Global governance in the era of blockchain.

On February 24th Vinay Gupta and I held a talk at the conference “Blockchain: Rewiring Governance” in Cambridge. Below you can find the video and the transcript of this talk.

We were talking about problems and possibilities for global governance in the era of blockchain, raising questions like:

• How will blockchain affect the way we globally do business?
• How do we apply rules and regulations to this space, when it was built without any of the affordances you need to put the existing national rules and regulations in place?
• How is the technology changing the way we understand and deal with our individual rights?
• And how do we rethink and use individual rights to shape the legislative agendas that will regulate how new technologies are managed?

Video:

Transcript:

Rob:

I want to try and look a little bit at blockchain governance from a historical perspective. I’m trying to introduce some long-range, 40–45 year thinking here, where we can look back on the blockchain in the context of the development of the Internet.

We’ve had something that resembles an Internet for about 45 years at this point. The first iteration of the Internet, if you want to call it that, probably begins in about 1973, and it begins with a group of universities in the US linking their computer networks up to each other. The primary drivers for this thing are for the sharing of information amongst scientists, academics and researchers, and for the defence establishment to have a secure and robust communications infrastructure that is decentralised and resistant to, for instance, nuclear attack on a communications HQ.

The defence people are mostly interested in having the infrastructure there, but they don’t actually have that much day-to-day use for it most of the time, so by default the system belongs to the scientists, it belongs to the academics, it belongs to the researchers. They do the kind of things that those people want to do, which is they want to share research information with each other, they want to keep in touch, they want something to replace having to send letters to each other, or having to send paper reports, or having to publish all of their results quarterly in journals. With email they can share those results immediately, and with FTP or other file transfer systems they can send large datasets to each other pretty much as quickly as the communications lines will carry them.

We have this first era of the Internet that runs for about 15–20 years and is primarily an Internet of ideas; it’s non-commercial, and it’s really just there to help people communicate with each other, and pretty much the last act of that kind of first age of the Internet was the creation of the Worldwide Web. This was a product of the scientific establishment, it was invented by Tim Berners-Lee at the CERN research institute, and his original thinking was “This is going to be a great way for me to share my findings and my research with other scientists, and maybe they will want to share their findings and research in the same way too.” This isn’t how it’s done now. The Worldwide Web was the first thing that was actually easy enough for ordinary people to use, and even inside CERN people were using it for all kinds of stuff that was completely unrelated to their day job. I think one of the first examples of this was that a group of female scientists at CERN had formed their own music group, and they created a webpage to talk about their songs and to share that with other people. So pretty quickly the Web began this process of bringing more personal information, bringing more personal discussion and bringing the sharing of media onto the Internet.

Go forward another couple of years, and people realise that this might be really useful for commercial purposes. The same things you can do on the Web kind of look a lot like catalogue shopping: you can browse around and you look at things, you’ve got pictures of stuff… If there was only some way that you could actually place the order, then you could complete the entire purchase process using the Internet. Unfortunately, there’s no secure way of sending payments over the Internet at this point so we can’t do it. Enter some cryptography researchers, you have a good way of encrypting information over the Internet, this gets formalised as the Secure Sockets Layer standard, or HTTPS, and this gives us the ability to send payment information. We can take our credit card numbers and send them securely across the Internet to other people.

We then get the second great age of the Internet, which is variously you might call it the Internet of payments or an Internet of commerce or an Internet of shopping, which is all about taking the things that we can do with our credit cards and putting them on the Internet. Amazon is basically just a giant supermarket, and Netflix is basically just a giant video rental store, and Uber is basically just a giant taxi service, but we’ve taken those things from the physical world and moved them into the digital world, all on the back of being able to send our credit card information securely over the Internet. I really want to emphasise how simple that innovation is; just being able to send credit card information securely over the Internet gives us Amazon, Uber, Airbnb, eBay, Netflix, and it also in a way gives us Google and Facebook, because the business models of Uber and Facebook are dependent on advertising to people who have credit cards and can put their credit card numbers in and then buy something from somebody.

This gives you several of the world’s largest companies by market cap at this moment in time. The entire e-commerce revolution, the entire last 20 years of Web and mobile app development is all based off this ability to send credit card information. And it works because the technology has the same kind of basic form as the shopping experience: you go into a store, you kind of browse around, you see something you like, you pick it up, you put it in a shopping basket, you take it to the checkout, you’re then processed through the checkout, and, congratulations, you now own a pair of jeans that you didn’t own before, and you’ve paid for it using cash or credit card. The Web is very, very good at modelling that kind of experience: you click through various different pages, you see a product you like, you add it to your shopping cart, you click “checkout”, you enter your payment information, and, congratulations, you’ve now bought something.

That fit between the technology and the experience created the explosive growth of ecommerce, that was why it was so easy to do it, that is why it rolled out so quickly and why it was so effective. But it also leaves a bunch of stuff that hasn’t been done: we don’t yet really have a good digital representation of something like an insurance contract. Because you sign an insurance contract, and many months or years later you then come back to make a claim on the insurance, and the Web isn’t such a good fit for that, because things that get put on the Web tend not to stay there. If you go back 10 years and write down the top most popular webpages in the world from 10–20 years ago, a good number of them aren’t there anymore. A contract that disappears is not very useful; a product that disappears from the supermarket shelves, that’s kind of expected, you kind of know that the products that are there now… This year’s spring and summer collection is not going to be there next year, but this year’s insurance contracts damn well better be there next year when you want to make a claim on it.

So we have this space of personal finance, business finance, things that run on for instance 90-day invoices, that need to last quite a long time and that need to have clear identities of the participants, so they are multiparty participant-based. They might be conditional, they might have logic built in — the insurance pay-out will only happen if these conditions have been met, the invoice will only be paid if these conditions have been met — and they need to last for a really long time.

In a way that the Web is a good fit for the shopping experience, do we have a technology now that’s a good fit for these other experiences? Our position is that the blockchain is a good fit for those kinds of experiences. You can sign something with your digital signature and your counterparty signs it with their digital signature, you can specify the logic of conditionality in a smart contract, and once you put it on the blockchain it stays there. So it’s a super useful way of doing all kinds of contractual agreements, where you have a proper, full digital representation of that contract, in the same way that an ecommerce store gives you a proper, full digital representation of basically the catalogue shopping experience.

Our thinking in all of this is that there’s a long sweep of technical innovation going on, where problems get solved once the technology becomes available to solve them. The Web unlocked a bunch of stuff that just wasn’t possible before the Web was invented, and the blockchain has unlocked a bunch of stuff that wasn’t possible before the blockchain was invented. So the reason why people are getting really excited about the blockchain, the reason why so much money and so much hype and so much buzz is going on is because it has opened up a new space, and that new space may well be bigger than e-commerce was, so bigger than the thing that gave us Amazon, Netflix, Google, Uber, Airbnb, etc. It might actually be the thing that in 20 years’ time you look back on, we see the world’s five most valuable companies were companies that were born out of the blockchain revolution, in the same way that several of the world’s most valuable companies right now were born out of the e-commerce revolution.

The interesting thing that’s changed, and I think where this gives us a governance challenge, is that the blockchain is also kind of world’s first major post-Internet digital technology. What I mean by that is that you need to think about the ages and the psychology of the people involved in creating a lot of this technology. There is a famous quote by Douglas Adams which I don’t trust myself to remember, so I’m going to read it out from my phone.

Douglas Adams said:

“I’ve come up with a set of rules that describe our reactions to technologies: Anything that is in the world when you’re born is normal and ordinary and is just a natural part of the way the world works. Anything that is invented between when you’re 15 and 35 is new and exciting and revolutionary and you can probably get a career in it. Anything that is invented after you’re 35 is against the natural order of things.”

[laughter]

This worked pretty well: I’m 36 now, so basically anything that comes after this point is just wrong, but that kind of matches my experience pretty well. Google was invented in 1998, when I was 17, and to me that was a very, very clear signal that this is where I’m going to build my career, and I built my early career as a software engineer building Web systems, because it was obviously the way the world was going. One of the things that happens though as you get older is you realise that the people in their early 20s are getting further and further away from you. If I look at Vitalik Buterin for instance, who created Ethereum, he’s 24, he was born in 1994, he was four years old when Google was founded. So for him, the Internet and global, very, very low cost, always-on communications is just a natural part of how the world works, it’s always been there. For people pretty much under the age of 30, the Internet has always been there: Facebook has always been there, Google has always been there, Amazon has always been there; it’s kind of like the post office or the phone company or something, they’ve always existed. And they’ve always been global: they made friends with people they’re playing videogames with on the other side of the world, they’re used to being able to communicate through social media with anybody and everybody, and national borders really don’t figure in that.

So when we were starting to roll out the Internet in the late ’80s and early ’90s and we wanted to figure out how we were going to identify all of these computers on the Internet — we couldn’t just use the IP addresses, they’re very, very hard to remember — we need to give them names, and we need to have a hierarchical system of naming servers on the Internet, and we created the Domain Name System. The Domain Name System has a whole bunch of top level domains — .com, .edu and so on and so forth — but the majority of these names are country codes — .co.uk, .fr, .de and so on and so forth — which identifies a website as having a scope that’s, broadly speaking, limited to a particular country. The blockchain doesn’t have any of that, because the people who built the blockchain grew up in a world in which global communication was normal rather than the exception. Global communication is not some exciting, new, whizzy thing that’s never been seen before; global communication is how the world works. So when they set out to build a system of money, it doesn’t occur to them to think, “We’re going to have a British system of money for this area, a separate French system and a separate German system, a separate system for China… We’re going to have one system, and it’s going to work in pretty much exactly the same anywhere in the world.”

So when Bitcoin comes along, it’s just global by default. Nobody thinks, it doesn’t even occur to anybody that you should limit it on a country by country basis, that idea is just not something that anybody would ever think. That’s what gives us this really interesting governance problem when people start to build really interesting things on top of blockchains, decentralised, autonomous organisations. What jurisdiction is that organisation in? I don’t know. Does anybody really have a good answer to that? Probably not. What jurisdiction is a record on the blockchain held in? Which data protection regulations apply to the information on the blockchain? If people are doing initial coin offerings or token sales, whatever you want to call them, which countries’ financial investment and securities regulations apply to those token sales?

There isn’t an obvious answer, because the assumptions of the people who built the underlying system were so at odds with the existing national regulatory frameworks that the things just don’t play very nicely together. So any response of legal governance is going to have to be one that takes into account the fact that in an Internet native world, national governance and global communications are kind of an odd fit. We need some way of maybe… Either we balkanise the Internet and have separate national Internets with national governance, or we figure out some way of doing international governance that people are happy with, and international governance right now is pretty hard to do. The great wave of Post-World War II international institution building has kind of stopped. Brexit would be a good example, but there are other examples now, of it becoming harder and harder to get international cooperation on certain kinds of issues.

So we’re faced with this real, genuine conundrum: how do we apply rules and regulations to a space that was built without any of the affordances you need to put the existing national rules and regulations in place?

Our view is that honestly we don’t know how that is going to end.

As Mattereum, as a company, we believe in contracts and self-regulation, the idea that people make agreements amongst themselves, and use existing enforcement mechanisms to tie those into the national, existing legal systems. But when it comes to the really big questions of what’s allowed on the blockchain, what would be considered a criminal offence on a blockchain, even that is kind of above our paygrade. And those are the kind of sets of questions that I don’t think I’ve heard anybody give a really good answer to, so I’m kind of posing this more as a question that needs an answer than something that I’ve got a good answer to.

I’ve done a bunch of talks to different kinds of audiences, some very heavily student oriented, some more business oriented, and you get different generations of people. Some people will come up to me after the talk and say, “You know, this reminds me very much of a situation we had in 1987, with a new financial product that came along and we needed to figure out how to govern that.” Other people come along, who are younger, with a different perspective, which is that they don’t see why some of these things should be a problem. They’re more coming in with the perspective that this is just how the Internet works, surely it’s the responsibility of the governments to get with the programme and understand how the Internet works. I think that culture clash, that set of problems to be resolved, that set of thinking that needs to be done is really just starting to happen now. I think people are only just starting to wake up to the fact that there’s a question that needs to be answered.

Looking around this room, we’ve got a good mix of people of various different ages, but I think for the younger people in the audience, grappling with these kinds of questions is probably going to be a big thing that you’re going to see as a political question, as a business question, as an academic question over the next 20 years. So in many respects, I think it’s kind of up to you guys to figure out what the answer is, because I certainly don’t know. But I think if we can… Does this generally makes sense to everyone as a framing of the question? If we take that forward, we now need to think very much more about how do we do global governance of major global public infrastructure. The blockchain doesn’t belong the Western Europe, it doesn’t belong to North America, it doesn’t belong to China, it doesn’t belong to India; it kind of belongs to the world, and we need to figure out how we’re going to do global governance of these kinds of systems.

That’s basically my piece, the framing thing, and I’ll hand it over to Vinay now, but I think that’s a question that I’d really like to hear everybody’s thoughts on. Maybe not immediately, but if you have thoughts on this over time, if you write about it, think about it, talk about it publicly, please do let me know what you think, I’d really love to hear what everybody makes of that.

Vinay:

Because we’re not going to solve this stuff today. The long-haul questions about how we do this kind of global governance, these questions are going to be with us for a while.

I’m going to take a slightly different tack. I’m going to talk about individual rights. The blockchain is a system which, at least in theory, is constituted by individual actors from their right to free speech. The blockchain records a series of utterances, these are statements, and those statements carry with them a digital signature, the statement with a digital signature is taken as being an indicator of somebody’s free action, their free will, and as a result it’s very hard to argue that the blockchain should be illegal. A series of statements are made by individuals, those statements are interpreted by other individuals to authorise the transfer of value, and the value only exists because individuals have chosen to recognise it as having value. It’s very hard to imagine a regime in which you can stop something like that, without fundamentally limiting speech. “You can have all the speech you like, but if your speech is interpreted by other people as being a transfer of value, I’m very sorry, you’re going to have to pay taxes on that.”

This is very typical of what happens when archaic framings of rights are carried into an age with new technology. You see this in America, where we have an enormous amount of drama around gun control right now, because at the point where the equilibrium is set between individuals and the state and the guns are handed out, the guns are not particularly effective at killing people. They fire roughly once every 45 seconds, they don’t have any kind of large magazine, there’s no repeating function, you have to take the thing to pieces before you could get another shot off, so they are dangerous, but they’re not that dangerous; one individual with a gun is not a global menace. 200 years later you have large calibre, large magazine assault rifles, and the balance of power that was envisaged by the American Founding Fathers has now shifted dramatically towards the individual. However, again if you look at free speech, the balance of power in free speech matters has shifted dramatically towards the state because of the enormous automated surveillance platforms that we’ve seen revealed by people like Edward Snowden.

So the machinery which is used to actually carry out your rights changes over time. The right may be the same, the individual is largely unchanged, human beings have not changed very much a really long time, but the machinery that’s used to practically implement the right changes over time, and as a result, for the foreseeable future, we’re going to be in a position where there is a constant struggle over the interpretation and reinterpretation of basic human rights, as technology either strips those rights or reinforces those rights. And because electronic communications are a fantastic mechanism for speech, speech rights are the most heavily affected initial rights in these kinds of systems.

The second class of rights that I think are going to come up in a big way are rights to property. The objects around us are casually thought of as being property. We look at this stuff, and we don’t really think very much about the system of machines that turns the physical stuff around us into somebody’s property, but actually property is a really sophisticated, complicated legal process. Does everybody know the word “fiat”? Only a few people. Fiat basically means “This is so because we have willed that it is so,” and this is typically a will which is done by a sovereign, it’s something that is done by the crown. So fiat money is money which is willed into existence by the government, and that’s all of the common forms of currency, with the exception of cryptocurrencies.

Fiat property is not a term that’s used very heavily, but it refers to property which exists by government fiat. A good example of fiat property is patent. There is no immediately obvious natural right to patent, there’s no immediately obvious natural right to copyright, patent and copyright are new forms of property, they only go back a few hundred years. The ancient world doesn’t have anything that resembles copyright or patent. A trademark is another kind of fiat property, and the current system of land rights that you see in Europe is balkanised: the Germans have one model, the Dutch have a different model, the Brits have a different model, and if you go to America there are different models. All of these land rights are relatively arbitrary. Exactly how you implement the individual right of a human being to own land varies from place to place, and a lot of the conflicts that you saw between Native Americans and European colonists were because the Europeans brought with them this idea that land was divided up into partials and owned, but the Native Americans in many regions had a system of harvest, where the buffalo would come through, you take whatever you thought you were entitled to, but the land itself was not understood as having value. Because the land was not actually something that produced a lot of value, it was very hard to do any kind of farming, this was not suitable for agriculture without technology, so all you could really do was harvest what nature gave you as it went by on the hoof.

We’re in an age now where the global interconnectedness of speech is more or less total. You can say something and it’s heard around the world immediately, we’re going to record this little video here, that thing could well be on YouTube 15 minutes after we finish the talk. We have an environment where global speech and global free speech is achieved, at the cost of pervasive global monitoring of that speech, and you can argue that this has become something of a balance. The individual is more empowered by the global network, so is the state, and these things may or may not be seen as being in some kind of equitable balance. You could then tip that very radically if you saw mass adoption of surveillance-resistant privacy technologies, you could imagine a very sudden shift of the free speech equilibrium towards the individual. The state may be concerned, the state may also decide it just doesn’t matter that much; you’d have to see what the social impacts were.

The next round of negotiation that we see is a negotiation over the globalised nature of fiat property. Right now, if I take an object from the UK to Germany, the ruling law that governs that object goes from being British law to German law, and an object which may be perfectly legal for me to own here, in Germany suddenly becomes illegal. You see this very strongly with drug policy. People are increasingly getting caught flying out of California with a marihuana cigarette in their pocket, because where they come from it’s just a cigarette, and they arrive someplace like Dubai and now they have a real problem. The object has been mysteriously transubstantiated from being kind of inoffensive to being horrendous, lethal and life-destroying, because the property has been taken from one jurisdiction to another.

Now, for individuals this is occasionally a little dangerous and kind of aggravating, but for businesses this stuff is hugely problematic. If you’re something like a supplier of industrial chemicals, you have no idea whether the stuff that you’re going to ship will be legal in the jurisdiction it’s going to arrive in. You can do your legal research and you can make some phone calls and you could check what the government calls it, but the fact is that these systems are extremely complicated. Everybody gives the chemicals different names, the law may be updated infrequently, and you’re not going to get a notice telling you the law has changed, so you wind up in a position where people just repeat the same behaviour that they always have done before, and it was always okay so it should be okay now, or they deal largely with local suppliers, because the local suppliers are likely to be in the same jurisdiction they’re in, so you don’t have all these cross-border issues.

The old approach that we took to enabling global trade in spite of these fiat property guidelines was that we basically produced continental-level integrated trade blocks. The first big one of these is probably the Soviet Union, you have a single law from one end to the other, you could argue that America was actually the first continental block, although the states were dramatically different from each other until really the end of World War I, but one way or another, the European Union continues the trend, modern China continues the trend, one law per continent has basically been the thing that we attempt to approximate, and this is quite useful, because a continent is a sensible size of political trade. You kind of have a railroad network, and there’s coextensive region where the law and the railroad network kind of have the same domain, everywhere that’s connected by rail you kind of have the same law, and that has held us in pretty good shape right up until about now.

But now we’re in a domain where the international will towards this kind of uniform global order is rolling backwards. The Trans-Pacific Partnership failed, the European Union is in trouble, I think it would be unsurprising if you saw America break up into some fairly large units in the next 5–10 years… You’d just about see a vector where the South of America refuses to accept election results that indicate a Far Left Democrat is elected, and you could see some kind of secessionist or partitioning movement. The same thing in the South of Europe: Spain, Italy, Greece all having problems keeping their countries together… We’re in a position where these continental blocks are kind of breaking down, because it turns out that a lot of what comes along for the ride with this trade integration is a whole bunch of craziness about social policy, and everybody hates social policy. It doesn’t really matter what the social policy is, at least one thing that your government institutes as social policy will get right up your nose; almost nobody agrees with everything their government recommends.

So, what we really need is to think sensibly about the global level. We’ve got global warming, we’ve got things like slavery baked into goods, we’ve got a whole bunch of toxic waste which is being dumped in by the developed nations on poor countries, or being dumped by poor countries on even poorer regions of poor countries, and all of this stuff is global trade network problems. But we don’t have a global government, and the people that have nuclear weapons are unlikely to accept the formation of a global government. If we did have a global democracy, you would discover that the vast majority of people would vote against most of what you consider to be your fundamental human rights, because those rights are relatively recently created and enforced, and so we would see some very, very serious breakdowns, but this doesn’t mean that we couldn’t potentially build an architecture that supported global regulation of trade on a more or less case-by-case basis.

Imagine a future in which an object uniquely identifies itself, and I don’t mean the object identifies itself as “This is a bottle of water,” what I mean is “This is this specific bottle of water: it was pulled out of this well, it was bottled at this time, the bottle is made of these components, it’s got this ownership history, it has this environmental profile,” we know everything about that bottle of water, the entire context is carried there, including the legal structures that currently govern this bottle, and if I take that bottle across a border, the legal structure associated with that bottle changes. You could just about imagine this. You kind of have some way of figuring out what an object is, and the object is bound to all of the relevant law, and when the object crosses from one jurisdiction to another the relevant law changes. At that point, we can imagine a world where your software could automatically inspect everything that you happen to be carrying, and make sure that when you cross a border you’re not accidentally taking something somewhere where you shouldn’t take it. You walk into an airport, and your phone starts beeping and says, “You’re carrying nail clippers in your pocket. Could you put those back in the car or throw them away? You can’t bring them in here. — Right, okay.”

That notion is no stranger in the future than Google Maps is now. The idea that you can navigate around the physical landscape using a computer to make all the hard decisions seems totally natural. You get out of an airplane in Bangkok or in Dubai or somewhere, and you just pull your phone out, it tells you where to go and it’s generally pretty accurate. The same thing could be done for the law. And the best thing about this is in the same way that you could go and visit places you’ve never been on Google Maps, you could go and run experiments on the law in places that you’ve never been and in places that you might want to go. I’m an industrial shipper of goods, I want to see whether I could take this particular container of yoghurt and send it to Germany. I take my virtual yoghurt, I register it with all the systems, I ship it to Germany inside of the computer, the computer comes back and says, “Your product labelling is all wrong, you can’t do that,” I correct the product labelling, I try in the simulator again, and this time it goes through.

What I think we’re heading into is a world in which there is very substantial automated access to regulation, so that we can very, very quickly use computers to figure out what particular set of rules the government wants us to play by locally, and then the computers could just figure out all of the hard stuff, and it should set us free from the vast majority of the regulatory burden, in the same way that digital mapping set us free from the vast majority of the navigational burden of going to unfamiliar places — automated compliance assistance.

Now, here’s the hard question at the bottom of this and why this is very relevant to the blockchain. Systems like this will make the automation of law extremely cheap, it’ll make it very, very easy to tell people what to do, because the software in their phone will beep and tell them that they’re going to do something wrong when they do something wrong. “Hey, you can’t do that here! — Oh, right,” and on one hand you never get a parking ticket unexpectedly, and on the other hand maybe you’ve got Big Brother in your pocket in a whole new way.

What we’re going to need as we move into an age when these kinds of technologies are inevitable is a much clearer understanding of what constitutes liberty. We need to think very clearly about what are the universal standards that we think all nation states should comply with, because at the end of the day the governments of the world work for us, they’re constituted on behalf of the people to do what they are told, and that’s why we have systems like democracy. Even in cultures which are not constituted in a democratic way, you still have the fundamental idea that the state is there to serve the people; that idea is universal, it’s almost never breached.

So in this kind of modern context, because the governments are slow, because they’re kind of inept, because they fumble with the future in almost all cases… There are a few examples, like Dubai has a different attitude, Singapore, but for the vast majority of governments the future is a threat. And for us, as people that are leaning hard into the future, we have to figure out what are the fundamental rules that we expect governments to play by as they interface with us in this kind of co-creation of the future. How do we create a situation in which individual rights are used to shape the legislative agendas that will regulate how technologies are managed? How do we use the technologies themselves to document those decisions in such a way that we can transparently navigate around the high-tech environment we’re going into? Because if we don’t get these things right, what we’re going to get is automated legal enforcement which is completely incoherent as you go from jurisdiction to jurisdiction to jurisdiction, and if you yourself are not the person that owns the device that gives you this legal navigation, you’re going to be in the kind of Internet of Things hell, where every time you go outside something starts automatically sending you bills. You’ll be sent fines for things that you never even knew you did, which is the current situation that people have as drivers, but that will go from drivers to being with individuals within 5–10 years.

I think the blockchain is basically a posterchild for individual, self-organised free speech being used to constitute these higher-level political structures, which it’s extremely difficult to find a civil rights case for tearing it down. You can’t really explain why free speech is not something people are allowed to do, and if somebody is clever enough to figure out how to use free speech to create currency, it’s very hard to imagine you would stop that. But it’s a test case, and you know the kind of future that we’re heading into, you know how complicated the technology will get. We have to catch up our rhetoric and our dialogue around fundamental human rights, and global fundamental human rights, very quickly, or we’re going to be left in a very uncomfortable place indeed. Thank you very much.

[applause]

Question: I wanted to ask about the intersection of what you guys talked about. Because you started out talking about global systems, and then you were talking about property. But there’s things that are global systems that are things, like the oceans. So where’s the intersection between what you guys are talking about, as far as global governance of things that are global systems.

Vinay: Part of the reason that we have such a problem protecting the oceans is because we have no effective global governance of the oceans, there’s no constituted body that treats the oceans as its sovereign territory. If we had a kind of single country that was all of the deep ocean, everything’s that’s outside of… All the international waters, if that was treated as if it was a nation state and had a bunch of people who are elected to represent it, you could easily imagine that that would then be able to enforce law in its sovereign territory, and you’d very quickly be able to figure out a lot of the environmental issues regarding the oceans. But because we’ve treated it as basically no mans’ land, it turns out that nobody is really taking care of it; the same thing for the atmosphere. We only really know how to regulate land.

Matthew: My name is Matthew Schutte, I’m with a project called Holochain. One of the ways in which we kind of subsidise our project is by building a little app that bridges between our peer-to-peer apps and the central Web servers, we’ve got this bridging thing. I bring that up, because the question that Rob had posed early on about how will these distributed autonomous organisations interact with this world that is dependent on geography, etc., and I don’t think we’re the only ones who are going to grapple with this, to find some solution to it.

But the fundamental tension there is that these distributed autonomous organisations — blockchain-based solutions, Holochain-based solutions, etc. — are really dealing with enforcement and influence of behaviour through discretion, through people choosing whether to interact with somebody else based on their history, and that’s a different model: it’s a discretion-based enforcement mechanism, and it’s different from what legal systems are based upon, which is a violence-based enforcement mechanism and is dependent on the presence of a body.

So one of the things that we’re dealing with, and I’m sure others will as well, is you actually need, if you want to operate in a particular jurisdiction and make use of the enforcement mechanisms and the guarantees and the banking system, etc. that operates there, you have to show up according to those rules, you have to have some bodies that you put at risk. Then you start to get into how do we set up the relationships between those bodies and this distributed organisation, and it’s very different scenario mechanisms. There’s a whole bunch of design decisions that get in between those, but it really boils down to this tension between two different mechanisms of enforcement.

Vinay: Yeah, yeah. I mean, it’s all jurisdictional arbitrage, isn’t it? You have a single business process that has an element that runs on the blockchain world, an element that runs in the physical world, and different parts of the process are done in different jurisdictions.

Matthew: And at some level this stuff isn’t new, right? Multinational corporations have been doing this “We’ll put a body here, we’ll put a body there…” This game is not a new game, but it’s being played with a different set of decision making processes on the other stuff.

Vinay: Yeah, yeah. You have a saying, the thing about nerds and securities law…

Rob: Oh, yes. I remember seeing this comment somewhere on Twitter or social media somewhere, saying the real purpose of the blockchain and cryptocurrencies and ICOs is to teach nerds how securities law works. And I think this was intended, that these nerds are going to get a rude awakening one day and they’re going to learn how the law really works, it’s going to show them who’s boss. But I kind of think there’s an unintended consequence, which is the outcome of this is a bunch of nerds who know how securities law works, and that sounds pretty dangerous. [laughter]

Question: Just a general question of how blockchain might affect the role of governments and nation states, and maybe the geopolitical consequences of blockchain.

Vinay: Oh, let’s just do it. How many nation states do you think there are?

Question: 60?

Vinay: 15. If you don’t have a nuclear bomb, you’re not a nation state. [laughter] It’s very simple: these things are provinces, they’re not countries. By the way, Germany and Japan and a few other places are considered to have what they refer to screwdriver-ready nuclear weapons: you don’t have any nukes, 15 seconds after the Russians being to make serious noise, they’re like “Look what we’ve found in this factory!” Once you understand that there are only really 15 countries in the world and the rest is provinces, most of international relations becomes very, very easy to understand. You just look at the nuclear arsenal, and you look at the position of the nuclear arsenal relative to the other nuclear arsenal, and the global political game becomes extremely simple. The Americans do design and finance, the Chinese do manufacturing, the Russians do energy, the Europeans just kind of screw around with agriculture and stuff… [laughter] You could tell what each nuclear block does, and then you’ve got the areas that have nuclear actor, like South America and Africa, and these places are generally terrible, because nobody is in charge.

Once you get an accurate model of how this stuff works, you then note that the nuclear state actors are completely outside of the democratic framework. You don’t get to vote on who actually makes the decisions about that stuff, are you crazy? The US National Security Council maintained the policy of containment for 40 years regardless of who was in power, without taking any regard of the democratic institutions at all — the national security guys have figured out how to solve the problem.

Against that background, I think there’s enormous hope for individual liberty, because the real powers inside of government don’t care about social policy; they’re super busy watching the other peers in the big power game, they don’t care about social policy at all. I think if we got real about that, that the real powers in government don’t care about social policy, we could get much clearer about where the demarcation line is between the individual and the state. The state is the thing that maintains the nuclear weapons stockpile, and everything else is just a series of interlocking mayors: they’re responsible for cleaning the streets, they’re responsible for making sure that there are schools open, but other than that they don’t really care what people do. It’s this slipping away of realism in the way that we relate to the state since the invention of the nuclear bomb that I think leads to this enormously futile political thrashing which is the vast majority of our political activity. The real state doesn’t really care, and we should take advantage of that and renegotiate, and stop paying so much attention to the fake state apparatus which is the machinery of democracy. That’s not where the power is, don’t be ridiculous. Does that make sense? We can largely renegotiate, because those guys are completely hollowed out compared to where they used to be. That’s my analysis. Do you have anything to add to that?

Rob: No. [laughter]

Question: As you were saying, all of the issues that have come up recently are just a by-product of the way that our political system has been set up. By establishing something that’s as controversial as social policy being managed by blockchains, how do you envision that governments will change in the future?

Rob: There’s a few different ways that people have tried to approach this. I’ve seen a bunch of different projects that have gone on in the past to create digital democracy, digital engagement with democracy. The UK actually has a particularly good voluntary community, organisations like mySociety, which basically saw that the government wasn’t doing anything to build digital tools to help citizenry engage with the government, and just went out and built them themselves. That kind of work is really good as far as it goes, that’s definitely led to greater accountability for Members of Parliament… But has it really changed the political culture. I don’t think it has. What we’ve seen in the recent US elections is claims that in fact the Internet has in some ways at least shifted where the power is coming from, because we now have these systems of mass influence through digital channels that enable non-state actors or external state actors to influence people’s opinions and to control public opinion in that way.

So I think the first thing we need to figure out is do the people, does the democratic polity have the right tools at its disposal to express what it really wants to our political class? Right now I’d say it’s not clear that we do. We have a system based on voting, which is very much a quantitative system. We measure political success by things like opinion polls, by things like general election results. We were hearing earlier today about systems like Futaki or other proposed alternative government systems that focus much more on whether or not a particular policy is effective, so we separate the question out of what do we want from what’s the most effective way of getting it. That might be a way of re-slicing things so that we get a more realistic set of levers that we can pull on to get what we want. But I think one of the things that we haven’t really done yet, and the blockchain and more open systems for moving around money and moving around value might give us this, is much more fine-grained measurements of how people’s lives are actually going.

Over the last 10 years average wages in the UK have not risen, the average person is poorer than they were 10 years ago. That should be the top item on the political agenda, and nobody ever talks about it, the average person’s life is not getting any better. The government: you had one job, which is make people’s lives better, and you have not managed to do it for 10 years. Where are the alarm bells going off in central government about this fact? They don’t appear to be there.

So I think what we might see out of new tools for coordination is essentially the ability for the people to issue these kind of conditional ultimatums to government, to say, “You need to reduce these things according to these measures, or we will withdraw our support from you and we will move our support over here.” We might get much more fine-grained decision making tools than we currently have, which is every few years we do this voting thing, and then you get these talking head political experts turn up on the news to try and explain what it was that people actually voted for. The classic line is the people have spoken, but nobody knows what it was that they said. The last UK general election produced no overall majority for any particular political party, it’s really not obvious what the British public was trying to say, other than “We’re not happy and we don’t know what to do about it.”

So it might be possible that we get, by better modelling conditionality, by better modelling what it is that people really want, and the difference between values that people would like to see implemented and beliefs about the correct form of policy… If we can separate those things out and represent them in a much more fine-grained way, we might get better democratic tools. That’s a reasonably optimistic take on the possibility for innovation, but I’m going to at least try and be optimistic and suggest that there’s a way forward.

Vinay: I think this is a context thing. We should have updated the machinery of democracy every time we had an opportunity. It should have been updated a little bit with railway, it should have been updated a little bit with telegraph, it should have been updated a little bit with radio, it should have been updated a little bit with television… There was a possibility of just little updates in the democratic machinery, but now we’ve got some multi-hundred-year backlog of technological change just in the democratic machinery. If you don’t change the democratic intention at all and you just update the machinery, I think we would get vastly better societies. But how do you take the risk, how do you do the experiment? Maybe we should foist it on Scotland.

Question: Moving away from voting and back to justice, as you guys started, is there another danger with the Internet generation and as people are interacting at distances well beyond their local communities in ways that previously they would have interacted only with peers in their local communities, that a lot of stuff that used to be enforced in a more social way now needs to be enforced in another way, and our legal institutions are not designed to deal with that? The most obvious crimes nowadays are trolling and piracy, but I think the institutions may not be cheap enough to deal with the scale of those breaches in the social contract. So I think that goes beyond the model that you’re talking about, of automating something which is then enforced by courts; if it’s too expensive to enforce a minor infraction to the courts, but actually the sum total of those minor infractions is major social evil. What do you do with that?

Rob: I’ve got one thought on this. I think we are starting to see that certainly social media is a major force for exerting social pressure on individuals. If you say the wrong thing to the wrong person, it’s not just one person who is going to be annoyed at you; it’s going to be the entire world who can witness that conversation and then pile in, and that could be a good thing or a bad thing, depending on which side of the argument you’re on. Obviously you can see sometimes it’s somebody that you think has said something very inappropriate or obnoxious, and they’re getting their rightful condemnation; other times you might see this is a hate mob being set after an individual who has made a perfectly reasonable statement and is being prevented from speaking out and speaking the truth.

Vinay: Often both at the same time.

Rob: It really does depend on your perspective. Everyone is a liberal when they think their speech is under threat, and everyone is an authoritarian when they think they can crush the other side. It took me a long time to figure that out, but it is unfortunately true.

So, I’d be vary of making enforcement mechanisms that can be triggered too easily, simply because the first… It’s often justified on the basis that we need to protect the weak from the strong, so we’re going to have an authority and that authority is going to have an enforcement mechanism, but it often tends to be the case that the strong then have better access to the enforcement mechanism than the weak do. Twitter has had this whole problem with trying to create a mechanism whereby they can punish people for making threats or for making inappropriate statements, but the power of that system basically goes to whoever can organise the most people to report someone else’s content that isn’t appropriate. So an organised trolling group can very easily go around and report a bunch of other people’s content, and it often ends up being the case that the people that I think in a rational world would be seen as more sinned against than sinners tend to be the ones who are getting shut down, and you can often have to me very inappropriate things that go completely unpunished.

So I would say… My answer to that is kind of terrible, which is wait and see. I don’t think we’ve had long enough to internalise the cultural impact of this stuff. There’s a sort of old thing which I just don’t quite remember, but the age of newsgroups and stuff like this in the late 80s, early 90s, there was this idea of acculturation. People would come in, they’d kind of be assholes to each other, and then they kind of get taught that you don’t do that kind of thing around here, it’s not right. Then in basically September, 1993 the Internet underwent this phase shift as AOL subscriptions became a main thing, and instead of it being every year a new bunch of students get access to the Internet at university and they go through this kind of acculturation process, and by the time the next batch of students come in the first batch have kind of been taught how to behave properly, with AOL began this rolling wave of huge numbers of new users coming onto the Internet, and civil discourse on online discussion forums completely broke down and has never been recovered. It’s referred to as the Eternal September: we’re basically in this period of so many people and so little cultural authority that we can’t use social pressure to teach people how to behave properly, and this is why people are now trying to get Facebook to do it or Twitter to do it as a kind of big stick authoritarian power.

Vinay: Yeah.

Rob: Hopefully, over time the Internet will become a normal part of everyday life, that we develop the social mechanisms that teach people that actually saying that kind of thing is deeply inappropriate and wrong and you shouldn’t do it. But we just haven’t found the right balance between authoritarian power and social pressure that makes that work correctly.

Vinay: There are lots of experiments. The Chinese Sesame Credit system begins to look like real social consequences for bad behaviour online; it just happens to be a little closer to the authoritarian end of that landscape. When the Americans get around to doing it, they’ll do it with AI. You’ll have some really effective Nazi detection algorithm, and then you’ll just basically censor people with AIs, but then the question is always once you’ve got an incredibly cheap robot watchman, the tendency will be to extend the reach more and more and more. Very, very tricky territory, very, very tricky. Automated law enforcement is going to be the big danger in the 21st century.

Question: Thank you so much for your really interesting and clear discussion of the tension between new technologies and existing governance structures, particularly framed by geography. I would like to hear your thoughts on the tension between the upcoming EU GDPR framework, and the public blockchain.

Vinay: Yeah, it’s going to be a car crash. I mean, it’s just what do you do? It’s just two completely different paradigms of understanding of what computers are or how they work. The blockchain does have this property that if you post somebody’s personal information there it’s there for keeps, and GDPR does make that very, very illegal.

Rob: We’ve had that kind of problem before, specifically in relation to newspapers. If a newspaper publishes a story about you that turns out to be incorrect, in certain jurisdictions you have the ability to sue them, but the normal, first option is to ask for a correction to appear in a newspaper. Generally speaking, you pick up any newspaper on any given day, and there will be some small section somewhere marked “corrections” and it will say that in this story, published on this date, where we said that these things happened, they in fact did not happen.

Vinay: “We did not mean to imply that this person ate their own dog.”

Rob: Yes. That’s not a perfect solution, but the idea that you publish something that’s incorrect and then publish a correction after the fact is one way of looking at things, and this is kind of similar to how for instance your bank works, if your bank charges you for something because they say you went overdrawn and in fact you didn’t… They charge you a £10 fee, you call up the bank, they admit the mistake and they credit you with £10 back again to make it okay. They never go back in time and remove the wrong transaction; they make a compensating transaction after the fact to make things okay again. The newspaper correction is a similar thing: they do something wrong, and then they make a compensating action to correct the thing that they did wrong.

So I think there’s a kind of sliding scale of things, where, in my view, an incorrect financial transaction, as long as it’s corrected after the fact, expunged from my credit record or whatever it might be is basically fine. If my name gets published on the sex offenders register, someone publishing another record later saying, “Oh no, it was a different guy with a similar name,” I would be less inclined to believe that that’s an acceptable fix for that problem, because someone is always going to be able to find that, and there’s always going to be that question of “He was on there, then he got removed and we’re not really sure why.”

GDPR is at one end of the spectrum on this. I personally find it really hard to imagine how we’re going to enforce this, and I think it’s going to be really, really interesting to see how it works. It’s possible that we get somewhere with different kinds of encryption technology that enable us to expunge records from blockchains once they’ve been put on there… As a sort of purist software architect, that kind of horrifies me, the idea of going back and rewriting history, it breaks the integrity of the system, but making those kinds of compromises might be necessary. I don’t buy the argument which says it simply can’t be done. It is an engineering job and someone will figure out how to do it. It is a classic example of if you really wanted to rigorously enforce that, rigorously enforce it, you would need to be inspecting data as it leaves the EU to see if it contains anybody’s personal information, you’d need to have a digital border and you’d need to be able to inspect all the traffic that’s going over. That’s clearly incompatible with the way that we actually do things, it’s probably incompatible with privacy…

Vinay: And this is going to keep happening, this kind of head-on crash between perfectly sensible-looking law and a new technology is going to be more and more and more how government works. Over and over again you’re going to see new technologies, they won’t work properly with the old law, you’ll make new law to regulate them, and the law will be incoherent… We’re going through a very, very hard time for lawmakers, because they’re just constantly trying to manage a situation that’s changing faster than they can adapt.

Host: On that note, I think we’re all very grateful to have Vinay and Rob close the day today with such a thought-provoking speech, so if we could just thank them again. [applause]

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