Identity and Incentives
The Search for Decentralized Identity
With the rise of naming related protocols and services like Handshake and the Ethereum Name Service, it’s important that we understand human-readable names online, and why it’s critical for us to eventually land on a solution that makes sense, globally.
Our Missing Identity
Many blockchain “ecosystem” projects aim to create environments for economic exchange that are more efficient than the real world. The reasons for trying this are clear: If the efficiency of exchange in a blockchain environment exceeded its fiat money counterpart, it would take off. It would not only capture the relevant segment of the real-world economy, but probably expand it by easily operating across borders, at fast transaction speeds, and with little intermediation.
The most important reason this has not happened to the degree many expected a few years is the blockchain ecosystems are hard to govern. This piece will make the case that the principal reason for this ungovernability is the lack of a sufficient and secure identity layer.
Straightening Out Our Concept of Governance
It is tempting, but totally inadequate, to say that governance means solving collective action problems. In fact, a governor need not solve any problems at all to count as governing. Wicked or incompetent governments can still govern without any real recourse or action — much to our dismay.
Governance is best understood as the exercise of authority. But what is authority? Following the view of philosopher Scott Hershovitz, it is “a feature of roles embedded in practices”. To illustrate, a Head Chef has authority in a kitchen. Why? Because the people in a kitchen are, willingly or not, assuming certain roles, such as line chef and dishwasher, and the role of the Head Chef happens to have the feature that he or she gets to tell the other people in the kitchen what to do.
Note that on this view, authority is not inherently legitimate, or illegitimate, or good, or bad, or useful, or harmful. These evaluations of authority, important as they are, depend wholly on the qualities and moral characteristics of the institutions or communities within which the authority is being exercised. Moreover, authority does not depend on anyone “believing” in it. It is basically just a feature in a multiplayer game, which exists as a feature of the game even after all the players recognize that the game is bad, stupid or unworthy of their faith.
Still, even though there is nothing inherently good about it, authority is important. You cannot have legitimate authority without authority.
What Do We Mean by Blockchain Governance?
Blockchain governance (more here) usually refers to the authority to make changes to blockchain-based systems. Such authority might be written into software, so that certain people can de facto make changes. Or it might refer to the social practices (the social contract) by which groups of users of a public blockchain decide — or are persuaded, led, incentivized, or coerced — to collectively adopt certain changes to the blockchain systems, such as protocol updates that constitute a hard fork.
Alternatively, blockchain governance can refer to the use of blockchain technology to structure or exert authority over non-blockchain social practices. A real-world property registry living on a blockchain is an example of this, one where no central party controls the registry, and the state of the registry is maintained by the commons, via individuals who use it as a utility.
What is the Problem?
The single biggest challenge for both kinds of “blockchain governance” is the lack of a decentralized unique identity protocol, by which I mean a trustworthy decentralized oracle that verifies and attests that a person is a real person, who only controls one account and identity.
Without real-world identity, authority cannot arise, because authority attaches to people and their social roles. An anonymous address, which might represent more than one person, less than one person, or no person at all, cannot participate in the human practices in which role-based authority arises. More concretely, basic features of legitimate governance such as voting cannot be conducted.
How Does This Connect with Cryptoeconomics?
Markets don’t arise out of the ether. They are structured by authority. For example, without contract enforcement and the policing of property lines, capitalism as we know it would not exist. Yet these kind of authoritative practices depend upon identity, such as the identification of voters who participate in governance decisions, or property owners who pay the property taxes.
In a just and efficient economy, the rules compensate people in proportion to their labor. The real world economy, however, is not perfectly just or efficient. It has distortions, and often allows unearned fortunes to accrue to players who control economy bottlenecks. We cannot fix this without better governance.
Therefore, the question of building efficient cryptoeconomic ecosystems and blockchain governance are inseparable. A unique identity layer is the key to both.
The Rise of Global Identity
With such a protocol, potentially revolutionary governance practices may become possible on blockchains, such as quadratic voting, quadratic finance, partial common asset ownership, and more. The entire blockchain ecosystem awaits this solution, and will flourish when it arrives.
We believe that the identity system that cracks this nut will involve verified two-way connections between individuals and institutions, in a peer-to-peer manner. A network of connections too vast to be spoofed will become the proof of unique identity. And the network may or may not use blockchain technology in the traditional sense. This is a hard problem, but we are on the lookout for a solution, and one which we believe could be coming soon.
Edited by: Steven McKie