The road to crypto governance

The definition of governance

For over two millennia, the concept of governance has been used to characterize the institutions and practices of governing (Kaufmann and Kraay, 2008). According to the Oxford English Dictionary, governance is paraphrased as the action of governing— directing, guiding, or regulating individuals, organizations, or nations in conduct or actions.

Governance in a generic sense may be construed as providing direction or regulation, in public or private realms, by formal or informal structures; by authority or by consent. Governance might include issues such as adaptability, transparency, conflict resolution, deliberation, decision making, allocations of power, and adherence to the rule of law (Lynn Jr, 2010).

A common view is that “governance” is a synonym for “government”: providing direction to society by the state (Krahman 2003; Stoker 1998; World Bank 1989). In more progressive terms, “governance” is often depicted as expanding the role of civil society beyond government control, in directing and regulating the uses of public resources, with emphasis on deliberative versus representative forms of democracy.

Scholars have attempted to clarify the conceptual farrago of “governance”, by considering empirical claims that a “new governance” is displacing the role of the state. In redefining governance, one views government and the for-profit sector as integral participants in “governance with government” (Lynn Jr, 2012), which emphasizes adaptation based on existing power structures.

Some scholarly claims on the term “governance” are disassociated fully from government, in favor of civil society governing based on plurality, interdependence, and trust, that is “governance without government” (Lynn Jr, 2012). Transformation is emphasized in this governance practice across industrial revolutions, particularly in advanced industrial democracies.

In Europe, there has been widespread interest in the engagement of citizens, civil society organizations, and business with government in formulating and delivering public policy. As a result, a range of democratic innovations have emerged, including citizens’ juries, deliberative forums, and multisector partnerships. Citizens are now part of “government” through these mechanisms, conferring authority on their inputs to the policy-making process.

The vital point here is that governance is a kind of public administration. Simply put, it could be said that in the day-to-day, internal management of a government agency, or management of an extended state jurisdiction, a person practices public administration. This includes NGOs or companies implementing policies that affect citizens in the same way state policies do (Frederickson 1997: 224). The four models of governance as public administration are set out below:

Despite the rhetoric of reform, the underlying value of governance is about order — that is, an orderly adaptation using innovation. Most governance elements in the table above — including networks, inter-jurisdictional cooperation, power-sharing federations, public–private partnerships, and contracting-out— are forms of institutional adaptation in the face of increasing interdependence.

Further, an OECD study found that the liberalisation of domestic markets, international trade, and new regulatory management tools, has led to a creation of a host of new institutions – oversight bodies, regulatory agencies, administrative courts and ombudsman commissions – to manage newly liberalized markets. These specialised agencies have developed a host of tools to develop evidenced-based policies and to enforce economic regulations (OECD 2009).

As technological globalization continues to evolve, it remains to be seen which view is more dominant. Jan Kooiman (2003, 13), a progenitor of the governance-as-networks perspective, claims: “the state is perfectly capable of giving [managerial flexibility] with one hand and taking [ministerial-level regulation] with the other.”

In some nation states, the decline in state provision of public programs were accompanied by a new ideology portraying the public sector as incapable and inefficient: “In a seemingly dynamic and consumer-oriented culture, the delivery of public services is seen to be hidebound by a lack of innovation, creativity, and flexibility.” (Budd and Harris 2009: 2).

In an increasingly competitive, globalized environment, technology has gained momentum in responding to the new challenges of e-democracy, creating an emerging space of e-governance. The implementation of e-governance has become increasingly outsourced and privatized, due to the complexity and centralization of large ICT players made up of large, global corporations such as IBM-Accenture, Cap Gemini-Ernst and Young, Lockheed Martin, Microsoft, and more, which “monopolize the necessary expertise and organizational capacities to service and develop the very large-scaled government systems of big nation states. This trend will intensify as many government agencies “become their websites—where the electronic form of the organization increasingly defines the fundamentals of what it is and does” (Dunleavy et al. 2006: 3).

In entering the discourse of e-governance and e-democracy, an important structural distinction should be made between the two. E-governance is a top-down management by the state with an active participation of market players; making it a governmental project. E-democracy in the spirit of the Habermasian public sphere is bottom up, requiring autonomy from the state and the market (Dahlberg 2001). Eran Fischer (2012) states:

"While governance is a systemic activity, aimed at achieving instrumental goals, democracy is a utopian horizon that combines the components of system (such as parliament and elections) with those of the lifeworld (such as values and norms).

Accordingly, we might conceptualize e-governance as the transfer of government activities into online forms with the aim of improving efficiency, and e-democracy as the transfer of democratic practices into online forms with the aim of improving deliberation. At the heart of these projects is a process of rationalization by technological means."

Current landscape of crypto governance

Much has been written about this topic from a blockchain technology lens, on how crypto governance works within projects such as Tezos, MakerDao, Gnosis, and more. Fred Ersham advocates for governance minimization on-chain to support credible neutrality, enabling a higher rate of use.

In blockchain democracy, proposals have been put forward to enable greater transparency and predictability, such as futarchy, enabling voter registration and governance processes on-chain. In his TEDxFukuoka talk, Shogo Ochiai proposes a Decentralized Autonomous Organization (DAO) governance process for implementing economic reform in a more open, automated and cost efficient manner:

Such ideas are inherently interesting, but I noticed in traversing towards this utopian DAO, there has been a gap in the discourse of using technology in constitutional and administrative law processes. In private practice, discourse on the legal tech stack that Magic Circle firms or other legal practitioners would use is also not surfaced enough. I’ll address technological developments in both public law and private law practice in the next sections of this article.

Digital constitutionalism

From the lens of the public law, I have my cousin, Dr Yee-Fui Ng, to thank in inspiring the genesis of this writing. In her article, “Revitalising Public Law in a Technological Era: Rights, Transparency and Administrative Justice”, co-authored with Maria O'Sullivan, Moira Paterson and Normann Witzleb, they examine how public law in Australia should be revitalised with the increasing use of e-governance tools.

Technology is a global phenomenon, and as such, calls for a global legal response to inform the development of the Australian public law system to keep up with developing technologies. Ensuring observance with established principles of public law is critical to cultivating the public confidence and trust that is necessary to facilitate the successful adoption of new technologies. These fundamental principles of public law are:

• Lawfulness;
• Rationality;
• Fairness;
• Process – accessibility, equitable cost, timeliness, intelligible explanation of decisions;
• Accountability, transparency, consistency, participation.

Within the context of technological automation, the following aspects of the rule of law are of particular significance:

• the need for laws to be open, accessible and clear;
• an independent judiciary, with power to review the actions of government to ensure that it conforms to the rule of law;
• adequate protection of fundamental human rights; and
• compliance by the state with its obligations under national and international law

The recent Robodebt controversy, which saw the implementation of an automated debt recovery system by the Department of Social Services that utilized algorithms with high error rates, underscored the fundamental importance of implementing value-compliant technologies, consistent with emerging international best practice standards, by highlighting issues in transparency, procedural fairness and reviewability:

The Robodebt algorithm resulted in numerous miscalculated, and in some instances completely false, debt claims against welfare recipients. Flaws in the design of the system meant that the overpayments were in many cases wrongly identified and therefore the use of technology has led to systematic errors in calculation, amplified by the scale of implementation to hundreds of thousands of debtors.

Importantly, the scheme had a disproportionate impact on vulnerable groups, such as Indigenous persons, aged persons and those with a disability, who generally are more greatly dependent on welfare support systems.

A Senate Committee inquiry and an Ombudsman investigation found that these large-scale incorrect calculations had grave repercussions for vulnerable low socioeconomic groups, including individuals experiencing severe mental health issues, with reports of suicide in the affected population.

The Australian Robodebt example illustrates the issues of data collection and transparency, where the debtors were unable to access information about the methodology by which their debt was calculated (ie, by the inaccurate method of fortnightly income averaging), and there was a lack of transparency about the error rates of this income averaging method. Alleged debtors, who disproportionately belonged to already disadvantaged groups, also found it difficult to challenge the decisions due to their lack of understanding of the way the automated system operated.

Following the critical parliamentary committee and Ombudsman reports, a debtor, Deana Amato, supported by Victoria Legal Aid, ran a test case to challenge the validity of her debt decision in the Federal Court. Through consent orders, the Court declared in Amato v Commonwealth that the automated Robodebt decisions utilising income averaging alone were irrational and thus unlawful.

Is Australian public law ‘fit for purpose’ in a technological era? By and large, Australians can rely on existing institutional structures to challenge many government decisions, despite the absence of explicit human rights protections in Australian domestic law. This is because Australia has a large array of effective administrative law institutions (such as comprehensive state, territory, and federal merits review bodies, ombudsman offices and state anti-corruption agencies) that form a strong counterpoint to executive power. These oversight bodies are complemented by parliamentary committees, which are effective mechanisms for the scrutiny of government action."

The legal tech stack - working in a world of reduced costs

The legal industry is undergoing a digital transformation. Law is no longer solely about lawyers — it is a tripartite classification of law, technology and business. Clients are disrupting the insular legal guild of law firms and embracing ‘law companies’—that are more nimble and better serve the needs of businesses, small and large. The success of these law companies will be determined by their ability to satisfy customer needs and expectations, not profit per partner.

There is a technologically-led legal ecosystem of law firms, law companies (Elevate, Axiom), and law departments now under the pressure to do more with less, from controlling legal spend, improving legal results to building more efficient legal service delivery models. Their evolution timeline is shown below:

Disrupting the legal industry proved to be an uphill battle. $75m funded fintech and blockchain technology startup Atrium, founded by Justin Kan, folded last year. Founded in 2017, Atrium built legal software for startups to navigate fundraising, hiring, acquisition deals and collaborate with their legal teams. Atrium also offered in-house lawyers that could provide counsel and best practices for their blockchain clients, which ramped up their personnel cost significantly.

Specifically in blockchain, the team works with clients who employ blockchain technology or cryptographic assets as a core part of their business model. Client needs include securities and digital asset offerings, regulatory analysis, money transmitter licenses, broker-dealer registrations and general corporate and IP-related matters particular to blockchain and fintech companies. The practice also offers legal-informed business strategy, helping clients structure and optimize business and regulatory compliance goals.

For their legal tech stack offering, Atrium’s SaaS model included Records, a Dropbox-esque document management system for keeping track of legal documents, and Hiring, a Docusign-type solution which instantly generated offer letters based on pre-filled form while keeping track of signatures.

More robust legal tech stack offerings in the market include interoperable structures for legal document management, automating workflows, AI capability, API integrations, etc, such as those offered by Elevate Services.

What’s next for our communities?

As institutionalized, democratic decentralization continues to spread across many regions of the developing world, local elected municipal councils are bringing new forms and styles of governance to a large segment of the population (Stren, 2012). According to estimates, democratically chosen executive and legislative officials are now found in more than 14,000 units of subnational government in Latin America (Campbell 2003, 4). In the Philippines, the Local Government Code of 1991 devolved significant powers from the national government to municipalities; the Seventy-Fourth Amendment to the Indian Constitution in 1992 strengthened the finances of municipalities; giving them more independence from their state governments; reserving one-third of all municipal council seats for women); a new Constitution for South Africa specifies a range of protected powers and governance responsibilities for local governments; democratic institutions in Mexico City enables election of the “head of government” in the Federal District, and mayor elections in their respective 16 subunits (delegaciones) (Stren, 2012).

These municipal leaders are also more technologically savvy and engage their constituents via social media.

In Miami, Mayor Suarez who is up for re-election this year, has gone viral with his advocacy to pay municipal workers and collect taxes in Bitcoin. Whilst Suarez is now a a newly minted crypto KOL, the mayor of the City of Miami doesn’t control the budget or municipal workforce or get a vote on the commission.

Finally, an underestimated group of voters and future leaders are beginning to emerge, particularly in the recent US election campaigns prioritizing the youth vote — the young people — digital natives who’d rather buy crypto than step into a bank, are more likely to go viral on TikTok, and live in a more inclusive, hyperconnected world than ever before. What would their political activism look like, and how will it shape the communities of our future? More importantly, how would crypto governance evolve to express their voices, challenges and initiatives?