economics

The Power of Crowd – Part Three: the Consequences of Change

Photo: Alex Holyoake

As I outlined in the earlier articles I believe we are at a crucial inflection point for the internet. While it has become integral and beneficial to many people, the way it is currently being used strays from the principles of the open web, in terms of equality of access, freedom of speech and transparency. The worldwide web has left a small group of companies holding most of the financial clout, while users are regularly exposed to invasions of privacy or censorship. At an even more basic level, the infrastructure is not in place for a large part of the global population to access the internet. The problem is that we have gone beyond the point of no return in our reliance on the internet to go about our daily lives. It will only become more pervasive in the future, but if we stick to the current model we will only perpetuate the existing problems. Therefore, we must to consider more radical reform to create a fairer, safer and more open internet, in line with the original principles behind the open web.

However, such change will also have far reaching consequences for our daily lives. It could affect how nation states interact with one another. It could alter how companies do business and require people to make more of a financial contribution to receive online services. I would contend that if we can get these changes right they will benefit everyone. We can improve privacy for individuals, protect free speech and foster fairer economic opportunities for everyone. I am not just saying this as a biased technologist. Hopefully everyone can agree the internet has had a positive impact on communities around the world. It has supported the rise of the global middle class, even if that it has left us with a lop-sided “shared” economy. What gives me hope is that there are new technologies emerging such as the decentralized web and crypto-currencies, which create the possibility of very different ways for societies to interact and trade. Philosophically this will be a heated debate, especially if it means suggesting an alternative economic model to the tried and tested ones. However, if we accept the world is filled with significant social and economic imbalances, and that the current version of the internet is helping to exacerbate them, then surely we should air the alternatives? And if a new generation of internet technologies could offer innovation, which might have a positive effect on social mobility, then shouldn’t we consider these options and the consequent effects for economic models?

There are many different ideas floating around, some have been around for a long time, some are newer. They might seem abstract in a discussion about the future of the internet, but now is surely the time for bold, if not radical departures from traditional ways of doing things. For example, if the future internet gives individuals greater control over their data, what will that mean for those online businesses who have relied on access to our personal information? If we no longer want to surrender our sensitive data in return for free services, then how should companies trade with us? If companies are allowed to continue to make significant profits from online commerce, should we consider more radical forms of taxation to improve access to the internet for the wider population? Will traditional currency still be needed in the future or would it be more efficient to turn to crypto-currencies entirely? Should we apply the model of open source software more broadly to give more universal, affordable access to products and services? Or should we do away with net neutrality and tier access so that everyone receives a form of internet service, which is commensurate with what they are prepared to paid for?

No matter what your response is to these questions, there are diverse economic and social models emerging, which turn away from many of the accepted principles of free trade economics. Below is a small sample of the theories up for discussion. Would one of these models be more appropriate than what we have today, or should we be even more radical?

Circular economy
This concept has its origins in developing a more sustainable approach to the use and disposal of resources. Rather than a linear view of production as “make, use, dispose” it reflects the cyclical model of nature where nothing is wasted. It is a stretch to suggest it can be applied wholesale to reforming the internet, but some form of circular economy could be more inclusive. Perhaps concepts such as recycling could challenge how we view ownership, with the internet enabling new models of shared or rented usage. For example, we could encourage less car ownership by enabling travellers to receive crypto-rewards for using alternative or shared forms of transport; or we could create a scheme to help less connected communities receive travel allowances from car users, taken as a crypto-tax when they use their vehicles.

Tech-Led Trustless Systems
Johann Gevers has put forward a theory that next generation technologies are encouraging the decentralization of the core pillars of society. This has the potential to enable communities to operate and govern themselves in a different way. He describes it as trustless technology, which means technology exists that removes doubt about the validity of a transaction or a user’s identity. We can guarantee an individual’s identity, be confident about privacy and be sure there won’t be cases of fraud or security breaches because the decentralised model overcomes the issues of the past. Technology of trust is decentralizing:

  • The way we talk to one another, thanks to tools such as encryption which enable more private conversations.
  • The legal system, as it offers individuals greater choice in how decisions are adjudicated.
  • Production, because 3D Printing means there is less of a need for mass production.
  • Finance through the arrival of crypto-currencies.

The biggest challenge for these trustless systems is the large number of people around the world who remain undocumented. If this approach worked it could dramatically change how we structure societies – perhaps moving away from larger sprawling urban environments to smaller communities inter-connected via the internet with like-minded communities sharing economic opportunity.

Digital Distributism
I have mentioned this before but it is a theory put forward by Douglas Rushkoff, which suggests internet culture is giving birth to companies like Etsy and peer-to-peer communities, supported by crypto-currencies. These communities are seen as less global and do not follow the model of organizations like Google and Facebook attempting to rule the world. Rather than be solely driven by profit these smaller societies seek to support everyone within the group, sharing wealth rather than taking it out for individual gain. It harks back to a time before free market economics when societies were more self-sustaining and using barter systems to trade goods and services. It does rely on individuals sacrificing personal gain to support the group and inherently if one community is in a resource rich location, then it will start with an advantage over others.

While these theories might sound like the product of a Silicon Valley brainstorm facilitated by a student of Ayn Rand, they are symbolic of the very exciting debates that are happening today. You only have to look at the emergence of events such as Sonar D+ to realise that some are already well on the path to exploring what a world powered by a different sort of internet might be like. This debate should be much broader, including representatives of every political and social persuasion, because consensus is going to be critical if we are to find the right solutions.

The Next Generation Sharing Economy

The press has been deluged in recent times with reports about the surveillance and eaves dropping employed by intelligence and security agencies around the world. Barely a week goes by without a new revelation being announced. But it cannot be ignored that surveillance is big business and this is in fact the way in which many of the largest Internet companies make the vast majority of their revenue. These businesses don’t call it surveillance of course, they call it advertising.

Google generated revenue of $66 billion in 2014, 89.5% of which came through advertising, while Facebook generated 88.5% of their $12.5 billion revenue via the same source. As I said, selling access to us and our data is big business. American cryptographer Bruce Schneier summed the situation up very nicely advising that ‘surveillance is the business model of the Internet’. Informing us, as others did before him, that we are not the customers of these services, we are the product itself, the advertisers are the customers.

This model has been the dominant force for a number of years, but is it all the fault of the Google’s and Facebook’s of this world? Can we lay all the blame at their door? Maybe in part, but we were the all too willing recipients of the ‘free’ services. I suspect that only a small minority of us stopped to think that the seemingly complementary search, mail, maps and social networking platforms came with a higher price. Although most of us didn’t realise the extent of it at the time that price was and is our privacy.

But it is not only our freedom and liberty that is at stake. Our economic well being is also at great risk. This may seem a counter intuitive statement at first glance, how can free services be bad for our economic situation? It may be bad for our privacy, but surely it’s good for my wallet!

Companies such as Google and Facebook act as central intermediaries between us and our data. They pay a substantial amount on infrastructure costs (servers, data centres, support staff…etc…) which they use to host their platforms and our data. But when you think about it, how much information and useful content do they actually produce? The answer you quickly realise is very little. They are in fact aggregators and organisers of other people’s content.

So if you think about YouTube (owned of course by Google), Facebook or Google search, it is not their video’s, feeds and search results being shown, they are ours. We are the content creators here, yet how much are we financially benefiting from this arrangement? Very little of that $66 billion is coming our way.

So, this centralised architecture also centralises who benefits financially from the Internet, creating what technologist Jaron Lanier (in his excellent book Who Owns The Future terms ‘a winner take all economy’. Consider the following chart.

Compensation-existing

What this depicts is a minority of earners taking the vast majority of the revenue, concentrating the power and wealth in the hands of just a few. This is what the centralising architecture of the Internet currently creates and this is the economy we continue to choose to support when we use these services.

Our desire for free (in the monetary sense) content and free services will lead to an ever greater sphere of influence being harnessed by an elite group of people and companies, making decisions that improve their own financial well being, not ours. It should not escape our attention that many of these large Internet companies are public, significant as the law dictates that their duty is to increase the profitability of their shareholders which is likely only to exacerbate the problem.

As Lanier points out, there is an alternative to this winner take all economy, however, one that will improve the online distribution of wealth. That is to reward everyone that contributes to the Internet, directly compensating the content creators rather than channeling the incentives into the hands of just a few. It would seem like a much fairer and more sustainable system where we provide value to those who create it, rather than those who aggregate it. Don’t get me wrong, aggregation and the hosting of others data is a valuable service, but it should not receive 100% of the reward.

In this context, content creators could be a: blogger, journalist, artist, film maker, musicians, application developers, even end users with a social network account and a video camera. As my colleague Paige Peterson pointed out in an earlier post, the advent of crypto currencies like safecoin, with their almost zero transaction fees, enable almost instant micro payments and donations to take place.

Bloggers could be paid or tipped by users as their posts are read and enjoyed. News websites could function in the same way, or they could charge a subscription for providing well researched and useful information. Potentially, artists and film makers (this also includes those sharing funny home clips on YouTube) could make use of the SAFE Network’s optional watermarking system to ensure that they are rewarded as the originator of content and continue to be rewarded as snippets of their song or film are built upon and used by or aggregated by others. Digitally recording the content creators (through an anonymous ID) of each piece of work will enable the network to manage and pay out rewards without human intervention and without corruption.

Some content creators may earn slowly at first, but as their content is used over and over again and accessed by a global network of consumers, their income will grow. This will give rise to a possibility of migrating from a ‘winner take all economy’ to a more bell shaped distribution of wealth (depicted below) where income is much more evenly spread amongst a greater volume of earners. In this paradigm, power and wealth would not be focussed toward the elite minority creating a next generation sharing economy.

 Compensation-SAFE

We may also find that under this new model the content itself will start to improve. The act of paying for something would increase user expectations and we would demand better material from creators who potentially have more time and effort to devote to their chosen area as the ‘real’ jobs used to pay the bills are no longer required.

You may be reading this in agreement with the concept of paying for content and the benefits it may bring, but believe the mindset and economic shift required to make this transition too big and unrealistic. Why would people voluntarily start paying for something that we currently get for free? If I was suggesting that people pay with existing FIAT currencies then I would be inclined to agree. But if users were rewarding content creators with safecoins that they earn by contributing their spare computing resources to the network then I believe you have something very exciting.

Safecoin will have a very low barrier to entry, making it possible for anyone with a standard commodity PC and an Internet connection to earn them. The SAFE Network also enables micro payments to occur at network speed with almost zero transaction fees. Content creators can then convert the safecoin they receive into another crypto currency or even into cash using decentralised exchanges

With the SAFE Network coming to fruition in the not too distant future, I anticipate that it is the beginning of the end of our reliance on advertising and surveillance as a business model. The technology companies of the future will be fairly compensated for the service they provide (1 x safecoin per hundred searches, or 1 safecoin for every 20 posts, for example) on a new Internet where creating valuable data will become the new dominant business model in an economy in which we all share.

The Economics of Safecoin

Great, another crypto currency! (heavy hint of sarcasm)

When the idea of incorporating a crypto currency onto the SAFE network was first formed, it did not take too long for it to be accepted as the way forward. Not only had David (our founder) invented a crypto currency (Perpetual Coin) as part of the original network design way back in 2006, but we could also see how it could serve to incentivise all stake holders across the network.

Farmers would be paid (by the network) for providing their computing resources (Proof of Resource) to the network. Third party app developers (called Builders in SAFE network speak) would code their safecoin wallet address into their apps and be paid by the network depending on how much their app is utilised by ends users, a gauge of the apps usefulness.

Safecoins would also be used to compensate developers working on the core code in return for making continual improvements to the underlying SAFE network. Initially this is likely to be predominantly core MaidSafe engineers and in time this work to will be taken up by third parties via the MaidSafe developer pods.

However, safecoin, now the chameleon currency, has roles to fulfil out with incentivising network behaviour, it must also act as a store of value with a payment mechanism while also functioning well as an investment. Safecoins were used to provide early funding to the MaidSafe Foundation from backers supporting the SAFE network who bought safecoins using other crypto currencies (bitcoin and mastercoin). Some safecoins will also be set aside for the initial equity investors in MaidSafe who took significant risk and believed in the project from a very early stage. These investors could swap some or all of their investment in return for safecoins at a later date should they choose to do so.

So, it is clear that safecoin has some difficult ground to cover.

What about free use?

One of the most important things for any new platform is that it requires early adopters and lots of them. While the MaidSafe Foundation will be using some of the funds raised from the crowd sale to seed the network, real users will provide the oxygen for a strong, healthy and robust network. It is therefore desirable to put as little as possible in the way of new users picking up the technology and using it.

‘Let them join and use the network, including storage, free of charge!’

At first glance this may seem like an illogical approach, it certainly did to me when I first heard it. I thought the long days and even longer nights were truly starting to take their toll on David when he first suggested it. If truth be told, I thought he was a few fries short of a Happy Meal! The community on our mailing list and in our forums also voiced and debated a number of concerns with the approach, including:

  • Tragedy of the commons 
  • Devaluation of safecoin

Tragedy of the Commons is an interesting problem. From a SAFE network perspective the concern is that some users may choose to store huge amounts of data on the network, way beyond what they are able to provide. Should enough users try to take advantage of the system in this way, the network will essentially run out of resource. This social dilemma has been witnessed across all aspects of human endeavour including; population growth, pollution and even spam email!

There are however aspects to the network that lessen the impact of a Tragedy of the Commons. To save space, the system keeps only 4 live copies of any piece of data. It is able to do this by using the unique hash of each chunk to identify other identical pieces of the data on the network. So, if 10,000 copies of The Beatles ‘A Day in the Life’ are uploaded, the network will identify that they are identical and update the subscriber count to 10,000, but keep only 4 copies of each file. This process is called de duplication, and while it works more efficiently with very commonly used pieces of data, like songs or books, it is not as effective for media rich bespoke data, like family photo’s or home movies. That said, very efficient de duplication algorithms can expect savings of up to 95% across all types of data and rarely less than 50%.

Another feature of the network is that Farmers are only rewarded with safecoins as data is retrieved (get requests) from their vault, not when it is stored. The frequency of these requests define the mining speed. The more data stored the more likely a request will occur and it will not be possible for nodes to selectively store data, they either store it or lose it. Losing data reduces rank and mining speed. The nodes will mine at greater rates as they store more data.

If people were to try and game the system by providing farmers to store data and then switch them off, they will simply remove their ability to earn. At some time in the future it is envisaged the network will be able to detect such data and remove it from the network. In the meantime, this kind of attack is costly to the perpetrators as their earning potential is adversely affected by their actions.

Safecoin must have a purpose

So, tragedy of the commons may be less of an issue than first thought. However, a second and potentially more serious issue is: If access to the network is free, then what purpose does safecoin serve? Without a purpose it will be valueless, not only to the Farmers and Builders, but also to the crowd sale participants who parted with hard earned crypto currency to get involved. While the network doesn’t need safecoin to exist, a lack of purpose for safecoin would devalue the currency and seriously reduce the incentivisation aspect of the coin.

Lets charge a micro payment for basic access to the network!

The problem with this approach is only 10% of all safe coins have been generated at this point, with the rest being generated by the Farmers providing resource and the Builders providing applications. Safecoins will be scarce, relatively speaking. If everyone needed safecoin to access to the network it would limit the number of early users. It may put more demand pressure on exchanges opening up to facilitate new users acquiring the coin (this would likely to lead to an increase in the price of safecoin as an investment), however it will still limit access to the network.

Make access to the network free and users pay safecoin for other services

Now I think we are starting to get some where. With this approach we are starting to edge toward a freemium model, where users are able to access the network without safecoin and store a certain level of data, but will need the currency to access third party applications, or for extra storage space, such as storage space above the network average. Both bandwidth and storage are scarce resources after all. Using this method, users who only utilise the SAFE network as a large disk without using any of the other applications sitting on top of it will need safecoins to store a large volume of data. This method will also help to reduce the possibility of a Tragedy of the Commons situation.

In addition to safecoin payments for third party applications (it is possible to develop any of the services that exist on the current Internet and more on the SAFE network), organisations and businesses may also use the SAFE network for high performance computing, a super computer on demand, much like Amazon’s EC2 service, MapReduce or Hadoop clusters. So, for analysis of very large data sets, such as Genomics, health records, astronomic data or credit card fraud information, for example, organisations would be able to harness the power of the SAFE network. As there are no infrastructure costs it would be possible to provide these services, using safecoin of course, for way less than the competition. These businesses would need to buy safecoins for this purpose using one of the many online exchanges that are likely to open up (we are already speaking with one provider and expect more to follow suit).

Now that we have utility and are creating demand for a finite resource, it would seem reasonable to expect the safecoin price to rise. This will reward the crowd sale backers for their early support, Farmers for providing resource and motivating them to provide more and to Builders for making highly useable and useful applications. From this perspective safecoin can now potentially function as a good investment.

It is also worth noting at this point that safecoin will initially be the only currency on the SAFE network. It is currently only technically possible to have one, although it will be feasible to add others in the future. I think that not having multiple currencies on SAFE goes against the grain of what MaidSafe is all about, inclusion and freedom, and the competition of competing coins will ensure ongoing currency innovation. However, safecoin will have first mover advantage and will be the dominant currency initially.

Safecoin is like digital cash

Once safecoins value on the network is established, the value of the transaction mechanism within the network (the SAFE network’s version of the block chain) can be seen. Capable of processing millions of transactions per second and able to confirm transactions at network speed, the SAFE network utilises an unchained ledger. This means that only the previous and current owners of each coin are known and in this respect safecoin can be thought of as digital cash. Instantly redeemable, secure and with greater anonymity and because the safecoin transfer mechanism is also full distributed, like any other piece of data on the network, there are no scaling issues or block chain bloat. David wrote about this earlier:
http://metaquestions.me/2014/04/12/safecoin-why-its-safe-and-what-it-means-for-us-all/

So, what are we left with?

I think a crypto currency with real utility. One that incentivises each user group on the network, and oils the engine of exchange. I think it is also important to recognise that we are no longer paying for Internet services with our privacy, as we do today. We are paying with safecoin, which is a secure, anonymous and efficient mechanism that will run in the background of many network transactions. Not only will this lead to a more freedom, it will also provide a better user experience with no reason for adverts (unless the advertisers pay you safecoin!).

I also hope that we are left with a strong currency in it’s own right, one that can be used for buying products and services as varied as storage, big data computation and sand shoes! I also think we will have a currency that performs well as a flexible and accessible store of value, that also represents a good investment for it’s initial backers. However, like any currency its use as a method of exchange is what will really drive its usefulness and value.

The other important thing to recognise here is how we go about implementing safecoin. You will notice I used the word ‘we’, as in all of us. The recent crowd sale signified MaidSafe handing over the network to the people and the responsibility is on all of us to make this work. Feedback from the community have got the implementation this far and more feedback will be required as we discuss and debate the finer points of the technical implementation. So, if you have managed to make it to the end of this post I congratulate you, it was one of the longer ones. The fact that you did means that you are passionate about the SAFE network and if you have not already done so, jump into our community run forums (https://www.maidsafe.org/ and http://safecointalk.org/) and contribute your thoughts on the economics of safecoin.