State of the World
Blockchain Beyond Bitcoin | Lecture 1
An Introduction
Welcome to the first semester of Blockchain Beyond Bitcoin, an initiative by our new student organization, Rice Blockchain. Blockchains and cryptocurrencies represent new infrastructure for enabling networks (payments, social, communications, sharing, etc.) to better serve the needs of their users by enabling trust and transparency.
Every lecture will be composed of two modules, split between our lecturers Achal and Yorke, each seeking to answer its own essential question. This guiding question exists as both a locus for discussion and a measure of understanding.
What is “trust”?
Blockchains and cryptocurrencies are intricate solutions to elaborate problems brought on by hundreds of years of technological advances, economic development, and social movements.
We begin with a discussion of a world where the public is growing increasingly distrustful of institutions, as many of the individual freedoms offered by the Internet have been made available to over 4 billion people. The world has never before been so connected. This leads us to ask…
Many are unable to spend long periods of time without their phone, which requires them to maintain a trust relationship with their… (1) cell phone manufacturer for building hardware which is consistent with expectations of battery life, signal, GPS, etc., (2) mobile service provider for providing a stable internet connection without interruptions, and (3) email and social media companies for sending timely updates regarding friends and work via apps.
- However, when using a device a user only cares about its instant features, including… (1) communicating socially via text, (2) consuming media on apps like Instagram or Spotify, or (3) navigating surroundings via Google Maps.
Technology is born out of purpose, and along with new utilities come businesses with profit margins and proprietary agendas.
When we purchase or subscribe to new tech, we are entering into an implicit contract with the underlying business. Often times the terms of this contract are unclear or in many cases ignored because of how our mental model of trust has evolved with technology
Brief History Lesson
The past 50 years have shown tremendous growth in the technology sector. Many of us here were born into the internet age, so we don’t know life without it. Our greatest successes as a species have been global achievements: the telegraph, airplane, space flight, internet. This global scale of cooperation is enabled by trust which transcends borders.
Throughout history, the type of things we have relied on to build trust have changed dramatically; a16z crypto’s Ali Yahya identifies three ways we have defined trust in human history:
- (1) We started as nomadic hunter-gatherers, gauging and building trust based on facial expressions, primitive communication, tool sharing: this is social trust.
- (2) As we evolved into civilization, we scaled this trust by introducing governments and companies, where the involved parties are total strangers: this is institutional trust and largely how we operate as a society today.
- (3) Since the creation of the internet, we have discovered a new paradigm for trust: this is programmable trust which is guaranteed by more fundamental and objective factors than social groups or institutions.
Math, physics, and science enable invulnerable trust — the type of trust that explains the plausibility of humans landing a rocket on the moon.
Manifestations of Trust in Modern Society
Ali Yahya also provides two great examples of “trust” within our financial system…
- US Dollar: Government institutions manage supply and demand which give the paper currency value. Printing techniques make bills nearly impossible to reproduce. Social consequences of criminality discourage people from defrauding USD.
- Credit Cards: These systems aren’t uniquely secure → you trust them because of ability to dispute. A team of humans will get you paid back. Trust in financial system is largely based on manual, human-driven recourse. The yearly cost of credit card fraud is $190 billion. This type of (manual) social & institutional trust doesn’t scale effectively.
No Second Thoughts
Many of us largely trust businesses without a second thought. We feel okay with:
- getting into a car with a total stranger for transportation (Uber)
- giving up our payment information over the internet to companies even for one-time purchases (Stripe)
- giving our banks our hard-earned income for safe-keeping (Chase)
- sharing our home address to make deliveries more convenient (Amazon)
- using one account (e.g. Google, Facebook, etc.) provided by a private company for managing all of our personal purchases and web browsing, etc.
Our economy and daily lives are so dependent on these internet-enabled services that we are forced to place trust in the underlying businesses.
Attempts at Programmable Trust through Cybersecurity
Throughout our lives, we have existed in some form or another as online data. Advanced data science, which enables products to be more predictive or custom, encourages companies to collect more data and integrate with more software (often third-party). Large systems like these are highly vulnerable to cyberattacks.
Internet products & businesses try to program trust using cybersecurity. This involves the protection of internet-connected systems, including hardware, software, and data from digital threats, which include:
- Ransomware — attacker locks files on computer, demanding payment to unlock
- Malware — virus or malicious programs
- Social Engineering — tricking users into breaking security procedures
- Phishing — fraudulent emails imitating legitimate sources which can steal sensitive data, such as credit cards or login & password info.
Despite a business’s best efforts to establish good security practices, cybersecurity is really hard due to the constantly evolving nature of security risks.
- It’s expensive: according to Gartner, worldwide, organizations spent $81.6 billion in 2016 on information security.
- It’s opinionated: the traditional approach to cybersecurity has been to focus resources on what’s considered crucial system components, but this might not include personally-identifiable data (PID) or other sensitive information. It’s completely up to the company’s discretion.
Businesses are motivated to protect themselves but not necessarily their customers. This is why regulations are necessary, but also (as we’ll see in a moment) why this institutional approach is riddled with problems.
Institutional Regulations as Cybersecurity Practices
You may have heard of Moore’s Law: the number of transistors per square inch on integrated circuits has doubled every year since the circuit was invented. Computing capabilities have grown exponentially year-over-year due to advances by companies such as Intel, Apple, Qualcomm, Samsung, etc.
- You might not have heard of Martec’s Law: technology changes at an exponential rate, but organizations change at a logarithmic rate. This illustrates why government regulation of technology is problematic.
Net neutrality was recently repealed. How might this affect you? Imagine a scenario where you search for internet prices in your area, and your current provider blocks access to those search results. Similarly, imagine that you try to access a certain website, but your provider decides to charge you extra to let you view the page.
- Service providers lobbied aggressively for the end of net neutrality, manipulating regulations to their benefit, and demonstrating that it is not in the interest of the government to promote fair access to the internet.
- In some cases, the very institutions that are supposed to regulate and protect against violations of user trust are manipulated by vulnerabilities in the technology itself. We’ll dive into examples of this later.
Changing Tides
We are in the midst of a global collapse of trust in institutions. This is not only a domestic trend — similar trends are surfacing globally. Read more about the decline of trust in various areas and markets of the world in the Edelman Trust Barometer Report.
The Internet: Past & Present
Trust is ubiquitous in our day-to-day life, and we now know that it may be misplaced in our relationships with companies who wield significant control over our online identities and data.
We now transition to a discussion of the history of the internet: a story of how centralization of data and access to the Internet has enabled unparalleled user experiences at the cost of online privacy, data ownership, and censorship-resistance, among other internet-relative freedoms.
The “Information Superhighway”
The internet began merely as a system for publishing technical notes for use by physics researchers. As mentioned in a report by the MIT Digital Currency Initiative, as adoption of the Internet increased, scholars (along with others under the influence of left-leaning counterculture movements from the 60’s and 70’s) began to conceive of the internet as a sphere for preserving freedom of expression, advocating for protocols to be designed resistant to interference from malicious or otherwise powerful forces such as the State.
As explained in a podcast with Chris Dixon of a16z and Brian McCullough, the author of How the Internet Happened, the internet could have gone one of two ways. The “information superhighway” could have made it’s way into homes in one of two ways:
- The so-called “interactive TV”, a vision pushed by companies including Microsoft, Time Warner, Comcast, etc. — the pitch was to put a set top box alongside your TV, delivering a top-down experience providing movies on-demand, print content from magazines, and a virtual shopping mall. As selling to mainstream audiences with carefully controlled user experiences had resulted in their rapid growth, Microsoft and its media partners sought to approach the Internet in a similar manner.
- A decentralized approach, where users are granted a large deal of control over the resources they uploaded and the content they consumed, but with a comparatively shoddy user experience in [Mosaic] (one of the original web browsers, which eventually became Netscape).
An “interactive TV” wouldn’t allow you to create your own television program, but in contrast, the web allowed users to create and consume any type of content that 1) browsers were capable of displaying, and 2) programmers were capable of writing.
A Note on “Decentralization”
As an aside, what does it mean for software to be “decentralized” or “centralized”? The co-founder of decentralized computing platform Ethereum, Russian programmer Vitalik Buterin, states that decentralization can be described on three axes:
- Architectural (de)centralization: how many physical computers is a system composed of? How many of those computers must break down at once for the system to fail?
- Political (de)centralization: how many individuals or organizations control the computers the system is composed of?
- Logical (de)centralization: if the system were cut in half, would both halves be able to operate independently of one another?
Web 1.0
Ultimately, the community chose to build on top of a set of open internet protocols (such as TCP/IP for communication, HTTP for rendering rich media, SMTP for mail, etc.) which allowed access and publish permissions for anyone with a web browser. This is commonly referred to as “Web 1.0”.
- This was revolutionary — the open standards of the Internet allowed anyone, anywhere to implement & build on top of these technologies.
- Hundreds of thousands of companies had to agree to use the same protocols to communicate with one another despite divergent incentives and interests — this led to a neutral and bottom-up approach to designing protocols.
- Everything connected to the internet is built directly on top of open-source code. For something to be open-source meant that no one could take unilateral control.
In reality, however, Web 1.0 was quite disorganized and hard to traverse. During this time, companies like Google, Microsoft, and AOL created curated centralized platforms around which the web consolidated, shifting the control of the publishing and discovery of content away from users and into the hands of these monopolies.
Web 2.0
As the internet matured into the mid 2000’s, Chris Dixon cites that Google, Apple, Facebook, and Amazon built proprietary protocols which allowed them to quickly outperform the capabilities of open & decentralized protocols, accelerated by the adoption of smartphones as the most popular Internet browsing device — this was the introduction of Web 2.0.
Users migrated toward the more full-featured, centralized services & applications. Browsing the open internet became synonymous with using the services and apps offered by larger corporations (e.g. Google Search or Facebook’s News Feed) in exchange for valuable data about the user’s browsing habits, history, etc.
Nothing Comes for Free
- While billions gained access to the internet through free & powerful products like Facebook and Google, they did so in a way that:
- Compromised the rights to many fundamental Internet freedoms (freedom of expression due to top-down censorship & moderation, ownership of data and identity due to advertisements & tracking, etc.).
- Allowing companies to control the rules of the game. This made it more difficult for startups and creators to grow their reach or build a product without worrying about shifty rules, stolen profits, etc. There are many examples in recent history of tech giants monopolizing the developers and publishers who built atop their platforms…
- Facebook suddenly ended their special relationship with Zynga, the publicly-traded company which made Farmville and many other Facebook games, tanking the stock price to fractions of its all-time high.
- Google demoted and later unpublished links to a startup’s highly performant vertical search platform, cutting them off from the majority of their web traffic and crippling their business strategy in the future — “if you aren’t on Google, you basically don’t exist.”
- Apple has exhibited anti-competitive behavior with a number of apps and tools built on top of iOS, releasing updates and services which have shuttered companies in the process.
Not-So-Symbiotic Relationships
Over time, innovation has declined, and the internet ecosystem has become more rigid as a result. Tech giants such as Google, Facebook, and Apple have become gatekeepers, controlling key facets of a user’s browsing journey including…
- How (and whether) people can join and leave their platforms.
- How third-party developers manage relationships with their users.
- Publishing, distributing, and promoting content to users.
- The ownership of personal data such as chat logs, browsing history, etc.
This leads us to ask…
- Banking: Wells Fargo. July 1st, 2008: MicroBilt (an online consumer credit bureau) notifies Wells Fargo that one of their access codes was used to obtain data on over 7,000 customers. On Sept. 8, 2016, Wells Fargo admitted that it had created millions of accounts in the names of its clients without their permission.
- Social Media: Twitter & Facebook during Elections. During the 2016 presidential campaign, an estimated 3,300 Russian-backed advertisements appeared on Facebook. Facebook’s chief security officer, Alex Stamos, wrote in a blog post on Sept. 6 that the ads cost $100,000, connected to about 470 “inauthentic” Facebook pages and accounts. President-elect Donald Trump’s digital director Brad Parscale says Facebook helped to generate the bulk of the campaign’s $250 million in online fundraising.
- Social Security: Equifax. On September 7, 2017, Equifax discloses that 147.7 million Americans’ personal information was stolen from their servers. Data includes customer names, Social Security numbers, birthdates, and addresses, affecting more than half of the US population. The former Equifax CIO was charged with insider trading by the SEC after he made millions selling shares before the public knew about the attack.
Personal data exposure and institutional financial fragility have resulted in a movement for the re-decentralization of the internet as a way to create and transfer value.
References
Discussion Questions
- What kinds of implicit trust relationships do you hold that you never previously considered?
- How have you been subject to “gatekeeper” control of the internet?
- Where does your personal data exist centrally?
- How do your internet browsing habits dictate the trust relationships you hold? What steps do you take to protect yourself and data online? What is a reasonable trade-off between digital security and convenience?
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