6. GENETIC TAKEOVER | A More Cooperative World

Previous chapter: IMPROVE COOPERATION | Information, Money, Rights, and Contracts

Getting There: Genetic Takeover

Cooperation could be rich, thanks to a suite of new technologies. Prediction markets, space property rights, mixed contracts, assurance contracts, and the other arrangements envisioned so far are just the tip of the iceberg.

It was hard to imagine today’s internet before the first website. Likewise, it is hard to imagine the novel cooperative arrangements ahead. But it's worth trying; after all, in Alan Kay’s words, “the best way to predict the future is to invent it”.¹ We may be as far from this new world as the ARPANET was from the current web, but this shouldn’t stop us from dreaming big. Most of these experiments will fail but the few that succeed may radically lower the costs of cooperation.

Lowering cooperation costs by orders of magnitude is not just a quantitative difference. Whenever we have several orders of magnitude difference in a quantity, it often causes a change in the phenomenon’s character best seen as a qualitative difference. We might usher in a new era of cooperation, analogous to when the 1500s and 1600s commercial revolution in the Mediterranean world resulted in an inflection point toward today’s much richer world of exchange.

Co-evolve, Cooperate, Compete

How might we transition into a more cooperative world from our paper world, in which printed contracts dominate, alongside checks as the second most preferred way to pay bills?

How cities are built, how people self-organize, and what kind of society they organize into is largely based on how the economics of defense and attack evolve with technological progress. Law, for instance, evolved to deal with problems as they arose using the level of technology that was available to people at the time. Today’s legal systems evolve by competing on at least three axes. First, on how well they insulate us from underlying rules of biology, such as violence. Second, on how well they create rules for their own survival, such as capitalism vs. communism. Third, on how well they insulate us from their own dynamics, such as separation of powers to allow for watchers being watched.

The invention of cryptography technology, coupled with worldwide networks, changes the economics of defense and attack of today’s legal systems. This change is greater than going from the bow and arrow to the gun. Once again, society will have to self-organize around this change to reach a new equilibrium. Where will we settle? Even if new technologies of cooperation allow us to build a perfect realization of a neutral framework of rules, we still rely on the legal system to insulate us from the rules of biology. Both systems will co-adapt, each constraining the other without either one emerging as dominant.

Let’s look at two popular positions in cyber debates: Let’s call one perspective legal absolutism. It states that human law, enforced by governments via their monopoly on violence, will remain the dominant point of reference. In its most exaggerated form, this perspective holds that anything legislatable has the upper hand. It amounts to denying reality in the face of technological advance, comparable to trying to legislate that pi equals 3.

Let’s call the other perspective code absolutism. It states that code is law, which will take over the legal system and displace all of human law. This ideal is unrealistic, because the people who write code and the computer hardware that runs it are in government-controlled physical spaces. As long as governments deploy legal systems with strong public support, many computer systems will enforce existing law.

Rather than seeing the crypto or legal absolutism caricatures as attainable goals, they are better regarded as side constraints on the evolution of real systems.

We can borrow the term genetic takeover from biology to describe such an alternative transition. A phenotype, highlighted in yellow, evolves through a new genotypic representation, G2, gradually emerging within an older one, G1. The legacy system provides context and constraints influencing what is viable in the new system that grows within it. The evolving phenotype now has entirely novel qualities, i.e. here it is spiky, rather than smooth.

Let’s imagine a world in which fences were not invented, but property rights were. People keep records of where boundaries lie; some can hire guards to protect their land and use the court system to prosecute boundary crossers. Eventually, someone invents a fence. A debate ensues between the legal absolutists, arguing fences are not legitimate versus the fence absolutists, arguing that property law has become irrelevant. There are obviously many lower-cost solutions to the boundary crossings problem than legal records. A fence may substitute for the law in some of these cases, but not in all cases, because people can climb over and go under fences.

Likewise, the world in which traditional legal systems emerged had no better choice; it did not have the enablers of strong cryptography and the net. Like a fence, a smart contract will substitute for some, but not all, cases in which we currently use legal systems. Nevertheless, since code can be buggy or we sometimes just want a human in the loop, paper law will remain a useful tool. A contract acts by provoking behavior in an enforcement mechanism; in a legal contract this is the legal system, while a smart contract is simply the choice of a different system. Our current legal systems have never been static and will change along with technology, requiring continuous updating regarding our notions of “rule-based systems”.

Change the Rules Without Relying on the Rules

Apart from honoring voluntary Schelling Points as constraints, we don’t necessarily have to rely on existing rules to change them. Often, policy hasn't been concretely articulated into laws. This leaves an intermediate space, which different policymakers have different ways of regulating. Premature filling of such regulatory gray areas could be disastrous for innovation. The U.S. Supreme Court had to overturn early railroad regulations drafted before we had sufficient experience with the railroad system.

The internet could not have emerged without many people operating in the emerging blank spaces of their time. Its rules are built on both political and technological interaction. Many political decisions were embodied in protocols such as those promoted by the IETF, which created a transnational rules system in which most countries let their citizens participate. It was a base system of rules founded on voluntary gray area interactions that, at that time, no one decided to try to suppress.

No rules clearly allowed the internet’s phenomena, but no one interpreted the ambiguity into an enforceable rule violation. It was unclear if doing commercial transactions online was legal. Many assumed it was not, but people just started doing it, regulators refrained from interfering, and it gradually grew into an accepted legal activity. Enough people were interested in seeing certain uses continue so that whatever was needed to continue those uses became technological reality. The internet changes the nature of the emergent rules, such that they increasingly operate by its logic.

Bitcoin nudges the rules further to settle ambiguities in favor of continuing to allow new activities. Cryptocurrencies are built from voluntary interaction that is costly to suppress. At most, a nation can take its citizens out of the game and weaken its own position. We have settled on the intermediate state of regulated on- and off-ramps into cryptocurrency via services like Coinbase. These convert dollars into crypto and vice versa. Yet, once on the other side of the boundary, private currencies let you transact without record-keeping, at least until you off-ramp into fiat currency once more.

Many of the more complex arrangements are not illegal, but are genuinely novel economic phenomena. Blockchain-based prediction markets may fall under gambling laws by one reading of U.S. law. But they are not treated as such by the mainstream economy. You can earn cyber coins betting on the future, withdraw those coins and trade them for fiat money. Know Your Customer (KYC) Anti Money Laundering (AML) efforts mean this directly borders current legal systems. Still, the lack of a central control point means that to shut the process down, one would have to go after people individually via the KYC. This is extremely costly given the ease of converting one cryptocurrency for another.

We are used to negotiation at the boundary between different rule-based systems; international law is an evolving consensus from negotiation at jurisdictional boundaries. We can compare the interaction of the legacy system with the emerging system to interactions among jurisdictions. When jurisdictions have contradictory rules, engaging in multi-jurisdictional transactions requires complex negotiations. Despite the messiness of those negotiations, they often succeed. Transacting across the legacy legal system which is backed by the government's monopoly on violence and a tech-enabled cooperative system, backed by cryptography and strong anonymity, will be equally messy. As these systems encroach on each other’s realms, both systems will try to fight back. As this fight becomes increasingly costly, they may converge on a new legal-technological reality.

There Be Dragons: Risks of Centralization

Can we say anything about the dynamics dictating the trajectory this emerging system? Progress relies on innovators wanting to introduce new cooperative arrangements into the world. Once introduced, the arrangements become much more valuable if not subject to their inventors' whims. As long as a centralized entity provides the arrangement, it does not have the benefits of multipolar checks and balances.

In the early days, computers had tremendous architectural diversity. Each computer had a little operating system and localized interactions through the timesharing system. The ARPAnet connected some of those computers by enabling them to email each other without suppressing their architectural diversity. Each was an independent experiment, but suddenly, via network effects, there was a larger community to cooperate with.

Fast forward to today, our interactions are already centralized in the Internet Protocol (IP) on the web. There aren’t many completely different hypertext experiments that do not play with it. However, the web itself is largely decentralized with protocols allowing many different parties to communicate with each other. They function more like language than governments. One could say that the decentralized nature of the protocol achieves a system that is 99% decentralized and 1% centralized.

Realizing the dangers of a centralized power, the temptation is to regulate. Yet, to make progress toward voluntarism going up levels of abstraction, we need to rely on competition as a discovery procedure for finding out which systems work well. If innovators deliver more value by taking themselves out of the control position, they can find arrangements to make more profit by doing so. If they don’t find a way to deploy their arrangement without their controls, their competitors will.²

Today; we have single web governing bodies but also efforts against them. The domain name system functions as a centralized decision-making point to allocate the namespace’s root names. The Petnames project seeks to enable interconnectivity without a global namespace. The Dweb movement builds a distributed web infrastructure that compensates against concentrated control. If an architecture causes us to make overly centralized decisions, we should consider it a bug and find a better one.

Learning from History: IBM vs. the PC vs. Google

Can we rely on decentralized systems outcompeting centralized ones? A look at computer history provides a mixed picture: In the computer industry's early days, it was common knowledge that IBM's mainframe monopoly would lead to monopolizing the entire computer industry, unless the government broke it up. Antitrust forces were engaged against IBM; IBM fought back. It is possible that antitrust laws had little to do with IBM's loss of the dominant market position and that the personal computer's rise had everything to do with it. Microsoft then outplayed it, and became the monopoly supplier of PC operating systems and most office applications.

For a while, Microsoft was so dominant in software that it seemed it would remain the monopoly forever, unless broken up. Antitrust forces were engaged against Microsoft, and Microsoft fought back. Once again, it is possible that antitrust forces had little to do with Microsoft losing its dominant position as opposed to the rise of the web. Microsoft was a substantial web player, with Internet Explorer being an initial browser wars winner, but that dominance was unstable.

Gradually, today's internet giants emerged and turned email into Gmail, Usenet into reddit, blog replies into Facebook, pingbacks into Twitter, squid into Cloudflare, and gnutella into The Pirate Bay. By having a Gmail account, Google and you engage in a voluntary interaction with each other. Nevertheless, if you violate vague terms of service and they arbitrarily banish you, everything you managed for that identity becomes inaccessible. When restricting or cutting off access, internet giants aren't subject to accountability or due process. Within this digital jurisdiction, when banned you become a non-person, exiled due to unrevealed criteria. This is a very poor form of cooperation.

If we think of these giants as an arrangement through which we cooperate, we don't want those interactions to be placed at risk by a third party. The problem with the giants is not just power centralization, but that their power feels arbitrary. If we don't know why our accounts could be suspended, we live in a state of vague fear, reminiscent of a lawless state of nature. We need rule of law and an understanding of what the rules are so we understand how to cooperate. In an extreme view, our internet giants act like historically oppressive regimes, dominated by their rulers’ unpredictable whims rather than by laws or rights of citizenship.

As in the previous Microsoft case, the centralization wave of today's internet giants has been swiftly accompanied by antitrust efforts. But once again, we should rely on the rise of new innovations to solve the problem. Chatbots might out-compete Google, and the rising tide of specialized (social) media platforms might outcompete Facebook and Twitter. This repeating dynamic provides hope that across future systems, coalitions of non-dominant players will continue to compensate against power centralization of giants.

It took centuries for today’s open societies to outcompete tyrannical ones, just as it similarly took decades for open source software to outcompete proprietary software. We should not expect quick wins of decentralized systems over centralized service providers, even if the decentralized ones bring a confident rule of law. There will be many failed ventures, and it will take time to build up an adequate level of functionality, but we have repeatedly witnessed that long-term winners are those which create a rules framework leading to a predictable basis for cooperative interaction with minimal risk. As long as future levels of the game are defined by a rich taxonomy of rights and composability of contracts, cooperation can evolve.

Chapter Summary

Starting from our paper world, we embark on a co-evolution in which legal and digital jurisdictions develop new modes of cooperation within constraints imposed by the other. In the digital domain, a polycentricity of experiments can compensate for centralization. A voluntary future of ever richer cooperative games awaits, yet there are serious physical and digital threats looming along the way; a topic we'll examine next.

Checkout this seminar to take the first steps into a more cooperative world.

Next up: DEFEND AGAINST PHYSICAL THREATS | Multipolar Active Shields

1. Alan Kay shared these ideas at a 1972 talk at the Xerox Palo Alto Research Center.

2. One centralization risk for a tech-based cooperative system has been well articulated for the computer security foundation that it’s built on. TOR is the onion router that protects against knowing a message sender’s physical location by routing between hops with multiple inputs and outputs. Still, we don’t know if TOR nodes are conspiring. If 90% of the TOR nodes are run by the NSA — and you cannot know whether they are or are not—it's not providing the desired privacy protection. This is the Sybil attack, which involves falsely simulating a highly multipolar world.

Ironically, this danger is a collateral consequence of our ability to cooperate anonymously, one of our greatest protections. Because we do not know who is running the TOR nodes, we do not know if they are conspiring. If TOR nodes are not conspiring, TOR helps provide anonymity, which could create the Sybil danger elsewhere. Even if TOR was corrupted by Sybil, it would not prevent the Sybil danger elsewhere. All the rest of us are still anonymous to each other, even if somebody knows everybody's identity.

To defend against the Sybil attack, we need to build active compensation dynamics into our new cooperative infrastructure. Bitcoin is spread across jurisdictions such that any single corrupting jurisdiction is just taken out of the game. But one government could threaten the lives of their Bitcoin miners to force them to do something corrupt. Proof of location is an economic attestation that a computation is happening at a particular location at a particular time. This can incentivize decentralization by creating rewards for computing in spread out geographic areas. Geographic diversity means jurisdictional diversity, making governmental interference and collusion more costly. Rather than relying on entities to naturally keep each other in check, proof of location incentivizes multipolarity, thus creating compensating dynamics against centralization risks.