Bitcoin has taken quite a beating for its libertarian design biases, price volatility due to speculation, and the questionable practices of some currency-exchange firms. But whatever the real or perceived flaws of Bitcoin, relatively little attention has been paid to its “engine,” known as “distributed ledger” or “blockchain” technology. Move beyond the superficial public discussions about Bitcoin, and you’ll discover a software breakthrough that could be of enormous importance to the future of commoning on open network platforms.
Blockchain technology is significant because it can validate the authenticity of an individual bitcoin without the need for a third-party guarantor such as a bank or government body. This solves a vexing collective-action problem in an open network context: How do you know that a given bitcoin is not a counterfeit? Or to extend this idea: How do you know that a given document, certificate or dataset — or a vote or “digital identity” asserted by an individual — is the “real thing” and not a forgery?
Blockchain technology can help solve this problem by using a searchable online “ledger” that keeps track of all transactions of all bitcoins.
The ledger is updated about six times an hour, each time incorporating a new set of transactions known as the “block” into the ledger. What makes the blockchain so revolutionary is that the information on it is shared by everyone on the network using the Bitcoin software. The ledger acts as a kind of permanent record maintained by a vast distributed peer network, which makes it far more secure than data kept at a centralized location. You can trust the authenticity of a given bitcoin because it’s virtually impossible to corrupt a ledger that is spread across so many nodes in the network.
What does all this have to do with the commons? you might ask. A recently released report suggests that blockchain technology could provide a critical infrastructure for building what are called “distributed collaborative organizations.” (One variation is called “decentralized autonomous organizations.”) A distributed organization is one that uses blockchain technology to give its members specified rights within the organization, which are managed and guaranteed by the blockchain. This set of rights, in turn, can be linked to the conventional legal system to make those rights legally cognizable.
The report that explores this frontier is entitled, “Distributed Collaborative Organizations: Distributed Networks & Regulatory Frameworks.” (pdf file) It was published by the Coin Center, with contributions from folks associated with Swarm, the Berkman Center at Harvard, New York Law School and the MIT Media Lab. (I gave some comments to an early draft of the report.) You can download the report from Scribd or here.
It’s important to recognize that blockchain technology is not confined to digital currency applications. It can be applied to a wide variety of circumstances in which a community of players – in markets, commons or other circumstances – want reliable systems to manage their inter-relationships on network platforms.
As Sydney Ember reported in the New York Times a few days ago, there is a new generation of Bitcoin 2.0 projects attempting to take blockchain technology to new places:
Entrepreneurs worldwide are now working to harness that technology for use beyond Bitcoin transactions. The block chain, they say, could ultimately upend not only the traditional financial system but also the way people transfer and record financial assets like stocks, contracts, property titles, patents and marriage licenses — essentially anything that requires a trusted middleman for verification.
“There’s a race going on to extend the block chain’s capabilities,” said Adam Ludwin, a co-founder of Chain.com, a start-up that seeks to help developers build Bitcoin applications.
While many blockchain applications involve finance and money, there are many other businesses that want to use the technology to verify the authenticity of documents such as patents, title deeds and financial data. Former FCC Chairman Reed Hundt has proposed using the block chain technology as a way to create distributed networks of solar power on residential houses. The ledger would keep track of how much energy a given homeowner has generated and shared with others, or consumed, and it would enable the efficient organization of decentralized solar grids.
Hundt and two colleagues recently wrote: “A decentralized, disaggregated ledger-powered currency could be converted to renewable energy credits and other government-driven subsidies. It could even serve as a medium of exchange within solar microgrids or networks, and the network effects created by a robust ecosystem of green currency could organically drive adoption [of solar panels].” Transactions would be near-instantaneous, and transaction costs would be minimal.
Naturally, the mainstream world is mostly focused on the blockchain as the foundation for a lucrative new generation of dot.com startups. But the commons-based applications are quite rich, too – if we are astute enough to seize the opportunities. In a comment to a blog post a few days ago, Primavera de Filippi, one of the leading tech/legal thinkers about blockchain technology, wrote:
My research focuses on the new opportunities offered by blockchain technology, in particular with regard to community governance. It is my belief that the blockchain can help implement new forms commons-based governance that could greatly benefits the CBPP ecosystem.
“For a long time, commons-based communities have been institutionalized around centralized or federated structures, which might bring a series of trade-offs in terms of democratic governance, flexibility, and ability to evolve. These institutions were built, for the most part, to facilitate the coordination of disparate groups of people that would otherwise have had a hard time coordinating themselves, because of either scale or lack of proper coordination mechanisms. They also served the purpose of establishing trust among groups that did not engage into sufficiently frequent and repeated interactions.
“Today, traditional issues related to shared common-pool resources—such as the free rider problem or the tragedy of the commons—could be addressed with the implementation of blockchain-based governance, through the adoption of transparent decision-making procedures and the introduction decentralized incentives systems for collaboration and cooperation. The transparent and decentralized nature of the blockchain makes it easier for small and large communities to reach consensus and implement innovative forms of self-governance. The possibility to record every interaction on a incorruptible public ledger and the ability to encode a particular set rules linking these interactions to a specific transactions (e.g., the assignment of cryptographic tokens) makes it possible to design new sophisticated incentive systems, which might significantly differ from traditional market-based mechanisms.
“Decentralized blockchain technologies bring trust and coordination to shared resource pools, enabling new models of non-hierarchical governance, where intelligence is spread on the edges of the network instead of being concentrated at the center. Flexible decentralized organizations could entirely replace the hierarchical format of current centralized formations, enabling commons-based communities to operate in an more decentralized manner. Instead of relying on traditional top-down decision making procedures, the blockchain allows for such procedures to be entirely crowdsourced, delegating to the community’s collective intelligence the responsibility to monitor and evaluate its own achievements.
“While online communities will probably be the first one to experiment with these new apparatus, as the ease of creating these organization decreases through standardization, online communities could be easily brought offline to create and build new organizations that operates in the physical world.
Thus far, while commons-based peer-production communities have flourished in many fields of endeavor, they have had a hard scaling up, without turning into more bureaucratic and centralized institutions. It is my hope that, with the new opportunities provided by blockchain technologies, we can come up with new applications that can support the operation of these communities (both in the digital and physical world) in a more distributed and decentralized manner.
This is the vision, at least. I happen to agree with Primavera that new generations of blockchain technologies could overcome many collective-action challenges that cannot be easily solved by conventional institutions today. After all, it is hard to overcome entrenched bureaucratic power, inequalities of power and the organizing of large-scale collective agreement in offline contexts.
In addition, the trustworthiness of even “reputable” third-party guarantors can be problematic, as we saw during the 2008 financial crisis (e.g., the unreliability of the SEC, ratings agencies and other oversight authorities). Who guards the guards? Blockchain technology represents an advance over many of the corruptible institutional systems that we labor under today by providing less-corruptible algorithmic ways to manage interactions within a group. (Ah, but how shall the designed-in biases of any algorithms be assessed by the community that labors under them, especially when such algorithms cannot be easily understood by the non-techie? A worthy question!)
Blockchain systems should not be seen as a magic bullet in the sense that human wiles and trickery are not going to go away. Yet blockchain technology does offer more formidable tools for better protecting the perimeter of the commons and for empowering commoners to decide their own fate. Imagine a future of distributed collaborative organizations whose internal relations could be improved through software-enabled “smart contracts, reliable deliberation and voting mechanisms, community currencies and other co-operative systems. Far more versatile and secure than Web 2.0, blockchain-based social networks could be new infrastructures for commoning at a much larger scale than today.
I could imagine distributed collaborative organizations — commons — leapfrogging over some of the dysfunctional politics and bureaucratic treachery that is rife in conventional institutions. Not a techno-fix, but a new, less “gameable” platform for competitive politics. In a world that is increasingly mediated by network platforms, blockchain technology could help us build some refreshing, effective and socially progressive types of commons. This world is still a way off, but it is a rich horizon worth exploring.