The value of sweat equity in the token economy
In this article I begin my exploration of what it means to create a self-governing blockchain. I do so in the context of the theories of collective action and self-governance that have been developed in the public affairs and public policy literatures. This article specifically reviews Vincent Ostrom’s The Meaning of American Federalism: Constituting A Self-Governing Society, a work that examines how a society can constitute itself so that its members will be free participants in a self-governing order and not merely the subjects of its state. I review Ostrom’s ideas in the context of contemporary discussions and experiments surrounding blockchain governance.
While I am a believer in the power of spontaneity and emergent order, I believe that reliance on these processes as the theoretical foundation for developing self-governing institutions may injure, or at least delay, our critical experiment with distributed blockchain self-governance. As Ostrom notes:
“Polycentric systems of order depend upon a good deal of deliberateness, operation, and maintenance over time.”
While “one token one vote” is a good rule to begin construction of self-governance, it cannot be the only rule. Aside from problems with voter apathy, the hope that delegating decision making authority in proportion to economic ownership of tokens will magically create a system that governs itself is somewhat naïve. It does not account for the disproportionate effects that entrepreneurs, existing social structures, and bad actors exert on decision making processes. It also does not account for the amount of effort and sacrifice required to build and maintain a self-governing community.
What are we trying to build?
What is our vision for self-governance? Decentralization and minimization of central authority are core principles of the blockchain community, but these are vague constructs from which to build a theory. The quest of the blockchain is a quest that has captivated humans throughout history: what does it mean to be a citizen of a self-governing society? What is the role of the individual and what is the role of the community?
The governance problem at the root of Ostrom’s book is that historically humans have thought about order in society by referencing “the state” or “the government” (and I would add “the corporation”), and that we need to instead contemplate how a system of order might be constituted without reference to these centralized institutions. When we create a dependency on “the state” as the ultimate arbiter of rules and justice, we put our democracy at risk because any centralization of power lays the foundation for the formation of a new ruling class. It may be a democratically elected ruling class, but a ruling class nonetheless.
Ostrom presents federalism as one solution to this governance problem. The elements of federalism include a plurality among institutions of government, constitutional rule, contestation as a way of processing conflict, and active citizen participation, among others. The checks and balances and distribution of authority and power inherent in federalism are critical elements for building and maintaining a self-governing citizenry.
Active Participation
The goal is to shift away from contemplating “the state” as our system of order. Where should we then direct our attention? Well, to us. All of us are responsible for building and maintaining the structures and institutions that we feel secure the principles that are important to us. But, you may ask, don’t the invisible hand effects resulting from the pursuit of self-interest create their own efficiencies resulting in a balanced economic system? Well, sort of. In many cases the price effect incentivizes individuals to maintain institutions that are beneficial not only to the individual, but to everyone. But, there are many caveats. Markets often achieve local, not global, maxima. Nefarious or powerful actors can manipulate markets. Individuals can act irrationally. The list goes on.
The blind pursuit of self-interest will not magically secure the principles of efficiency, effectiveness, equity, and democracy. We also have to understand that we are responsible for securing these principles for others. Ostrom argues that the covenants we live by can make or break our democracy. “Do unto others as you would have others do unto you,” must be sacrosanct. In other words, the quest for self-governance is a mutual agreement between participants to work hard, engage others, organize communities, and study and improve processes and technologies.
“The character of a democratic society is revealed by the willingness of people to cope with problematical situations instead of presuming that someone else has the responsibility for them.”
While the structure of the institutions of governance are important, it is the ongoing willingness of individuals to engage that is the important component of a self-governing ecosystem. Emphasis on the word “ongoing.” You cannot simply cobble together some technologies and processes and sit back and watch the self-governance magic happen. Evolution is critical. An individual, group, organization, or society that does not adapt is a good candidate for obsolescence. Self-governance requires energy and creativity.
Problem Solving
But, willingness to participate is only the first step. We, as individuals, need to learn how to govern ourselves and create institutions that facilitate collective decision making. What does self-governance look like? How should I behave? Unfortunately, there is no easy answer. A self-governing community looks like whatever the individuals involved decide it will look like, and its effectiveness is bounded by the knowledge and abilities of those individuals.
“Self-governing capabilities can be achieved only in a problem-solving mode, in which we order the exigencies of life so that we can learn from one another.”
It is the mode of operation, the process, the path that is the critical ingredient of self-governance, and not the resulting plans, technologies, rules, and organizations. The behavior of the individuals — what they believe, how they communicate, and their ability to solve problems — is what will lead to success. And yet, individuals are constrained by distance, by education, by language, and ultimately by mortality. Ostrom sees the reliance on individuals as being both unavoidable and problematic.
“Here we confront a fundamental dilemma: the use of knowledge can be exercised only by mortal creatures.”
The question becomes whether self-governing societies, which, by definition, must rely on the participation and intelligence of individuals, can overcome the limitations of those same individuals.
“Is there a way of diffusing knowledge, skills, learning and problem-solving capabilities among the members of a society so that people can use methods of collegiality in addressing themselves to problems of conflict and conflict resolution? Or must they rely upon some ultimate center of authority to exercise dominance over society?”
For many of us, our participation in the blockchain experiment is our answer to Ostrom’s questions. We believe that some combination of technology, hard work, and problem-solving will get us closer to our visions of self-governance.
Summary
Experimentation with blockchain governance is progressing at an amazing rate. New governance ideas and institutions are constantly being rolled out and tested. But, it often seems as though the we are blindly stumbling from one governance idea to the next. From an academic perspective, we seem to be favoring inductive over deductive reasoning. We are weak on theory. Ostrom argues that the concepts underlying federalism may be good starting points for building a theoretical model of self-governance.
This article suggests some concepts that should be considered as we develop models of blockchain self-governance: a focus on individuals and individual effort, the covenantal approach to relationships between individuals, and the constraints we will encounter when relying on individuals.
Ostrom, V. (1994). The Meaning of American Federalism: Constituting a Self-Governing Society. San Francisco, CA: ICS Press.
