51% Rule & Code Is Law

October 09, 2020
Mike Orcutt of MIT’s Technology Review put out a piece on Feb 19 that caught our attention. In it the author discusses a few of the fundamental challenges with crypto. We briefly comment on his 51% Rule & Code Is Law sections, and how he ndau Collective thinks about these issues and why we have made certain decisions when designing and building ndau to be a digital long-term store of value.


Issue: To date many crypto projects have used a Proof-of-Work consensus. PoW is inherently vulnerable to 51% attacks and extremely wasteful of resources. A 51% attack means an entity or group of coordinated actors can gather the needed processing power to take over 51% of nodes of the blockchain and “fork” the blockchain. They are effectively taking over the blockchain. This does not have to be permanent control of 51% to make permanent change. Actors can “rent” the processing power to control a blockchain for long enough to do serious damage to the project.

As for monetary policy, PoW creates economic incentives that do not benefit all holders of an asset. No matter the current market supply equilibrium (price is rising or falling) miners will continue to add supply to the market so long as the market value of the asset is greater than the marginal cost to create one more unit of the asset. We see this with Bitcoin. As the price of Bitcoin fell from $19,500 down to $3,100 (meaning there was more supply than the market demanded), miners continued to add Bitcoin to the ecosystem as is was in their interest, even if not in the interest of all Bitcoin holders.

ndau Response- Proof of Stake

ndau uses Proof-of-Stake instead, which uses a small fraction of the energy and resources and is where the newer more sophisticated crypto projects are going. On a proof-of-stake blockchain, every validator submits blocks and the likelihood that their block is chosen is simply the % of network weight (total amount of tokens being staked) that they contribute. So the resource required to secure the blockchain is actually the native token for that blockchain. To acquire the native token, you have to purchase it. Acquiring 51% of a major project’s staked tokens is a significantly harder feat than controlling computation power for a short period of time.


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Issue: Many early crypto projects obey the dogma, “the code is the law”, and so if you have a bug in your code or a smart contract, and it does the wrong thing, you’re out of luck. There are many smart people working on crypto projects. And most all of them have good intentions. But the idea that a small group of people can conceive of every possibility relevant to a blockchain that may or may not happen in the future seems far-fetched to us. Human nature is not thus. If humans always made rational decisions based on available information, few trading markets would exist as everyone would place similar value on objects and assets.

ndau Response – Built for Humans

We think that dogma is the wrong way to go. Whether the code has a bug so value gets locked up forever unintentionally, or a hacker does an exploit to steal it, that’s not the way human beings want their monetary system to operate. ndau’s position is there is no avoiding the human factors of disputes, ethics, expectations, and to take these factors on instead. As Lawrence Lundy of Outlier Ventures writes, “Different decisions and classes of decisions will need different levels of decentralisation and appropriate mechanisms for conflict resolution to balance efficiency versus diversity.”

This is why ndau has explicit digital governance with the ability to ultimately fix anything that should go wrong – it’s all about resilience and having many layers to ensure the right thing happens if something goes wrong at a layer above.


ndau is the world’s first buoyant digital asset. Designed and optimized to be a digital long-term store of value.

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