Decentralized Autonomous Jedi Mind Tricks
Daniel Larimer & Charles Evans
In December David Johnston, one of the developers of Mastercoin and co-founder of cryptocurrency angel investor network, BitAngels, published "The Emerging Wave of Decentralized Applications" on github, in which he describes Bitcoin and next-generation systems—specifically, BitShares, Meshcoin, and Mastercoin—as 'Distributed Applications' as distinct from the original Distributed Autonomous Corporations (DAC).
Johnston argues that this new phrase is preferable because it avoids associations with regulated entities, like currency and corporate shares, and because the thing being described is a piece of open-source software that defines a protocol that can be modified only with the consensus of the community of programmers who maintain and extend the code base.
While avoiding misunderstandings caused by the literal interpretation of an analogy has merit, Johnston includes the issuance of tokens as a defining characteristic of a Distributed Application, even though software applications, per se, do not require tokens. In other words, DACs are a specific subset of Distributed Applications that involve the creation of tokens—whether one calls them 'coins', 'shares', 'chips', or whatever—and to dispense with the DAC analogy is to call a subset by the name of its superset, rather like referring to pit bulls as 'canines', because pit bulls are regulated in some jurisdictions. The choice of name does not change what a thing is, and animal control agents are unlikely to shrug and walk away satisfied if one points to a pack of pit bulls frolicking on one's front lawn and declares, "Oh those? No, they're just canines. These aren't the pit bulls you're looking for."A Meta-Analogy
Imagine you just discovered electricity and all of the amazing things that it can do. There are electrons that flow around, wave forms, and other fundamental building blocks. People want to start using this amazing electricity concept to build useful and productive circuits, but they lack a mental framework that helps them intuitively understand and predict the outcome of a particular circuit structure, and even advanced mathematics can only approximate it due to noise in the environment and imperfect measurements of the components. Relying on math alone to simulate the expected results is time-consuming. To design systems you need intuition and abstraction.
So, someone comes along and says, "Wow! Electricity works just like plumbing! It flows like water. There is a 'pressure' in the circuit. Resistors are like narrow pipes..." If you think of an electrical circuit as a kind of electrical plumbing, then you can apply everything that you intuitively know about what works in plumbing systems to help design and understand this new fancy electricity thingamajig that we just discovered, without having to resort to math until after a high-level design is in place.
Best of all, you quickly discover that teaching students about electricity is an order of magnitude easier using this metaphor, and as a result they quickly pick up the concept and are able to apply it in useful ways.
Now imagine that the plumbing industry is highly regulated and requires licenses. Anything that moves a fluid through a pipe, stores a fluid in a tank, or employs a pressurized system is subject to fees, regulations, and restrictions on its use. Plumbing might even be illegal in some places!
Members of the plumbing industry hear of this new metaphor for describing electricity and want to regulate electricity with the same laws the apply to water and plumbing. They might even want anyone who works with electricity to go through the full training, apprenticeship, and guild membership process that applies to plumbers.
In order to avoid this kind of absurd situation, one must emphasize the distinction between what something is and the metaphor used to teach how it operates. Those using electricity don't care about how it works or how it is classified. They just want the lights to come on. For this group you simply call it 'power' and nothing else is required. But, when you are trying to teach people how to use power to do things, you need a metaphor.
DAC is the metaphor that holds the key to designing the kinds of Distributed Applications Johnston describes. Bitcoin is a token-issuing Distributed Application that is most easily understood using a currency metaphor. BitShares is a token-issuing Distributed Application most easily understood via a Bank, Corporation, or Exchange metaphor.
If we are afraid to use metaphors due to fear of regulators, then we will harm the ability of users to understand how and why token-issuing Distributed Applications work in an intuitive level and also hinder how they are designed. One should never underestimate the power of the Dark Side. Regulators are not as easily distracted as Imperial Stormtroopers. Renaming a DAC is neither necessary nor sufficient to avoid attracting regulators' attention.
Many people have come up with DAC ideas, but it is clear that the first principles behind creating Distributed Autonomous Applications are not yet well understood. The DAC metaphor is the key framework that helps to design and implement token-issuing Distributed Autonomous Applications.
Seen this way, Bitcoin is the first DAC. The service that it provides that has attracted the greatest attention is payment services, and new uses are discovered with surprising subtlety and frequency.
However, when seen in terms of shares rather than coins the tokens that the Bitcoin system issues warrant closer scrutiny. In particular, note who in the Bitcoin system holds the voting power: the transaction processors, known metaphorically as 'miners', and the holders of bitcoins are passive participants. Miners control the majority of the computing power that makes up the Bitcoin system.
Seen as a company, the holders of bitcoin-the-unit own non-voting shares. The miners have all of the voting power.
As a payment protocol, this obviously is not a devastating problem. Otherwise, Bitcoin would not exist. As a company, on the other hand, this is like having the vast majority of shares in circulation stripped of their voting rights, and all of the voting power concentrated in the hands of a small number of parties who might not even hold the bitcoins—that they receive in payment for their services—longer than it takes to sell them. This situation is unusual in countries that tend to attract a lot of foreign investment, like Australia, Canada, the UK, and the USA. It is much more like the large, family-owned combines that one sees in the Developing World.
Carrying the company analogy a bit further, the goal of maximizing the 'equity-per-share' ratio replaces the goal of maintaining a constant 'backing-per-currency-unit' ratio in a currency system. With a currency, the general tendency is to strive for a stable price-per-stuff ratio. Granted, one can argue in favor of a truly deflationary currency, but this continues to be a minority view, and the default is stable prices for the vast majority of currency users. Shares, on the other hand, are expected to pay dividends, appreciate in value, or both. When we think of a DAC as a company, rather than as a mint, the idea of units that increase in value comes more naturally.
If the conversation were about Distributed Applications, none of this might stand out as noteworthy. If the conversation is about DACs, these issues stand out like a Klingon at a Star Wars convention.