In this final talk of the session Blockchain Technology Beyond Bitcoin at Lift16, Primavera De Filippi explored the possibilities that live at the intersection between the blockchain and art, society and work, imagining what the future might look like when creative people use the full power of this technology. Hold on to your hats and embark on a journey into the future!

Recorded on February 11, 2016, in Geneva. Reposted from LiftConference/youtube.com

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Since Bitcoin appeared in 2009, the digital currency has been hailed as an Internet marvel and decried as the preferred transaction vehicle for all manner of criminals. It has left nearly everyone without a computer science degree confused: Just how do you “mine” money from ones and zeros?

Don’t miss this forthcoming book, co-authored by P2P Foundation affiliate Primavera De Filippi. The following is taken from the publisher’s page:

Since Bitcoin appeared in 2009, the digital currency has been hailed as an Internet marvel and decried as the preferred transaction vehicle for all manner of criminals. It has left nearly everyone without a computer science degree confused: Just how do you “mine” money from ones and zeros?

The answer lies in a technology called blockchain, which can be used for much more than Bitcoin. A general-purpose tool for creating secure, decentralized, peer-to-peer applications, blockchain technology has been compared to the Internet itself in both form and impact. Some have said this tool may change society as we know it. Blockchains are being used to create autonomous computer programs known as “smart contracts,” to expedite payments, to create financial instruments, to organize the exchange of data and information, and to facilitate interactions between humans and machines. The technology could affect governance itself, by supporting new organizational structures that promote more democratic and participatory decision making.

Primavera De Filippi and Aaron Wright acknowledge this potential and urge the law to catch up. That is because disintermediation—a blockchain’s greatest asset—subverts critical regulation. By cutting out middlemen, such as large online operators and multinational corporations, blockchains run the risk of undermining the capacity of governmental authorities to supervise activities in banking, commerce, law, and other vital areas. De Filippi and Wright welcome the new possibilities inherent in blockchains. But as Blockchain and the Law makes clear, the technology cannot be harnessed productively without new rules and new approaches to legal thinking.

Reviews

“At long last—a deeply researched, thoughtful, and measured analysis of blockchain technology and the policies that could help us harvest its opportunities and avoid its pitfalls. Blockchain and the Law should be required reading for anyone serious about understanding this major emerging element of our technological ecosystem.”—Yochai Benkler, author of The Wealth of Networks

“A well-written and comprehensive book that cuts through the blockchain hype. It not only highlights the powers and limitations of blockchain technology, but solidly grounds it in a larger social and legal context.”—Bruce Schneier, author of Data and Goliath

“Blockchain and the Law perfectly links technical understanding with practical and legal implications. Blockchains will matter crucially; this book, beautifully and clearly written for a wide audience, powerfully demonstrates how.”—Lawrence Lessig, Harvard Law School

Table of Contents

• Introduction
• I. The Technology
  • 1. Blockchains, Bitcoin, and Decentralized Computing Platforms
  • 2. Characteristics of Blockchains
• II. Blockchains, Finance, and Contracts
  • 3. Digital Currencies and Decentralized Payment Systems
  • 4. Smart Contracts as Legal Contracts
  • 5. Smart Securities and Derivatives
• III. Blockchains and Information Systems
  • 6. Tamper-Resistant, Certified, and Authenticated Data
  • 7. Resilient and Tamper-Resistant Information Systems
• IV. Organizations and Automation
  • 8. The Future of Organizations
  • 9. Decentralized Autonomous Organizations
  • 10. Blockchain of Things
• V. Regulating Decentralized, Blockchain-Based Systems
  • 11. Modes of Regulation
  • 12. Code as Law
• Conclusion
• Notes
• Acknowledgments
• Index

Photo by Jennifer Stylls

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The article has been co-authored by Alex Pazaitis, Primavera De Filippi and Vasilis Kostakis.

Abstract: This article explores the potential of blockchain technology in enabling a new system of value that will better support the dynamics of social sharing. Our study begins with a discussion of the evolution of value perceptions in the history of economic thought. Starting with a view on value as a coordination mechanism that defines meaningful action within a certain context, we associate the price system with the establishment of capitalism and the industrial economy. We then discuss its relevance to the information economy, exhibited as the techno-economic context of the sharing economy, and identify new modalities of value creation that better reflect the social relations of sharing. Through the illustrative case of Backfeed, a new system of value is envisioned, comprising three layers: (a) production of value; (b) record of value; and (c) actualisation of value. In this framework, we discuss the solutions featured by Backfeed and describe a conceptual economic model of blockchain-based decentralised cooperation. We conclude with a tentative scenario for blockchain technology that can enable the creation of commons-oriented ecosystems in a sharing economy.

Full text available here: http://www.sciencedirect.com/science/article/pii/S0040162517307084 (find this and more publications of the P2P Lab openly accessible here).

Photo by portalgda

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Introduced in 2008 as the technology underpinning Bitcoin, a digital currency that is created and held electronically without any central authority, blockchain is a secure digital ledger for any kind of data. It simplifies record keeping and reduces transaction costs.

Its range of applications in commerce, finance and potentially politics continues to widen, and that has triggered a debate around how to regulate the tool.

Goodbye middleman

Because it does not require a centralised authority to verify and validate transactions, blockchain enables people who may not trust each other to interact and coordinate directly.

Diagrams showing how the blockchain electronic currency system works and how it could be adopted by the world of banking. Reuters

With blockchain, there is no middleman in peer-to-peer exchanges; instead, users rely on a decentralised network of computers that interact through a cryptographic, secure protocol.

Blockchain has the ability to “codify” transactions by deploying small snippets of code directly onto the blockchain. This code, generally referred to as a “smart contract”, executes automatically when certain conditions are met.

An early example of smart contracts are the corporate-oriented digital rights management (DRM) systems limiting uses of digital files. Having DRM on your ebook may restrict access to copying, editing, and printing content.

With blockchain, smart contracts have become more complex and, arguably, more secure. In theory, they will always be executed exactly as planned, since no one party has the power to alter the code binding a given transaction.

In practice, however, eliminating trusted brokers from a transaction can create some kinks.

One high-profile smart-contract failure happened to the DAO, a decentralised autonomous organisation for venture capital funding.

Launched in April 2016, the DAO quickly raised over US$150 million via crowdfunding. Three weeks later, someone managed to exploit a vulnerability in the DAO’s code, draining approximately US$50 million worth of digital currency from the fund.

The security problem originated not in the blockchain itself but rather from issues with the smart-contract code used to administer the DAO.

The DAO’s crowd-funding page in May 2016.

Questions arose about the legality of the act, with some people arguing that since the hack was actually permitted by the smart-contract code, it was a perfectly legitimate action. After all, in cyberspace, “code is law”.

The DAO debate raised this key question: should the intention of the code prevail over the wording of the code?

A new legal realm

Blockchain proponents envision a future in which entire companies and governments operate in a distributed and automated fashion.

But smart contracts pose a series of enforceability issues, which are outlined in a recent white paper by the London law firm Norton Rose Fulbright.

How can we resolve disputes arising over a self-executing smart contract? How do we identify what types of contractual terms can be properly translated into code, and which ones should instead be left to natural language? And is there a way combine the two?

It is not yet clear that code can address the necessary levels of complexity to replace legal language. After all, the vagueness inherent in the language of law is a feature, not a bug: it compensates for unforeseeable cases that must be assessed on a case-by-case basis in a court of law.

Traditional contracts acknowledge that no law can index the entire complexity of life as it is, let alone predict its future development. They also precisely define terms that can be enforced by law.

Smart contracts, by contrast, are simply snippets of code both defined and enforced by the code underpinning the blockchain infrastructure. Currently, they do not have any legal recognition. This means that when something goes wrong in a smart contract, parties have no legal recourse.

The DAO’s founders painfully learned this lesson last year.

The creative friction of the law

If blockchain technologies are ever to go mainstream, governments will have to set up new legal frameworks to accommodate such complexities.

Positive law prescribes behaviour and penalises non-compliance. It can encapsulate the normative ideal that a respective government seeks to achieve, demonstrate an ethical vision for society or reify the power structure of the current regime.

Technological developments, on the other hand, are often oriented toward profit and change.

There’s an inherent tension here. Laws may delay the development of technology and hence hurt the competitive advantage of an entrepreneur or even a state.

Take the case of nanotechnology regulation in the European Union versus in the United States. European law so mitigates risks that it may end up limiting the technology’s potential, losing its competitive edge against the US.

That’s another fact about the law: slow and reactive, it can be a gross annoyance.

But ever since technological advances began speeding along on an exponential curve last century, the law has played a critical role in helping societies maintain certain previously negotiated standards for cohabitation.

Our legal system may sometimes seem antiquated in today’s fast-moving world. But before changing our laws to accommodate new technologies that may (re)define our lives, it is important to have room for debate and time for social struggles to take place.

The law serves this function of creative friction. It can restore human agency against fierce technological development.

Given all the excitement over blockchain technologies, it is probable that interested parties will soon enough seek legal recognition and state-sanctioned enforceability of smart contracts.

These emerging technologies are still too new to have been subjected to a sufficiently thorough analysis of their social, economic and political implications. More time is also needed to assess how blockchain could be deployed in a socially beneficial way.

Blockchain technology seems poised to constitute an important component of tomorrow’s society. The legal system – slow-paced as it is – might be just what we need at this juncture to ensure that this new tool is deployed in a way consistent with established principles and values, with the common good at its core.

Cross-posted from The Conversation.

Lead Image: Name Coin/Flick

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Full title: “Blockchain technology as a regulatory technology: From code is law to law is code”

Abstract

“Code is law” refers to the idea that, with the advent of digital technology, code has progressively established itself as the predominant way to regulate the behavior of Internet users. Yet, while computer code can enforce rules more efficiently than legal code, it also comes with a series of limitations, mostly because it is difficult to transpose the ambiguity and flexibility of legal rules into a formalized language which can be interpreted by a machine. With the advent of blockchain technology and associated smart contracts, code is assuming an even stronger role in regulating people’s interactions over the Internet, as many contractual transactions get transposed into smart contract code. In this paper, we describe the shift from the traditional notion of “code is law” (i.e., code having the effect of law) to the new conception of “law is code” (i.e., law being defined as code).

Read the full article here.

Photo by elsahammond

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Originally published here.

Photo by zcopley

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Note: All Procomuns videos feature simultaneous translation, please switch from left to right channels to change languages.

This plenary was filmed at PROCOMUNS, a 3 day event which was held in Barcelona in March, 2016 to discuss commons-oriented approaches to public policy, peer production and the commons collaborative economy. Key goals included proposing public policies and providing technical guidelines to build software platforms for collaborative communities. You can find more Procomuns material on the P2P Foundation blog, compiled under this tag.

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“From New York to London, Dubai to Singapore, and Brasília to Sydney, governments are beginning to realise blockchain technology represents fundamental infrastructure and are in various stages of addressing how the appropriate policy and rules can enable both innovation and governance goals,”

This talk took place at the Sydney 2015 Blockchain Workshops organised by COALA. Michel Bauwens explores the question of whether the blockchain is a new gateway to commons governance or a Trojan horse for Austrian economics.

Watch the video here:

https://www.youtube.com/watch?v=eiAYwatLe4QPhoto by Daniel-Latorre

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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 proposedusing 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.

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