We are all aware that democracy is not a perfect system, and we may even be over optimistic in believing that a perfectly fair governance system can exist. However, today there is a great driver to political philosophy and science, inspired by research in the area of governance in large organisations due to the popularity of the blockchain and decentralised computing platforms.

The problem many would argue with democracy is the fact that the people in power are not experts, they have access to experts but also the choice to ignore them.

Futarchy, is a concept which can be described very simply, vote on values but bet on beliefs.

Vote on Values

Voting on values simply means, that the people can vote on metrics which are important to them, for example a country may vote ad decide that Gross Domestic Product or Adult Literacy Rates are important to their values.

These are simplified modern day metrics, and in the world of Futarchy the metrics may well look different.

Bet on Beliefs

Coming back to the quote which began this article:

Those who know they are not relevant experts shut up, and those who do not know this eventually lose their money, and then shut up.

This perfectly sums up the way a Futarchy system would work, once the collective has decided on a value (metric) and a maturity, for example GDP in 10 years, the people may bet on the effect various policies which will affect it.

Speculative Markets

This concept is powerful because it makes a very big assumption, and that is that speculative prediction markets are our best known method for aggregating information.

Putting it all together

Image Credit: Ethereum Blog

Governance over Technology

Now while this concept would not work in such a simplified manner as above in the complex context of government. The exciting application is using this form of governance to make decisions on how decentralised software projects should progress.

Lets say our goal is to improve the latency of our system, we may begin with a discussion on some forum or mailing list — there will be some non-technical people and also some who have done not much thinking but have a loud voice. Our new proposal for improving latency would have to be voted on with an economic stake meaning those whom are not sure will be less likely to make far fetched comments, and those who are quite but certain will be incentivised to chime in to win rewards!

What a beautiful idea!

Further Reading

• Futarchy: Vote Values, But Bet Beliefs by Robin Hanson
• An Introduction to Futarchy by Vitalik Buterin

Arrieta-Ibarra, Imanol, Leonard Goff, Diego Jiménez-Hernández, Jaron Lanier, and E. Glen Weyl. 2018.”Should We Treat Data as Labor? Moving beyond “Free”.” AEA Papers and Proceedings, 108 : 38–42.DOI: 10.1257/pandp.20181003

⭐️4.5/5

Introduction

Imagine a world in which your personal data, which is currently being collected by huge corporations, repurposed and sold for financial gain, was instead attributed to you as labor for which you are compensated fairly.

As we move towards a higher-tech world, driven more by machines and less by men, there are many apocalyptic worries which are seen in the press. Whilst most of these are designed to drive extra “eyeballs” there is some truth to the inherent danger of net job loss due to software automation. Economists in the past have argued that shifts in technology have just moved the workforce, but the change we are in the midst of now has the potential to be different. If we look at leading technology companies such as Google and Facebook, their market cap is much larger than firms such as Walmart, yet they hire 10–100x less people, due to software automation. As machines become smarter, there will be less for all to do — it is not possible that we will all become AI researchers (sadly).

In addition to the previous point the data being generated is of poor quality and provides no payment to the humans who generated the information. The vast proportion of data used in Machine Learning models is consumption based, ie tracking users as they consume various services. There is a real scarcity of productivity data, which can create real economic benefits.

Data as Labor (DaL) vs Data as Capital (DaC)

The paper argues that today the treatment of data is done as capital, and that whilst the asset is the same in both models — the social attitude towards the categories varies greatly.

DaC:

• treats data as a natural exhaust collected by firms.
• channels payoffs from data to AI companies, to spur innovation.
• prepares for AI to displace workers by a Universal Basic Income, or areas in which AI will fail.

DaL:

• treats data as a user possessions.
• channels payments to users, to increase quality and quantity of the asset.
• sees ML & AI as just another technology creating a new class of “data job”.

This is a simplified view and it would not be possible to strictly adhere to one categorisation or view of user generated data. It is also important to place this in the greater context of its usage:

value = data + capital (compute) + skilled labor + innovation + land (network effects)

*Valuation of Data

The valuation of data in such models & theories has always been a challenge and a blocker, but there has been great work done (Koh and Liang, 2017) to allow for the dynamic valuation of data based on its utility.

How did we arrive here?

The internet was fuelled by venture capital, and no real business model. Even today most firms chase users first and monetisation later. If we combine this with the view that the internet is “free” and should remain so — we can quickly see how we arrived at the most popular form of revenue generation online: ads.

The companies who dominate this space also dominate the world of broader AI services, as they have been quick to spot the value of the data being generated in and around their platforms.

Conclusion

Whilst the mental model suggested by this paper is not perfect and cannot be treated as such in economic models, there are a large number of valuable take aways for designing the future of the data market.

As regulators and law makers wade in (GDPR) to apply pressure and more scandals are uncovered by the media, the younger generation will grow up with an understanding of the value their data is adding to the information economy and will demand a seat at the table.

The great people over at W3C are currently hard at work on a new specification for web based authentication which enables the creation and use of strong, attested, scoped, public key-based credentials by web applications, for the purpose of authenticating users. Whilst this has been in development since about mid 2016, we are now finally seeing this being adopted in the experimental features of Firefox and Chrome browsers, which means we can begin to start hacking with this!

The new standard known as WebAuthn for short, is a credential management system which will be built directly into web browsers, removing the need for use of passwords. A user will be able to register and authenticate with web applications running on their desktop browser using an “authenticator”, which is a phone, hardware security key or any Trusted Platform Module device.

How does it work?

Whilst the W3C draft specs are extremely comprehensive, they are full of new concepts such as “Authorization Gesture”, which can be hard to digest. In this post, we will just dissect the high level data flow which needs to occur.

Step 0, is technically first, here the application just makes a registration request.

1. Server; sends a challenge, user info & relying party info.
2. Browser; calls authenticatorMakeCredential() on Authenticator.
3. Authenticator; creates and new key pair and attestation.
4. Authenticator; returns to the browser a new public key, a globally unique credential id and other attestation data aka the attestationObject.
5. Browser; generates the final data, whilst the Application sends it back to the server.
6. Server; validates and finalises registration, complete list of steps can be found here and will be described in a separate post.

When can we get rid of those passwords?

The main reason we can get rid of passwords in this setup is the combination of cryptography and biometrics. Using these in tandem we can prove:

• Registration or login request is originating from device x.
• Device x is being controlled by human y.

The gooey thing using the device also no longer needs to invent, or remember passwords, as the device is much better at doing both of those tasks.

You can check out an example of how this works here (chrome) and here (firefox).

However there is still some time to wait before we can delete our passwords, as this is currently an experimental feature in Chrome > v65 and Firefox nightly builds, saying that there are a lot of heavyweights supporting it, including Google, Microsoft and Mozilla, so fingers crossed for quick adoption.

*More in depth posts to come….

References & further reading.

• Mozilla Developer Docs
• Feature Tracking in Chrome
• Blog post from J.C Jones (contributor)

The future of money.

This speech, was given to the inaugural Scottish Economics Conference at the University of Edinburgh, which happens to be the home nation of the famous Economist Adam Smith. The Governor therefore begins his story by describing three key characteristics of money as defined in Adam Smith’s book “The Wealth of Nations”:

• A store of value; with which to transfer purchasing power from today to some future time.
• A medium of exchange; with which to make payments for goods and services.
• A unit of account; with which to measure the value of a particular good, service, saving or loan.

The above three functions occur in hierarchy and therefore many economists consider the function of “unit of account” as being the most important characteristic of money. Mark states and I think most would accept, that “money is a social convention” and “We accept that a token has value wether made of metal, polymer or code because we expect that others will also do so readily and easily.”

The next part of the speech really deals with the role of central banks and their history, I will spare you the details of this section to get to the juicy parts, but make sure to read the whole speech if you want to learn of the hand-written notes issued in 1964.

Crypto as money.

A large proportion of millennials are investing into the crypto markets as a form of storing value, of course this is fuelled mainly due to the bubble like growth we have seen in recent years. However, many do argue that since all cryptos resemble a scarce resource, its can fit this purpose.

The Governor makes the following three main arguments against the suitability of crypto as a store of value:

• The volatility of crypto currencies such as Bitcoin make this an unsuitable store of value driven by the fact they have neither intrinsic value or any external backing.
• The deflationary nature of the currency is actually a negative to macro economics. If we imagine that the price of the USD keeps rising very quickly, most consumers will be more interested in holding onto their hard owned dollars instead of spending them, this in turns pushes prices of goods down and the economy begins to stall.
• Finally, he states that forking of currencies is very much similar to debasement we see in centrally controlled currencies.

Crypto as a medium of exchange.

“Today no major online or high street retailers accept Bitcoin as a form of payment, and only a handful of the 500 biggest in the US do.”

Carney then explains why there is huge an obvious lack of mainstream adoption; mentioning issues such as expensive bitcoin fees, long confirmation times and ridiculous high electricity usage. Whilst these are all valid points and are the reasons we have not yet seen proper adoption, it is simply because crypto is still a young technology. There are already many solutions to these issues implemented in other cryptocurrencies, such as Stellar. Bitcoin and crypto currency as a whole is in a similar evolutionary stage as the BoE when they used to issue hand written notes to finance a war with France.

Crypto as a unit of account.

There is no business out there today which maintains its accounts in any form of crypto. Due to the combination of volatility and exchange complexities this does make sense and its quite tough to argue that today crypto as a unit of company accounts does not make any sense.

Is regulation needed?

Following the slightly dismissive view of crypto as a form of money, Mark provides an insight into his thoughts on the stance the BoE may take on this new technology.

“Isolation, risks foregoing major opportunities.”

He eludes to some level of regulation being best in the short term with full integration being explored, by a dedicated team as a longer term goal. The term Central Bank Digital Currency (CBDC) is used numerous times suggesting, the BoE is looking at the potential of an ePound, but sadly still as centralised currency.

Conclusion

The Governor opens with Adam Smith’s centuries old descriptor of a money, with which it is hard to argue, but the question which arises is does money have to work in the same way it did before? It is clear the bank appreciates the underlying technology and the concept of digitising assets in the future, stating their own dedicated research program and a possible central bank digital currency.

However, there seems to be no trust in the potential of a fully decentralised form of currency in which the BoE has no central role to play. So can technologists, economists and the individual group together to build a crypto assets which can function as the social convention of money?

My view is that yes we can, but Bitcoin is not (yet) that.