Democracy is an economic problem of choice constrained by transaction costs and information costs. Society must choose between competing institutional frameworks for the conduct of voting and elections. These decisions are constrained by the technologies and institutions available. Blockchains are a governance technology that reduces the costs of consensus, coordinating information, and monitoring and enforcing contracts. Blockchain could be applied to the voting and electoral process to form a crypto-democracy. Analysed through the Institutional Possibility Frontier framework, we propose that blockchain lowers disorder and dictatorship costs of the voting and electoral process. In addition to efficiency gains, this technological progress has implications for decentralised institutions of voting. One application of crypto-democracy, quadratic voting, is discussed.
tutional choices consist of the timing and location of elections, mechanisms to enroll and verify the identities of voters, the physical means by which the vote is made and recorded, whether individual votes are made in public or are secret, the process by which votes are counted, along with how they are verified, protected from tampering, and reported to a body for tallying.
All these decisions are constrained by the technologies and institutions available. Voter identification provides an example of a democratic institution limited by the prevailing level of technology. Before the British Reform Act of 1832, “the would-be voter appeared at the poll, tendered his vote, and then there swore an oath prescribed by statute to the effect that he had the requisite qualification” (Maitland 1908, p. 355). While the number of eligible voters was small, this was a small burden – in small boroughs individuals were likely to be recognized at the ballot box. The Reform Act both expanded the franchise and mandated the creation of an electoral roll across Britain. These procedural changes prevented disputes about eligibility occurring at the ballot box itself, but were also expected by their proponents to reduce the cost of the election (Seymour 1915, p. 107). Enrolling to vote in Australia in the twenty-first century requires either an Australian driver’s license or an Australian passport—each with a color photograph of the holder and digital security features—or the verification of an existing enrolled voter how has previously passed the same.
As this suggests, technological and institutional changes have both expanded democratic possibilities and helped develop trust that individual votes—i.e. choices—are inputs into the social choice governed by the constitutional system. Technological advancement opens up alternative systems through which democracy might be practiced. Representative democracy as it stands in the twenty-first century developed world has been set according to the technological and institutional limits of prior centuries. In order to underline this point, it is worth a brief diversion into the role that technology played in equally ‘democratic’ but significantly different forms of democracy that have prevailed in the past.
Ancient Athenian democracy was organised predominately by sortition rather than
representation. Several hundred offices, including the membership of the governing
Council of the 500, were filled each year by random allotment. Athenian juries were
also filled by lottery, as they still are today. For Aristotle, sortition was the defining
characteristic of Athens’ identification as a democracy, and, as Headlam (1891, p. 1)
writes, for the modern mind ‘there is no institution of ancient history which is so
difficult of comprehension as that of electing officials by the lot’. Nevertheless,
Athenian democracy faced many of the same practical constraints involving the selection
and identification of potential office-holders and jurors. Participation in the lottery
was not compulsory, but for those who chose to do so, identification was verified by
ownership of a bronze identity plate. These plates were slotted into a tall marble
machine, the kleroterion, from which they were withdrawn according to the random roll
of a dice. Offices were allocated on the basis of the order the plates were withdrawn.
The machine was introduced first to reduce possible jury tampering (Ober 1989, p.
101), and Dow (1939) suggests that the potential for fraud to be committed by the
operators of the machine was prevented by running the procedure twice. Sortition was
valued in part as a response to agency problems derived from political power
In this paper, we consider the same potential with blockchain technology. The next section will introduce the blockchain technology and consider its application for the institutions of voting and elections, drawing on new comparative economics and transaction cost economics to provide a theoretical framework for analysis. In the final section, we consider quadratic voting as an implication of crypto-democracy. 2
In 2008, Satoshi Nakamoto authored a white paper introducing blockchain technology
(Nakamoto 2008). Using the complex mathematics of cryptography, blockchains
enable dispersed and pseudonymous people to coordinate information and govern
exchange in a decentralized way. A blockchain acts as distributed publicly accessible
and secure ledger of information
Blockchains have also been raised as a potentially efficient solution for voting
There is no single institution for managing the voting and election process; rather
we can observe several institutional forms that exist on a spectrum of institutional
possibilities. In making institutional choices society face a tradeoff between the costs
of disorder, and the costs of dictatorship. How different institutions minimise these
costs can be mapped as an IPF (Djankov et al. 2003). Before examining the costs of
dictatorship and disorder in the electoral process, it’s first important to note that these
costs are subjectively perceived by each political actor
The costs of disorder for voting and the electoral process refer to the risk of private expropriation such as individuals committing fraudulent registration, impersonation, or voting multiple times. Prosecutions following elections provide evidence that these are more than hypothetical risks to the system (e.g. The Electoral Commission 2016). To the extent that voters have a preference in any poll, the failure of these preferences to be captured by the system—e.g. measured by voter turnout—also represent disorder costs.
The costs of dictatorship are the public expropriation of the voting process by
public actors. This could include overt practices such as ballot-stuffing, vote rigging and
manipulated results, which may happen where electoral officials favor the incumbent
candidate or ruling party (Norris and Grömping 2017). Dictatorship costs will be
present where the centrally controlled electoral register is inaccurate, either through
ineligible voters being registered or eligible voters left off the list (Norris and Grömping
2017). Dictatorship costs include not just public malfeasance, but also negligence. An
example of this is in the Australian 2013 Federal election, where the High Court ruled
that the Senate election for the State of Western Australia was invalid because the
Australian Electoral Commission had lost 1370 ballot papers
Centralised and decentralized institutions manage these dual costs in different ways. Centralised institutions limit the perceived costs of disorder by having a centrally managed voter registry and having full authority over the conduct of elections, and limits costs involved in duplication, but increases the perceived costs of dictatorship because these circumstances introduce risks that the process could be (internationally or negligently) manipulated by state actors to favor a party or candidate. Laws maintaining the electoral commission’s independence guard against the worse of the perceived dictatorship costs. In contrast, decentralised institutions limit the dictatorship costs associated with concentrated power by introducing competition and choice between jurisdictions, but this introduces the risk of perceived costs of disorder by giving more power to individuals and relying on private collective action.
At this point, we can begin to construct an institutional possibilities frontier for managing the voting and election process, illustrated in Figure 1. First, on the right of the IPF, a single centralised electoral authority, controlled by the ruling candidate or party in an election. Second, a centralised electoral authority established as impartial and independent of the government of the day (e.g. the Australian Electoral Commission, responsible for conducting the electoral system for federal representatives across the country). Third, a decentralised system with several electoral authorities (e.g. in the United States, each state is responsible conducting elections of their own federal representatives). Fourth, on the left of the IPF, an arrangement of multiple privately managed systems (e.g. there are several for-profit services that provide voting and election services, used mainly by public companies and membership organisations). Let us now return to the effect that blockchains have on the institutional environment. Blockchains are a governance technology reducing the costs of consensus, coordinating information, and monitoring and enforcing contracts. Indeed, given that democracy is itself an economic problem of coordinating preferences—with various potential comparatively efficient institutional solutions—it is somewhat unsurprising that blockchains may be applied to democracy. At the time of writing the most prominent application for blockchain for online voting is FollowMyVote.com, who claims to embody “all of the characteristics that a legitimate voting system requires: security, accuracy, transparency, anonymity, freedom, and fairness” using blockchain (followmyvote.com 2017). Claims over the potential of blockchain technology for voting are in effect arguing that blockchain technology comparatively decreases the various costs of dictatorship and disorder, including “robustness, anonymity and transparency” (Lee et al. 2016). Put another way, following the transaction cost economics framework of Oliver Williamson (1975), we can view blockchains as economising on the costs of uncertainty and opportunism in a decentralized way.
Of course, there is the potential that crypto-democracy could be applied within a
centralised institutional possibility. A centralised electoral commission could, for
example, use blockchain technology to maintain their electoral roll which has
integrity and transparency benefits, meaning that the voting process would be harder to
manipulate and it would reduce the possibility of human error. But we anticipate that the
major benefits for crypto-democracy will be for decentralized institutional
possibilities ordinarily typified by higher perceived costs of disorder, as a decentralised ledger
decreases the many of those costs (e.g. fraudulent registration, security, enforcement,
duplication, etc.) without needing to rely on central control. For this reason, we
propose that the introduction of the blockchain technology to the voting
process—cryptodemocracy—causes an inward shift in the IPF, skewed towards reducing the
perceived costs of disorder. This is shown in Figure 2.
The majority of current proposals focusing on using blockchain for voting examine
what appear to be pure efficiency gains for voting on the blockchain. However, an
inward shift in the IPF due to the discovery of blockchain technology also presents
the possibility of institutional entrepreneurship to discover new possibilities within
the IPF space for solving the broader democratic problem
Quadratic voting (QV) is a new voting mechanism proposed by Lalley and Weyl
(2014). Posner (2016) suggests that "Quadratic voting is the most important idea for
law and public policy that has emerged from economics in (at least) the last ten
years". The basic idea is that the millennia old democratic franchise model of
oneperson-one-vote (1p1v) has the unfortunate but well-known flaw in that it is
economically inefficient because it entirely ignores intensity of preference. If I care only a
little about an issue and you care a lot (maybe it affects you more), we both have an
identical voting margin. This leads to well-known problems with 1p1v such as
tyranny of the majority. This means that issues that affect a minority of citizens, yet have
significant welfare consequences for them (Lalley and Weyl offer gay marriage as an
example), can be blocked by a casually indifferent majority. This is Pareto inefficient:
there are clear opportunities for gains from trade. Lalley and Weyl (2014, p 2) explain
that “1p1v offers no opportunity to express intensity of preference, allowing
inefficient policies to persist. … The basic problem is that 1p1v rations rather than prices
votes, resulting in externalities across individuals.” They propose that the QV
mechanism can resolve this problem
QV works by introducing a payments mechanism into voting but, crucially, each
voter is on both sides of the market: you pay to vote (buying votes along a quadratic
pricing schedule, e.g. if 1 vote costs $1, 2 votes costs $4, 3 votes costs $9, 10 votes
costs $100, 100 votes costs $10,000), but you also get paid after the vote (the
payments go into a pool to be redistributed among all voters). QV is therefore both a vote
pricing schedule and a reallocation mechanism. Lalley and Weyl (2014) show that the
QV mechanism is, in the limit, ‘robustly efficient’
There are several points to note about the QV mechanism: it overlooks persuasion; it has implementation challenges; and it has high transactions costs. First, it implements an exchange and compensation mechanism (which is the logic of seeking to improve the Pareto efficiency of an outcome where all citizens have given preferences). But an alternative mechanism—implicit in the 1p1v mechanism when understood in the context of an economy—is that citizens may seek to persuade each other to change their preferences, or to adopt better preferences.1 The economic logic of this has recently been developed by Almudi et al. (2017) and Potts et al. (2017) in an evolutionary group selection (replicator dynamic) model they call ‘utopia competition’, in which agents use their own economic resources to seek to persuade other agents to adopt their own ‘utopia’ preference bundle. Evolutionary utopia selection model preserves 1p1v, but the compensation mechanism works through costly persuasion rather than transfer. However, the claim is that the utopia selection is also more efficient than 1p1v.
Second, as an abstract mechanism QV is asymptotically efficient. But there are still a number of implementation challenges for secure voting in relation to verifiability, robustness against false accusations, and secrecy. Park and Rivest (2016) have proposed a number of specific mechanisms using cryptographic techniques (including homomorphic encryption and zero-knowledge proofs) to resolve the issues of anonymity and payments efficiency using cryptocurrency. However, they acknowledge that the problem of overcoming collusion (which is an inherent instability in QV, which Lalley and Weyl acknowledge but offer no solution) remains problematic. However, the central message of Park and Rivest (2016) is that many of the problems of robustness in implementation can be resolved by adding cryptography to the mechanism.
A third constraint on QV, and arguably the most immediately practical problem at any non-trivial scale of application, is high transaction costs. That makes it infeasible in practice compared to 1p1v, which is for all its Pareto economic inefficiency is actually a low cost solution in exchange and contract because there is no exchange and contract (and thus has high transactions cost efficiency). This is a point that neither Lalley and Weyl (2014) nor Posner and Weyl (2014) really address. We therefore emphasise that the ‘crypto’ solution to robustness suggested by Park and Rivest (2016) also extends to a general transaction cost solution in the form of QV on the blockchain.
Quadratic voting should be understood as a mechanism that is inherently implemented on a blockchain at the point of voter identification, robustness and verification of the bidding and tallying mechanism, and security and transactional efficiency of the vote buying, fund pooling, and redistribution mechanism. By envisaging and implementing the QV mechanism in the context of a platform such as Ethereum, which enables smart contracts in which a citizen preprogram their preferences and then allow their software agent (or Distributed Autonomous Organization) to in effect automate the trades and voting and to make and receive payments, the transactions cost constraint on QV in an analog world is significantly reduced. The shift to a blockchain-platform also suggests other prospective applications that address problems of collective decision making over distributions of preference intensity, but which for 1 This critique was also made by Tyler Cowen on his blog Marginal Revolution: http://marginalrevolution.com/marginalrevolution/2015/01/my-thoughts-on-quadratic-voting-andpolitics-as-education.html transactions costs reasons get caught in low Pareto efficiency mechanisms, such as the turgid representative democracy of corporate governance or city councils.2 4
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