Blockchain law and governance: General Conclusion -- Milan, October 2019

BLOCKCHAIN
LAW & GOVERNANCE
Good for All: Towards a Paradigm Shift:
General Conclusion
TONY LAI
CO-CHAIR, BLOCKCHAIN GROUP, STANFORD CODEX CENTER FOR LEGAL
INFORMATICS
FOUNDER & CHAIRMAN, LEGAL.IO
tony@codex.stanford.edu
@lai
@lai
Università degli Studi di Milano, 26 October 2019

Tony Lai
Founder & Chairman, Legal.io
Co-Chair, Blockchain Group: Stanford CodeX Center for Legal Informatics
ENTREPRENEUR,
DESIGNER,
COLLECTIVE ARCHITECT
LEGAL
TECHNOLOGIST
GRADUATE
10,000+ HRS
LAWYER
@lai

Regulators
Miners
Blockchain Lawyers
Privacy Advocates
Financial System Architects
Smart Contract Analysts
Sustainability Developers
Technologists
Transparency Advocates@lai

What’s the story we’ll tell our
colleagues and loved ones
about why we were here?
Qual è la storia che
racconteremo ai nostri colleghi
e ai nostri cari sul perché
eravamo qui?
@lai

Good for All: Towards a
Paradigm Shift
Regulatory perspectives
Public administrative law
Private international law
Contract law scholarship and application
Mining and technological underpinnings
Governance of blockchain infrastructure
Distributed autonomous organizations and tokens
Financial privacy
Smart (legal) contracts
Blockchain to achieve the sustainable development goals (SDGs)
Who and how to judge?
Transparency
@lai

@lai
Source: Alumni Network Analysis: http://www.innovation-ecosystems.org/wp-
content/uploads/2010/12/2011.educon.pdf
http://startx.com

@lai Source: http://startx.com

To create and promote research into technologies
that improve our legal systems.
@lai

LAW OF TECHNOLOGY
TECHNOLOGY OF LAW
REGULATING AND GOVERNING TECHNOLOGY
TECHNOLOGY AS GOVERNANCE TOOL
@lai

Stanford CodeX Blockchain Group
Computational Law and Computational Contracts
Research and Publish
Track, Guide & Influence Policy Coordination
Be an Inclusive, Neutral Learning & Discussion Forum
Initial projects and issue areas:
1. Legal issues and opportunities presented by blockchain technologies and their intersection with
existing legal and regulatory frameworks
2. Smart contracts and governance design for decentralized ecosystems; and
3. Legal empowerment and legal services use cases for blockchain technologies and computational
law.
@lai

Stanford Journal of Blockchain Law & Policy
First-of-its-kind academic law journal edited by Stanford and Stanford-affiliated scholars and
practitioners.
Print and online at stanford-jblp.pubpub.org enabling optimized timeliness, agile peer review &
commentary, and cross-publication interactivity.
Neutral, disinterested, and reputable platform.
Peer-reviewed Articles and Essays to date on a range of
issues, including:
Comparative ICO regulation Blockchain &
GDPR
Hard Forks
‘Code-ification’ of Law
IRS Enforcement Citizen
Central Banking
Digital Asset Taxonomies Corporate
Governance

Principles
1. Balance Public Interest and
Stimulating Innovation
2. Regulatory Stability
3. Engage early
4. Have regulatory conversations
5. Polycentric co-regulation
6. Experimentation
7. Focus on Use Cases not the Tech
8. Engage in Transnational
conversations
Typologies and Principles for Regulating Blockchain
Typologies
1. Wait and See
2. Offer Guidance
3. Sandboxing
4. New Legislation
5. Use Blockchain as a
Regulatory Tool
(“embedded
regulations”)
@lai Source: Michèle Finck - Blockchains: Regulating the Unknown

Platform and Data Governance
Existing multi-party systems and information networks.
Credit card systems. Payment systems. Identity systems. Social media
networks. Market networks.
Application of Common Pool Resource theory to knowledge and data
commons: increase in value from participation and engagement.
Blockchain governance features that lead to greater inclusivity / fairness?
Data: Ownership vs. Custody. Data Unions?
Extended enterprise, supply chain risk management, future lawyers.
@lai

Project Callisto.
Broken Trust. Emergent Rules & Norms.
Complex Adaptive Systems.
Breaking Monopolies → Creating competitive marketplaces …
around reporting… around ‘ethical’ behavior
Information escrows -- Ian Ayres
A new way for individuals to be holding bad actors
accountable. Corporate and public sector whistleblowing...
Governing Information Flow

Trust Framework
Governance, Trust Frameworks, and Smart Legal Contracts
Distributed ID
“Self-sovereign” Identity
Identity Standards and
Smart Legal Contracts
- Parties
- Documents
- Things
- Computation
Business
Legal
Technical

EXAMPLES OF MULTI-PARTY SYSTEMS
• Credit Card Systems
•American Express
•Discover
•Mastercard
•Visa
• Payment Systems
•ACH
•Swift
•ATM Systems
17
• Identity systems
•SAFE-BioPharma (pharma sector)
•IdenTrust (financial sector)
•InCommon (education sector)
•eIDAS (EU residents)
• Social and Market Networks
•Facebook / WeChat
•Amazon / Alibaba
Source: Tom Smedinghoff, OIX BITGov, Palo Alto, May 2018. See original slides here:
http://www.openidentityexchange.org/bitgov/wp-content/uploads/2018/05/OIX_BITGov-Palo-Alto_Tom-Smedinghoff.pdf@lai

ALL MULTI-PARTY SYSTEMS NEED . . .
• Rules
• A governance mechanism
•To make the rules
•To amend / maintain the rules
• A mechanism to make rules enforceable on the
participants
18Source: Tom Smedinghoff, OIX BITGov, Palo Alto, May 2018.

ALL MULTI-PARTY SYSTEMS
NEED THE FOLLOWING TYPES OF RULES
• Business rules
•Who can (or is supposed to) do what?
•What roles exist and what are their duties and responsibilities?
• Legal rules
•Compliance requirements
•Risk and loss allocations
•Warranties and liability
• Technical rules
•How is the data structured, formatted, communicated, secured, verified,
etc.?
•How is the system supposed to work?
•What are the processes used?
@lai

• Every participant agrees once to a common set of
rules that is binding on all participants
• Same rules apply to everyone – can form basis of
overall system trust
•i.e., each participant knows how each other
participant is obligated to act
• When necessary, rules can be changed for all
participants uniformly
TRUST FRAMEWORK GOVERNANCE
@lai

Design Principles for Collective Governance of the Commons
Common Pool Resources
Co-Managed Resources
Co-Managed Risks
Any regenerative, self-organizing complex system that can
be drawn upon for deep wealth.
- Lumber, Fish, etc. - Communities, Markets, IPR
Any group whose members must work together to achieve
a common goal is vulnerable to self-serving behaviors, and
so should benefit from the same principles.

1. Define clear group boundaries.
2. Match rules governing use of
common goods to local needs and
conditions.
3. Ensure that those affected by the
rules can participate in modifying the
rules.
4. Develop a system, carried out by
community members, for monitoring
members’ behavior.
Elinor Ostrom:
5. Use graduated sanctions for rule
violators.
6. Provide accessible, low-cost means
for dispute resolution.
7. Make sure the rule-making rights of
community members are respected
by outside and higher authorities.
8. Build responsibility for governing the
common resource in nested tiers from
the lowest level up to the entire
interconnected system.

Define clear group boundaries
1A. Define Authorized Use
1B. Define Common Boundaries
Match rules to local conditions
2A. Make Costs Proportional
2B. Pay All Costs
Ensure those affected can participate
3A. Decide Inclusively
3B. Adapt Locally
Monitor behaviour
4A. Share Knowledge
4B. Monitor Effectively
Use Graduated Sanctions
5. Hold Accountable
Provide accessible dispute resolution
6. Promptly Resolve Conflicts
Ensure rights are respected by outside
authorities
7. Govern Locally
Build governance in nested tiers
8. Connect to / Coordinate with
Related Systems
How to Avoid the Tragedy of the Commons within Self-Organizing Systems
Source: Christopher Allen, derived from Elinor Ostrom’s

Build governance in nested tiers
8. Connect to / Coordinate with
Related Systems
How to Avoid the Tragedy of the Commons within Self-Organizing Systems
For groups that are part of larger social systems, there must be
appropriate coordination among relevant groups.
Every sphere of activity has an optimal scale.
Large scale governance requires finding the optimal scale for each
sphere of activity and appropriately coordinating the activities, a
concept called polycentric governance.
A related concept is subsidiarity,
which assigns governance tasks by
default to the lowest jurisdiction,
unless this is explicitly determined to
be ineffective. Source: Christopher Allen, derived from Elinor Ostrom’s

@lai
Source: SMU CAIDG
simonchesterman.com

@lai
Source: Foresight Institute

@lai
“until the rightless
thing receives its
rights, we cannot see it
as anything but a thing
for the ‘use’ of those
who are holding rights
at the time.”

Computational Law
Legal Algorithms: Code is Law, and Law is becoming Code.
Laws and regulations are algorithms executed by humans.
Transition to execution by computers - care not to lose guardrails of human
judgement and interpretation.
Complex Human-Machine Systems --- oversight and guarantor functions?
Design. Testing. Continuous Audit.
Modular Systems. Instrumenting.
Role of regulators and courts (and counsel): auditing and revising modules
based on performance feedback.
Role of legislators: revising overall system architecture.
@lai

41
@lai
Computational Law & Blockchain

• Blockchain ecosystems - Open Platforms, DAOs, DisCOs
• “Secure tested contract templates” - as legal & economic infrastructure
• Legal Identity
• Multi-Party Governance: Extended enterprise and Cross-organizational workflows
USE CASES
• Reducing costs of dispute resolution and compliance
• Reducing costs of collaboration
• Supply chain, digital rights management, identity, payments, trade finance, and asset
management lifecycles
COMPUTATIONAL LAW INFRASTRUCTURE
• Unit testing
• Human function calls...
Next Steps for the Future of Legal Practice
@lai

A world where legal professionals are fulfilling their potential as …
• Counsel to companies in making ethical decisions as they pursue profit
• Peace re-makers
• Stewards of trust, confidences, and private data stores
• Creative designers of non-zero sum games and liberating structures
• Masters of the arts of dispute resolution & governance of multi-stakeholder
systems
• Guides to our legislators on the moral limits of markets
• Smart contract platform administrators
FUTURE LAWYERS
@lai

“Unceasingly contemplate the generation
of all things through change, and
accustom thyself to the thought that the
nature of the universe delights above all in
changing the things that exist and making
new ones of the same pattern. For
everything that exists is the seed of that
which shall come from it.”
@lai
- MARCUS AURELIUS

BLOCKCHAIN:
COMPUTATIONAL
LAW & GOVERNANCE
Good for All: Towards a Paradigm Shift:
General Conclusion
TONY LAI
CO-CHAIR, BLOCKCHAIN GROUP, STANFORD CODEX CENTER FOR LEGAL
INFORMATICS
FOUNDER & CHAIRMAN, LEGAL.IO
tony@codex.stanford.edu
@lai
@lai
Università degli Studi di Milano, 26 October 2019

Blockchain law and governance: General Conclusion -- Milan, October 2019

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Blockchain law and governance: General Conclusion -- Milan, October 2019