Build Back Blockchain

Does the government stifle innovation? Blockchain and crypto enthusiasts tend to believe it does, and that’s understandable given that many had their political awakening during the 2008 recession. During this time, they witnessed firsthand that the lawmakers tasked with regulating Wall Street and the big banks were in their pockets all along, and couldn’t be fished out. But history shows that governments haven’t always been vehicles for betraying the public. In decades past, radical political initiatives brought networked economic progress to life and people power to the fore.

In the early 1970s, the Chilean government sought to build a national computer network that would be coded by and for its users. Part of a democratic socialist agenda, this proposed technology was rooted in good governance. During his first year in office, President Salvador Allende had nationalized 150 enterprises including 12 of the 20 biggest companies in Chile. With this massive business portfolio now in their hands, Allende and his cabinet wondered how the state would be able to efficiently manage it without sidelining worker participation. The Chilean bureaucrats responsible for implementing this project onboarded the British management theorist Stafford Beer as a consultant. He ultimately gave the project its title: Cybersyn. It was a portmanteau of cybernetics—“the science of effective organization,” in Beer’s words—and the synergy between all elements within a system greater than the sum of its parts.

Factory managers and workers would interface with Project Cybersyn by transmitting production data via telex machines to a single mainframe computer located at a central command center. Part of Beer’s intent was that the command center would be populated not only by government officials, but also by factory workers. Together, both parties would assess the available data to make policy decisions on the direction of the economy as well as Cybersyn itself. The participatory aspect of Cybersyn’s governance proved elusive, though, because the project as a whole was short-lived. It capsized in 1973 as soon as Chilean military general Augosto Pinochet overthrew Allende in a coup. Heartbroken yet still holding out hope, Beer spent the following years pitching a kind of Cybersyn 2.0 to different world leaders. In a 1980 letter to the prime minister of the recently independent Zimbabwe, Beer proposed “a national information network (operating with decentralised nodes using cheap microcomputers) to make [Zimbabwe] more governable in every modality.” In his parenthetical remark, something stands out: Beer was giving expression to the same function underlying the blockchain.

This vision of the future from the past doubles as a vibe check. It should remind technologists that the present limitations of Web3—the category for open source and supposedly decentralized technology, including its applications and governance—are fundamentally political limitations. The open web has an opportunity to truly become open by picking up where Beer left off with his inkling of an idea for a government-sponsored decentralized information network.

Wen Democracy?

What would have happened if Beer had pivoted away from the public sector to try and bring his network idea to life another way? To answer that question, just look at the current state of governance and tokenomics within DAOs; in particular, their role in further entrenching the plutocracy of Ethereum, the largest programmable blockchain and the go-to network for launching DAOs. On its face, all their chatter about “democratizing finance”, “funding public goods”, and “expanding community ownership” suggests that DAO proponents recognize that class disparities are bad and the welfare state is good. Their economic justice-oriented lingo, by and large a fairly recent development that coincided with the rising popularity of DAOs in 2021, misrepresents their personal politics. Crypto culture doesn’t wish to become the New Deal; it wants to remain the same old deal.

In reaction to the constantly fluctuating exchange rates of cryptocurrencies, DAOs peg governance rights to their associated ERC-20 tokens in order to incentivize members to hold onto their shares rather than hastily liquidate. There’s a genuine spirit of open-mindedness and benevolence coupled with attempts to increase the utility of crypto, wherein DAOs circulate their treasury supply through funding projects that can appeal to members and galvanize new users to join. If you want to start a podcast, newsletter, or research project broadly related to the open web, it’s not that difficult to find a DAO grants program eager to subsidize your idea. But it turns out that governance tokens are anathema to fulfilling decentralization when anyone with enough means can purchase majority voting power at the click of a button. Perhaps this fact eludes crypto networks and organizations because most of them treat decentralization as a bare minimum standard, where there simply needs to be more than one validator on a blockchain or more than one wallet address attached to a governance decision for it to qualify as decentralized. But decentralization is a matter of dispersing control not as little but as widely as possible, and Web3 in its current form cannot achieve this goal.

No matter their stated purpose, whether they steward something tangible like dapps or something intangible like culture, almost all DAOs confuse democracy with “access to voting” and ownership with “access to upside.” Access has breadth, and it all depends on how much of it you can afford. As microcosms of how governance works on Ethereum, these so-called communities often feature centralized cohorts of whales that have significantly more voting power and upside than everyone else. Everyone on the Discord servers might appear to get along with each other for now despite their varying sizes in token shares. Yet no amount of grants programs, liquid delegation (a suggested donation in the form of votes), Mirror essays on elaborate half-measures, or general vibes of camaraderie will come close to rectifying the undemocratic nature of token-weighted voting. Hackers can capture an entire governance process by taking out a flash loan to buy up a majority share of an organization’s token. Coding smart contracts more rigorously is one way to prevent this, but so is one-person-one-vote.

Even if they all adopted human-based sybil resistance, which would prevent bad actors from using multiple wallet addresses to forge multiple identities to jack up their voting power, venture capital funding makes it probable that most DAOs would shoot down any proposal to transition away from token-weighted voting. Venture capital firms like Andreessen Horowitz, Variant Fund, and Paradigm invest so heavily in the ecosystem knowing that the participatory allure of DAO culture will drive up the sales and hence the market value of governance tokens. Delegating “a meaningful amount of voting power” to select members, as a16z vaguely claims to do, is a concession that serves to over-hype how committed firms seem to decentralization. Democracy dies in their donated votes. The passage of equal voting rights across all members would defeat the purpose of the firms’ pre-seed investments. Members with less purchased influence would also be caught in a bind, as they conceivably prefer equal voting rights, but at the same time, they wouldn’t want firms to retaliate by pulling out their capital and torpedoing their DAO’s treasury.

When people who care about public goods see that phrase, their immediate thought is not open-source projects built on Ethereum, but rather sidewalks, transportation, drinking water, housing, and other necessities they physically interact with when they turn away from their computer monitors.

One of the few exceptions is SongADAO, a self-funded and legitimately democratic organization. Members must own at least one NFT from the DAO’s collection of minted songs in order to participate in governance, which operates according to one-person-one-vote. Except even organizations like SongADAO are at the mercy of the more centralized tooling on which DAOs currently depend. Ironically, the service it uses to verify personhood in its elections, BrightID, is stewarded by a DAO that runs on token-weighted voting. SongADAO mints its NFTs on the Ethereum network, where it costs 32 ETH to put up stake and become a validator; that number never fell below the equivalent of 30,000 dollars at any point in 2022. Public goods are good, as thought leaders like Gitcoin founder Kevin Owocki often tweet. (Who says they’re bad?) But they’re also public and so they’re supposed to always be public. There’s no guarantee that the most influential wallet addresses at BrightID and Ethereum will keep the two technologies non-excludable in perpetuity.

More to the point, when people who care about public goods see that phrase, their immediate thought is not open-source projects built on Ethereum, but rather sidewalks, transportation, drinking water, housing, and other necessities they physically interact with when they turn away from their computer monitors. Blockchain and crypto enthusiasts can argue that Web3 open-source tools such as hyperstructure primitives count as public goods. But there’s no substantive argument for why those tools are intrinsic enough to replace the mentioned basic necessities as the first thing that should come to people’s minds when they think of public goods. This is the subtext of the “public goods are good” dictum. (It’s disheartening to see many leftists and pluralists in the DAO space recite this dictum without question.) All of this isn’t to say blockchain’s functionality should stay esoteric. Its supporters need to demonstrate how the technology can strengthen public infrastructure and civic engagement in order to legitimize their language. That requires doing away with their reliance on Ethereum, which remains vulnerable to concentrations of power and wealth, as a worthwhile codebase for collective governance.

Web3’s users and developers believe that as long as they rely solely on each other to keep pushing forward, the DAO space, and with it the open web, will supersede Big Tech platforms in no time. Venture capitalists fit within this wrongheaded belief in self-sufficiency because they pretend to be fellow stalwarts of decentralization, but their role in perpetuating token-weighted voting as de facto governance tells otherwise. The involvement of Google’s parent company Alphabet as well as TradFi firms like BlackRock and Morgan Stanley—among the major public companies that collectively invested six billion dollars in the blockchain industry in 2022 alone—suggests that crypto culture has softened its antagonism toward the very institutions it once yearned to supplant. If that’s the case, proponents should be willing to reexamine their anti-government absolutism as well. They should consider how engaging with state power carefully and tactically—not unconditionally—might work to their advantage.

The lesson of Project Cybersyn shows that government support can safeguard innovative projects from the pitfalls of private capital. “The state can require (and inspire) technologists to consider how systems benefit the interests of the broader citizenry, which may or may not align with profit, market success, efficiency, technical elegance, or coolness in system design,” writes scholar Eden Medina, author of Cybernetic Revolutionaries: Technology and Politics in Allende's Chile. In the United States, Congress can fund urban and rural communities across the country to lay the groundwork for their own local blockchain networks. Right now, such an initiative could win bipartisan support.

Trustless Antitrust

Government skeptics have good reason to lack faith in the state. In stark contrast with the expectations symbolized by the large portrait of President Franklin Delano Roosevelt that currently hangs in the Oval Office, Joe Biden’s presidency has been tarnished by profound economic letdowns. Biden promised to send Americans stimulus checks of 2000 dollars that he inexplicably lowered to 1400; he promised to pass robust labor legislation that either got defanged or pushed aside entirely; and he promised to stick up for workers before pressuring Congress to shut down a legal strike. Critics might be tempted to reduce his presidency to another example of self-sabotaging, do-nothing, capital-D Democratic politics. And yet, when it comes to antitrust enforcement—one of the policy areas which could be most consequential to blockchain networks—Biden’s agenda is surprisingly the most aggressive since FDR held office almost a century ago.

Biden has appointed to influential positions within DC some of the country’s foremost legal experts for reining in corporate tyranny. The most prominent figure is Lina Khan at the Federal Trade Commission, the agency responsible for enforcing antitrust law and permitting or denying corporate mergers. Khan is best known for drawing attention to the regressive state of antitrust in a 2017 Yale Law Journal article outlining the many reasons why the FTC should categorize Amazon as a monopoly: its dominance over e-books, online marketing, cloud computing, and other industries. All of this despite the e-commerce giant keeping prices low for consumers, which up to that point had been the agency’s narrow benchmark for determining whether or not a corporation counted as a monopoly. Now in her role as Chair of the same agency, Khan has spearheaded some of the toughest crackdowns on Big Tech in American history, such as curbing the ability of platforms to collect data on school children, overturning illegal repair restrictions that cause lock-in, and filing suit to block Microsoft’s anti-competitive acquisition of Activision Blizzard.

With everyone hating Big Tech, her vigorous approach to antitrust enforcement has been celebrated across the political spectrum. The left opposes the extreme net worths of platform CEOs and their anti-union leanings while the right opposes Big Tech’s suppression of free speech through deplatforming and shadowbanning conservative users. This is one of the rare political issues where there isn’t just bipartisan agreement among citizens but among their elected representatives as well: all 50 Democrats in the US Senate were joined by 19 Republicans, including hardcore conservative Senators Josh Hawley and Ron Johnson, in approving Khan’s nomination to the FTC (Biden later promoted her from Commissioner to Chair of the agency).

Blockchain advocates should seize upon this bipartisan momentum with a bottom-up grassroots effort that complements Khan’s top-down antitrust enforcement. For guidance, they should look to the New Deal. In 1935, FDR signed an executive order to bring electricity to rural America because it had been overlooked by the private utility industry in favor of more populous areas of the country. The executive order, known as the Rural Electrification Act, incentivized utility companies to negotiate electricity deals with farmers through manufacturing competition: if they refused to supply affordable electricity, the government would step in and offer it to locals at a lower price. The Rural Electrification Act gave low-interest loans to farmers to purchase electric power from these companies and form electric cooperatives, so they could democratically own and operate their power sources. By increasing market competition and investing in cooperativism, this program emboldened the style of antitrust that only grew more potent over the course of the New Deal era: breaking up monopolies and giving everyday Americans more control over their economic livelihoods.

This historical example can give technologists and lawmakers a sense of how to collaboratively achieve progress for the public’s benefit—i.e., how to build back better. Just as the government once fought to give citizens control over their electricity, today it can fight to give citizens control over their own data. Either through passing a bill in the House and Senate or through an executive order signed by the president, the government can establish a low-interest loan program with the express purpose of kickstarting local blockchain networks in towns and cities. This approach to public funding in conjunction with dogged antitrust enforcement can begin to rip open both sides of the snare of privatization which has entrapped our information commons.

Exit to the Commons

Each network will be democratically owned and operated by its member-users and validators. For that reason, they won’t be proof-of-work or proof-of-stake, but proof-of-personhood, the cryptographic proof best suited for decentralization without necessarily having to tie user identity to wallet addresses. The first two proofs are susceptible to centralization and would thus raise concerns among lawmakers that Web3 is prone to replicate the problems of Web2. With proof-of-personhood being the proposed validation mechanism across the board, that would also present the opportunity for job creation through hiring citizens as validators on their local networks.

These blockchain networks will have funds set aside from their loans to invest in the formation of new democratically managed dapps that meet the needs of rural and urban communities that have been impacted by tech giants. In small-town America, local newspapers went out of business after the advertisers that once funded them redirected their dollars toward Facebook and Google Ads. A rural network could host new cooperative media outlets that revitalize community knowledge and civic engagement without depending on ad revenue. In large and mid-size cities, where gentrification has wiped out small businesses and destabilized job markets, gig economy platforms prey upon independent contractors by locking them into extractive labor conditions. An urban network could host cooperative versions of Uber and Uber Eats with better pay for drivers, more reasonable work hours, and smaller platform fees for riders and restaurants that offer delivery. These are a few examples among many potential dapp ideas.

This technology isn’t inherently revolutionary, but under the right conditions, it can build genuine people-powered institutions—or to think of it another way, DAOs with real-world impact.

By virtue of fostering solidarity economies, the networks would constitute new layers of self-governance in coexistence with regular municipal governments. They can be powerful tools to mobilize grassroots action to shape external politics. This is similar to the intent of the Boston Ujima Project, a coalition of cooperative businesses in Boston that plans to leverage its growing membership to pressure the city and state governments to invest in its ecosystem and divest from prisons and fossil fuels. Significant broadband expansion to provide “Internet for All” is part of Biden’s Bipartisan Infrastructure Law; the next step is taking advantage of that broadband infrastructure to give Americans a collective stake in their local economies through the power of blockchain. This technology isn’t inherently revolutionary, but under the right conditions, it can build genuine people-powered institutions—or to think of it another way, DAOs with real-world impact.

There’s probably no way to tell if Stafford Beer had similar considerations in mind for his decentralized information network as what I’ve outlined above. Although the prime minister of Zimbabwe never responded to his 1980 letter, the cybernetician kept a copy of it in his personal files to presumably continue fleshing out the details of his Cybersyn 2.0. If he was indeed working on a blueprint, it seems that he might have misplaced it. That’s the suggestion of a small note he attached to his copy of the letter in 1991, which read, “Where draft plans?” What was it that brought him back after 11 years? The World Wide Web was in the process of going public—an open and distributed digital commons, unprepared to ward off the eventual triple threat of surveillance, censorship, and lock-in. During this time, Beer must have been reminded of what he witnessed firsthand in the early 1970s in Chile: the power held in data ownership. Big Tech entrepreneurs and investors would come to realize and exploit this fundamental quality of the web to no end.

Despite their concerted effort to give power back to users, the DAO-stewarded dapps built on top of Ethereum aren’t correctives to Big Tech platforms. But the classic Ethereum ideals of open access, user security, and community ownership can and must be realized through alternative means. Antimonopolists like Lina Khan have breathed new life into DC’s retrograde antitrust culture, with her legacy likely to be felt for years to come. It’s this quirk of centralized government—a bipartisan hankering to rein in Big Tech—that blockchain proponents risk squandering by doubling down on their government-is-bad attitude, instead looking to venture capitalists not so secretly in love with concentrating power to materialize the open web.

Centralization and decentralization aren’t a binary, as Beer often pointed out, and one can beget the other depending on the circumstances at hand. Looking at the unique circumstances before us, the case for localized blockchain networks asserts that Web3 shouldn't be sheepishly apolitical. It should be adamantly non-partisan, which is to say, populist.