If you’re not Breaking Rules you’re Doing it Wrong — Bittorrent Lessons for Crypto (2 of 4)

Following my first post on Why Bittorrent Mattered, it is worth reflecting a little on the popular theme of decentralization — what it actually means (in the particular context of blockchains) and what its useful for.

Whats the point of decentralization anyway?

Decentralization, at least the way it happened in Bittorrent, really means the combination of two qualities — technical decentralization and organizational decentralization.

Technical decentralization means that there is no single choke point in an application or on the network that can be attacked which will lead to the system being compromised or switched off.

Organizational decentralization means there is no single person or entity that can be compelled to compromise or switch off the network.

In the case of the Bittorrent ecosystem this was certainly the case. The distribution of the architecture of Bittorrent across client software and any number of torrent sites and tracker nodes meant that once a critical mass of people was using the technology there was really no single place to attack that would have compromised or shut down the network. Furthermore, with the technology being opened up so early, there were a range of companies and individuals who developed all of the components that made Bittorrent work. There was no technical place which could be used, and no person or organization which could be compelled to switch off the network. It was very hard indeed to censor, at least within the democratic norms that governed the most influential state actors on the early internet.

This level of decentralization gave rise to the critical third component that makes this type of decentralization so intoxicating and exciting — an ability to break the rules. While a decentralized architecture can be effective at routing around a variety of different failures in a network, the type of decentralization that was achieved by Bittorrent (and by Bitcoin for that matter) has enabled routing around rules.

In Bittorrent this happened quite by accident. The original objectives of Bittorrent (unlike the stated aims of Bitcoin) were not explicitly to enable the type of rule-breaking that ensued. Nevertheless rule-breaking did ensue on an epic scale in the form of very widespread sharing of copyrighted files. And it has persisted for a very long time, in the face of fierce and well-funded opposition from those who own copyrights.

This point is broadly applicable to Bitcoin and many of the projects that are setting out to leverage blockchain technologies. It’s pointless to argue about what decentralization is or how decentralized various projects are and why that even matters without first talking about what decentralization does. Decentralization in the sense it is applied to blockchain technologies isn’t really about the multi-homing of infrastructure or the sharding or sharing of databases. Decentralization in this sense means creating an uncensorable system that enables the unfettered breaking of rules. This is why the promise of blockchain is so disruptive — the blockchain as embodied by Bitcoin and further enumerated by Ethereum is the quintessential technology of disruption. Once launched it cannot be stopped, come what may.

Without this sort of rule-breaking (whether by accident or design) it’s quite hard to imagine why decentralized blockchain technology even matters. It’s a distributed data store with a complicated and slow update mechanism. While there are some qualities of blockchain architectures that are useful short of full decentralization, they hardly justify for the wilder “biggest-thing-since-the-internet” excitement. The one value proposition that everyone seems to agree on for blockchain technologies is that they are ‘censor-proof’. And this matters only if you have something that someone wants to censor. To my mind the most interesting blockchain projects out there are the ones that enable the breaking of rules.

Through this lens there has really only been one seriously exciting application of blockchain technology so far — that is its application in capital formation mainly through the use of Initial Coin Offerings (ICOs). The rules around capital formation in the US and the updates with the 2012 Jobs Act are complex and well intentioned and I don’t mean to debate them here. I certainly don’t want to defend the bad behavior that happened as a result of the ICO boom. But two things stick out clearly:

  1. The ICO boom happened in an ungoverned way and was (albeit briefly) wildly successful in raising billions of dollars to fund a broad range of projects;
  2. ICO’s have now almost completely stalled as a result of pressure from the SEC and other regulatory bodies around the world.

Other than this example, there are a few planned projects but very little actual rule-breaking going on. It seems reasonable to assume that if rules are being broken then someone somewhere is going to care. And yet there’s little evidence of anyone directly ‘feeling the heat’ of rule-breaking behavior enabled by decentralized blockchain systems in the same way that media industry execs once felt the heat of the rule-breaking taking place in the Bittorrent ecosystem.

Not that every blockchain project needs to be breaking rules. There are many important projects that exist to build the fabric of this industry. But I’m pretty sure that the gold in this particular gold rush is the ability to architect systems without central controls which enable participants to break rules with impunity. When observers decry the lack of adoption, the reason why adoption is missing is that there are worryingly few projects that are breaking rules that large numbers of people actively want to be broken. A groundswell of utility being realized is clearly missing.

In the early days of Bittorrent this meant millions of people simply downloading the latest movie for free from The Pirate Bay without any DRM wrapper spoiling their enjoyment, without that annoying “you’ll go to jail if you violate copyrights” page that was inflicted upon every legal viewer but conveniently stripped out of all the bootleg copies. For a while the experience of Bittorrent was strictly better than any other online experience. And it was free. The closest to this we have come in the blockchain ecosystem is a legion of ‘investors’ hoping to get rich on the expectation of some killer app coming along. But the expectation itself relies on some utility emerging somewhere else. Unless and until this sort of utility does emerge then the ecosystem remains vulnerable to accusations of being just a Ponzi scheme, and may yet collapse entirely.

The general purpose public blockchains out there might best be understood as platforms for rule-breaking apps. (For if there are no rules being broken it becomes tempting to ask why a decentralized architecture is the best tool for the job.) If I were an investor I’d be asking any apps (or dApps) on top of these platforms the question “what rules are you breaking?”.

(The third post is on the problem of intent, the cost of complexity and the governance paradox)