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James Grimmelmann & A. Jason Windawi, Blockchains as Infrastructure and Semicommons, __ Wm. & Mary L. Rev. __ (forthcoming 2023), available at SSRN.

In popular culture, blockchains (to the extent they are understood at all) are associated with cryptocurrency, and following the crypto crash of 2022, increasingly dismissed as part of a classic asset bubble. But legal scholars are more sanguine. They tout the potential of blockchain, or, more prosaically, “distributed ledgers,” to transform private law, from contracts to securities to property. Blockchains are hoaxes or panaceas depending on which source you consult.

James Grimmelmann and A. Jason Windawi’s sparkling essay, Blockchains as Infrastructure and Semicommons, charts a path between these two extremes. It does so by calling attention not to what blockchains can do for law, but rather by focusing on the novel question of what legal theory can tell us about how blockchains work. The essay leverages two influential notions from property—infrastructure and the semicommons—to deliver insights about blockchains as well as an object lesson in the value of looking at distributed ledgers through the lens of legal theory.

The co-authors first apply Brett Frischmann’s work to show how we can understand blockchains as infrastructure: blockchains (that is, the ledgers themselves, separate from the hardware that enables them or the assets they chronicle) are nonrival inputs that may be used in a variety of goods and services. This in turn highlights that to maximize the social value of blockchains, it is not enough to treat them as purely private goods, since this will fail to maximize the value they could otherwise generate in the form of positive spillovers. Hence, the essay points out, (public) blockchains operate (and should operate) as commons property in two senses: they can be used and read by anyone; and they are managed collectively through numerous maintainers rather than a single centralized owner.

The essay then analyzes blockchains through a second property theory: Henry Smith’s notion of semicommons. Semicommons are resources that are held publicly with respect to some substantial uses and held in common with respect to others, where the public and common uses interact with one another. So, too, are blockchains. Some of their features—hardware, network connection, and the significant work necessary to operate them—are private. Others—most notably, the ledger itself—are common.

This semicommons nature of blockchains explains two key features of why blockchains work. First, the incentives of those who use their private resources to mine are determined only by their computational resources, which preclude corruption and collusion. Second, the public/private interface incentivizes users to agree on a shared governance standard (e.g., the convention that the state of the ledger is defined by the longest chain). Participants cannot go rogue and ignore the majority’s rule without forfeiting their assets.

At this point, one might think that the co-authors are, like most others who have written about law and blockchains, unalloyed enthusiasts of distributed ledgers. As they observe, “The key technical features of a blockchain…fit together like the parts of a finely engineered watch.” (P. 19.) The third and final part of the essay complicates this story. The authors detail six ways, illuminated by infrastructure and semicommons theory, in which blockchain governance can break down. For example, they observe that the technology that animates blockchains—the protocols that describe their operation and the software that implements it—is conceived and written by humans. It is in this sense a pure public good, since protocols and software are information that is typically left open-source. But this raises the risk that, as with all public goods, individuals will lack sufficient incentive to supply it. Hence, blockchains typically include private incentives for their creation, which in turn create their own risks of self-dealing that, again in turn, necessitate governance mechanisms to constrain these risks.

This and the other problems highlighted in the essay’s final part sound a common theme: that while blockchains appear to be self-governing, that appearance is false and obscures the extent to which they—like all institutions—are created by humans, depend on human intervention, and may suffer from the frailties of their human creators and managers.

At the core of how many observers (mis)understand how blockchains work is the assumption that they are mere technologies, no more than protocols and technologies that, once created, operate without any need for intervention. As Grimmelmann and Windawi eloquently put it, “Blockchains are technosocial systems, not just technologies.” (P. 30.) This insight exposes the inevitable presence of human actors in implementing and governing blockchains, and frames the promise for legal scholars of considering blockchains as institutions rather than just technical processes.

Grimmelmann and Windawi’s article is a striking departure from the current run of scholarship about law and blockchains. Nearly all writing in this vein follows the same pattern. It briefly describes how distributed ledgers work and then shows their promise for a particular area of private law. What the co-authors illuminate is not that this field-specific approach is flawed—on the contrary, in many instances is has produced valuable insights about how blockchains may transform law—but that it is incomplete. But the field-specific approach does not delve into the operation of blockchains themselves; it rather describes and accepts their operation uncritically.

The essay, by contrast, examines blockchain not as a means to some legal end, but as an institution in itself as worthy of investigation as any of the other institutions that legal scholars scrutinize. And the richness of the authors’ deployment of property theory as the lens they use to analyze distributed ledgers is not only engrossing and insightful on its own terms, but demonstrates the potential of this largely untapped modality of legal scholarship about blockchains.

Another upside of the authors’ approach is that it counters the oversimplified dichotomy that often prevails with respect to treatments of blockchains. Public discourse about distributed ledgers tends to polarize between dismissive critics and true believers. Most of the law review literature falls into the latter category, with scholars touting the transformative potential of blockchains for particular subsets of private law. By investigating the operation of blockchains themselves, the co-authors are able to offer an informed, measured take. They reject the notion that distributed ledgers are mere hype while also stating realistic reservations about the governance challenges these systems face.

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Cite as: David Fagundes, Blockchains as Technosocial Systems, JOTWELL (December 12, 2022) (reviewing James Grimmelmann & A. Jason Windawi, Blockchains as Infrastructure and Semicommons, __ Wm. & Mary L. Rev. __ (forthcoming 2023), available at SSRN), https://ip.jotwell.com/blockchains-as-technosocial-systems/.