Cypherpunks

Bitcoin’s creator seemed to succeed where others failed — initially. What did he do differently? He rotated record-keepers.

All revolutions have their dogmas, and the cryptocurrency/blockchain insurgency is no different. It’s an article of faith among crypto adherents that decentralization will solve many of society’s ills, including the problem of governance. 

Vili Lehdonvirta — an Oxford University social scientist, book author, and former software developer — disagrees.

“The underlying technology will change and it’s already changing,” he told Cointelegraph last week. “It’s becoming less blockchain-like, less like the original idea of a trustless system,” especially after the Ethereum Merge, where corporate-like ‘staking’ entities will be needed to “uphold the integrity of the chain,” in his view.

Indeed, crypto networks generally could be moving in the direction of centralized digital platforms, “maintained by a bunch of people whom you have to trust, but hopefully you can also hold to account if they turn out to be untrustworthy.”

Lehdonvirta’s new book, Cloud Empires, published by MIT Press, is in part a meditation on the perishability of ideology and/or good intentions. Its subjects are the 21st century’s massive digital platforms like Amazon, Uber and eBay, among others.

Many follow a similar life cycle: Charismatic founders who set out to change the world, guide their enterprises on a dazzling growth path but then crash against a hard wall of reality. They survive this collision, but not always for the better.

Subtitled “How digital platforms are overtaking the State and how we can regain control,” the book has an illuminating chapter on Satoshi Nakamoto and the blockchain technology he created: Its origins, adoption, metamorphosis and ultimate realization that cryptographically secured digital networks couldn’t entirely replace “untrustworthy” human authorities on matters of governance.

There’s Amazon founder Jeff Bezos, “once hailed as a hero who created an ideal business environment for countless independent merchants,” but who eventually transforms into a digital monopolist, turning on merchants, indeed, “extracting extortionate fees and outright stealing lucrative business lines from them.”

Appearing, too, is Uber co-founder Travis Kalanick, initially as a “fierce advocate of free-market solutions,” but he’s later seen fixing fares and regulating the number of cars on the streets. There’s Pierre Omidyar, creator of “the world’s first online reputation system,” who realizes in time that a “bad rep” alone won’t deter malefactors. His enterprise, eBay, evolves “into a central authority that formally regulates its marketplace.”

A social order without institutions

As for Satoshi, blockchain’s elusive pseudonymous founder known to the world principally through a nine-page white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” published in 2008. “Nakamoto was bothered by how people still had to rely on powerful and opaque financial institutions to manage their finances,” writes Lehdonvirta, a professor of economic sociology and digital social research at the Oxford Internet Institute at the University of Oxford. 

He positions Nakamoto in a line of Digital Age libertarians, beginning with John Barlow, the cyberlibertarian “who dreamed of a virtual society in which order emerged independently of the authority of territorial states.” Nakamoto here is viewed through a political scientist’s lens. Lehdonvirta writes:

“Nakamoto was not interested in making the institutions more democratic. Instead, he wanted to resuscitate the Barlowian dream of a digital social order that wouldn’t need such institutions in the first place — no bureaucrats, no politicians who inevitably betrayed their electorates’ trust, no elections rigged by corporations, no corporate overlords. Nakamoto still thought that such a social order could be created with technology — and in particular, with cryptographic technology.”

Satoshi wasn’t the first to seek “political liberation” through cryptography. A subculture of “cypherpunks” and “crypto-anarchists” had been propounding that creed for decades, “But after years of work, they still had not succeeded in building viable payment platforms.”

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Yet, Satoshi appears to succeed where others failed — at first, anyway. What did he do differently? The short answer: He rotated record-keepers.

This revelation may seem underwhelming, especially as crypto miners have been vilified in recent years as would-be monopolists and eco-sinners. But, in Lehdonvirta’s telling, Bitcoin’s miners are really just network administrators, i.e., “record-keepers.” Their job, as originally conceived, was:

“To go through recently issued payment instructions, check that they were valid, and collate them into a record known as a block — an official record of transactions that could be used to determine who owned what in the system. Of course, the administrator would not have to check transactions by hand: all the work would be done automatically by the peer-to-peer ‘banking software’ running on their computer.”

After about 10 minutes, “the next randomly appointed administrator would take over, double check the previous block of records, and append their own block to it, forming a chain of blocks.”

Rotating judges each day

What makes this Bitcoin genesis story different — a sort of tour de force, arguably — is the author’s ability to put Satoshi in historical context. Nakamoto was wrestling with a classic governance quandary — “who is guarding the guardians” — one that goes back to the ancient Greeks. 

The city-state of Athens grappled with this problem 2,600 years ago at the time of Solon the Lawgiver. Lehdonvirta writes, “Instead of trying to make government administrators more trustworthy, he [Solon] took a different approach: he wanted to make trustworthiness matter less.”

Solon even had a machine to do this — a piece of ancient Greek technology called a “kleroterion,” or “allotment machine,” was a huge slab of stone with carved slots or matrices that was filled with bronze plates inscribed with the names of Athenian citizens. These were randomly selected each day by bouncing white and black balls:

“Using the kleroterion, random people were selected to serve as government administrators in ancient Athens. Magistrates were appointed in this fashion annually. Judges were re-selected every morning.”

Cloud Empires compares Nakamoto’s ledger validators with the kleroterion:

“The responsibility for checking balances could circulate randomly between users, a little like how administrator posts circulated randomly between citizens in ancient Athens. Where Athenians used the kleroterion to rotate administrators every twenty-four hours, Nakamoto’s scheme used an algorithm to rotate the administrator approximately every ten minutes…”

The justification in both instances was to avoid the corruption that inevitably comes with the concentration of power:

“Just like in ancient Athens, this constant circulation of responsibility meant that the administration would be extremely difficult to corrupt. [...] As long as a majority of the peers remained honest, the platform could maintain orderly records without any single trusted authority. Belief in good intentions was replaced with technological certainty. The problem of trust appeared to be solved.”

People remain in charge — still 

Alas, if only it were so simple. As often happens in Cloud Empires, innovation, good intentions, and high-mindedness travel only so far before they run up against human nature. Here the defining event was The DAO Hack of 2016, “a catastrophe for The DAO and its investors but also for the entire Ethereum platform,” where an unknown attacker drained 3.6 million Ether (ETH) from The DAO project, the world’s first decentralized autonomous organization. 

The hack was reversed by a hard fork of the Ethereum network. The network basically hit the reset button, excising the ledger’s most recent transactions and resuming where things stood immediately before the attack. Ethereum co-founder Vitalik Buterin and the network’s core developers held a referendum before this radical step was taken that supported their recommendations, but opponents still maintained that this amounted to changing the rules retroactively.

“The crisis revealed how a peer-to-peer blockchain system in the end was never really ‘trustless,’” concludes Lehdonvirta. “The network may have enforced its rules with robotic impartiality, but people were still in charge of making and amending the rules. In this instance, people decided to amend the rules to confiscate a person’s holdings and return them to their previous owners. [...] Funds placed in the system were still ultimately entrusted to the care of people, not cryptography. The problem of trust remained unsolved.”

According to Lehdonvirta, The DAO hack raised again the “age-old problem of political science that troubled ancient Athenians, too: The authorities protect us, but who will protect us from the authorities? How can we hold power to account?”

Resisting autocracy

In an interview with Cointelegraph last week, Lehdonvirta was asked: Given the myriad disappointments chronicled in Cloud Empires, do you see reasons to be hopeful about digital platforms? Is there anything that makes you optimistic?

“People are realizing: ‘I’m not living in the libertarian utopia that Barlow and other visionaries in Silicon Valley promised me. I’m actually living in an autocracy,’” Lehdonvirta answered. “People are realizing this and they’ve started to push back.”

He provides examples in his book. Andrew Gazdecki, an entrepreneur, bands together with other businesses when trillion-dollar company Apple threatens to close down his enterprise. “And they actually win for themselves the right to continue doing business. And that's not the only example. We had Etsy sellers in April this year — 30,000 Etsy sellers went on strike” when that marketplace raised transaction fees for its independent sellers by 30%. “People are not taking it,” Lehdonvirta told Cointelegraph.

As for the crypto space specifically, “what’s really interesting” is that there are now a “lot of people imagining different ways of organizing society, different ways of organizing the economy,” he said.

“Maybe the underlying technology blockchain turns out to be not as useful and not as revolutionary as was originally thought, but they’re still trying to come up with new ways of organizing society,” as through decentralized autonomous organizations (DAOs), for example. “I mean, does it make that any less valuable? I think people can in some way go even further if they don’t constrain themselves by this sort of a blockchain dogma.”

He was asked about the kleroterion and ancient Greece — where did all that come from? As a “fellow” of Oxford University’s Jesus College, Lehdonvirta dines regularly with fellows from many disciplines, including historians and classicists, he explained. One lunch partner was an expert on ancient Greece who also happened to be “super curious about Bitcoin.”

“I don’t remember exactly how the kleroterion came up. I found it in my readings somewhere. But basically the connection between Bitcoin and ancient Greece came about because I dine in a college together with experts of ancient Greece.”

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As the crypto space evolves, he sees other hybrid types participating, including social scientists like himself. “I think what’s really interesting is that a lot of crypto people are becoming more and more interested in social and political science.” They’re realizing that many systems and projects are failing not because anything is wrong with the technology as such but because the governance has failed. He told Cointelegraph:

“Humanity has been developing governance systems for thousands of years. We’ve figured out some things that work and some things that don’t work. So why don’t we build on that in the same way as when we do software development.” 

Programmers don’t build everything from scratch, from primitives, after all. They use well-known libraries and components to build software. “Why not the same with governance?”

All in all, the Finnish-born social scientist seems to think that the intellectual ferment unleashed by Satoshi Nakamoto, 13 years might still evolve into something novel and useful in the organizational and governance sense, even if the technology itself never quite lives up to its high expectations.