Web3 isn't a panacea for democracy. But could the technology and applications help to rebuild trust in government and public institutions?

It’s always dangerous to argue with an esteemed economist and academic. In an article entitled “Blockchain isn't about democracy and decentralisation – it's about greed”, Nouriel Roubini, Professor Emeritus of Economics at New York University's Stern School of Business, said:

With the value of bitcoin having fallen by about 70% since its peak late last year, the mother of all bubbles has now gone bust. More generally, cryptocurrencies have entered a not-so-cryptic apocalypse.

This could’ve been written at any point in the last few weeks, but was actually published in October 2018, at the start of the last ‘bear market’ or ‘crypto winter’ as it has become known.

The article goes on:

Thousands of […] digital currencies have plummeted by 90%-99%, and the rest have been exposed as outright frauds. […] Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history.

Roubini was absolutely right that in every downturn the weaker projects get exposed. But we take a different view about the potential (and for now that’s all they are) implications for democracy.

We know that democracy and effective governance face the combined challenges of rising partisanship, a lack of trust in democratic institutions and the disempowerment (both real and perceived) of disparate communities.

There is mistrust of institutions, election results, politicians and the mainstream media. You can see this in narratives of fake news, debates over free speech on platforms like Twitter and Facebook, anti-establishment movements including Brexit, and the Capitol Hill riots after the US Presidential elections. In the UK, only 23% of people say that they trust governments to put the national interest first and 44% say they almost never trust politicians to tell the truth.

In starting Project Vellir, we took inspiration from Þingvellir (the "Assembly Fields") in Iceland, site of the longest running Parliament in the world. In the early 10th century, it was a meeting place for clans to hold discussions and legal sessions, and subsequently became the site of the Icelandic Parliament, now in Reykjavik. The site was chosen because it was easily accessible for all clans to get to for the annual parliament.

In many cases, our systems of governments and models of citizenship are still built on these pre-modern foundations and have not evolved to cope with modern challenges. While we still have the same fundamental participation, community decision-making and governance needs to address, technology has released us from the constraints of geography, physical representation and time between consulting citizens.

We believe that technology, including web3 tools, can be the Þingvellirs of the future – creating new accessible gathering places, and changing how democratic, governance and policy processes, models and institutions work. This will require new approaches to old ways of doing things, including organising, consulting and voting which, if done well, could enable wider participation, and improvements in engagement and governance.

Participation

We have written before (and will do so again in more detail) about why web3 could help shift us towards an ownership economy. One where digital users own their data and benefit from the value that it can provide. This could enable everyone to participate in the capital part of the economy, rather than just providing labour.

But web3 could also help to democratise access to financial services and other products and services. Web1 really just democratised access to information, enabling anyone with an internet connection to search for information that was previously difficult or time consuming to find. Web2 democratised publishing, enabling anyone to create, connect and communicate online. Web3 is adding a way to transfer value digitally, via crypto, and is therefore democratising access to financial services. It is an open system where anyone with an internet connection can participate, without traditional prerequisites like geography or qualifications that tend to exclude certain groups. For example, anyone can sign up to Aave and lend or borrow. They can deposit crypto as collateral and take out a loan, without a bank assessing their geography, background or income (loans are overcollateralised to protect the lenders); and equally, can deposit funds, which can be loaned out and provide the user with a return, rather than the bank, as happens in traditional finance. You can read more about how Aave works here.

According to the World Economic Forum:

Today, these automated technologies are being tested in real life by millions of people with billions of dollars that could potentially evolve and lead to the broader global financial inclusiveness of billions of under- and unbanked people tomorrow through simple to set-up and low cost automated financial services at scale.

Engagement

Genuine engagement between leaders and citizens is limited. Government will often run polling to try to understand the preferences of citizens, but this is ad hoc and often politically motivated. In the UK, at a national level, there are requirements to consult over legislative changes, but this is often window dressing; and while local government does tend to be better at bringing citizens into the conversation about policy or planning issues, these processes can be limited and narrow, even if intentions are good and approaches have improved over time.

In truth, most people aren’t that interested in being formally consulted but they do want to be heard. Technology could help to simplify these processes (swipe right if you care about issue X) and make people feel more engaged in the conversation. But turning these more granular data points into real world changes won’t get any easier.

And then there’s the identity and verification hurdle. How do we know people are who they say they are, and are therefore qualified to vote or participate in a particular consultation, or prevent double voting e.g. due to pseudonyms?

This is where it gets more interesting. Identity is a foundational requirement and could be solved by blockchain technology: the ability to have a digital footprint that is unique and non-transferable. A secure digital identity on the internet. With what are called zero-knowledge proofs (explainer here), there is also now a way to prove cryptographically that you are someone or own something without sharing information about yourself, which respects privacy in important ways.

This identity layer could unlock a number of different ways to engage citizens and change how voting processes work.

• Engagement could take place via ‘data DAOs’ (Decentralised Autonomous Organisations) or a collectively owned dataset, which people could participate in to share their views or information, but be rewarded for doing so by having an ownership share and benefiting from any proceeds e.g. if that data was sold.

• Voting could take place on chain. The marginal benefit versus a paper based system that works reasonably well in the UK might seem small, but the saga over the US election results gives this a very different significance, and there are numerous examples of legitimacy issues in the developing world too. As Simon Chapman put it for the New Statesman:

The process would be cheaper and more efficient than a paper-based system, and the results would be nearly instantaneous. If the system could be made formally secure, the recording of these votes would be immutable and verifiable to anyone with access to the internet. I believe this would make any subsequent chants of “Stop the Steal” irrelevant.

• In addition, the idea of quadratic voting could also be made possible with blockchain technology. The concept was first put forward by E. Glen Weyl at Microsoft Research and means that the weight of your vote is proportional to the amount that you care about the issue. I first came across quadratic voting working on Brexit, when we were thinking about how to break the Parliamentary deadlock over Theresa May’s deal – it wasn’t the silver bullet we were looking for! But it could be a powerful way for governments to respond to citizens’ preferences.

• It is also possible that ways of making policy and legislation could change. DAOs provide a forum where members can propose changes to the rules governing that group, and if voted through, are automatically executed via code. This opens up interesting new ways for groups to coordinate, particularly on local issues, in a form of liquid democracy – a blend of direct and representative democracy. As we wrote in an earlier post:

At the local level, I would be able to vote on issues in my area on chain, with direct democracy far more commonplace on issues that matter to local communities. The local council might have a scheme where I could propose a project to regenerate my local park, use on chain systems to crowdfund for it, with a voting system linked to where I live and how often I use the park. If the vote passed, the project would automatically gain match funding from the council via the smart contract. At a national level, I would no longer delegate my vote on an issue to my local MP – representative democracy based on geography – but to the person that I thought had the most expertise on a particular issue, all handled on chain.

Governing

Many people do not feel that government is delivering for them. Web3 tools could make parts of governing more efficient and cheaper, and thereby enable an improvement in public service delivery more broadly. To take just two examples:

• smart contracts are already being used to automate payments and calculate tax liabilities, which could radically simplify tax collection and reduce avoidance and non-payment, which stood at £35bn in the UK in 2021; and

• the UK Government spent £357bn on public sector procurement in 2020/21, but blockchain technology could help to automate processes and reduce friction, which would help to reduce costs.

There is a broader point though about control. Web2 platforms like Amazon and Google are the gatekeepers for everything we do online. There is widespread concern about what that data is used for and the potential for government interference. This includes – perceived or real – manipulation of information and data, including via unknown algorithms that control what we see on social media platforms that we use everyday. As Greg Johnson at TBI said:

security and privacy of blockchain technology that undergirds Web 3.0 could serve as an incontrovertible check against government overreach or coercion. Its decentralised architecture will promote the rights of individuals over traditionally powerful actors by giving users more choice over how they interact online.

The point about disinformation is particularly relevant. Organisations like Starling Lab are working on interesting new ways to verify digital content using blockchain technology, while Project Liberty has released an entirely new open-source protocol for the internet called the Decentralized Social Networking Protocol (DSNP), which “shifts the control of personal data from companies to individuals” – in effect moving social media sites from being privately owned and controlled, to being “community-governed public infrastructure”.

These are new and important ideas that could have very powerful implications for how the internet works and therefore for society more broadly.

Web3 is not a panacea for democracy.

Not all of the ideas discussed here will take off, or even be desirable in every case, and web3 is not going to suddenly replace the existing system, solve deep rooted social problems or transform citizen engagement with public policy and politics. But applying blockchain technology in interesting ways could be part of a process to rebuild trust in government and public institutions over time, which is essential for the future of well functioning liberal democracies. So while healthy scepticism is sensible, a dose of optimism about how technology could also be a force for good might not be such a bad thing either.

Even Roubini is having second thoughts – so maybe there is something in it after all…

Thanks for reading, and please sign up to the community to get all our updates and insight posts.

This article was first published on www.vellir.xyz on 30 June 2022.

Web3 isn't a panacea for democracy. But could the technology and applications help to rebuild trust in government and public institutions?

It’s always dangerous to argue with an esteemed economist and academic. In an article entitled “Blockchain isn't about democracy and decentralisation – it's about greed”, Nouriel Roubini, Professor Emeritus of Economics at New York University's Stern School of Business, said:

With the value of bitcoin having fallen by about 70% since its peak late last year, the mother of all bubbles has now gone bust. More generally, cryptocurrencies have entered a not-so-cryptic apocalypse.

This could’ve been written at any point in the last few weeks, but was actually published in October 2018, at the start of the last ‘bear market’ or ‘crypto winter’ as it has become known.

The article goes on:

Thousands of […] digital currencies have plummeted by 90%-99%, and the rest have been exposed as outright frauds. […] Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history.

Roubini was absolutely right that in every downturn the weaker projects get exposed. But we take a different view about the potential (and for now that’s all they are) implications for democracy.

We know that democracy and effective governance face the combined challenges of rising partisanship, a lack of trust in democratic institutions and the disempowerment (both real and perceived) of disparate communities.

There is mistrust of institutions, election results, politicians and the mainstream media. You can see this in narratives of fake news, debates over free speech on platforms like Twitter and Facebook, anti-establishment movements including Brexit, and the Capitol Hill riots after the US Presidential elections. In the UK, only 23% of people say that they trust governments to put the national interest first and 44% say they almost never trust politicians to tell the truth.

In starting Project Vellir, we took inspiration from Þingvellir (the "Assembly Fields") in Iceland, site of the longest running Parliament in the world. In the early 10th century, it was a meeting place for clans to hold discussions and legal sessions, and subsequently became the site of the Icelandic Parliament, now in Reykjavik. The site was chosen because it was easily accessible for all clans to get to for the annual parliament.

In many cases, our systems of governments and models of citizenship are still built on these pre-modern foundations and have not evolved to cope with modern challenges. While we still have the same fundamental participation, community decision-making and governance needs to address, technology has released us from the constraints of geography, physical representation and time between consulting citizens.

We believe that technology, including web3 tools, can be the Þingvellirs of the future – creating new accessible gathering places, and changing how democratic, governance and policy processes, models and institutions work. This will require new approaches to old ways of doing things, including organising, consulting and voting which, if done well, could enable wider participation, and improvements in engagement and governance.

Participation

We have written before (and will do so again in more detail) about why web3 could help shift us towards an ownership economy. One where digital users own their data and benefit from the value that it can provide. This could enable everyone to participate in the capital part of the economy, rather than just providing labour.

But web3 could also help to democratise access to financial services and other products and services. Web1 really just democratised access to information, enabling anyone with an internet connection to search for information that was previously difficult or time consuming to find. Web2 democratised publishing, enabling anyone to create, connect and communicate online. Web3 is adding a way to transfer value digitally, via crypto, and is therefore democratising access to financial services. It is an open system where anyone with an internet connection can participate, without traditional prerequisites like geography or qualifications that tend to exclude certain groups. For example, anyone can sign up to Aave and lend or borrow. They can deposit crypto as collateral and take out a loan, without a bank assessing their geography, background or income (loans are overcollateralised to protect the lenders); and equally, can deposit funds, which can be loaned out and provide the user with a return, rather than the bank, as happens in traditional finance. You can read more about how Aave works here.

According to the World Economic Forum:

Today, these automated technologies are being tested in real life by millions of people with billions of dollars that could potentially evolve and lead to the broader global financial inclusiveness of billions of under- and unbanked people tomorrow through simple to set-up and low cost automated financial services at scale.

Engagement

Genuine engagement between leaders and citizens is limited. Government will often run polling to try to understand the preferences of citizens, but this is ad hoc and often politically motivated. In the UK, at a national level, there are requirements to consult over legislative changes, but this is often window dressing; and while local government does tend to be better at bringing citizens into the conversation about policy or planning issues, these processes can be limited and narrow, even if intentions are good and approaches have improved over time.

In truth, most people aren’t that interested in being formally consulted but they do want to be heard. Technology could help to simplify these processes (swipe right if you care about issue X) and make people feel more engaged in the conversation. But turning these more granular data points into real world changes won’t get any easier.

And then there’s the identity and verification hurdle. How do we know people are who they say they are, and are therefore qualified to vote or participate in a particular consultation, or prevent double voting e.g. due to pseudonyms?

This is where it gets more interesting. Identity is a foundational requirement and could be solved by blockchain technology: the ability to have a digital footprint that is unique and non-transferable. A secure digital identity on the internet. With what are called zero-knowledge proofs (explainer here), there is also now a way to prove cryptographically that you are someone or own something without sharing information about yourself, which respects privacy in important ways.

This identity layer could unlock a number of different ways to engage citizens and change how voting processes work.

• Engagement could take place via ‘data DAOs’ (Decentralised Autonomous Organisations) or a collectively owned dataset, which people could participate in to share their views or information, but be rewarded for doing so by having an ownership share and benefiting from any proceeds e.g. if that data was sold.

• Voting could take place on chain. The marginal benefit versus a paper based system that works reasonably well in the UK might seem small, but the saga over the US election results gives this a very different significance, and there are numerous examples of legitimacy issues in the developing world too. As Simon Chapman put it for the New Statesman:

The process would be cheaper and more efficient than a paper-based system, and the results would be nearly instantaneous. If the system could be made formally secure, the recording of these votes would be immutable and verifiable to anyone with access to the internet. I believe this would make any subsequent chants of “Stop the Steal” irrelevant.

• In addition, the idea of quadratic voting could also be made possible with blockchain technology. The concept was first put forward by E. Glen Weyl at Microsoft Research and means that the weight of your vote is proportional to the amount that you care about the issue. I first came across quadratic voting working on Brexit, when we were thinking about how to break the Parliamentary deadlock over Theresa May’s deal – it wasn’t the silver bullet we were looking for! But it could be a powerful way for governments to respond to citizens’ preferences.

• It is also possible that ways of making policy and legislation could change. DAOs provide a forum where members can propose changes to the rules governing that group, and if voted through, are automatically executed via code. This opens up interesting new ways for groups to coordinate, particularly on local issues, in a form of liquid democracy – a blend of direct and representative democracy. As we wrote in an earlier post:

At the local level, I would be able to vote on issues in my area on chain, with direct democracy far more commonplace on issues that matter to local communities. The local council might have a scheme where I could propose a project to regenerate my local park, use on chain systems to crowdfund for it, with a voting system linked to where I live and how often I use the park. If the vote passed, the project would automatically gain match funding from the council via the smart contract. At a national level, I would no longer delegate my vote on an issue to my local MP – representative democracy based on geography – but to the person that I thought had the most expertise on a particular issue, all handled on chain.

Governing

Many people do not feel that government is delivering for them. Web3 tools could make parts of governing more efficient and cheaper, and thereby enable an improvement in public service delivery more broadly. To take just two examples:

• smart contracts are already being used to automate payments and calculate tax liabilities, which could radically simplify tax collection and reduce avoidance and non-payment, which stood at £35bn in the UK in 2021; and

• the UK Government spent £357bn on public sector procurement in 2020/21, but blockchain technology could help to automate processes and reduce friction, which would help to reduce costs.

There is a broader point though about control. Web2 platforms like Amazon and Google are the gatekeepers for everything we do online. There is widespread concern about what that data is used for and the potential for government interference. This includes – perceived or real – manipulation of information and data, including via unknown algorithms that control what we see on social media platforms that we use everyday. As Greg Johnson at TBI said:

security and privacy of blockchain technology that undergirds Web 3.0 could serve as an incontrovertible check against government overreach or coercion. Its decentralised architecture will promote the rights of individuals over traditionally powerful actors by giving users more choice over how they interact online.

The point about disinformation is particularly relevant. Organisations like Starling Lab are working on interesting new ways to verify digital content using blockchain technology, while Project Liberty has released an entirely new open-source protocol for the internet called the Decentralized Social Networking Protocol (DSNP), which “shifts the control of personal data from companies to individuals” – in effect moving social media sites from being privately owned and controlled, to being “community-governed public infrastructure”.

These are new and important ideas that could have very powerful implications for how the internet works and therefore for society more broadly.

Web3 is not a panacea for democracy.

Not all of the ideas discussed here will take off, or even be desirable in every case, and web3 is not going to suddenly replace the existing system, solve deep rooted social problems or transform citizen engagement with public policy and politics. But applying blockchain technology in interesting ways could be part of a process to rebuild trust in government and public institutions over time, which is essential for the future of well functioning liberal democracies. So while healthy scepticism is sensible, a dose of optimism about how technology could also be a force for good might not be such a bad thing either.

Even Roubini is having second thoughts – so maybe there is something in it after all…

Thanks for reading, and please sign up to the community to get all our updates and insight posts.

This article was first published on www.vellir.xyz on 30 June 2022.