately fuelled the
impression that compliance with the code was unrealistic. While some community
members criticized the opaque elite governance, others mistook the quick response for
dynamic decision making. The DAO episode also casts doubt on the capacity of open/
public blockchains to overcome the selective favouritism that originally fuelled
discontent with the financial system and left some forum members wondering how big
a project must be before the developers intervene on its behalf (andypant 2016).
More broadly, the old ideas and new crises that spread through technology pose
implications for global finance and beyond. Increasingly, transnationally operating
Moritz Hütten
344
actors in the blockchain ecosystem work with policy makers, governments and firms
around the world. While not long ago blockchains were primarily a source of concern
for politicians, lawmakers and regulators, these actors are increasingly embracing a
widespread use of its applications and forecast its possible role in ‘revolutionizing’
governance, democracy and the rule of law (Mizrahi 2017).2 Consequently, the pro-
claimed blockchain ‘revolution’ merely becomes the evolution of the very institutions
that Nakamoto, Buterin and others had meant to challenge.
Finally, this development also holds implications for the utopian aspects of block-
chain technology. It is said that blockchains possibly improve the way services,
public administration and companies are organized; they can make them more
efficient and more decentralized, but only if we understand them as a tool with
limitations and not as a replacement for political debate. We must keep in mind that
technology cannot be a substitute for conscious debate on how democratization,
inclusion, emancipation and self-determination can be achieved. Opportunities for
empowerment must be created and defended; they are not a by-product of technology.
Technology gadgetry cannot replace political struggle. The DAO crisis was a missed
chance to have such a debate, with many discussants simply claiming that the
technology was still new and would perform better next time. It was also a missed
chance to think about the underlying techno-libertarian ideology and utopianism. Yet,
critical debate must be injected into the blockchain community to challenge the
inherent flaws and contradictions of the underlying ideology. My examination of the
utopianism of Bitcoin that is still evident in various blockchain projects like Ethereum,
reveals the dangers that originate from this utopianism and the now common framing
of the blockchain as a powerful accounting tool. The blockchain runs the danger of
becoming a fixture for the crisis of financialized capitalism, rekindling a belief in
clearly bounded ontic debt with a promise of perfect accounting without bringing about
better, more open and inclusive institutions. Instead, the blockchain could drive a belief
in the moral virtue of ‘tired’ ideas of capitalist rent extraction and exploitation under
the guise of ‘wired’ ideas of digital inclusion, radical entrepreneurship and unhampered
self-realization.
Acknowledgements
I am grateful to Max Nagel for contributing to a presentation on the topic at the 2016 Intersections
of Finance and Society Conference in London. I also thank Malcolm Campbell-Verduyn for his
insightful and thorough comments on an earlier draft.
Notes
1. Because the technology is new, the terminology is not yet fully established. Sometimes the
terms ‘blockchain’ and ‘DLT’ are used interchangeably; at other times DLT is used as a more
general term for a distributed ledger but without any clear indication of whether it is indeed
a blockchain.
2. This exemplifies the development in the EU, yet this development is in no way confined to
the EU.
The soft spot of hard code
345
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