Working On The Blockchain Gang, Part 1

by Misha Lepetic

"These are the guys that were
too tough for the chain gang
~ Bomber

Cg1Back in the mists of time, at the dawn of the World Wide Web, the promise of an open, decentralized, disaggregated network seemed to stretch limitlessly past the horizons of doubt and cynicism. Most iconically, John Perry Barlow's A Declaration of the Independence of Cyberspace began with the stirring, uh, rejection: "Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather."

Suffice to say, this stern invocation has not aged well. For one thing, Barlow's declaration is merely concerned with governments, and doesn't mention corporations. Perhaps this was because Barlow delivered these remarks at the World Economic Forum in Davos, Switzerland, in 1996, and the matter required a certain deference. Perhaps he was under the sway of the idea – fashionable at the time – that history had indeed ended, with democracy and neoliberalism the unquestioned victors. Perhaps corporations, and capital generally, were not such a matter of concern twenty years ago as they are today. Nevertheless, in only a few years, the Wild West promise of the Web led to the giant pile-on of capital that would fuel the first dotcom bubble and its subsequent collapse, around 2001.

The resurrection of internet entrepreneurship following that first, intemperate bender resulted in a different model, with a somewhat subtler promise. ‘Web 2.0', as it was popularized circa 2004, was premised on the idea that information was no longer static, and that participants could interact with content, and that content could be assembled, on the fly, for a specific viewer. A bit further behind the scenes, Web 2.0 benevolently assumed a rich ecosystem of application programming interfaces that would allow for seamless communication of data requests between platforms that were burgeoning with information. You can think of an API as recipe book for how to interact with a given site's data, or a membrane that allows certain requests and not others.

So our notion of the Web was abstracted upwards, from scrappy libertarians doing whatever they wanted in some curiously disembodied space, to one that was more about to giving platforms the freedom they needed to interact with one another. This had several consequences (and I realize that I am being very simplistic here, but bear with me for the sake of the subsequent argument). On the one hand, the stage was set for the evolution of social media networks, which are more or less the ne plus ultra of Web 2.0. On the other, and inseparable from the first, was the growth of the vast and unregulated infrastructure that tracked users' online behavior.

Eventually, most every click, transaction and purchase would come to be harvested, mostly for the benefit of targeted advertising, but, following Edward Snowden's 2013 revelations of NSA surveillance, who is to say for what other purposes? In any event, it's not unreasonable to posit that your data has been bought and sold many, many times over the course of, say, the last decade, if not longer, and this is not changing any time soon.

It should also be mentioned that, in the course of the growth of social media, the previous notion of the ‘open Web' was utterly and decisively sacrificed. Alexis Madrigal's recent Atlantic piece goes into greater detail:

In June of 2007, the iPhone came out. Thirteen months later, Apple's App Store debuted. Suddenly, the most expedient and enjoyable way to do something was often tapping an individual icon on a screen. As smartphones took off, the amount of time that people spent on the truly open web began to dwindle… By 2013, Americans spent about as much of their time on their phones looking at Facebook as they did the whole rest of the open web… Most of the action [now] occurs within platforms like Facebook, Twitter, Instagram, Snapchat, and messaging apps, which all have carved space out of the open web.

Of course, being beholden to these giants means not just conducting the majority of one's online activities within the confines of a handful of sites. It also means that these sites are positioned to continue capturing the lion's share of revenue from these activities. As Madrigal notes, at the launch of the iPhone, five companies (Apple, Microsoft, Google, Facebook and Amazon) were worth $577 billion. Today, that value, in the form of market capitalization, is nearly $3 trillion.


Cg2Obviously, this is good news if you're a shareholder, or an employee (or both). It's not such good news, however, if you're an entrepreneur looking to build out the next innovative Web-based business. A startup's success depends on its eventual conversion to profitability, or its acquisition of sufficient market share, leading to a buyout. In both cases, the current context, where five companies set the terms for what is desirable scale, creates a paradox for startups: how to create sufficient momentum, when so much of consumers' attention seems to have been alreay acquired and walled off by those charmingly known as the ‘Five Horsemen'.

Fortunately, John Perry Barlow's libertarian ghost has never ceased haunting the circuitry of our global cyber-substrate. Not long after the launch of the iPhone, an anonymous coder going by the moniker Satoshi Nakamoto proposed BitCoin, or more accurately, the BitCoin protocol. Nakamoto, whose true identity may or may not have been revealed, intimated that he had achieved one of libertarianism's holy grails: the divorce of currency from government-or, for that matter, any institution. To do this, he welded together two separate concepts: the idea that computers would generate currency by performing calculations, and that the record of ensuing transactions of that currency would be held in common (animations always help here).

The first bit, known as ‘mining', is fairly easy to explain if we use the example of frequent flier miles. A traveler puts in a bid at a fixed price for a ticket and flies with the airline that awarded the bid. In return, the traveler earns a number of points, which can then be used to redeem discounts or free tickets for further travel. However, in this case the points are only applicable within the ecosystem of that airline – you can't transfer points to another airline, nor can you sell your points on an open, secondary market. BitCoin extends that model significantly.

The second bit is much more interesting, and may in fact point to the next big paradigm shift in the battle of who ‘owns' the World Wide Web. This is the record of ensuing transactions, or, in BitCoin terms, the ‘distributed ledger'. In order to ensure that BitCoin remains autonomous, Nakamoto proposed that all transactions of the BitCoin system be held in common, throughout the same network of machines that are performing the mining function mentioned above. All transactions are visible, even while each transaction's participants are anonymous. As long the ledger sitting on every node matches up with every other node's copy, the system holds and BitCoin remains in business. No central authority is required – the network itself is the clearinghouse. And anyone can join the network and support the blockchain.

This technology is known as the ‘blockchain', simply because, after a certain period of time, each newly generated block of completed transactions is appended, or chained, to the preceding series of transaction blocks. Thus the entire history of the system resides on the system, available for inspection by any of its members. This entire arrangement is made possible by the confluence of a number of factors: the deployment of some clever cryptography that ensures anonymity; and the ever-decreasing costs for bandwidth, storage and processing power that enable computing to occur on a planetary scale.

Cg3Where it gets interesting is when blockchain technology is deployed beyond currency applications. To be clear, the blockchain is insufficient by itself – even if we are looking at applications that are not financial in nature, there still has to be a system of incentives in place, incentives that will entice individuals to join, participate and grow the network. So while one of BitCoin's primary concerns is navigating the interface between the generation and transaction of virtual currency with the translation of that currency into other forms of currency, such as dollars or yen, other applications of blockchain can be incentivized by purely internal and abstract ‘tokens'. These tokens, earned or bought in much the same way that BitCoin is earned or bought, buys the rights to do things within the network. In a way, this is not dissimilar to our frequent flier example above – you earn the right for additional travel, but only within the context of the awarding system.

How does this fit into the earlier discussion, where I was bemoaning the loss of the ‘open Web' to the platform tyrannies of Amazon, et al? If we're to go by their proponents, these new ‘token networks' are exactly the cure for the trend of enclosure to which the Internet has been subject for the past decade. Thanks to the blockchain, recordkeeping can be anonymous, secure and decentralized. And thanks to tokens, incentives exist for individuals and groups to join the network and participate in its growth. The more valuable the network, the more actors will want to join – and the more valuable that network's token will become.

Moreover, the rules are clear to anyone who wants to join, and no participant need worry about any central authority suddenly deciding to change the terms of service, or siphoning off fees or data to enrich shareholders who are really silent partners in an outdated rent-seeking scenario. Like anything else, policy is determined by the network. So it's easier to now see that token networks may be the most substantial challenge to the corporatist model of how the internet has evolved lately. At its most gloriously imagined, such a network virtually runs itself (in both senses of the term). All the trappings of corporate continuity, such as boards of directors, shareholder meetings and such, are eliminated. At least, that's how it's supposed to work.

Cg4All of this sounds terribly abstract, and I realize that I still haven't suggested what such a token network is supposed to do. It's difficult enough to wrap one's head around how BitCoin works in the first place, and when you remove the conceptual comfort that the notion of ‘currency' provides, it's not easy to divine what purpose this might have, except for perhaps separating Silicon Valley venture capitalists from their own, in fact very real, money (always a possibility). It's also valid to ask, How much of a fringe phenomenon is this? Will it really make a tangible difference in people's lives, or the economy in general? Or will it be yet another flash in the pan, breathlessly promoted by an increasingly out-of-touch tech culture that can't seem to propose solutions to anything remotely approaching a real-world problem?

Next month I'll look into these concerns, as well as examine a few examples of non-monetary token networks. I'll also examine the larger issues at stake, and speculate on how token networks might collide with the more established social, economic and especially political worlds. Until then, please consider these words from John Perry Barlow's manifesto, which actually have aged rather well: "In our world, all the sentiments and expressions of humanity, from the debasing to the angelic, are parts of a seamless whole, the global conversation of bits. We cannot separate the air that chokes from the air upon which wings beat."