Quinn DuPont is an interdisciplinary scholar and innovation consultant. His research focuses on the history, meaning, use, and socio-technical development of cryptography. He is currently an Adjunct Professor at the UBC School of Information and was previously an Assistant Professor in the School of Business at University College Dublin. He has a PhD in Information Science from University of Toronto and was a Postdoctoral Research Associate at University of Washington.
Since 2014, he has actively researched cryptocurrencies, blockchains, and Web3, help set US national public policy, advised startups and next-gen organizations (DAOs), and through his consultancy work helped traditional organizations understand the new economy. He is the author of Cryptocurrencies and Blockchains (Polity) (and other academic publications), Associate Editor Frontiers in Blockchains, Education Chair IEEE Blockchain Initiative and IEEE TEMS, Research Fellow at University College London’s Center for Blockchain Technologies, and Affiliate of The Future of Money Research Collaborative. Previously, he held visiting research positions at Leuphana University and the University of Victoria and was a Senior Information Specialist at IBM.
In this episode, we speak to Quinn DuPont, a self-described technology historian and researcher of everything crypto. He is fascinated by what humans do and how technology affects what humans do. Quinn focuses his research on the history, meaning, use, and socio-technical development of cryptography. He has published many academic papers on the subject, including the book Cryptocurrencies and Blockchains, and is currently an adjunct professor at the UBC School of Information. He approaches investigating the world of crypto as a scientist making him neither a skeptic nor a proponent of the technology, offering listeners an objective perspective. In this episode, we unpack the basics of crypto and take a deep dive into the theoretical and technological concepts. We learn about the ideological foundations of crypto, how crypto technology will impact governance, what the definition of money is, the potential of the technology to society, and the social components associated with cryptocurrencies. We also find out the real value of crypto and learn about the ethical challenges Quinn faces as a researcher in the space.
Key Points From This Episode:
The ideological worldview that resulted in cryptocurrencies. [0:05:16]
Quinn explains his standard criticism of the critics. [0:10:51]
Why the ideological origins of crypto are irrelevant today. [0:13:43]
The nuance surrounding the immutability of crypto technology is discussed. [0:15:50]
What the benefits of the cryptosystem are for governance. [0:17:04]
How well he thinks crypto fits within a democratic society. [0:19:48]
Reasons why political ideology needs to be taken into account. [0:25:41]
Quinn tells us his definition of money. [0:28:19]
What impact decentralized censorship-resistant monies have on society. [0:31:18]
How valuable a cryptocurrency in the real world is. [0:38:52]
Why paying your taxes gives money value. [0:40:48]
Whether Quinn considers Bitcoin to be money. [0:44:25]
He walks us through the benefits of DeFi to societies. [0:46:09]
We learn what the downsides of DeFi to societies are. [0:49:30]
Learn if blockchain solves any of the problems that exist in traditional finance. [0:50:22]
The advantages of bitcoin-based technology for business logistics. [0:57:57]
Why some blockchain business technology is marketing hype. [01:03:00]
How a DAO is different from a traditional corporation. [01:04:32]
Find out what would happen if we turned our podcast into a DAO. [01:10:24]
Whether smart contracts replicate the role of traditional contractual relations. [01:15:35]
Quinn outlines the ethical challenges to researching cryptocurrencies and blockchain. [01:19:51]
Hear what he thinks the greatest disappointments and successes of crypto are. [01:27:32]
We end the show by finding out if Quinn considers crypto and blockchain to be a technological revolution. [01:31:32]
Read the Transcript:
Quinn to start off, how do you describe the ideological worldview that resulted in cryptocurrencies?
This is a tough one. And I think the best way to answer this question is to just take a short trip on a little bit of history and just to be a bit more specific. Because we often talk about crypto and cryptocurrencies and blockchains as this homogenous mass. But what's really interesting is once you've taken a decade's worth of experience of researching, the subject is, you realize that, first of all, it's a highly dynamic subject. So answering that question today versus five years ago, versus 10 years ago, or more, you end up with a very, very different answer. So the standard story of the ideology that surrounded Bitcoin merging 2008, 2009, of course, is this Cypherpunk story that we've heard before. This idea that... And this is so people like Finn Brenton's book Excavates That Digital Cash is the name of the book. Excavates, that topic very interestingly, it goes and it talks about for instance, extropians. These are a very weird group of people who believe in the extermination of entropy and they think about living forever and all these kinds of things. And that's there, and that's really exciting and interesting, and that was swirling around the moment of the emergence of Bitcoin. And many people make a lot of to do about the fact that the mailing list that Bitcoin emerged out of, this cryptography mailing list, was a hotbed of this kind of political activity.
I don't discount this and I don't discount that most of the people driven to it athenian and all these early folks, they were basically libertarians. Many of them were extropians. They came from the right wing, political economic ideology. This kind of stuff that when David Columbia's book very controversially, The Stringent Critic, he said this is like right wing ideology. And many people now today look back at it, they say you're so wrong about that. And I actually think he was basically right for the moment. So I think that's the early story. But the one caveat I'll put on that, is that there's so much imagination around Satoshi Nakamoto. We don't really know much about this individual. What we can confidently say, is that if we put our imaginations aside, and if we just focus on that seminal moment, Satoshi Nakamoto doesn't appear to harbor any Cypherpunk ideologies. I've read basically everything that can be found out on him, and I don't see that anywhere. He's never mentioned it, assuming it's a he. I'm just using generic terms here. And so in fact, actually I think it's much more likely the ideology is a response to the 2008 global economic crisis. Remember that? Now of course it seems almost quaint because we have Russia's bombing people, and we've got a coronavirus, and all this. In 2008 though, I was working at IBM and enterprise risk management part of IBM at the time. And a lot of our clients were these banks and they were defaulting and stuff. So I remember this very viscerally, this 2008 moment was a really important deal. And that's what the Genesis block says.
So as I said, as a scientist, I'm not interested in speculating about some imagination that this individual may have had, or the people who quite quickly jumped on in their imaginations or their political beliefs. I actually just look at it and say, look, it's really obvious what the politics are. It's 2008, 2009 global economic crisis. And I think if you fast forward that and take that out, then you can start to realize that there are these multiple trajectories. And so that's the early moment, and then of course you have these different waves of social activity that get associated with cryptocurrencies. So we have this emergent social order that comes out of Ethereum, which now I think is often associated with Web 3. And so some of my more recent research actually has looked at Web 3 and the ideology is completely different. In fact, actually I would say the ideology of Web 3 is, what the fancy term is, schismogenesis. It's schismogenetic, so it emerges out of its inverse relationship to Bitcoin. In other words, it's a refusal of the hodling, of the greed, of the degen of Bitcoin. I would say Web 3 emerges out of that. So that's just to say, what is the ideology? Well, it depends on where you look. And I think at this point, it's fair to say the cryptocurrencies, the social formation around it is broad enough that you can find anything you want in terms of that kind of ideology. To the point where when I model sociologically, when I model how orders formed in these complex social arrangements, I actually think of them in terms of social movement theory.
So in the same way social movements, everything from the Arab Spring, to the 1% protests, to you name it, Black Lives Matter, the way that these social movements form, the way they cohere, the way they create social consensus, where people get their collective identities, these are all the kinds of questions I think, that are actually the most germane ones when talking about the ideology of cryptocurrency. So it's a long way of saying I don't buy the Cypherpunk story, I think it's actually limiting. I think it's an early part of the story, an interesting part of the story, but today, it's useless to talk about these political origins, unless you're a Bitcoin Maximalist. And if you're Bitcoin Maximalist, I got no truck with you. I just think it's hilarious.
Wow. That expanded my perspective, because since we started studying this, I've definitely been influenced by David Columbia's book, which I've read probably twice in full. Huh.
So here's like my standard criticism of the critics. They typically pick up on one or all three of these following criticisms. One is technology, two is regulation, and then third is culture. Technology, well, software is eating the world. I think that's a truism and technology changes. So if you don't like how something is right now, just wait for a software upgrade. That's how problems get fixed. So when people like David Gerard criticizes some platform because it can't scale, well that's just an engineering problem. They got to fix that. If it's not fixed today, it's be fixed tomorrow. So it's very shortsighted. So technology criticisms, I don't give them any weight. They get solved in a version update. Regulation, as we know, changes constantly and it's ever changing. The number of times Bitcoin has been banned or whatever globally, this country, that country. I mean, when you have 10 years of perspective on this, I don't even blink when I hear some new huge regulatory change, because it's going to change again. And the more substantial point is, if you look at the kind of political economy here, nation states, they bend to the technology. They don't get to run the show. Nation states, the neoliberal nation state has very limited tools to be able to deal with these kinds of technical economic disruptions.
And so ever since the beginning, the nation state, the only opportunity they've had is to create regulatory mechanisms. In other words, they've been slowly opening up. And that's the natural progression. There's no other way to conceive of it, because this is the way technology works. You don't get to put that back in the bottle. And so the nation state just has to constantly bend and bend and bend, and the regulatory apparatus opens up more and more and more. And they'll try to reassert nation state control at certain edges, and so on, there's that whole story. And we know very well about what that means. And there is definitely a power to the nation state. I mean, they put people in jail and they have monopoly violence. But nonetheless that changes. And then the third one's culture. And as I just mentioned, culture has been constantly changing. You are very out of touch, in my opinion, if you still think that there's a whole whack of Cypherpunks running around talking about Bitcoin. That's less than a percent of a percent or something like that. It's a miniscule part of the broader phenomena. And so culture changes. And a lot of these are subcultural elements that emerge organically from underneath. And so if that's where your three criticisms stand well, they're criticisms for the day, for the moment, and all three of them are going to disappear or change or radically transform in the future. So if you don't like the culture today, well just wait a year, it'll be different. There'll be some new thing emerging. And maybe it'll be worse, maybe it'll be better, but either way, that's like what we have to kind of address.
So the ideological origins that I've been thinking so much about for the last little while are basically irrelevant as it stands today.
It's not that they're irrelevant. I'd actually say they're more performative than they are a reflection. So it's not that you've got a bunch of people who come to the social phenomena. Like they come to crypto, they get excited about it. They don't come with a collective identity of like whatever it might be. I'm a Cypherpunk, I have like loosely libertarian views, I'm pro market, whatever imagination we might have with this, they don't necessarily come to the social context like that. It's rather that their social context is performative to them. So you get your collective identity by joining. I think that's a much more useful way of framing that dialectic. And so when you think about it that way, it's taken a little bit focus off that individual belief system. Because I think that's probably limiting. And it also is very limiting to also understand how we get collective actions. Because how do we get these structural activities that emerge out of individuals? And obviously there's that whole complex, there's that crypto economic token engineering thing that creates some of that, and these are complex systems, they have emergent behaviors, but there's a social layer in with that. And so I think the ideology is as much performative as is anything else. Performative either in a sense of you buy into it, so you become a pro market libertarian, or like I said, in the sense of Web 3, you actually stand up in refusal. So you define yourself genetically in refusal of these other ideologies that you see. And so I think they definitely have an important role to play. It's just not the role we expect them to play.
Interesting. Yeah. One of the things that I've heard from some of our audience members, as we've been trying to cover this topic is that when people talk about cryptocurrencies not being immutable and that code isn't actually law, as a criticism, that counter argument that I've heard is that they're talking about layer one and layer two, which are like the actual technologies, whereas layer zero is something that's widely recognized within crypto communities as where the influence actually comes from for how the network is designed. So criticizing layer one as not being immutable, is irrelevant because people that are actually in the community consider layer zero to be where those decisions are made.
I mean, immutability is a tricky one. Because I think immutability is also one of those concepts that we're still exploring. Supposedly we have the technology for immutability, but then we very quickly, this is what the 2016 Dow taught us, we very quickly realize that these are social systems. They're not static. They're dynamic and they change, and then what we realized is they need... At least if we want to do responsibly they need governance. And that opens up that whole story around associated with decentralized autonomous organizations, and these kinds of activities, and have consensus forms. It's really about change management strategy and leadership within the crypto space. That often gets configured as a form of governance. In part, because of these democratic origins. So oftentimes there's this belief that, well, be it voting or some other kinds of mechanism, we can help steer the direction of these platforms. So that's the move that often gets made, is this is where we see the emergence of governance.
If we revert back to governance and if we need humans for governance, and maybe I'm getting ahead of the questions we have, I don't know. But this is where my head's at. If we arrive back at needing governance from humans, what value are we getting from the software from the crypto system?
I think that's a legitimate question. Critics will often point to this. This is a very specific space where, why aren't we just using conventional tooling or whatever, traditional databases and all these kinds of things. And I think that's a legit question. It's a little bit complicated because I think then you now have to start to talk about things for instance, the role of trust, and how a trust gets mitigated by for instance, smart contracts. And that's a very complicated story. Many books have been written about it. I have lots of thoughts to say about that, but maybe that's a little bit more in depth. So the technology itself, I think actually offers all kinds of interesting opportunities that we're still barely starting to understand. Just imagine token economics and token engineering, you can do all sorts of interesting microeconomic activities that have profound changes for profound social changes. I like to comment on an example I've been really impressed with Gitcoin lately. So Gitcoin is this website that it's a kind of a fundraising platform for what they call public goods. So it's a form of philanthropy within Web 3 and they employ this mechanism called quadratic funding or quadratic voting. Many of your listeners are surely familiar with this through populised people like Vitalik Buterin and so on and so forth.
The mechanism itself is this idea that, to put it socially or democratically, it's a mechanism that amplifies many small voices while reducing shouting, while reducing the big singular voices or whatever. And it does this through the way it manages the tokens and it uses this quadratic formula and blah, blah, blah. But for me, the more interesting part is that changes the sociality of it. That puts people in new relationships. And even just going through, so we went through a Gitcoin grant funding round recently, for a little collected edition working on with some colleagues. And it's a very fascinating experience to see this $1 donation come in, and all of a sudden we're getting these like $80 matching, that's how the mechanism works. And that experience of realizing this, it does change your relationship. All of a sudden our project takes on a different character, more responsible in some ways to new individuals, and so on and so forth. So I think roughly speaking, I think there's like a lot of technologies, micro and macro, that can help influence those social activities. So we're learning, to sum it all up. We're learning how to do that.
I have a big picture question for you. How well does crypto fit in within a democratic society?
This is an area that I think crypto is just starting to get to. As we've moved beyond some of the early Bitcoin concerns and worries, once we've got scaling under control, once we've got some of those technical apparatus under control, we're now starting to see, there are these really interesting democratic opportunities. And my own areas of focus is trying to understand non-state solutions to scarce resource problems, to social situations that need consensus and trust and other emergent sorts of behaviors. So that process can be described many different ways. And one way that many people have described these non-state solutions is to look at people like Eleanor Ostrom's Nobel Prize winning work. And she talks about this thing called polycentric governance. Roughly speaking polycentric governance just means it's, turns out that there's non-state and non-market solutions to these collective action problems. And the answer of poly center governance is roughly that there's just hard fought consensus mechanisms that build trust and they build in all these epiphenomenal social underpinnings. And that's that polycentric governance process.
And what Ostrom demonstrated in the material world, situations like over fishing, or cutting down too many trees, and these sorts of problems. With a couple of lessons pulled from polycentric governance, we can solve these problems. And so I think today, I think everybody realizes that there's a power vacuum globally. For instance, things like climate change. I think most people would recognize that nation state governments lack the will or the ability to do a whole lot about these really important collective action problems like climate change. If you look at the literature, they'll tell you that roughly speaking, this emerges out of a global governance vacuum in about the 1970s. That's kind of where that moment happens, where basically corporations start to take over a lot of the roles. There's a liberal downloading of responsibilities from the nation state government into corporations. And now we have this power vacuum. And so we see the emergence of things like corporate social responsibility emerging to kind of try to help fill that vacuum. And that's all fine and well. These are often the market response to the global governance vacuum emerging out of nation states. So I think what crypto offers is a whole bunch of non-state opportunities. And this could be something like a decentralized autonomous organization, which again, as I said is like a social movement, just a bunch of people kind of coming together, getting a collective identity and then taking action. To a broad range of, could be just standard types of voting, you could do all sorts of interesting things with voting, to of course, using the tokens themselves, and the value that they have to try to engineer in certain micro or macroeconomic behaviors.
So I think that's where the opportunity of democracy emerges. It's not democracy like, we all need to go vote for a representative party, I'm going to be Democrat or Republican or whatever. If I had an ideology, I would say that's a fairly outdated, broken model. Representative politics, I could go on and on about the deeper traditions of representative politics that emerge out of people like Russo, they are very problematic. This is hundreds of years ago. Why are we still using this? We have computers, so why are we using this crazy idea of every couple years you go and you vote for some person who is not representing you in any meaningful way. So I say forget about that. And this is what crypto does. It takes little parts, some of the big parts of society, and it re fashions them in their own image. And so crypto did this initially with money. It re imagined money in its own image. And it's doing this with things like voting, democracy. We see it's doing it with law, transforming law in different ways, so on and so forth. Very interesting about crypto we've seen over the last 10 years, it takes parts of society that we have a traditional understanding of, and it infects it and it changes it. And it adds these-
And it infects it, and it changes it, and it adds these... The downside is if you really believe strongly in big institutions and strong nation states, that feels like a threat. I'm not Black Bloc where I think we should go destroy these institutions and these governments, but rather I think that there's an increasingly large opportunity for non-state solutions. In particular, dealing with increasingly large problems, collective action problems. Inequality, various forms of justice, environmental justice of some sort, climate change, on, and on, and on. The only one wrinkle I'll add is that a lot of the theorization coming out of people like Elinor Ostrom and these kinds of... When we start to think about these problem sets, we sort of lazily drop back into thinking about material context, like overfishing. Well, as it turns out in like a Web3, in a virtual environment, we don't have material constraints. In fact, we build material constraints. That's what we're doing with things like NFTs, we're building property regimes. But we get to build them how we want and that's that opportunity. You get to build a new property regimes, the new economic layer to support the sort of socially democratic mechanism above. But that democratic mechanism, importantly, doesn't need to be representative. You're not just sort of giving your political will to someone to execute, but you actually get to take some sort of, at least notionally, directly involved stake in that "Democratic process."
Man. Do we end up back at political ideology, though? Where it's like John Locke versus Thomas Hobbes representation, how much power should the state have and all that kind of stuff? Does it boil down to that?
I think at some sort of political level, if you are a regulator, if you're a part of the nation state, I think that's the logic that you necessarily end up getting trapped into. But I don't think it needs to be that way, and I think that's what's interesting about crypto is that we can program in, I mean, I would even go so far to say we can program in anti-power or ways in which you can prevent for instance, poles of power emerging, which then turn into hierarchies, which then turn into basically violence. Be it labor violence, or other kinds of "This is the long history of people not getting to have a say in their own reality." Russo says you cannot represent the general will, you cannot give it away. There's a paradox there about the will. My will, I cannot give it to another person. It's what I am, it's who I am is how I... You know what I mean? So there's always that fundamental paradox, that Russonian move. The problem with that is that leads into these state hierarchical institutions that also have a really checkered, nasty past of everything from slavery, inequality to you name it. So I think if we can take control of the sort of social economic, technical foundation that lies underneath that and we can program in ways that actually can prevent the formation of many of the things that we find so problematic. This all presupposes just to be really, really clear is a kind of... It presupposes that there aren't material constraints that people are under. So if you're barely able to eat enough food, token engineering, is it just doesn't matter to you.
So I think it's just really, really important to stress that fact, that this is relevant to people who are "In crypto" or "In Web3," many of which are already actually rich. Many of these people have already made their money. Actually, I think there's something interesting to be said there that now they're looking for new opportunities, they're looking for the breakdown of labor and leisure. So that's why people have joined Dows, I think often. It's as much about belonging and community and the social dimensions as it is that investment or that desire to govern or whatever other kind of reasons they might join these advanced, kinds of NextGen organizations. I think there's a whole complex reason why that is. It certainly doesn't boil down to just those purely economic ones.
You mentioned crypto reimagining money, which of course has been very important to the story of crypto. How do you define money?
Yeah. Money is a tough one to define. My own personal feelings on what is money it's a little bit like how they talk about the legal definition for porn. It's like, when you see it kind of thing. Like not Erotica or whatever, it's when it's porn kind of thing. So I actually think it's just how it gets used. I think money is probably epiphenomenal. I think it emerges out of social relations. So it's not like money comes first and then you get social relations. There's a couple stories about money that probably just need to be discounted. The first is this idea that money emerges out of this... What's called? The double coincidence of wants, comes out of people like Manor who talk about, "So you've got some bread and I've got some tomatoes and how are we going to exchange because nobody wants bread or tomatoes. So all the almost obvious thing to do is to go to this third thing, this completely fungible thing we call money and we swap money." That's sort of... And that's the idea how money emerges. Because we've got this double coincidence of wants and it's this third thing that helps bind that. It turns out, anthropologically, there's no evidence for this. And there's a whole host of challenges, this doesn't make a whole lot of sense if you sort of presuppose as things emerging before the social relations that are necessary to get that going.
So that's not very good. The other one is what I call the standard tripartite model of money, which it takes up things like, "Okay, is money a unit of account or medium of exchange?" Or whatever kind of nice little frame you might have. That's perfectly... These are... Is it medium of exchange? Is money a medium of exchange? Well, I don't know. I mean, fine, I guess that's an okay definition, but it doesn't get us very far. We can't really meaningfully say much about how it works. Certainly, if we take that approach, and this is the standard modeling seen economics textbooks. But the problem is, for instance, if you can't say anything about capitalism, that model of money has no power in it. It's like, "Where's inequality come from this?" "What? Is supply and demand getting out of whack or something?" I mean that's horse shit. That's not at all how money works. And if you have anything that resembles the sensitive understanding of it, you'll appreciate that right away. So that's all to say that money has been theorized for hundreds of years, by the intellectual giants of the Western tradition, everyone from Carl Marx to you name it Smith and so on and so forth, all the way down. I tend to follow maybe views that emerge out of sociological, anthropological literature, asking questions of like... So people like Georg Simmel will say, "Okay, money is a claim on society." So maybe it's a sort of people like Graver say, "Okay, that's originally money was debt." That's a decent... That's actually something we can start to talk about. We can say, "Okay, so..." Because power is right there. "So you're in debt to me." Oh, now we have money get going. We have the power relations going as well, we have social relations going all at the same time. So I think that's a much more healthy understanding of what money is. It's less sort of formalistic and it doesn't mesh really nicely with supply and demand curves and so on, so forth. But I think ultimately that is what money is.
So what impact do you think decentralized, censorship resistant monies have on society?
I think the transformation of money that we've seen over the last decade actually has been fairly profound. There's two parts there that I'd pick up on that were substantial. One is the potential anonymous nature of crypto, which are pseudo-anonymous, which gives it flavorings of cash. That's a very complicated story there because the security claims, as it turns out, haven't necessarily matched up the reality, hasn't matched the hope or whatever the dream. So there's the anonymous part of it and the privacy preserving part of it and even the decentralized part of it. Then the other sort of, I think, really important feature of that is the programmability. I've got a colleague, Corey Klaskin, at Parsons in New York who describes money in terms of programmable money, as he says, "We're now dealing with programmable money." And this is roughly just a influence of smart contracts and these kinds of things. But when you start to think about money as being a programmable data layer, a kind of form of data money, I do think you now start to see a lot of changes emerging. This gets us into things like DeFi and so on and so forth.
Based on how you describe money, which I agree is very complex. How well do you think the... Well, the original narrative, but I don't know if the Bitcoin narrative is still that narrative, because you touched on that earlier. Maybe just real quick, has that...?
The gold bugs and all that kind of stuff?
Yeah.
Yeah. Those people are still out there. They didn't go anywhere. So it's still part of the narrative, but gold bugs and this desire of early Bitcoiners to have an economic system that is based on something that isn't the "Authority" of the state to the traditional definition for sort kind of a fiat money. Is this idea that "It's funny money," people will say the kind of gold bugs will say, "It's funny money." It's just because the state wants to make it up. And that it has no intrinsic value unlike something like gold. Gold has, it's intrinsically valuable, there's only X amount of it on the globe. We can use it for all sorts of things. The problem with that sort of as a conceptual theory is it also is not very helpful because first of all, Gold's not... I mean it's a bit crazy. Nobody actually thinks gold is very useful. I mean I'd much rather have a lithium based... Everyone talking scarcity or something. Gold is... Thousand years ago it was super, super special. We could make pots of pans out of it or whatever.
So I don't think that's a terribly helpful description either. The idea that what Bitcoin people like to say is like, "To substitute." "Okay, so we need a hard foundation for money." And they say, "Well, that's math." And people like Julian Assange said, "The universe believes in cryptography." There's this notion that it's this sort of... This mathematical foundation that is as solid as any gold or what have you. But in a weird way, it's the exact opposite has no material basis. It just seems to be this thing that for inexplicable reasons works everywhere across the whole universe. So there's that kind of substitution there. I think there's something sort of slightly right about that. Cryptography, which is actually my main area of study really is cryptography, not so much cryptocurrencies, it is something that is very important to society has a 3000 year history and is a very... This is not a technology to sort of discount. But that's a little too easy because the way we put it all together is exactly how it matters. You don't just go out there and find the elliptical curve algorithm sitting, ready to be discovered. It's not sort of... We invent it, we make it what we want it to be. So unlike gold, actually, this is the opportunity to shape the economic relations to however we want.
We're not constrained by a property regime based in some intrinsic value. And this gets me all the way to, if you sort of fast forward this, I actually think the economics of cryptocurrencies is much better modeled, not on scarcity, which is a very traditional finance model. I would even go so far as to say that there's these scarcity generating institutions, banks, and governments, and most businesses. Rather with crypto, I would say it's actually an economic's surplus because precisely is magic internet money. If you don't like your economic relations, just make new ones. That's the beauty of it. People are critical of Bitcoin, they're like, "Oh, it's such a scam." Or whatever. It's like, "If you don't like Bitcoin, you think it's a scam, go make a non scam Bitcoin. You can do that. There's nothing stopping you." Which is to say, you're not really restrained by constraint and scarcity it's actually in economic's surplus.
I think this actually goes really broadly and this is movement. This ties into things like open source software production and so on and so forth. It definitely problematizes Marx's conventional theory of labor and labor theory of surplus value. So I think you start to see the breakdown happening socially, economically and work starts to transform when we think of the idea that we can just have more and more and more and more, but again, that's not the logic of more that led us to rapid climate change. It's not pulling more oil out of the earth or something like this. It's virtual more, that's the whole point. There's no constraints. You can just make the mathematics how you want them to work. It doesn't need to be rooted in, "There are only this many Bitcoins and there will only ever be this many Bitcoins and here's the issue rate." And so and so forth, and that.
Whatever in 20 years or 50 years or whatever, there's going to be an exact cap and all this kind of stuff. You can do that if you want, if that's your sort of ideological origins, you're like, "We need to think about creating scarcity so that we have correct supply and demand curves." And all these kinds of things. Or you can say, "To hell with all that, the supply and demand curves and efficient hypotheses of markets and all that stuff, I think is largely hooey when it comes to cryptocurrencies and the econometric data actually supports this. People are trying these stupid GARCH metrics and all these kinds of things that like to try to understand crypto markets. And no, I mean obviously if anyone could figure it out, they'd have a crystal ball and they'd be fantasticly wealthy or whatever.
So maybe that's kind of an obvious point, but the point is I don't see any of them working. I think actually cryptocurrency markets are probably sui generis, they don't resemble the markets we have from before because they don't have a foundational rooting. They're not based on profit and loss statements, that's not a crypto thing. These aren't really meaningful metrics. I mean, some things obviously you have to have enough money. Money has to come in and has to go out. There are economic realities that cannot be sort of reimagined around, but you have a huge, impressively wide latitude about how to kind of program that all up and to make it work how you want it to work. I think that's actually fundamentally a mechanism of surplus.
I have a couple follow up questions. Well, one agreement, I think the scarcity economics of Bitcoin are pretty silly and I think it's a complete misconception of money, doesn't match up at all with your description of money, which I would tend to agree with much more. On the surplus economics, though. Is there not still a real world constraint of how much real dollars can come in and go out or alternatively... Well, I guess that's it. How valuable a cryptocurrency is relative to the real world?
Yeah. These are very loaded terms, real world, as traditional finance is somehow rooted in - right? I mean, and this is precisely the kind of thing where we can find ourself running into contradictions and paradoxes and these sorts of various kinds of challenges. It's an interesting question whether or not fiat money has to come in at all in the first place. Because... So let's go back to those origin stories of where money comes from. Did money come from the first tokens in 3000 years ago or whatever, was there some money that people were using to support that when they then made that move? Did they need to bring in some other form of value or is it sui generis? It just creates, it's ex nihilo, it's God given it, just you program it up and it emerges. That's what Bitcoin is. Bitcoin didn't... So that people then created exchanges and then brought in a fiat money system and injected it and did all that in investment and all those. I mean, I don't know whether or not that was socially necessary, economically necessary, I don't know. But we can certainly say that it's not sufficient. Just bringing an investment into a kind of money platform, doesn't give that any validity or success criteria. So that's kind of where I would sort of back it up and say, "Here we're, these are private monies." Each crypto is a little private money and it's going to work on its own merits, not how much was invested in it from a fiat economic system.
Okay. I got another follow up on that. I read that Jeffrey Ingham's 2004 book, which you've cite it in your book a few times. In there I learned about the state theory of money, which I think Ingham seems to agree with. You probably know how much he agrees better than I do, but in that case, basically money is valuable because you can pay your taxes with it. How does that interact with what you were just saying?
That's one of those real world, hard and fast kinds of rules. On the one hand, I want to say, "Look, we can program around this stuff. We can create anti power. We can create new economic relations that don't involve this." But we also, know that if you don't pay your taxes, you're going to find yourself in jail. You know what I mean? So that's where we're like, "We can just make up fancy math and we can create a really fun economic relationship that's entirely regenerative economics, it's totally surplus driven, it's, cooperativism, it's everything we want. It's a dream, it's the utopia." But the state's still going to take theirs. That's a different question, that's one how you feel about rich nation state and so on and so forth and the role of taxation and all these kinds of things.
But it's a very true reality that the state still has a monopoly on violence. So it's all fun and games to do some exploit on some DeFi or to tax some exchange or to just make a whole whack of money doing crypto trading. The state's going to come looking for you. And as it turns out, we've realized that they're actually very good at this. Years and years and years ago, I talked to a FINRA intelligence agent and right away, he realized, he said to me... We saw Bitcoin, he said, "This is prosecution futures." Of course, it's a bookkeeper's dream. You can't cook the books in the past. You know what I mean? It's like, it's all there. You know, and there's this notion of privacy. But as it turns out that notion of privacy is eroding very quickly as de-anonymization technologies and methods and stuff come around and so on and so forth.
Even if we got it perfectly, to be honest, it wouldn't kind of matter because here's what the role of the nation state has taken. They realize they can't attack the system centrally. They can't stop Bitcoin. That's not possible. We all know that's not possible. So what do they do? They just work the edges. And they're getting very good at that. They're able to... I mean, there's stories and stories and stories of how effective they are at working those edges, those on ramps and off ramps and that kind of stuff. That's why we see the emergence of KYC and AML, all this kind of stuff. That's KYC and AML is all great. I've done lots of extensive work working with regulators and how to think responsibly about the obligations to... Legal obligations, regulatory obligations, and how we can create mechanisms to permit the healthy growth of innovation. So on and so forth. Sandboxes and all that kind of stuff. That's all great. But that just presuppose is the nation state. You don't have to presuppose at the nation state. In fact, actually, what's interesting there's lots of dimensions of your life that have no need for a nation state to be part of it.
So Dows are really good examples of this, these just little clubs and stuff. And it'd be weird, I think if you, in the meat space went and created a club and all of a sudden the state was working the door or something, you know what I mean? It's just... There's these inappropriate relationships. They don't seem to have anything to do with because it's one thing if I'm doing a state activity, if I'm driving down the road or if I'm paying my taxes or something like that, then obviously there's a very clear role for the government, but in much of life there isn't. And yet... But often these things, we struggle to try to form consensus and trust and other social kind of relationships. So I think that's where it gets kind of interesting, is these non-state opportunities to shape those. Then at the end of the day, you're still going to be paying taxes unless you want to go to jail.
So as it exists today, do you consider Bitcoin to be money?
Yeah. It's like a private money. I think every crypto is a money, I mean, we use them like monies or whatever. I mean, Bitcoin is like a really shitty money. Doesn't have great privacy, financial privacy; transaction fees are a stupid open market with no limit. It's cumbersome. You got to be your own bankers. David or Gerard says... I mean, there's just so many, it's not a great money system. Maybe it's an okay for investment. Like how most people use it, just buy it and hold it or whatever, but it's a really crappy money, but that's kind of like... I mean, whatever, those problems have been solved. There's so many NextGen platforms, Avalanche, ES; I mean, TRON, you name it.
All the problems around proof of work and the climate impact. That's just a hangover and it's a huge hangover. It's a huge carbon footprint, but it's just a hangover from earlier tech. We've now realized we have solutions. I think we can do complex source and techniques to get consensus without burning up CPU cycles. There's all sorts of different techniques for... I mean, this is a very, very robust, healthy area of research. Consensus mechanisms and so forth, very, very robust. So I think there's a load of new platforms that are out there and that Bitcoin it's like the granddad or whatever, and maybe it'll exist forever or maybe it won't. In some sense, I actually, I don't care. I think there's lots of other cryptos out there and it's like the original.
I want to take a bit of a shift into decentralized finance or DeFi, and maybe we've touched on bits and pieces of this throughout the conversation already. But what do you think gets better in a world of decentralized finance relative to the existing financial system?
What gets better with DeFi? There's a lot of interesting innovations. Now, I don't know how socially productive they are, things like automatic market makers and things like that. I think that's really cool. These are really interesting innovations and this idea of getting rid of counterparty risk, if Bitcoin gave us one trust impacting mechanism, it's this idea of getting rid of counterparty risk. Now, that is the slim edge of the wedge when it comes to the whole risk part. I think that's what a lot of like the DeFi hacks, attacks, exploits, crashes, whatever have demonstrated to us that when you think capacious about risk, you need to think about operational risk and marker risk and all these other kinds of risks, not just counterparty risk. So the fact that you can kind of do a transaction and it's automatic is cool and everything, but that's just a tiny little part of it.
So I guess I'm struggling to say what's so... What's great out of DeFi. I love that it's one of the better experiments to really push the limit of automaticity. Like things that just go and can't be stopped, and I think that's actually something that's rather lacking as part of the kind of crypto imagination, because nobody wants to go to jail. Everybody took on this idea that we need to be like regulatory compliance and all this kind of stuff or whatever. That's fine, that's great. I mean, as I said, that's super important, but it's really limiting. And it's limiting, especially for things that have possible activities outside of those where the nation state is so interested in, so more social activities rather than the purely economic ones. Nation state already having a firm hold on those economic ones. So there's that kind of wrestling period that has to try to move it away from it or whatever from the nation state and this is part of that mechanism. But, just to back up a little bit, this question of unstoppable autonomous systems, I think is really interesting. This is one of the places where crypto has still a long ways to go, to create highly resilient organizations, robust organizations.
One of the things that has bothered me since 2016 with the DAO, one of the first DAOs, since then to today, one of things that bothered me is that automatic unstoppable nature of DAOs has really been lost, I think. Actually, DeFi picked it up a little bit and is holding it there. Most DAOs today are like these social things. That's fine. They really blossomed to become super popular and all this, but they've really lost that spirit of the DAO, which was supposed to be completely unstoppable. I think DeFi still gives us that glimmer of hope that we might be able to create systems that are unstoppable, but then we still run into that challenge around change management. These are dynamic systems that need to change. They need to have leadership. They need to have strategy. They need to grow.
There we have the question of governance. Because it's not resilient if it's a single point of failure, so now we need to distribute these changes across a broader number of people. That's that big question that everyone's trying to crack. It's littered with challenges, everything from getting people involved, to kicking out the wrong people, to you name it.
What are the downsides of DeFi that you see?
It's, like so much of crypto, bleeding edge. You have to have such a strong stomach if you want to play in that economic game, because of the high risk, various types of high risk. I would just say it's just super scary and risky, DeFi is. Seems like it's an easy one. Then there's all sorts of neat things, like little attacks that emerge out of DeFi. Taking flash loans, flash loan on a governance token to overtake a platform, for instance. That's a super cool thing. Bad, but it's super cool. That's the kind of thing you can do with DeFi. I think that's interesting.
From a technological standpoint, how well does blockchain solve things in traditional finance that people complain about, like slow international payments and T+2 settlement for securities trading?
If there's one lesson I've seen over the last 10 years of the impact of crypto on traditional finance, including things like settlement, international settlement, these kinds of things, would be that it's not so much that the technology, the crypto technology, the ledger technology is so great. It's pretty good. There's a lot of really innovative ideas in there, and it solves a lot of problems. I think the technology's wonderful in many respects. But I think the more important impact has been that it's moved TradFi along. It's like it scared them into innovation. You see this everywhere. You saw this right away with updating speeds for international settlements. Then you see this in so many other areas. Another criticism people often say to me, when they hear that I do crypto, they'll say, "Well, isn't it all hype? Isn't this somewhere between a scam and hype?" Maybe so. Maybe you can say, "Yes. It's hype." But don't discount the value of hype. Wars are fought on these kinds of feelings. Yeah. It's just a feeling. It's just people get excited about it. But you can change the world with hype. That's what crypto's doing. It makes the traditional finance world look out of date and boring.
Another huge consequence was the labor shift. Many banks, for instance ... Like up in Canada, there's a bank called Scotiabank. They immediately opened up a little crypto lab, because they realized that what was happening is they're no longer able to compete for labor, because all the smartest engineers are going to head over to crypto. They're going to have more money. It's the Silicon Valley brain drain type of problem. Crypto has been very effective at re-imagining the labor forces. That's going to have broad, long term effects. That's, of course, the goal of so much of crypto is education. Crypto education right now is they realize they need to get everyone invested in the platform to grow it. If you're a bank, you're going to have to compete really ... Are you going to go work for Coinbase, or are you going to work for Scotiabank? Those are really different companies. I think the traditional finance world understands this. I recently did a report with credit unions in the US. Talked to a whole bunch of credit union leaders. They very much have this fear of missing out. Motivates the industry right now. They're deathly afraid of losing all their deposits, which they actually actively see moving from ... There's evidence. Speaking to many of the executives, they say they see money going from their FDIC insured credit union account right straight over to crypto. They see... That's a systematic attack on their bottom line.
So they're very afraid of this, but also they're in a bind, because they don't have the internal capacity to be able to ... Their executives don't know enough about crypto. Their frontline workers, their tellers, et cetera, they don't know enough about it. They're having a hell of a time trying to figure out how to get there. Because these are high demand skills, and they command a high price. If you want a crypto engineer, who could also do whatever and all these other things, that's going to be extra, and that's going to be more difficult. It's going to be very difficult to move people back into the old fashioned traditional industry when they've been infected with the new fun crypto stuff. So I think there's actually a really ... It's the bigger, broader social transformations, I think, that are much more important than the narrow technological advantages. Some of those technological advantages are there, and we could talk about the specifics, but I actually think that's a bit of a sideshow for the larger political, labor re-imagination that we see occurring.
I wonder if the flows from credit unions to crypto would've changed post Celsius and Voyager collapsing.
I don't think so. No. Here's why, because ... I've studied this for 10 years. I don't even pay attention when this or that huge ... Like, "$250 million was a hack, drained." I've seen this so many times. So I don't even pay attention to that, to be perfectly honest. At this point, the whole machine's too big. It doesn't matter. We keep going through these winters. We keep having this really spiky industry. Surely, some of that is these little contagion effects that happen, one DeFi collapses and it ... We see this in ... This is 2008, 2009 traditional finance. Lehman Brothers collapses. There's these systematic activities that can happen. But the individual small little hacks ... I'm still a party to the Mt. Gox bankruptcy proceedings, to go back. That was 2013. That's still ongoing. You know what I mean? That was my first flavor of ... Seeing Mt. Gox go down ... I actually have ... For ethics reasons, I've never really invested in crypto, but I lost a little bit. That was trial by fire. That was when I was day trading. It was 2013. It was early on and whatever. Then I realized ...
So since then, every hack that's happened, I think that's par for the course. Actually, I would say you're being a little naive if you don't think that there's going to be hacks and scammers and all the rest that comes out of crypto. Crypto is ... Not to say that's a haven for this kind of illicit, edge case activity. But I don't know. You don't go into a biker bar and expect it to be relaxed time. That's the metaphor. If you're in crypto, you've got to pull on your big boy pants. You're going to lose money. You may get rich too. You're going to get scammed. Who hasn't been scammed? Who hasn't been hacked? Who hasn't mismanaged a transaction or whatever? Once you've used crypto for a while, it's par for the course. I think you get these pundits, especially traditional finance people, coming in. They're not used to that. They're like, "Where's my government going to come in and help me here?" Sometimes they do. Mt. Gox, the government did step in. So now five years later, there's some ... Many of these DeFi platforms are getting hit with Ponzi scheme regulatory discipline, and these sorts of things. The state's still there, and there's still the semblance of normal economic activity. But I think it's just a bit naive to pretend that this isn't an interesting and essential part of what crypto is. My colleague, Lana Swartz, she writes a lot these days on scams. I think she roughly takes a similar position that scams aren't an add-on to the industry. Then people, "It's all a scam?" It's like, "Well, I guess it's a scam, but so is capitalism." If you were thinking about where money comes ... Yeah. It's also a scam. It's all a scam, if you want to get serious about it. So I don't find that a terribly compelling argument.
Interesting. I listen to Lana Swartz on your podcast. She said something like that, like everything's a scam if you look at it the right way, or something. Or, everything's not a scam if you look at it the right way. Something like that.
Yeah. We have ... People have complex motivations that are not about economic rational maximization. Maybe that's part of it, but they have all sorts of other reasons. Some people just like to watch the world burn. That's fine. They're part of that whole ecosystem too.
A business question for you. With blockchain for business logistics, which we hear a fair amount about, what gets better, compared to using a traditional append-only distributed database?
Yeah. This goes back to that question around what's the advantage of the technology. Business logistics could ... That's broad. That can mean moving shipping containers around, or even digital asset types of management, records management. I think there's lots of really interesting opportunities there. Everything from ... I can point out examples. I gave a talk at Intel years and years ago. They had this big ... It was a fab actually, part of a fab, a chip fab. A million dollar shipment or something. It was a big box, came in a big crate or whatever. The contents were worth a million dollars type of thing. So super important. Also needs to be highly secure, all these kinds of things. They were looking at, "Okay. Let's track this. Let's track this on chain." We can put some environmental sensors on it, and so on and so forth. We can track it where it's built in China and shipped over here and all that. That traditional story or whatever. There's advantages there, because they didn't necessarily trust all the people that are going to be handling the product throughout, or at least they want to reduce the risk. I think there's interesting opportunities to be had.
Are they profoundly different from a well-built relational database or whatever? I don't think necessarily. But where they do differ is not so much on ... I guess the change maker is less the technology, more how the technology is used and how it's represented. A blockchain may allow you to, for instance, reduce some of those issues around trust. It's very hard. This is a problem many platform companies have, this challenge where it's like, "How do I get you to get into my silo?" That's a standard problem. "I'm IBM. I want to sell you my product. Get on my silo." Well, you're stuck there now. Obviously, blockchain has similar sorts of silo qualities, but one of the ways in which it diffuses that is because now it's not ... We can just agree on, "Okay. Let's just use Ethereum. That's the truth. It's going to be our truth maker." That trust machine idea. I think that's actually something that helps change the business relationship, that negotiation relationship. It's not that it's the technology itself doing the thing. It's more the context it gets put into.
When I spoke to IBM early, early, early on, when they had just released their provenance logistics product that they have, where they track mangoes or whatever shipment over to Walmart. One of the things I realized in talking to them is the biggest gain was not from the efficiency or robustness of the blockchain platform that underlied the system. In fact, actually, the IBM blockchain platform is not very blockchain-y in many respects. It actually doesn't ... The technology argument, that gets washed away very quickly anyways. But the biggest change was they ... It was a digitization process. The shipping companies, they have these bills of lading that are a thousand paper pages or whatever. Crypto starts to make the thousand pages of paper look pretty friggin ridiculous. Instead, you should have an iPad that does this IBM on chain thing, or whatever it might be, whatever solution you end up with. So actually, it was the hype. It was the context. It was the business opportunity that started to transform the shipping industry.
Now, I don't know where ... I don't track the shipping industry close enough to know if there's still bills of lading floating around on these boats, or if they're all using the blockchain or not. But the point is that you can really have a radical transformation just because of the thread of innovation, the disruptive nature, or just the kind of business context that these new systems get embedded into. Because we can have a debate about, "This is a good robust system. This is not, because it's built like this, or it is built like that." Is it fully decentralized, or can it scale appropriately, and all these kinds of questions. But once you solve those, you get some halfway decent engineers in there, and you start to think hard about it, then you start ... Now, the interesting part happens actually. Now is when you get to start to say, "Okay. Now, how can we change logistics?" Now, we have perfect visibility on transactions outside of ... So third party auditors can come in, for instance. From a regulatory standpoint, that could be very helpful. You can't cook the books anymore. Or insurance. Insurance agencies, they can do things like an issue parametric insurance, where they see right away, from some environmental sensor that triggered, onto on-change smart contract that issues insurance payout right away. Things like that. There's all kinds of opportunities you could imagine, but they only get interesting once they get embedded into a social or business context.
Man, it's crazy. It's crazy. It sounds like what you're saying is blockchain had a really shiny sales pitch that was so shiny that it got people to do stuff that was technologically good, but not necessarily related to blockchain.
Yeah. That's precisely right. That's how I read it. I was speaking to them. They didn't admit it, as it were, because they wanted to say they're doing these innovative products, but at the end of the day, it was just a good old fashioned, "Here's how we're going to digitize things." Go to your point around international settlements, like T+2 international settlements, these kinds of things. The story's the same there too. It's not so much that the technology made that settlement process faster. We have computers. We can make international settlements faster. It's the rest of the stuff that slows it down. It's the checking, and the labor ... the validation, and whatever all those processes are. But of course, we can imagine that going faster. We can automate some of it. We can streamline some of it. We can cut some parts of it out. We can digitize it in the first place. Doing each one of those things is as significant, or more significant, than the fact that it's on a freaking blockchain. In fact, as we know, many aren't blockchains. They don't have blocks. They don't have chains. We're sort of comfortable with saying that. We're like, "It's being disrupted by a blockchain." It's not a blockchain. That's the point. That's the point, I think.
Unreal. You mentioned DAOs. Had Marco Di Maggio on our podcast a while ago, before we started going down this path of learning about crypto. He was, of course, involved in Terra/LUNA. That was also just an interesting part of that whole story. Anyway, I asked him about DAOs. I was, "How is a DAO different from a traditional business corporation?" He said something about transparency or something, but it didn't seem a whole lot different. How is a DAO different from a traditional corporation?
It depends. It depends on what a DAO is. There's something of a definitional question there. That's important, because if we look at the DAO from 2016, that was one imagination. That was one version of a DAO. MakerDAO was there as well at the same time. So that's another version. Fast forward to Friends With Benefits, or Lobby3, Andrew Yang's political DAO, or you name it. I don't think there is any one DAO. I think we're very much learning what we think of as DAOs. As I mentioned before, I'm actually a little borderline dismayed that DAOs have become kind of like a VIP club hangout thing, that are more social than they are anything else. Or many of them are, I should say. Maybe not all. It's a very diverse ecosystem. But all of that to say, we can agree on some basics of what a DAO is. There, I think, we can start to talk meaningful, and things get a little bit interesting.
We can talk about, for instance, digital and decentralized governance. This goes back to these questions around ... We can now take your traditional organization, and we can start to program in logics that shape behaviors. They're very powerful behavior technologies. So this is where behavioral economics joins into the crypto economic story. We can start to ... For instance, we can motivate people, economic rationality, we can motivate them to do things. We can prohibit them from doing things. We can do this at a very fine grained, microeconomic, transactional level. We can create, as I mentioned, things like anti powers, and various sort of guardrails. There's all kinds of interesting opportunities you can do there. Structurally speaking then, we can also start to think a little bit at the meso level. We can start to think about how we can get consensus forming out of otherwise very difficult social context, where there's very loose relationships to begin with. We can emergently bubble up consensus.
We're working on this. I don't think I could even necessarily point to a good example of a DAO that's really nailed this, but that's what we're figuring out. That's a big change. These are not hierarchical organizations, usually. They're very flat. They have all kinds of different characteristics. As I mentioned before, labor and leisure starts to break down in DAOs. Many people, they don't even use ... For instance, maybe they have DAO tokens, or other kinds of cryptos that they're using for governance and other kinds of activities. Sometimes, they're just for gaining access to information, so that's another opportunity. The broader point is ... This is to give it a philosophical spin. There's this notion of ... It's called biopolitical. It's this idea that saying that politics and economics, you can't separate them out from the rest of your lived reality. They're biopolitical. Your lived experience is political and economic right from the get go. When you realize that, you start to say, "Okay. We can't talk about an autonomous political realm. We can in traditional senses, because we only engage with politics when we go vote every four years or whatever it is. But in a DAO, it's biopolitical. You're governing. You're having fun. You're doing all these activities, these things ... You're accessing information. You're validating. All kinds of work activities that also look like leisure activities. That breakdown is ...
This is partially the gig economy type of logic here. We see this happening in DAOs. We see people come in. They're contractors. They do a little bit of work. They come in and they go out. Sometimes, they almost look like community members. Sometimes, they sort of look like developers. Sometimes, they're this governance layer. They have all these kinds of - it's a very complex relationship in there. I think that's the broader context of DAOs that gets interesting. Then we can start to talk about where we can shape behaviors. For me, I'm really interested in how we can shape behaviors progressively, so we can have things like regenerative economics. We can reduce inequality. We can enhance social relationships. We can do these kinds of things by putting people in these interesting new relationships that otherwise would be hard to do. Because the thing about crypto is it's fundamentally about ... It's a technology of value very directly, in ways that money ... Money is a representation of value. Crypto really actually ... The value's built right in. That's where the math part, that idea is roughly right, is that the value is part of the system itself. By moving that value around, then you can do all sorts of really fascinating things. That's where I think DAOs really ... The opportunity to shine is there.
Then other kinds of organizations can be built as well. That's the next generation sorts of organizations that have very complex relationships with humans and robots, or smart contracts and machines, and these sorts of things, where you can start to see the emergence of almost transhumanist activities. It's a little bit ... We're humans, but we're assisted by computers in some respect. That could be from everything for various types of governance and voting strategies, to just labor practices. Within a DAO, X needs to be done. Well, how are we going to do it? We have to look at our resources and leverage those. I think that's where the opportunity to move around value in really sophisticated kinds of ways is what makes DAOs a little different from traditional organizations.
We have a podcast community. There's 7,500 people in there. Sign up with your email address. You have to get approved by a moderator, and then people move up on their trust score. It's kind of like a loosely organized organization. There's no token. There's no economics going on in there explicitly. That feels kind of like what you're talking about. What would be different if we turned our community into a DAO?
Yeah. In so many communities, that's precisely the question they ask themself. Because they hear about DAOs. They say, "Well, maybe we need it a DAO." They puzzle through that question. I would say it depends entirely on the context. Unfortunately ... I mentioned before, I said, "Okay. A lot of times it's just hype, and hype's enough. Hype will get you where you need to be." Hype is, of course, also dangerous. You might be a nice tea company, and all of a sudden you think that you need a DAO or something, or crypto or a token or whatever. That probably is a mistake, just economically. Because you're just not going ... You're not doing the right sorts of things. Some of that's also about ... There is a crypto ethos. To swim the opposite direction doesn't usually go well. If you wanted to do something that's highly centralized in crypto, you can do it. Exchanges do it. But they're always in an uncomfortable position. You're bucking the trend there. If you have a community that just doesn't fit in that world well, I would say it would be a terrible idea.
That said, you can do really interesting things once you have a gated community. Because that's kind of what it becomes. It becomes this little world that everyone lives in. You can create property relations. You could give out NFTs. Whatever. There's lots of different kinds of relationships you can put people into. That may or may not make sense for a podcast community, but it may make sense for an investment community, or it may make sense for a climate change community. So I would say it just completely depends on the situation and then also what you imagine the DAO to be. Because DAO's today, yes, they very much look like your podcast community in that they're just a bunch of enthused people who want to take part in... I mean, this is why people use Patreon and stuff, right? It's the same thing however. So I would say in that situation, maybe DAO's not the right move, but maybe it is for some other community, and that just comes down to the particulars and how you imagine that DAO would be like, what is it? So years ago, had this idea for an unstoppable charity, I called it The DAO of Whales. And the idea was to give an actual pod of whales a sort of legal economic protection from climate degradation and so on and so forth.
It collapsed because the 2016 DAO collapsed, so it never got off the ground or whatever. But that idea, I think that actually made sense, and that I was trying to pick up on this idea that charities often, well, they had suffered from a couple things. One, lack of transparency often. So you don't know where you money... the money goes into like UNICEF, you don't really know where it goes kind of thing, right? Well, a DAO would solve that, right? And the other thing is when it comes to environmental protection, we often have this, because governments tend to be running the show when it comes to things like environmental protection. One minute they're doing good and the next minute they're mining the hell out of Alaska or whatever, right? I mean, the Democrats in this year and the Republicans in the next year and the climate regulatory story changes entirely, right?
So I say like, forget that, here's an opportunity for an honest day solution, and let's make a system that can't be stopped like Bitcoin. So a charity, for instance, like Bitcoin, that just the government might not like it, but it still exists and there's nothing they can do about it, right? And now, I mean, how to do that, and I mean, that's the particulars, obviously it's not an easy lift. But we see a lot of cryptos experimenting with this, right? And some of them are really malignant. The kind of cryptos that we sometimes don't like, things like Monero, right? Which supports so much illegal drug purchasing, child porn, some pretty heinous stuff to be perfectly honest, right? But the bad comes with that really interesting quality of it being autonomous, right? And so an autonomous charity, I think actually makes a ton of sense. If you got the cahonies to be really comfortable with having things out of your control, because that's the thing, right?
You either slap on some sort oft community governance layer and then you got that community governance challenge where you have to make sure it doesn't get messed up in some game economic way or whatever, or you take a different model. It really just kind of go protocol, logical, like a virus, release a virus out into the world, right? And that virus of course could do bad or good, and I think that's really fascinating. And that's where I think a charity, for instance. If we had a bunch of charities almost like worms that just went around sort of cleaning up the world, issuing funds to clean up this area or that, or whatever it might be, or we could imagine a DAO suing Exxon or something for some environmental impact, it wouldn't be privy to the changes that might happen from one political year to the next. And so I think that's an opportunity that is right there, and we could imagine all kinds of other DAOs that would have very particular needs and that might be well served.
Fascinating. How well do smart contracts replicate the role of traditional contractual relations?
I think smart contracts are really complicated because they often don't do what we imagine them to be doing. So for the most part, smart contracts really just go and they just reduce this counterparty risk I was talking about before. They make sure that the transaction will occur. You don't need to worry about the other person sort of running off with your funds, because there's tied up into a smart contract. That's handy or whatever, right? But people then sort of say, okay, the other thing smart contracts can do is they can eliminate trust. And I think that's too quick, and that's too quick for like a bunch of reasons. It has to do with, for instance, what we call what a contract is in the first place, smart contracts as Vitra Buda itself has admitted a probably better call executable software, right?
And if we sort of admit that they're kind of just software that executes, the sort of wind in their sales is much deflated, right? They're a lot less impressive. And we kind of have to do that because most of what contracts traditionally do is not well captured by smart contracts. So a favorite example I like to give is there's a scholar from the 1960s by the name of Macaulay. And he went and he investigated how businessmen, and it was truly businessmen at this time, used contracts. How contract law was used, how contracts were built and negotiated and all these kinds of things. And he found out that to no surprise, if you think about it, the execution part of a contract, when it like becomes real as it were, is the smallest least important part. In fact, he had all these examples where oftentimes two businessmen would be in a contract and the one would default or whatever, right? And so the other had a contractual obligation to Sue that person or to discipline them in some sense, right? And they usually don't, and wow that's weird, why?
This guy just ran off with your cash or whatever it might be, or he is not finishing the paint job you told him to do, why are you not hitting him with this contract that you just entered into? And then the reason is because well, it's a sustained business, you got to work with this person in the future. Maybe they're a important client or they're this or that or whatever. They're a million reasons. And in fact it turns out actually that how contracts are mostly used is we might call it today, a shelling point around negotiation. They allow us to come to terms. And that's a consensus forming process, that's a trust producing process, right? So in the abstract, the smart contract just executes. But that is such a tiny little part of it. There's the formation, there's all the stuff that goes around it, that we have to consider that.
And there actually, I would say it's not trust mitigated or not trust minimizing, it's trust shifting perhaps, but this doesn't happen like that. And then the other remote and why we, I think kind of walk down that road where we considered smart contract execution to be the paramount feature of a smart contract instead of it's negotiation, function or whatever it might be is due to Nick Zsabo work and then from the nineties, when he really comes up with this idea of smart contracts and he has this notion of vending machine fairness. And so that's the other kind of thorn to it or a horn here that I find smart contracts sort of interesting and challenging is that we want them to be these mechanisms that we can for instance use.
There's an imagination that they create equality immediately because there's no bias or anything. It's not like a court where as we know courts convict black people much more than they do white people or whatever, there's sort of that bias built right in. So this is Nick Zsabo idea. He's like, oh, this is like vending machine fairness. We're going to get good economic relations just by using smart contracts. I don't think that's right at all. In fact, actually I think that mechanism can be sort of hijacked to create inequalities. And that's kind of largely what we've seen in crypto world today, high degrees of inequality. So it turns out smart contracts don't work I think quite how we imagine them to. We focus on the wrong long things when we think about smart contracts, but they're super important and powerful and there's lots of that programmable money thing that we can do with them. It's just that we need to recognize that they're embedded in a more complicated context.
You mentioned earlier that you have not invested much in crypto other than maybe experimentally, what are the ethical challenges unique to researching cryptocurrencies and blockchain?
Yeah, there's a bunch of them. I wrote a paper published in crypto economic systems by MIT press that addresses many of these kinds of issues of researching and this research and design and development of crypto. There's a bunch of features here that are challenging. For instance, many types of research are kind of pay to play. For instance, early on, there was a lot of research that looked at trying to manipulate cryptocurrency markets. First of all, today, if you're a cryptocurrency researcher and you're dead set on manipulating crypto markets, you're probably going to get a call from the authorities, but this was like 2013 or whatever, right? And so people thought it was perfectly okay to manipulate markets, open markets for purposes of research, right? Some of the early research, if we go back to 2013, 2014, when crypto was new enough that we didn't quite take it seriously, but also was small enough that could be manipulated quite easily.
Some of these researchers, there's one article from 2013, they have something they could control like a third or a half of Bitcoin's market just using a variety of techniques that we're now quite fairly familiar with. That's a problem. This gets into the same debate that they have in the computer security world, where we need to have researchers attacking these systems, we need to have them banging on them to get them robust and strong at everything. We need to educate students how to do this, defensive cybersecurity measures and so on and so forth. We can't pretend like this doesn't exist, but we need to be super careful about this because it's ripe for misuse. There's this sort of famous case of Phillip Daian, an important cryptocurrency researcher post in Twitter, years and years ago ago asking the community like, he was clear he's a grad student at the time and he was probably teaching some class.
And he asked Twitter and he said, "Is it appropriate to teach students how to break main net real contracts in a classroom?" And that's really, right? I mean, that's a little like, I mean, the metaphor I might say is it's a little like teaching them how to break into the bank. And of course, security researchers will stand right up and say, we need to be able to do this, this is how we protect these systems, but on the other hand, we need some really strong ethical guidelines around that, right? We need to have good controls. There's needs to be bright line prohibitions. And then this article talks about a whole bunch of guidelines, everything from thinking about like, okay, well, you've got a token. That's like a research token or whatever you're investigating, think about it's lifespan, right?
The same way we do with other assets, we think about their complete lifespan, right? Because as it turns out, I mean, I, myself, I belong to many little academic communities. Various lab in 2013 thinks, Hey, there's this Bitcoin thing, we got a little grant, let's get a couple hundred dollars worth of Bitcoin or whatever, right? Fast forward to 2020, there're sitting on a few million. Now, good for that research lab or whatever, but now you have to really start to question things like bias, right? Can we actually believe the results that are coming out of this lab? They definitely have a financial conflict of interest and crypto is no different than many other. Basically, there's a number of technology industries that have these same kind of research and development challenges. Things like pharmaceuticals or the tobacco industry or biomedical, right?
Where I mean, years ago, it was the case where the biomedical industry, so the research industry, the publications, they had a bright line probation. If you were a researcher, if you wanted to publish in this top journal, you were not allowed to take money directly from corporations for your research, right? And they were very concerned about financial conflicts of interest, right? Because we know actually in fact, that people are very susceptible to even very small influences. In fact, more effective than giving people a million dollars. It's probably just take them out for a nice steak dinner and telling them they look good, things like this, right? We know this works because it's worked in the pharmaceutical industry. We know when you buy doctors and stuff like this, right? So the playbook of course can be the same.
The playbook can be the same for crypto and in many cases it is. They buy talk researchers, they buy universities and they, quote unquote, "they're investing." And of course the university are more than happy to take half a million dollars from IOHK or IOH or KOH, whatever that one is over in Edinburgh there, or recently, I actually was not successful, but I put on an application for Algorand, they're creating these centers of excellence. They're investing 200 million in these large research organizations inside of universities. This is not unusual. This is how every industry works. This is exactly the playbook. But my broader point is it's not without its challenges, right? If we're thinking about scientifically we're in some dangerous territory here, and then there's other little interesting novel challenges around things like how results or negative results are reported, and disclosures are reported.
You can imagine if you're researching and you discover security exploit, it's very difficult situation to how you might report that appropriately. Computer security researchers have things like bug bounties, now there are mechanisms for disclosure of exploits, these kinds of things, but as Imogen sir actually wrote, he thinks this is fundamentally inappropriate. These are bug bounties and these kinds of mechanisms for disclosure are inappropriate for crypto because these critical systems worth so much, right? It's a big difference between a bug in a Bitcoin cash wallet than there is in your calendar app, right? There's just a big difference there, and I think trying to make the mechanisms for security disclosure and these kinds of things work from one over to the other is something. This is another case where there's just a learning process that we need to figure out these appropriate measures and controls might be.
And so there's a whole bunch of issues associated with researching and developing crypto, and it all comes back to the fact that like nanotechnology, technology very small, or biotechnology, technology of life, cryptocurrencies, I think are kind of technologies of value. And this gives us new playground where we can play with value in very direct kinds of ways. Again, sort of not in the way that traditional money works, where it's kind of a bit of a representation of value, but actually I think we get to actually program that value directly. And so that's the ethical challenge and that's the opportunity that we have these technologies to deal with this new set of activities in life in ways that we've never had before, but they automatically throw up all kinds of issues. In the same way, we're worried about nanotechnology because we won't get turned into gray goo when the thing escapes the lab and whatever, replicates itself, replicates and eats the whole universe, right?
That's the fear there, and we have fear on AI and similarities and all these kinds of things. So I think there's some kind of same fear when it comes to technology of value. And it might be one just simply of inequality, right? If you have technologies of value, you're not distributing it fairly or whatever, maybe that's our big issue. I mean, I don't know what the big issue is, but I think that there's a whole host of issues that when you start to research and develop it, you really need to think about those, at least if you want to be responsible, right? Somehow, ethically and morally above board.
Wow. That really makes you think. So you've been watching and researching crypto blockchain for a long time. What do you think have been the biggest disappointments?
Oh boy. Disappointments. I mean, I don't really have disappointments in so far as I'm not bent on any horse or anything like this. I will say that I was very excited over the last couple of years to see DAO reemerge, but a little disappointed that they burned a little too brightly or something, right? So they became very, very popular and they lost a little bit of their initial spirit and some of the motivations around them maybe got a little bit twisted up and we're talking too much about apes and not enough about collective action problems, right? So a little disappointment there, I guess in some sense, but I don't have disappointment because that's not how I kind of look at it. I look at it as an opportunity to study an emerging social technical activity, right? And so I love when there's crazy stuff that happens. I mean, it's very sad when people lose their life savings and all these kinds of things, but to be honest as a researcher, that's what draws me to it.
Interesting. What about the biggest successes? I mean, this thing's been around since, I guess 2008 as an idea, 2009 as a thing. What has the biggest success of crypto been?
The biggest success, which is also the biggest danger I would say is that this goes back to this idea that crypto is fundamentally a kind of behavioral technology and that's able to control value. And that crypto has consistently re-imagined socio- technical realities outside of the narrowly economic and re-imagined these in its own image. So I mentioned this before, but we see this. So DAOs are starting to reimagine organizational forms, various voting. We could say maybe quadratic voting is starting to reimagine democracy, examples, a nauseum, but it's the way in which, and this is just a function of it, this is being a technology. I mean, more than anything of a historian of technology. And when you start to understand how technology works, you recognize that it's this special thing that humans do. It's what makes us humans and it gets to run the show.
The technology is the heart, is the rock. And sometimes it can be kind of almost immovable. And I think socially, that's super important. And I say dangerous because I mean, I'm a Canadian. I actually think the Canadian government is great in many respects or whatever, so I'm not opposed to that. So living in a world where there's a strong government and all these kind of things, but what we see crypto doing is taking parts of the lived reality and re-imagining it. And some of them, I think, are going to be super successful and will grow and grow and grow, and some are just going to fade out, right? In my book, I kind of have a little diagram, sort of getting my interpretation of the things that over the years become exciting and they change, and some of them are evergreen, right? Like gambling maybe. That's an exciting opportunity. When NFTs emerged, everyone all of a sudden have. NFTs are not a new idea by any stretch, right? It's kind of very obvious that we might have NFTs, but that emergence allowed us to start to rethink digital property relations, right? And then bringing in all kinds of really interesting challenges too. Now we have people stealing apes and saying, well, the code is log in or we're back to that story. Or people then get confused to say, well, okay, you own that ape, but I'm just going to copy and paste it or whatever, as though that's an act of doing something wrong or something like this, right? That's to say that we're now starting to rethink what it means to have these property relations. And when we start to move into really future looking kind of organizations, they're built on these new property relations. And so that's now something we get a very different flavor of how things work. And I mean, that's really exciting.
You mentioned being a historian of technology. Do you consider crypto and blockchain to be a technological revolution?
I think revolution's a tough term. It's certainly an evolution of money. It's an evolution of the number of specific technologies, some of the sort of consensus technologies that came out in the 1980s. As far as a revolution, here's the one way that I would be willing to say it's a kind of a revolution is that when we start, I mentioned this before, we start to think about these activities as social movements rather than organizations, rather than individuals, rather than even communities actually. I think communities can be unhelpful often because communities seem very static don't they, right? Social movement has much more dynamism built into it. I think we all kind of agree when we think of social movements, they're very dynamic. They're leaderless. They have a lot of different kind of qualities there. Maybe we can start to talk revolution.
I mean, failed revolutions, certainly, right? Social movements never succeed in their entirety, but they succeed in some goals, right? Maybe they're squashed by an oppressive government or maybe the bankers come in and do something against that social movement or whatever it might be. They're not necessarily that they're going to succeed, but there's that really interesting opportunity for social movements to really get to that next level. And that's because they have technologies of value at their disposal. They have economics of surplus. They have crypto economic, token engineering mechanisms and they can create anti powers and they can create all these sort of fascinating things. There I can see a revolution, like a silent revolution, mini revolution, like that. I can see that emerging. And that'll happen, I think, at very local scales too, to be really, really clear about this. This could be a revolution in like, well, it could be revolution in the charity industry.
I mean, it can be revolutions in small little pockets of interest, people who trade baseball cards or something, right? I mean, I don't think there's going to be some revolution where a complete transformation of society. I think governments are far too powerful to begin with. For no many reasons why, but starting with a revolution of crypto would imply substantial increase of no on state technologies and solutions for things that formally were addressed by the state. The state's not going to do that easily, right? They're not going to give up taxation for instance, that's the essence of what a state is. That's how a state emerged, from its ability to take taxation.
Wow. All right, Quinn, that was our last question. This has been a phenomenal mind expanding conversation. I mentioned to you before we started recording that we've talked to a lot of skeptics. I don't think that you are a skeptic, not in all respects, at least. And as I mentioned earlier, you come at this not as an ideolog, but as a scientist, which I mean, it's refreshing to hear a different perspective that's not ideologically driven.
Happy to be here, it was super interesting and I'm glad it was informative.
Certainly was. Thanks Quinn.
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