August 14, 2018
The Decentralization Gametips for values-forward reformers
“Decentralization trumps bad law” is bad history. Decentralization can shake a status quo. But in the end, competing interests seek stability, and decentralization leverage usually accrues to centralized enterprises willing and able to cut new, stable, coalition deals with the interests the law tries to balance. The end result is nearly always a new equilibrium within the established legal framework, not a gaping decentralization-shaped hole in public policy.
If decentralization matters to you because centralization flaunts your value system, the lesson of history is that you can’t win just by decentralizing hard enough. If you run headlong at the law, without regard for the balance of power it represents, and design your systems antisocially, you may get lucky and earn big for redistributing wealth, but you’re unlikely to work lasting structural change. To decentralize systems and keep them that way, we have to understand what we challenge, and learn to build systems that take responsibility for improving outcomes, not merely restructuring them.
The good news: History shows that decentralization can unsettle an existing balance of power. The bad news: Be prepared to offer a new, livable balance on the other side, or see your gains slip away.
The Operational Game
The government enforces some laws, like drug laws, and leaves private parties to enforce others, like most of the Copyright Act. The players are different, but the game is played mostly the same:
White: Implements the system as simply as possible, under unitary operational and legal control, often one company. Proves the concept and delivers value, at least partially illicit.
Black: Sues or prosecutes the unitary controller for breaking the law and flaunting public policy. Forces it to shut the system down.
White: Reimplements without unitary operational control, decentralizing, distributing, federating, and standardizing functional aspects of the system.
Black: Sues or prosecutes those developing, maintaining, facilitating, and popularizing the reimplemented system for helping others break the law and flaunt public policy. Forces them to stop, or if that’s not possible, burdens and constrains them.
White: If feasible, meets imposed burdens and constraints. Otherwise, decentralizes, distributes, federates, and standardizes the way the system is made, maintained, and facilitated.
Black: Sues or prosecutes end users of the system for breaking the law and flaunting public policy. Pursues them ruthlessly, to make public examples and frighten all the other users they can’t afford to pursue.
White & Black: Negotiate a compromise, within the law. Jointly herd users toward the compromise system, which is often better, since it doesn’t have to navigate the constraints established earlier in the game.
File sharing services and the entertainment industry played this game in my youth. Websites posted music and video files online, but websites could be shut down with one fell legal stroke. Napster distributed the burden of compiling and distributing content, but not peer discovery or search, and the music industry shut Napster down. Second-generation P2P file sharing apps distributed peer discovery and search. The courts held that technologies with substantial noninfringing uses could not be shut down for all users indiscriminately. So the content industry publicly and ruthlessly sued individual users of file sharing applications. In the end, companies like Apple brokered deals for legal sales of media files in online stores, the combined seller-producer coalition promoted those stores, and users came to turn to them first.
This game has been played many times. Printing presses. Sheet music. Piano rolls. Phonograph recorders. Tape recorders. Video cassette recorders.
We will play several more rounds in my lifetime. E-commerce. Social networks. Payments. And so on. Stakes will remain high.
The Policy Game
Politics connect policy to law. Looking back, we see that the decentralization game follows a pattern in the political dimension, too:
White: Decries applicable law as poorly implemented, overreaching, technically ignorant, anti-competitive, and corrupt.
E.g.: “Copyright law is bad public policy that affects too much work, doesn’t anticipate cheap copying via computer technology, serves big content companies, and got written largely at their bidding.”
Black: Counters that White wrongly short-shrifts, or outright ignores, the basic fairness and policy thrust of the law, disrupting a settled compromise achieved through established political process.
E.g.: “Copyright law ensures that artists, producers, and the companies that support them early on get compensated. File sharing advocates just want free music, at everyone else’s expense.”
White: Pleads technical infeasibility, and accuses law of strangling an emerging technical advancement.
E.g.: “Computer systems will only get better at making copies, and DRM is fundamentally flawed. Rigorously enforcing current copyright law only helps the content industry keep the market locked into physical-media distribution, when all the technology for distribution over the ‘Net already exists.”
Black: Counters that White ducks responsibility for designing systems responsive to public policy, pointing to past examples of successful compromise systems.
E.g.: “All the technology for free distribution exists, but not infrastructure that pays artists for the value they deliver. In the past, technology and service companies helped the music industry administer a massive system of royalty calculations and disbursements, which makes artists tons of money each year.”
In rare cases, the leverage decentralization buys moves policy itself. But in the run of games, the law adapts to the technology, as by court decision, rather than forcing a rewrite of the legal regime or a revision of underlying public policy. Napster begat case law about secondary copyright liability, the limits of responsibility for providing others tools with which they could infringe. But it didn’t change the fundamental policy behind copyright law, or the basic written structure of the Copyright Act:
To promote the progress of … useful arts, by securing for limited times to authors … the exclusive right to their respective writings…
When decentralization does affect policy, it usually does so at the compromise stage, not before. White and Black enshrine their compromise in the law. Under the Copyright Act, we see that in provisions like compulsory licensing: situations where owners of rights have to license use of their work, but get paid an amount set by law.
Law changes this way, rather than buckling on new technology, because the people and interest groups invested in prior compromises, embedded in the law and the systems built up around it, don’t just disappear. In fact, they’re often far better at expressing themselves through the political process than upstart newcomers. A common, credible threat to unite against only makes them more effective.
The Business Game
Manufacturing opportunities to redistribute wealth is good business. Business practice reflects this.
The enterprise opportunity of a network technology changes over time: First high in risk, with low probability of long-term reward, in the initial, centralized stage, before decentralization. Then low in risk and high in reward, in the similarly centralized but more competitive compromise stage, when the uncertainty created by decentralization breeds opportunity. A large business aims to enter the game early enough to earn a seat at the table to play for all the chips, but not so early that the company, or its customers, lose big and catch Hell.
When an established company steps in too early, it puts its whole value and reputation at stake. Risk management—compliance, accounting, legal, and so on—keeps would-be entrepreneurs on payroll from wagering the good corporate name to make their own. Large companies therefore come late to iconoclastic movements, by institutional design. When risk management functions normally, large companies lack the expertise and connections to hold themselves out as credible saviors from the lawless, decentralized fray. No iPod, no iTunes.
Of course, the middle, decentralized stages also run crosswise with enterprise-scale operations. Their conditioning to capture and protect business value tends to lovingly strangle opportunities based on spontaneous confederation. Their management hierarchies drive off risk-hungry helions who excel in chaotic conditions. Enterprises are big structure, breeding and collecting more big structure. Destabilization is not their forte.
To fill this capability gap, enterprises use start-up companies, and to a lesser extent risk-shielded, autonomous subsidiaries and cloistered skunkworks projects, to squeeze value out of incumbents. Speculative ventures don’t have public money or trust to safeguard, eschew risk management for focused, risky gambles, and attract the kinds of personalities bred to bite and claw atop a dogpile. Evolved, purposive creatures.
But the endgame of a start-up company is acquisition by something with access to public capital. Selling out is the model. Established concerns happily foot the bills—from founders, venture capitalists, and so on—for packaging up such opportunities for sale. In part because the value acquired by assimilating a start-up is different in kind from what enterprises can produce for themselves. They can’t do decentralization. But big companies, and to a lesser extent the public markets, via IPOs, are the only ones who can afford to buy it out.
Acquisition, or going public, begins a reckoning, a selective reconciliation. From a public policy standpoint, start-up companies taking drive-by shots at settled markets operate subversively, often at the edge of legality. Imposition of public-company risk management and work style comes as a calculated shock. M&A typically features executive retention, but founders often depart as soon as they can. Ideally, after they’ve done their part to help the acquirer broker a new, stable compromise with other stakeholders, but before they wreck the harmony of the work environment.
The decentralization game as we know it plays great for those served well by speculative lottery payouts, venture multiples, and rents from entrenched business-border stalemates. If that’s you, skip the rest, and pour yourself a drink. The part describing how things are and have been is over, and it’s all good for you, if your luck is.
The decentralization game does not play well for those who favor decentralization because decentralization favors values like end-user privacy and autonomy. Whatever gains the decentralization game achieves for those values rolls back when systems recentralize. Decentralization serves as a transient catalyst, dissolving the status quo long enough to recrystalize wealth, control, and information in a slightly different lattice. Maybe that redistribution has value-positive secondary effects. Often, when at all, by happenstance.
I don’t think that’s inevitable. Especially when coordinated and facilitated by a cohesive group, I don’t see any limit on decentralizers’ capacity to broker stable compromises.
A few more hopeful thoughts, along those lines.
Minimize Collateral Damage
If you swing into an established market like a wrecking ball, you won’t be the rattled community’s natural choice for putting the pieces back together. The more collateral damage you inflict, the less your architectural talent shines. Consequently, the less your preferences will affect the design of the new, stable system, where discretion matters.
Minimize collateral damage by approaching the game as a negotiation, not a conquest or terrorist assault. Decentralizing some or all of an existing system, or even merely demonstrating that’s possible, can earn you leverage. Incumbents that otherwise wouldn’t give you time of day may engage. But in the end, you need a coalition and a new normal that a self-sustaining critical mass of political will can accept. There will be winners and losers. There always are. But resilient interest groups don’t just disappear. A splash of decentralization won’t melt them on contact, like the Wicked Witch of the West.
As in any negotiation, you want to study your starting point and prior deals. That includes prior cycles of decentralization. Why is the system the way it is now, that irks you so? Sometimes, the answer will be at least partially, plainly illegitimate: unexamined tradition, practical miscalculation, corruption, changed circumstances. But one fault doesn’t damn the whole structure. In the end, the test is whether a political solution endures, not whether it was conceived in blameless innocence.
So identify as many groups affected as you can, and feel out how the current normal balances tension between them, statically and dynamically. It’s damn difficult mapping out all the stakeholder constituencies like that, especially when they’ve been on quiet ceasefire for some time, rather than fighting loudly in court or the press. But that is exactly the map you need to navigate to a new compromise. Take pains to show understanding and respect for others’ stakes in the game. Know their points of view well enough to avoid pointlessly antagonizing them.
Fight Target Fixation
Most decentralization activists that I know stress the universality of decentralization benefits. Privacy protects everyone. Autonomy empowers everyone. Resilience supports everyone.
Even if you think it’s broken, mismanaged, corrupt, and stupid, if the stakes in the current equilibrium are high, that’s probably because utility and reliance are, too. If decentralization means trading off some of that existing utility, even temporarily—because your system is new and immature, because decentralization requires it, technically—the benefit of decentralization has to offset the loss. On top of that, it has to be as compelling, visible, and well articulated. If it doesn’t affect decision making, it doesn’t meaningfully count.
This is just a specific case of a well known pitfall of activism. Ooze enthusiasm, but don’t assume anyone cares as much about your values, or your approach to practicing them, as you do. You will probably need some users who don’t share your religion to field a full team. You will probably need to make some new converts, by convincing them more or less from scratch, as well.
If it’s worth decentralizing, there are probably lots of folks using it who have never heard the word “decentralization”. You have some work to do. And not necessarily by sharing the good news of decentralization. You may believe in the means. Many will join and stay only for the benefits.
Most decentralization efforts don’t attract much attention. Those that do gain momentum both from allies motivated by shared values, and from speculators who know the game. The latter aren’t necessarily poison. Their momentum is often essential.
That being said, all the usual cautions about other people’s money apply. Beware of situations where you receive support or attention for one reason, and prefer, on a very basic, human, psychological level, to pretend it’s for another, or to avoid thinking about it. Beware situations when money and other resources, on the one hand, and expectations, on the other, veer dangerously out of whack. When you build a team, take investment, or share control, do your due diligence. If you work with business, you’ll need to be good at business. When you play the business game, business rules apply.
That is not to say that you won’t find allies or meaningful support through business channels. Sometimes the best tool for making change is a business structure, like a well understood investment or joint venture form. Purely profit-motivated structure, acumen, and experience can true up an idealistic endeavor that would otherwise wobble itself to pieces, or achieve less than it could. Values-driven decentralization and entrepreneurship can and do coincide. Business knows how to get some things done.
As ever, the trouble is telling good opportunity from bad, looking beyond the written terms and figures. Judgment is required. And luck. You’ll have to play smart to get as lucky as you need to be.
Decentralize a big, popular system? Go for it. I’m not here to stop you, and I’m not here to talk you out of it. I dabble a bit, myself.
But read up. Know the game. Change the game, if you can, and write a bit of history we can point back to, for the next round.
Your thoughts and feedback are always welcome by e-mail.
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