Beyond Cryptoeconomics: Platform Cooperativism and the Future of Blockchain Governance

Crypto should encourage a renaissance of creative governance possibilities that organize economic mechanisms around values and rights.

Hands are seen placing ballots inside boxes that are a chain of blocks.
Rocío Iriarte

I first got hooked on crypto while on tour for my book on Occupy Wall Street, the anti-capitalist uprising that spread around the world ten years ago last month. I had been immersing myself in a micro-universe of prefigurative politics: people trying to imagine a future of deeper, truer democracy by occupying public space and practicing it. They used a radical consensus-based decision process, always exploring ways to make more people’s voices better heard. But after a few months, those public spaces had been reclaimed by the reigning order. What would become of those imaginations, that longing? Whispers from an old friend about the just-released Ethereum whitepaper seemed like a possible answer — that the experiments I had seen in protest might continue online, with blockchains.

The irony wasn’t lost on me: Could the hopes of anti-capitalists find fruition in a new kind of money? Perhaps in smart contracts and digital currency, reinventing democracy would no longer require occupying city parks and squares.

This is actually what has happened, if you know where to look, through the shills and crooks and icky bogs of crypto. I am unaware of any subculture that is doing so much to discover the potential futures of human self-governance. Protocols and tokens and decentralized apps frequently bear many millions of dollars’ worth of value, so the stakes are high, and government regulations are not developed enough to help secure it all — whether libertarian-leaning cryptonauts want them to or not. Thus, agoras, assemblies, legislatures, boards, juries, and other sorts of old-world governance are being reinvented on-chain. Entirely new techniques are making their first appearances there as well.

People in countries that call themselves democratic usually expect to vote every few years, but voting happens all the time in crypto. Participants in decentralized autonomous organizations (DAOs) vote on software updates, treasury allocations, and pizza toppings according to rules encoded on a blockchain. They tend not to vote for politicians to represent them; they vote on proposals, or they delegate their votes to other users in a “liquid” system, enabling them to withdraw the delegation at any time. Power over group decisions doesn’t come from party platforms and political contributions; it may come from metrics of participation in the group’s project, or from the duration of one’s conviction, or the intensity of it. Before anyone votes, a prediction market might highlight which proposals are worth considering. The possibilities of voting are becoming so exhausted in crypto, voting is already going out of vogue.

“Crypto should have the opportunity to build new layers of sovereignty that don’t depend so much on geography or national citizenship.”

For years now, I have been working to enable workers and users to become co-owners of the online economy — under the banner of memes like “platform cooperativism” and “exit to community.”  I have witnessed enormous craving for this kind of economic democracy, but we still lack two important things to make it work: a democratic counterpart to venture capital for financing, and a software stack that supports creative democratic governance. These could put an end to the regime of exploitation of personal data and work that reigns over the online economy today. And the experiments underway with blockchains offer starting points for both. The trouble is that the economics of these systems threatens to diminish their potential for democracy.

The philosophical engine underlying blockchain design today is cryptoeconomics, a mix of economic nudges and mathematical encryption that each reinforce the other. They are a formidable combination. They enable a huge variety of designs for organizations among strangers, who do not need to trust each other, only the system. When the money itself is programmable, you get both precision for measuring people’s preferences and ways of acting on them automatically. The fact that blockchains work at all — and manage to reliably hold billions of dollars in value — is a testament to the capabilities of cryptoeconomics.

But there are good reasons to worry about entrusting the basis of social institutions entirely to economic nudges, with or without cryptography. Long before crypto, political theorists have warned of the corrosive effects that economic forces can have on democracy. In The Human Condition, Hannah Arendt argued for a conservative view of politics: that political life must be separate from economic pressures, so that it can focus on the common good rather than anyone’s personal interests. More recently, from the left, Wendy Brown has criticized the “neoliberal” urge to replace politics with business. When the market takes over roles like providing health care and setting environmental standards from democratic governments, the very nature of these issues changes. We forget that we are all citizens, she argues, and instead focus only on the economic side of ourselves; we forget about values like justice and fairness, seeing only the costs and benefits.

The practical consequences of excessive economics have an unhappy record. Leave water to markets, and communities regret it. Leave healthcare to private business, and people drown in medical debt. Weaken taxation and labor rights, and inequality skyrockets.

Are these non-crypto problems relevant to crypto? I think they are. The dangers of economics on the loose are already on display. Plutocracy has proven a persistent problem for crypto networks, where rule by those with the most wealth works against expertise and the common good. Blockchains often provide little or no incentive to address externalities like environmental impacts, tax evasion, and ransomware attacks, which may actually increase the value of token holdings. Perhaps most pernicious is the way in which reliance on economic incentives as institutional glue teaches participants to see themselves as merely economic creatures, capable of acting only when there is a reward.

Yes, we human beings are susceptible to economic self-interest. But designing all our institutions around that fact seems like surrendering the prospect that we could also be motivated by something more noble, or at least more interesting.

“We need to keep improving our capacity for self-governance.”

To take crypto seriously as a trustworthy basis for institutional life, we need to insist that cryptoeconomics is not enough. It is a useful strategy with a fascinating palette of possibilities. But human beings should seek to live by principles other than economic nudges alone: values, rights, solidarity, and, yes, politics. Relying too much on economics limits what self-governance is capable of.

Some have argued that what crypto needs is more regulation by the state. I fear this could mean losing too much of the potential for new, equalizing kinds of border-crossing democracy. While states should have the right to protect their citizens, their ecologies, and their economies — render to Caesar what is Caesar’s — crypto should have the opportunity to build new layers of sovereignty that don’t depend so much on geography or national citizenship.

Increasingly, people in crypto are turning to the cooperative movement for examples of how to embed democracy into businesses. Some crypto startups, like ETHDenver and Kleros, are incorporating as cooperatives, blending their token economies with democratic member governance. But regardless of any legal status, cooperative principles can be incorporated into the design of a blockchain project, such as by assigning power to personhood and participation over wealth. Some are even investing with this idea in mind.

A related approach is to organize cryptoeconomic mechanisms around less-economic goals. For instance, the DAO 1Hive uses a cryptoeconomic dispute-resolution system in order to enforce a values-based constitution, the “Community Covenant.” Similarly, the now-defunct Ethereum project Civil organized its economic incentives around professional standards as understood by leading journalists.

What I propose is not the wholesale replacement of cryptoeconomics with something else, but merely that old-fashioned ambition of liberal democracy: to make economics accountable not just to itself, but to the people who must live with it. Democratic or values-based mechanisms need not be embedded in every blockchain app, as long as they occur at critical points in the ecosystem. The goal should not be to create a monoculture of one-size-fits-all governance, but to encourage a renaissance of creative governance possibilities — a renaissance that is already beginning to happen in crypto.

Ten years ago, the protests that spread around the world seemed to reflect a craving, from the Middle East to Lower Manhattan, for democratic revolution. “Real democracy now!” chanted the people who occupied city squares across Spain. Since then, democracy seems to have been mostly in decline, with authoritarian politicians and unaccountable tech companies on the rise. For those of us who still want to live the democratic adventure, who want societies based on the common good rather than individual greed, it is not enough to merely defend failing institutions. We need to keep improving our capacity for self-governance.

Never since those protests of 2011 have I seen as much creativity as what is happening in crypto. But before we entrust blockchains with any institutions that we truly rely on, we should ensure that they are accountable to us, not just to our wallets.

A more in-depth version of this argument is in progress here; comments and criticism are very much welcome.

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Hands are seen placing ballots inside boxes that are a chain of blocks.

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Rocío Iriarte

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