Rise of the Block Chain: The Great Return To P2P
The vast majority of human existence has been conducted in a stateless environment. For a few hundred thousand years humans roamed in groups of hunter-gatherers. Some researchers believe that Middle Palaeolithic humans (ca. ~250,000 – 45,000 yr) were sparsely populated in groups of not more than 25 individuals (pg 124 from the previous link). The evidence suggests that not much time and labor was invested in producing technology, and that besides spear tips and shafts, nothing found in the ancestral tool-kit would have taken more than twenty minutes to produce (pg 120). As a result, the efficiency with which prey was hunted or food gathered was only sufficient to support a limited population. Being that humans were so thinly populated it is likely that they were divided into essentially autonomous foraging groups (pg 125). The social order of the Middle Palaeolithic people was thus mostly confined to their own group. Judging by more recent systems of customary law, it’s possible that these relatively autonomous units could have had primitive methods of dispute resolution within their own ranks which perhaps even included enforcement of norms through social ostracism. The groups which were the most cohesive and which worked together the best would have been more likely to survive and reproduce. These evolutionary pressures may have meant that the most orderly and well tempered humans proliferated whereas the dysfunctional ones would have died off. One might even go so far as to suppose that these primitive concepts of property, law, and justice were present throughout the emergence of the Homo Sapiens species and helped shape our very biological evolution.
As the sparse capital slowly accumulated over the ages humans became more efficient at attaining food which allowed them to allocate ever greater quantities of time and labor towards producing more tools. The sophistication of the technology was also slowly advancing. More food meant that the smaller groups were increasing in size and overall human population levels were on the rise. A larger population would have increased the incidence of interaction between hunter-gatherer groups and competition for scarce food resources. By the time of the Upper Palaeolithic period (ca. ~45,000 – 20,000 yr) migration was much more common and the technological artifacts show a greater degree of time and labor investment. Ornaments suddenly appeared in the archaeological record as well suggesting that humans had enough extra time to begin producing items which had purposes beyond mere subsistence. Exotic materials were exchanged over long distances which, along with the ornaments, can possibly be explained by an emerging social order and widened circles of relationships (pg 126 – 127). Rather than descending into violence and chaos over competition for food it is apparent that humans were more bent on forming mutually beneficial relationships. Any violence would have been extremely costly to any hunter-gatherer group as losing key members could have possibly resulted in the entire group being wiped out from starvation. Instead, the primitive systems of law and justice within the previously autonomous groups would have likely developed in response to the increasingly complex social interaction. Interestingly, the evolving human language might have developed rapidly as well as a result of these complexities. Some theories of language evolution argue that the need to refer to an individual who was not present as a means of reciprocity pushed human language to a new level of sophistication. Reputation, accusation, and oath swearing are central aspects of any human system of law so it would not be surprising if human language flourished under this new regime of social cooperation.
During the late Upper Palaeolithic period (ca. ~20,000 – 10,000 yr) technological progress had led to labor intensive bone, antler, and ivory artifacts which required multiple stages of production and considerable technical knowledge to complete. Tools also developed for the greater consumption of vegetable foods, such as grinding slabs, querns, and mortars and pestles (pg 112). Small-scale exchange of goods was pervasive and long distance trade networks were used to move goods and possibly to insure against food shortages (pg 115 – 116). These developments likely further created the need for ever more sophisticated systems of law and justice in order to mediate any kind of disputes resulting from trade disagreements and the increasing scope of impersonal social interaction in general. If more recent systems of customary law and justice are any indication Palaeolithic systems might have had some of the features Bruce L. Benson, economist and senior fellow at the Independent Institute, outlined in his Enterprise of Law: Justice Without the State –
1. Predominant concern for individual rights and private property
2. Reciprocal arrangements for protection and support in a dispute
3. Standard adjudicative procedures established to avoid violent dispute resolution
4. All offenses treated as torts with restitution payments to the victim
5. The threat of social ostracism used to enforce laws
6. An evolutionary process of developing customs and norms
The level of capital accumulation and degree of the division of labor in the late Upper Palaeolithic period would not have been sufficient to have a justice industry, one where you had career adjudicators or jurists, but nevertheless it’s certainly possible that more sophisticated methods of dispute resolution developed to deal with the rapidly changing social environment. What is interesting about these customary systems of law is that they are reciprocal in nature. In a primitive setting, individuals linked by kinship or geographical proximity have an incentive to support one another in the pursuit of justice when an offense against persons or property has been committed. Everyone supporting a victim is effectively insuring themselves against crimes since they can expect others to return the favor in case something happens to them. These arrangements allow for the formation of networks of social insurance under the prevailing customs. Customary law is thus effectively a peer to peer type of system as each individual keeps every other in check through a network of cooperation and enforcement.
Following the agricultural revolution and development of human settlements, as well as the increased capital accumulation and division of labor, customary law became ever more sophisticated. The first three prehistoric cultures that came about in Mesopotamia — the Hassuna, Samarra, and Halaf — never showed any signs of having a centralized state. More recently, early Medieval Ireland and Iceland had highly developed and refined systems of customary law complete with professional adjudicators and law-speakers. Each had competitive law and justice as there was no monopoly organization controlling the provision of those services. Individuals in Ireland in particular were linked by a network of surety agreements which meant they were mutually liable for restitution payments if one of them refused to submit to adjudication or failed to pay. That system was the cumulative result of thousands of years of evolution from the time the Mesolithic hunter-gatherers first settled Ireland around 8,000 BC possibly bringing with them customary traditions inherited from the Palaeolithic period. Both Ireland and Iceland were essentially peer to peer societies as these social insurance networks worked such that everyone kept everyone else in check.
State societies, on the other hand, have a monopolistic entity with vast jurisdiction. States are organizations that resulted from the slow de-evolution of customary systems over the course of centuries as control over the provision of law and justice came under ever fewer hands. They only became possible after humans settled and had accumulated enough resources to support these parasitic institutions. What was once a peer to peer type architecture has given way to a situation where a single entity is responsible for keeping everyone in check, including itself. For thousands of years, these states have expropriated resources from their populations in order to fund campaigns of conquest to expand their territory and bring more people under their control. In this environment, again and again empire states have emerged which eventually splinter and shatter under the weight of their own endemic corruption and lawlessness. This has been the pattern to the present day and many seem to think that this is the inevitable result of human civilization. Indeed, were it for not for some kind of new element introduced into the sphere of human activity it is likely that this would be the case. However, technology has now progressed to the point where we have a much more integrated global economy and a global communications network, much of which is part of the Internet. Many libertarians hoped that the Internet would have revolutionary consequences for human society and even possibly bring about the decline of the modern nation state. After 15 years, however, it seems that the same institutional power structures are still firmly in place with no end in sight.
Then in 2009 an anonymous programmer released bitcoin. Bitcoin is software which allows for an uncensorable, unhackable, trustless public ledger capable of tracking transactions of units of account between any two individuals in the world. Unlike banks or other types of payment systems, bitcoin doesn’t rely on a central trusted authority. The transactions are processed by “miners” who repeatedly perform hash functions on a “block” of transaction data while changing the block of data a little bit each time in hopes of obtaining a hash result that begins with a certain number of zeros. A hash function takes a variable length piece of data and spits out a fixed length chunk of alphanumeric characters. The key is that hash functions are really easy to perform one way to get the result, but if you are only given the result it’s exceedingly difficult to work backwards and find out which piece of data would produce that result. The miners perform these hashes until they discover a result that satisfies the bitcoin protocol, at which point they have “solved” the block and are rewarded with new bitcoins. The purpose of these computations is to provide security to the network. The hash of the previous block is included with the next block such that they a linked together to form a “chain.” In this manner, any node on the network can verify that they have the correct copy of the public ledger by consecutively hashing each block along the chain to confirm that the hash within every block does indeed correspond with the previous block. In this manner it’s possible to prove that a certain amount of computing power had to go into getting all of those correct hash results. In order to defraud the bitcoin network and counterfeit bitcoins an adversary would have to take over at least 51% of the computing power of the network, which at this point has reached an astounding 350 quadrillion hashes per second. Thus, the bitcoin network is protected by a proof-of-work protocol and the security of the mathematics behind the hash function. Hence why people say bitcoin relies on the laws of mathematics rather than a potentially fraudulent central authority.
But as revolutionary and amazing as bitcoin is it has not yet brought about any fundamental changes to traditional power structures. Granted bitcoin is still very young and it will take time to build up the real world institutions around the network. That being said though bitcoin is effectively piggybacking on the existing monetary system. Unless there arises some mass need to hold and exchange in bitcoin it is unlikely that it will ever displace the monetary system upon which it depends. Bitcoin’s legacy might not be the libertarian dream of a stateless society but it could spawn new projects that might gain much more widespread use and popularity.
Currently, there are several “bitcoin 2.0” projects out there based upon bitcoin-like block chain technology. One of the most promising ones is called Ethereum. Ethereum is a platform which will allow regular developers to leverage the benefits of block chain technology while utilizing coding languages which are very similar to the ones with which they are already familiar. Block chain development is currently a highly specialized area which means the deployment of new decentralized applications is slow and sparse. But Ethereum will open the floodgates and unleash the already existing knowledge base into the arena of trustless, uncensorable application development.
Ethereum works by incentivizing miners to run the code of a decentralized application. Anyone who wants to utilize a decentralized application has to use ether, the Ethereum currency, to make a bid on “gas” in order to get a miner to execute some code for them. The bidders can specify the gas price and the miners will go for the highest rewards. As a result the bidder will always face a trade-off between not spending as much ether and increasing the prioritization of their transaction among the miners. In this way, Ethereum is a decentralized way to manage network resources which rewards those who contribute computing power to the network in order to run applications. This set up also prevents people from spamming the network with requests or engaging in a distributed denial of service attack as such efforts would become too expensive very quickly.
Currently, all of the systems that we use on the internet, such as Facebook or Uber or eBay, rely on central servers with network administrators tasked with maintaining those servers. These systems are very vulnerable to censorship or control from a government entity. For example, the city of Boise, Idaho recently sent a cease and desist letter to Uber because the company was allegedly operating without a proper license. With Ethereum, all of these systems could potentially be replaced with an uncensorable application that governments would be powerless to control. Maybe someone will come along and develop a ride-sharing app that, like Uber, relies on reputation but which allows people to bid prices and negotiate rides directly. Certainly, governments could attempt other methods to stop such activity, like making it illegal and then deploying sting operations to go after violators. But then again it’s inevitable that creative people will come up with workarounds. One solution might be to have people buy in to the network initially and then to track the rider’s reputation. That way code enforcement would become very expensive very quickly, and the identities of the enforcers would be outted.
At any rate, the interesting implication here is that the informal economy, known as System D, in which entrepreneurs operate without licenses or bureaucratic control, is already estimated to be worth $10 trillion globally, and could expand considerably with the emergence of Ethereum or similar technologies. The most exciting possibility for me is that the realm of protection, law, and justice could start shifting into System D. An estimated 40% of Americans live in areas covered by neighborhood watch groups. The demand for security over and above police patrols is clearly there, but neighborhood watches are voluntary and oftentimes rely on people who are busy with their day to day lives. Ethereum could allow for an app which allows neighbors to bid on patrol services from professionals. Emergency response, firearm, and other relevant types of training could be sold and used to certify on the network that a given professional had indeed completed the training. The professionals could even form an insurance network to insure themselves against any civil suits which might arise out of an incident. In that way not only would they have an incentive to get training and provide quality services but they would want to strictly vet anyone requesting to join their insurance network. If people could purchase 24/7 patrols for a reasonable monthly price I think something like this could spread very quickly and drastically reduce crime. The patrolmen could even make their services more attractive by forming “protect you anywhere” networks in which even if you weren’t in your own neighborhood you could send out a distress call and have another neighborhood patrolman who is in the area and part of the network come to assist you. The patrolmen themselves could form alliance networks to have nearby professionals respond if they need backup, another feature which would make them more attractive to the end consumer. What monthly price would you pay to not only have your home or apartment watched over, but to be able send out a distress call from almost anywhere and get help within minutes? How about to show up and film the police for you if they have pulled you over or are harassing you?
Another possibility might be crowd funded private detective services. If a crime does occur in a neighborhood, such as a home invasion, all neighbors would have an incentive to contribute to a private detective who could positively identify the people responsible. That way neighbors, along with the professional patrols, could be made aware of who to look out for. The evidence could also be used to form a crime database which all private property owners, including businesses, could use to voluntarily ostracize offenders if they thought the evidence was strong enough and offense bad enough.
On top of that, an app could be developed for mediation services. If a private detective could positively identify the alleged offender he could contact them and suggest that the individual admit guilt and arrange for a restitution payment to the victim. That restitution payment could be enforced via the threat of the ostracism network. According to the Bureau of Justice statistics, in 2012 44.2% of violent crimes and 33.5% of property crimes were reported to police. Currently, victims cannot expect a restitution payment and thus have no monetary incentive to report crimes. Additionally, the BJS report states that one of the reasons why victims don’t report crimes is that they don’t think the police can or will do anything about it. Indeed, according to the FBI, in 2012 46.8% of violent crimes and 19.0% of property crimes were cleared by arrest, or by “exceptional means.” That means about 79% of violent crimes and 94% of property crimes did not lead to an arrest and the placing of the alleged perpetrator before a prosecutor. The current justice system is so ineffective that many victims simply “opt out” by doing nothing. Even if they did manage to get an arrest out of the deal they then have to use their time and personal resources to cooperate with an adjudicative process dominated by prosecutors, judges, and lawyers where the victim effectively has no control. If there was a chance that they could get the offender identified and have them admit guilt, apologize, and pay restitution that would incentive victims to report crimes and gather the support necessary to pursue justice.
The last two pieces of the puzzle are bounty hunters and court services. Crowd funded bounty hunters making arrests probably wouldn’t be possible considering the current legal environment. An arbitration app could certainly be viable however. If an alleged offender has been targeted by the ostracism network but asserts that they are innocent they could comply with the victim by using an arbitration app. Much like customary systems of law, the victim and alleged offender could each chose an arbitrator, and those two could chose a third, such that a decision could ultimately be made. All the relevant evidence could be presented via the app, and any kind of court room proceedings could be done virtually. The facts of the case and decisions of the arbitrators too could be compiled in order to form a parallel system of law. Arbitrators could use past precedents in helping to justify the reasoning behind their decisions.
All of these systems could be used to give people a credit rating in terms of whether they’ve committed crimes, made false accusations, paid restitution if they did commit a crime, or perjured in virtual court proceedings if they got caught bearing false witness. That credit rating in turn could be used by an app where people join an insurance network so that if they ever have to pay restitution that they can’t afford it could be covered. Membership in such a network might become necessary in order to avoid ostracism or to gain access to detective or adjudicative services as a victim. They might operate in a similar fashion to the Medieval Irish sureties where failure to maintain such relationships could result in ostracism. A higher credit rating would mean lower insurance premiums whereas continually committing crimes would result in removal from the network, perhaps by vote. These insurance networks could also expedite the entire process of dispute resolution. Members of the network could place pressure on an offender within their ranks to submit to adjudication or admit guilt. Failure to do so could also mean expulsion from the network which could then pay the restitution. The credit rating could also be a useful number in determining the amount of restitution paid to the victim. Customary systems of law had the concept of a “man-price” that determined the amount paid to the victim or their family. People with a higher credit rating might expect more restitution money for the same crime than someone with a low credit rating. That would act as yet a further incentive to refrain from crime especially against the honorable members of society.
All in all I don’t see why any of this wouldn’t be possible. States would likely attempt to either make illegal or enforce licensing on some or all of these things, but like the Uber example, all it takes is a creative programmer to work around these issues. Joining any one of these networks could require an entrance fee sufficient enough to make infiltration and enforcement too expensive. Insurance networks could even emerge to cover the cost of the fine or of any legal representation. One of the greatest disadvantages a state has is the knowledge problem associated with obtaining information that a crime has taken place. Police make up ~0.28% of the population in the US (900,000 sworn officers out of 316 million people), and so their ability to respond to crime relies on victim or witness reporting (the BJS figures above included witnesses). Most victims opt out already and chose to do nothing. If they had a much more effective alternative and the possibility of restitution money they would probably start opting out en masse. The state would be powerless then to have any real impact on actual crime, i.e., crimes with victims, and wouldn’t be able to do much but enforce victimless “crimes.” The central justification for the existence of the state in most peoples’ minds would be exposed as highly questionable. Such a development could lead to a rapid and dramatic drop in support for the state, and as history has shown, without mass support a state cannot continue.
Naturally, states aren’t going to go quietly into that good night. But it will become increasingly difficult to enforce their decrees as more and more aspects of law and justice slip into System D. 2009 was the year that the block chain was first released into the wild, but 2015 will be the year that its true potential starts to become apparent. Most of our existence has been stateless and under a peer to peer customary system of law and justice. We were never destined to live under states. This has just been a temporary hiccup in our journey, a terrible nightmare before coming out of the primordial fog and into the light. The rise of the block chain may just allow us to make a great return to p2p. This time however instead of the network architecture being local and daisy chained across the environment like in the past, it will be global in scope with much more interconnection, and in a world of advanced technology. So buckle in because we’re heading into totally uncharted waters. The next few decades will be very, very interesting.