A few weeks ago, the World Economic Forum (WEF) released Realizing the Potential of Blockchain, a report by Don Tapscott and Alex Tapscott, authors of Blockchain Revolution which was published in May, 2016, and founders of the recently launched Blockchain Research Institute. “The last few decades brought us the internet of information. We are now witnessing the rise of the internet of value,” wrote the authors in the report’s Executive Summary. “Like the first generation of the internet, this second generation promises to disrupt business models and transform industries… pulling us into a new era of openness, decentralization and global inclusion.”
“However, this extraordinary technology may be stalled, sidetracked, captured or otherwise suboptimized depending on how all the stakeholders behave in stewarding this set of resources - i.e. how it is governed,” they add in a strong note of caution. “How we govern the internet of information as a global resource serves as a model for how to govern this new resource: through a multi-stakeholder approach using what we call global governance networks.”
I totally agree.
The Internet and World Wide Web brought a badly needed culture of collaboration and standards to the IT industry. In the 1980s, it was quite difficult to get different IT systems to talk to each other. Just sending an e-mail across two different applications from two different vendors was quite a chore, as was sharing information across disparate systems. Then in the 1990s, the open Internet protocol, - TCP/IP, - was widely embraced by the general IT marketplace, making it possible to interconnect systems and applications from any vendors. Internet e-mail protocols, - SMTP, MIME, POP, IMAP, - enabled people to easily communicate with anyone on any system. At the same time, the Web’s open standards, - HTML, HTTP, URLs enabled any PC connected to the Internet to access information on any web server anywhere in the world.
A similar story played out with Unix. In the 1980s, Unix became a popular operating system for technical workstations, supercomputers and other kinds of systems. Every vendor had developed its own version of Unix, - IBM’s AIX, Sun’s Solaris, HP’s HP-UX, and several others, - and they were all somewhat different and incompatible, making it difficult to port applications across these different flavors of Unix. Attempts to unify UNIX were not successful. Finally, in the 1990s Linux emerged as a Unix-like operating system that over time was embraced by just about all vendors.
Blockchain is in its’s early stages, perhaps akin to the Internet in the 1980s, when somewhat different versions of TCP/IP networks were being used by research communities, government labs and universities, and the Internet or network of networks was still being organized. For blockchain to succeed, it will similarly require the stewardship of international organizations to oversee its evolution. Let’s discuss how that might come about, all the while returning to the lessons from the Internet for inspiration and guidance.
According to the WEF report, blockchain requires stewardship at three different levels: platform, applications, and ecosystem.
Platforms. A number of blockchain platforms are already out there and more are in development. All are generally based on the original design released in 2009 by Satoshi Nakamoto, but with wide variations and limited interoperability. Some feel that permissioned blockchains aren’t true blockchains, but rather distributed ledgers. “[T]here is no shared taxonomy or categorization of the space: Does blockchain refer to the bitcoin blockchain or the technology in general? Is it big “B” Blockchain or little “b” blockchain? Is it a currency, commodity or technology? Is it all of these things or none of them?”
There seem to be two fairly distinct blockchains camps, - one primarily focused on blockchain as the underlying platform for cryptocurrencies, the other on blockchain as the next major step in the evolution of the Internet. The cryptocurrency camp, - best characterized by Bitcoin, - is mostly based on public, permissionless blockchains and proof-of-work systems. The Internet 2.0 camp, - best characterized by Hyperledger, - is mostly interested in the business applications of blockchain technologies, and embraces private or permissioned blockchains, much as the Internet embraced private intranets. Some blockchains straddle both camps, like Ethereum, which includes both the Ether cryptocurrency and a software platform that supports distributed applications.
The authors closely examined the two top cybercurrency platforms, - Bitcoin’s and Ether’s, - and two more general purpose platforms, - Hyperledger and Cosmos. Their analysis helped me better appreciate the design objectives and organizational cultures of the various blockchain camps, as well as the key governance challenges each faces going forward.
Applications. e-mail in the mid-late 1980s and the Web a few years later played a crucial role in the widespread commercial adoption of the Internet. Subsequently, Internet applications took off in many different directions, - e-commerce, finance, entertainment, social media, IoT, digital money, government services, … - and have continued to do so. Similarly, Bitcoin and other cryptocurrencies first put blockchain on the map, while more recently, startups, large companies and NGOs have started to experiment with blockchain applications in a variety of industries.
However, since blockchain is all about the creation, exchange and management of valuable assets, its applications are like to be considerably more complex to develop than Internet applications. “Launching this type of application requires massive collaboration among companies, governments and other entities. Similarly, this resource will need constant care and tending to onboard more and more users over time. It illustrates the profound differences between managing information creation versus value creation activities. The latter require deep negotiation, contractual and jurisdictional understandings, and the ongoing stewardship of application-level ecosystem.”
“As blockchain applications have evolved from potential to actual use cases, we can see that particular use cases will raise specific governance questions best answered at the level of each use case (e.g. payments, smart contracts, securities clearance, insurance, etc.). There will not be a single blockchain but many, some of which may serve specific industries or geographies. At the highest level, we need to focus on interoperability. Commercial blockchain applications are taking off, and governance will be critical to their success.”
Ecosystems. Organizing blockchain’s overall ecosystem requires the development of legal and regulatory frameworks, along with considerable social and economic research. These frameworks, - which have evolved over many decades in the physical world, - now have to be brought over and adapted to our increasingly digital world. Moreover, unlike technologies and applications, such frameworks can vary considerably from country to country. And, it will likely take considerable time. “Proper legal and regulatory frameworks also favour long-term, more sustainable and more technically sound business models over short-term high-risk ones.”
In a previous research project, Don and Alex Tapscott analyzed the stewardship of Internet governance, and found that “a vast ecosystem of companies, civil society organizations, software developers, academics and state-based institutions were collaborating in transparent, distributed forums that defied measurement by traditional command-and-control frameworks. In the infancy of the internet as a global resource, this ecosystem has proven that diverse stakeholders, loosely organized in seven types of open networks that operate by consensus, could effectively steward a global resource.”
Could a similar consensus-based ecosystem now be applied to the governance of blockchain? The authors looked into this question by examining how the same seven types of open networks might apply to the stewardship of blockchain.
- Standards networks: Don’t deify differences; codify common ground. “Most urgent is the need for standards at both the platform and application levels… Consensus mechanisms alone can’t support standards development.” You need clear processes and/or good leaders.
- Networked institutions: Welcome stakeholders everywhere. “Members of the blockchain ecosystem need opportunities to collide, so to speak, with other stakeholders so that they can hear each other’s concerns and positions.”
- Advocacy networks: Respect members’ interests and constraints. “There is strength in numbers when it comes to advocating for the ecosystem. Each stakeholder cannot focus narrowly on its concerns and hope to achieve results… advocacy networks must work with government as a partner.”
- Watchdog networks: Do no harm. “Blockchain is still in its Wild West phase. People are experimenting because they can, some making extraordinary claims, and not all participants are equally versed in the technology.” Blockchain needs the checks and balances of something like the Electronic Frontier Foundation.
- Policy networks: Participate in debate and coordinate regulation. “Rather than simply regulating, governments can improve the behaviour of industries by making them more transparent and boosting civic engagement - not as a substitute for better regulation but as a complement to the existing systems.”
- Knowledge networks: Know what you don’t know. Considerable experimentation is absolutely necessary, because the scale of the long-term transformation that blockchain will usher is barely understood. Experimental pilots can support this iterative learning approach, while providing evidence-based information to developers and advocates.
- Delivery networks: Keep incentives for mass collaboration in mind. “How do we ensure that the incentives are adequate for interoperability and distributed mass collaboration, making the technology ready for prime time?” We need international organizations that will deliver the essential functions to enable mass collaboration.
Over the past few decades, the Internet has become one of, if not, the most prolific innovation platform the world has ever seen. But, its evolution must continue. The Internet continues to have serious limitations for business and economic activity, - including security, complexity and trust.
“This second era of the internet promises to create new opportunities for a more prosperous world,” write Don and Alex Tapscott in conclusion. “This is the promise of the blockchain.” However, blockchain is still in its toddler stage. And, for this toddler to achieve its long-term potential, we must carefully oversee its evolution toward an increasingly complex and unpredictable future.
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