Blockchain Technology and the Rule of Code : Regulation via Governance

Blockchain-based systems, by virtue of their technological features, present challenges to the rule of law. These systems work in a transnational and decentralised fashion, often with pseudonymous user identities, executing code autonomously without the possibility of coercion by any single operator. This article argues that blockchain-based systems challenge the rule of law by means of a move towards the rule of code. First, it analyses the analogy between the rule of law and the rule of code, by distinguishing them from the rule by law and rule by code. This analysis evaluates the extent to which the technical features of blockchain-based systems make them particularly difficult to regulate by traditional legal means, contrasting the example of TheDAO with the newer example of BadgerDAO. Second, the article identifies ways in which lawmakers can respond to the rule of code within a global pluralist, polycentric legal system. After distinguishing on-chain and off-chain governance, the paper builds on Lessig’s four modes of regulation to offer two pathways for regulating blockchain technologies: the regulation by code approach, which aims to impose legal responsibilities and liabilities on operators of blockchain networks, and the regulation via governance approach, which uses legal pressure points to influence the social norms that govern blockchain communities