Blockchain Ethics

Class 5 Reading Responses [Institutional Ethics]

The reading on “Evolution, Not Revolution” caught my eye, because i actually think that blockchains can give rise to new institutions if you use the revolution framework as a way to develop a use case. One of the big problems today with blockchain is that skeptics say permissioned blockchains are just ledger systems that have existed for decades. Essentially, people believe that blockchain is not a truly unique and needed solution. In the case of permissioned blockchains skeptics might be right, but what is we leveraged the digital revolution framework? This consists of the following:

  1. Data: What pieces of data are needed to solve the problem?
  2. Technologies: What technology helps solve the problem?
  3. Products: What products are created to provide new services/offerings/capabilities?
  4. Experiences: How do industry or specific experiences change with this new product?
  5. Systems: How do these changed experiences affect broader systems and provide other horizontal synergies?
  6. Implications: What positive and negative implications does this have for the world and society?

Permissioned blockchains would breakdown at the technology/product level, because there would be other tech/product options. Here’s an example of how blockchain might create a revolution in investigative journalism:

Even beyond revolution level use cases, I think that blockchain’s unique offering is that it is a cryptonetwork that supports continued cooperation. From my professional experience in business, while competition does help increase free market activity, it is also the cause of hiding data, duplicate efforts, slower timelines etc. In my opinion competition comes down to data sharing, and that can be solved through blockchain mechanisms, where data can be encrypted but still transacted between systems based on meta-data packages (without exposing the details that give companies their advantage) – think zero knowledge proofs for all industry marketplaces. I also think cryptonetworks allow for governance (without government) of the future of open projects/platforms that allow society to extract the most benefit out of technology, and data. At this point we need to be thinking more about community governance and holding everyone accountable rather than putting the power in the hands of government where things are slow and people don’t understand the building blocks of technology. Atleast, a cryptonetwork market would ensure that governance was shared by everyone and would force us to take accountability.

Hey I’m going to respond as devil’s advocate here!
So far many of our readings have discussed how blockchain is revolutionary because it creates trust in a network where there is mutual distrust between network participants. For the permissioned blockchain cases I have seen, there is already a layer of trust between the participants because they were admitted to the permissioned blockchain. This is where blockchains start looking more like distributed database where the multiple participants have access to the keys or part of the keys.
Do you have any compelling examples of where this is not as much the case? I’d love to be able to discuss them and whether blockchains vs databases are the right tech for them on this thread!

Hello reader,

Boy was this week packed with information. There was a lot of extensive theories portraying the benefits of blockchain from capturing self-actualization (exploration>optimization) to self-liquidating cryptobanks (blockchains are directly competing with banks and governments since there is no longer a need for coercion and they provide the transparency to bridge the information gap between users and providers) to balancing the representation of the democracy and the efficiency of a small selectorate by being easy to divide and transport on top of gold’s benefits (low variance and efficiency/robustness) to reducing “transaction costs” like triangulation and transfer to create matchmaking to beat out co-ops and encoding commitment into smart contracts (as said earlier the rules are immutable and open-source and credibility is assigned by proof-of work) to open APIs (permissionless innovation would incentivize entrepreneurs not just because their work is contractual but because the network they are built off of won’t begin to compete with them) to whatever else I missed. Just writing that was overwhelming. Sorry reader. I just wanted to give you a sense of how I felt reading about all of it and answer all of the reading prompts in one go. However, a couple of key ideas kept bugging me. Oracles. I never really thought in depth about how smart contracts developed their inputs, but it makes sense for the need of oracles. And yet much of the Blockchain outside of trusting the technology, relies on our trust of these oracles. But who are the current oracles? Can we automate their role for increased security? Why are not talking about the risk involved with this subtle “third party” of sorts. Or I must be missing something where these contracts just appear out of thin air analyzing payments in the proper way. Who writes them? This article I read ( has me concerned and I think I might write my paper about them and current steps towards securing oracles and varying their sources to prevent market manipulation. Also retrieving data from the outside world incur transaction costs so how does those scale with the complexity of contracts? Could this pose a potential threat to the individual contract work outlined in Markets are Eating the World? Interesting stuff.

Another point of my anxiety (haha…0_0) comes from the usability and social aspects of these systems. These blockchain systems are enticing for their principles, but if I take the perspective of joe sixpack I can see why navigating a new interface would be more imposing than sticking to the norm where giant platforms like Facebook have perfected their UIs with millions upon millions of feedback. Also lets not forget about ‘network effects’ or the fact that your friends are on this platform so I will join them there. For decentralized platforms to be successful they need to concretely counter existing platforms by finding alternatives to ad-based funding and solving the issues of echo chambers and filter bubbles. I understand that all of the freedom is given to the user, but not all users would know what to do with it, thus there must be some form of amenities or tooling to assist the transition. Perhaps different modes for different users? I am not sure.

Sorry this post was shorter than usual, but I am a little behind schedule. Thanks for reading!

Evolution, not revolution. Amen. We live in an ecosystem. Anything you change has to survive in that ecosystem. If it’s revolutionary, it will be very different, and hence it is likely not well suited to the ecosystem.

Thank you Rhys and Neha for putting an investment thesis on the reading list. The eclectic reading you give us is really wonderful. And the thesis itself … in my opinion this is just like WeWork.

The Blockchain Economy: A beginner’s guide to institutional cryptoeconomics. Chris Berg argues that ledgers are more fundamental than money - ok, makes sense. And then we somehow jump to “combination of ledgers, cryptography, peer to peer networking” will be extremely disruptive. Wait, what? Bold claim out of the blue.

I’m with Rhys :slight_smile: we all need to self-actualize, and of course it is more fun to imagine yourself as a part of something making a big difference. But we should not be snide about others’ (vain?) attempt to find meaning.

Markets are eating the world. A history of all humanity is provided with the conclusion: “Blockchains may introduce markets into corners of society that have never before been reached. In doing so, blockchains have the potential to replace ledgers previously run by kings, corporations, and aristocracies. They could extend the logic of the long tail to new industries and lengthen the tail for suppliers and producers by removing rent-seeking behavior and allowing for permissionless innovation.” My opinion: yes blockchains might, and blockchains might not. Let’s look at really existing use cases to see where blockchain might actually be getting a foothold in our current ecosystem (as opposed to free speculation, of which there seems to be a lot).

Coase’s Penguin. Another theoretical argument devoid of any actual experience. Let’s see it instantiated, and I would begin to lend credence.

Past, Present, Future: From Co-ops to Cryptonetworks. Another offering from an investor who benefits from hyping what they invest in. What has been instantiated in the real world, though?

Decentralized networks will never work. My opinion: I really like that they actually point to what has happened in the real world: " Tools like Diaspora and FreedomBox encountered difficulties attracting a permanent user base, and it’s likely new platforms will, too. Social networks, in particular, are difficult to bootstrap due to network effects—we join them because our friends are there, not for ideological reasons like decentralization." No diggity: we need to always see what can actually work in the real world. And so, I agree with the authors that decentralized networks have not worked so far. But wait, they claim that they will NEVER work?! Where did that come from?

Crypto is networked nonviolent protest. Aha, here is where Rhys reveals himself :slight_smile: And I think I like his political philosophy. Because surely [sarcasm alert] crypto as networked non-violent protest is not a tool to be used to organize, say, hate crime? But it could be, right?

The various theories used to describe institutional ethics were very interesting to me. The article from Mike Maples, Jr. (Crypto Commons) explained how the decentralized governance mechanism that underlies blockchains create the first “Governance platforms for enabling the scalable commons” which will create new wealth. The crypto Twitter community constantly repeats the mantra that buying and holding Bitcoin is the path to future riches (also known as “hodling”).

I also liked the cryptoeconomics article that provided an introduction to institutional cryptoeconomics and provides the analogy of how blockchain is like “the invention of mechanical time” which added new ways to structure business activities. Smart contracts make it possible to have agreements enforced entirely by code, thus reducing the need for government regulation. Banks could be replaced by cryptobanks that run autonomously without the need of direct oversight. I think that my office will need to start hiring computer programmers who can understand the code used in the smart contracts to make sure that they work as intended. The governance mechanisms will need to be very transparent in order to gain comfort with this new business model.

The Nicky Case essay that discussed the need for Evolution as opposed to revolution was very intriguing. Blockchain is often described as a revolution, but as I have been learning recently, it’s important to be careful what you ask for. This post discusses the need to use Lawrence Lessig’s model to use various levers in tandem to create lasting social change in a fundamental way, instead of just repeating the previous mistakes. Any significant change is difficult, and everyone always wants to use the politically expedient method of just replacing the top executive. However, they fail to make the other structural changes that are required to create a different feedback loop to reinforce the desired changes.

Responding to: “How will cryptonetworks co-evolve with existing institutions?”

Co-evolution for blockchain and cryptonetworks in relation to institutions is a fruitful topic here for a few reasons. First, the exact application and potentially even use-case is yet to be discovered. Second, governance and regulation of these systems is still nascent. The first question is fairly self-evident, and so I’ll focus on the latter and more topic thread.

One thing that sticks out to me about blockchain based institutions is the removal of firms in terms of litigation. We already see this with the gig economy – when you have get bed bugs from and AirBNB or your uber driver crashes, the liability is somewhat dispersed. Compound that into a blockchain network – on a small scale, who does a local business owner pursue when there is a smear campaign on DApp Yelp? On a more pressing posture, who is liable when a distributed file storage network is used to share child pornography? Plans for a dirty bomb? The complete, “immutable” removal of firms in favor of decentralized contractors and removal of the “oops” button in many ways makes processes more air-tight, but side step typical litigious and regulatory processes that are generally in line with societal norms.

So, how will networks evolve with institutions? There is going to be high localization here, both due to lower startup costs of fragmented services and regulatory postures. The obvious example here is China, which would be likely to block any seed DNS for DApps and demand backdoors into any homegrown service. I’m accepting investment proposals for any Hong Kong based DApp VPN…

In the case of Civil Law systems (i.e. France) it is likely that these networks may evolved relatively cleanly and iteratively as regulations are passed. But Common Law contexts such as our own are messier – we don’t know exactly what the law means until we experience its fallout. But by then, things might have already broken – immutable also means no take backs. So how can a Common Law posture adapt to a system that enables coordination outside of typical control mechanisms and beyond environmentality? The clock metaphor is apt in terms of coordination, but also in terms of fragmentation. Meetings could now happen in the dead of night, there is a rush hour, you can avoid rush hour, etc. Individual and fragmented time means more individual freedom.

These questions are a lot bigger than a forum post, but an approachable one might be how can someone take down a fraudulent DApp Yelp review?

One thing I always think about is how we live in these complex systems that are by nature imperfect. “Evolution, Not Revolution” resonated with me because it described how our currently imperfect systems would benefit more from a more pragmatic approach to change through evolution than revolution. This pragmatic approach is what enables change to happen in complex systems bit by bit without creating more long-term inefficiencies such as the one created by Bill Clinton’s administration when they pushed a system that made people look for any job, regardless of fit. In the short term, five years, people benefited from just having any job they could, but in the long term, ten years, they were worse off. What this was, was an inefficiency in human capital supply that didn’t come to fruition until years later.

I could go further into why the policy failed, poor human capital management etc., but I want to focus on the desire to be pragmatic and methodical in the adoption of blockchain technology. On top of the reduction in triangulation costs and transaction costs from the Internet Era described in “Markets Are Eating the World”, we are reducing trust costs in a manner never seen in this new Blockchain Era. That paradigm shift in how we can interact with the world is something that we should approach with cautious optimism. Because we are yet to find the right template of adoption, and because transferring any existing ledger into a blockchain is expensive, slow adoption is the best way for people to find out how it best fits their needs. “The Blockchain Economy” also mentions, and I agree with, that not all ledgers need to be on the blockchain and if we go for a revolution that upends our current system, then we might find ourselves in worse place than we currently are.