Based in New York City, Katherine is an early-stage investor at Notation Capital. Her interests are in crypto, tech, law, and other areas of her life that she finds interesting.

[My DevCon4 Talk] Lessons from International Law: The global governance model & its takeaways as applied to crypto

[My DevCon4 Talk] Lessons from International Law: The global governance model & its takeaways as applied to crypto

The post below is a transcript of the talk that I recently gave at DevCon4, an annual conference hosted by the Ethereum foundation, focused on builders in the space.

The title of my talk is this:

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I recorded a video of myself giving this talk (at home!) if you want to play the video and follow along. If not, feel free to skip the thumbnail and read along…

Hi everyone, thanks for tuning in today. 

I am here today to discuss a topic that honestly is hard to cover in the next 15 minutes, but is nonetheless relevant to a lot of the discussions that’s happened both at DevCon and in the broader crypto ecosystem thus far. 

Let’s start with a question.

 As we think about about the future of the crypto space, about web3, about crypto’s impact on society, sometimes it helps to bring the discussion back to basics and think about this question: 

  • What is it about the current state of the world and its governance structure do we want to change?

  • Does it need to be changed?

My goal, of course, is not to present an answer to the above question,  but develop a framework and provide some nuanced context for us all  to think through.

So with that, here’s where I want to start the discussion today— which is, to look at the history, formation, and evolution of public international law.

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International law consists of the framework and infrastructure in which the foreign affairs of states are conducted. That includes:

•     the institutions, forms and procedures for daily activity;

•    the assumptions on which the society is founded;

•    the concepts which permeate the society;

•    and the various relations between the society’s individual (state) members.

The infrastructure of all those agreed assumptions, practices, commitments, expectations, and reliance is all international law.  

This is important to crypto because the crypto community is very much also a global community.

Quick history lesson: The Peace (or Treaty) of Westphalia  (1648) was the treaty that ended the 30 Years War— which is the 17th century war that was fought primarily in central Europe and one of the most destructive conflicts in the history of the world.

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 For our purposes in this discussion today though, two important things resulted from that treaty:

1.  First, this is the birth of the modern state from an International relations perspective. It became clear that the primary origin of international discourse was the nation-state. The nation state was defined in a critical way- which is, that the state is sovereign- what happens in the border of a state is subject to the control of that state and that state only.

2.  Secondly, it gave rise to the notion of the sovereign equality of states. This meant that— in theory, no matter the realities of economic disparities, etc., in the eyes of the law, all states were understood to be equal. No state has greater power to sit in judgement over the other.

So the Treaty of Westphalia created sovereign states in theory; and from there on out customary law-- which is the practice that is reinforced through both consistent practice and common understanding of the international community-- developed very fast. 

Customary law is one way from which international law derives its source of power. 

Of course, the question is this: how does international law— on a global scale— even get enforced?

Generally speaking, enforcement mechanisms are clear cut where governance is vertical: an authority like Congress imposes a rule like insider trading is illegal. That law is enforced by the relevant government regulator, like the SEC and DOJ, with harsh penalties for noncompliance. As a result, individual traders have an incentive to comply with the law and avoid the risks associated with trading based on material and non-public information.

The challenges arise when governance is horizontal.  And here we face the biggest challenge or criticism of international law, which is that it is not “real”. Or rather,  how does it even get enforced?! International law does not have a central “lawmaker”, because we do not have a “world police force” or “world government”, so no mandatory “vertical governance” in this instance. 

Some skeptics of international law based that skepticism about international law on the absence of a comprehensive judicial system with compulsory jurisdiction to settle disputes and the absence of a central executive to enforce compliance with the judicial system’s decisions.

I disagree. 

I think that the emphasis on global courts and a global police force is misleading.

In fact, International Law derives its binding force from sources other than courts and a police force.  

States comply with international law out of expectations of reciprocity/retaliation if they do not comply, or out of a belief that the law is morally legitimate and therefore ought to be obeyed. For example, effective sanctions exist without the need for centralized adjudication and enforcement agencies.

But mostly, I want to point to the formation of customary international law, which is the practice that is reinforced through both consistent practice and common understanding of the international community— also a highly effective one. (For the record, I am not addressing other sources of international law, like treaties, which act more like written agreements.)

Customary international laws are formed from a general and consistent practice of states that is followed by states from a sense of obligation (so, what the right thing to do is). Its agreement and consensus among members and states first, and the establishment of governing laws second. For example, because it is a fundamental legal principle that each state is sovereign, it is logically necessary (and thus customary international law) that the sovereignty of each state extends throughout that state’s own borders. 

Lawyers and other people typically assume that the only binding rules are those made by legislatures, and by courts. but we tend to forget that law can also be made by the consent of communities of people, without any formal enactment by government entities. In fact, such customs or practices are not even written down sometimes.

Customary international law is a signal source of strength and of flexibility for international law. It allows international actors to develop rules of behaviors informally without the need to resort to formal law making with a central body.  

What is an example of this sort of consistent practice and common understanding from the community we can bring into crypto governance?

There’s something that I read once, which emphasizes the importance of values: “It might be possible for two equally effective governance systems to compete by internalizing different values. One could perhaps embrace openness and diversity at the cost of some efficiency and the other could be optimized for efficiency for a more homogeneous set of users and interests."

Whether it’s the industry working out a global taxonomy that makes sense, or standardizing the very minimal amount of disclosure information that should be demanded from token projects—  before/during/after their token sale  it’s about figuring out values that the community agrees on, and pushing those forward. 

To bring this all back to the criticisms of international law for a second: 

Ultimately, the critics of international law ask the wrong questions. what matters is not whether international law has the exact same legislative, judicial, and executive branches that domestic states do internally; what matters is whether international law is reflected in the behavior of states.

The question is not whether there is a formal judiciary. Instead, the question is whether disputes are resolved in orderly peaceful fashion in accordance with international law, which they mostly are. 

Most importantly, the question is not whether the law is enforceable; the question is whether the law actually is de facto observed, and whether it influences the behavior of states. Nations have accepted important limitations on their sovereignty, they have observed the norms set out by the global community, and the result is ”substantial order” (not perfect or optimal order, but substantial order) in international life.

In reality, the actual international system is a hybrid of two theories: norms are formed by treaty and by consent. Therefore, the actual international system is a compromise point between the two theories.

Over the course of the past few days, I’ve overheard conversations that goes something like this:  “we don't give a damn about governments and their laws because we are building web3.”

And I just think that is such a misunderstanding of what we are really striving to work towards:

  • It’s empowering sovereign equality— in individuals. 

  • It’s creating incentives for human cooperation. 

  • It's creating “good citizenship” among the global community. 

Governance is a bottom-up approach. Goals and values go hand in hand, but are created from ongoing community consensus more than predefined rules. Technology may move the discussion forward and give us a framework to build upon, but governance is not a ground zero issue. At the end of the day, it's about human behavior.

All opinions published on this blog are my own and do not reflect the opinions of any institutions that I am affiliated with in any capacity.  

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