Going galaxy brain

Cryptocurrency and antitrust

A couple weeks I got into a vicious, heated argument with a dear friend. We were shouting at each other about antitrust, internet governance, and the centralization of the American economy for 30+ minutes. Yes, I know, I’m a great hang.

Over the course of that conversation, a couple of ideas really came into focus me - almost like a lightbulb going off. To get there, I want to first set the table of the debate:

I was my making the case to my friend (let’s call him David) that economic centralization is a bad thing because it forces us to rely on the unilateral judgement of a very small group of people. When firms get too powerful, they can squash competition and bend markets to their will. And make no mistake, I said, our economy has gotten more concentrated and less competitive.

Figure 1

This figures to get worse over time as the world moves toward a more technology-driven economy where network effects compound the returns to scale.

Figure 2. U.S. Market Share by Firm, Selected Markets

Moreover, I said, when we have so few and such powerful firms, if any one of them fails (either by going under or by making some choice with catastrophic social impacts) the consequences would be massive. Why should we expose ourselves like that? I’ve made this case before, here in 99D in Free Speech and Fuckery:

the internet collectively decided that Neo-Nazi site The Daily Stormer would be no more. It was de-listed from Google, kicked off its cloud provider, and blocked from most of the conventional/consumer internet. That time was easy. We all agreed that the Daily Stormer was awful and best erased from the world. It won’t always be this simple […] When a rogue twitter employee temporarily suspended Trump’s account as an act of protest on his or final day, it brought this brewing problem into sharp relief once again. This was an aberration caused by poor internal controls but it nevertheless illustrates a point: single private actor (be it an individual employee or the company itself) could silence the President’s primary method of communication with a keystroke. We’ve let individual judgement become the sole arbiter of free speech. We’re betting a lot that we’re making the right call and we haven’t done much to prove it.

The problem isn’t Twitter or Facebook or Google on their own.

The problem is that we have functionally ceded the public square to a few private companies.

Better, I said, to spread that risk around by having more competitive markets with less powerful individual actors. If you wanted to make a portfolio of stocks, you certainly wouldn’t buy just one, but buying 5 or 10 isn’t that much better. The same is true for decision making or economic power. To de-risk the system, you need to spread that risk around.

David, on the other hand, argued that too much competition is not only inefficient because it creates waste on fixed costs and spurs firm-killing price wars but also because it increases systemic risk by allowing anyone other than the best and brightest minds to wield power. This is similar to the concept of “Ruinous Competition” popular with 20th century monopolists like Carnegie, who’s not exactly famous for his benevolence and sense of fair play.

For David, we have to trust that our oligopolistic technology firms will not abuse their power as free speech gatekeepers and arbiters of right and wrong. Better them the government or the mob. Large groups move slowly and chaotically, he said. Government can’t be the one regulating speech and competition because it’s too incompetent, too dysfunctional, too damn slow. When it comes to big complex issues, we need decisive action not political grandstanding from the government or mob reaction from the whole population, right?

Finally, David made the case that even if you could unwind some large firms or prevent the big from getting bigger, it would diminish the power of the internet. You’d kill what you’re trying to save. “LinkedIn would be worthless if there were 10 or 20 different LinkedIns,” he said, “the value is in the centralized, dominant network.”

“What if it’s a false choice?” I asked. “But what about email?”

This is when the light bulb went off.

Email is the perfect system precisely because no one owns it. Email is not a company or a platform like Facebook or AWS. Rather, email is a protocol (called SMTP or Simple Mail Transfer Protocol). A protocol is like a rulebook that describes a series of standards and practices.

Everyone building an email system relies on the same rules so, unlike private messaging systems like Instagram Messenger or iMessage, email is fully interoperable across systems. You can send emails from a Google account to a Microsoft account to an AOL account because they are all built on the same open and publicly available protocol.

Anyone can build their own application (email service) with unique features on top of that protocol but the basic organizing principles are the same, ensuring decentralization does not come at the expense of interoperability or functionality. The protocol itself is maintained by a non-profit which makes decisions through consensus between its members. That’s probably not an ideal process but it sure is better than the voracious thirst for shareholder value by any means.

Why should it only be email that works this way? What if instead of 1) screaming into the void at Jack Dorsey to get Twitter to ban white nationalists 2) debating the relative merits of banning or not banning them or 3) trying to migrate Twitter’s users en masse to a separate platform that wouldn’t tolerate racism in the first place, Twitter users could simply use different, interoperable clients with their own rules, features, and moderation. What if Twitter were a protocol rather than a service?

If that sounds ridiculous, recall that that’s basically how Twitter functioned for the first several years of life before it began restricting developer access and shipped its own native mobile app. The same is true of Facebook, albeit in a different capacity.

In the very first post on the new 99% Derisible site, I wrote

Most dating apps are basically a thin application layer built on top of existing Facebook apps, data, and services. Tinder works so well because it has such wide reach/network effects (see: Metcalfe’s Law). It has such wide reach because the onboarding process is nearly seamless. The onboarding process is so good because Tinder has access to Facebook’s user data. Tinder takes your pictures, likes, demographic data, friends (social graph), and profile information from Facebook and Instagram for profile creation and matchmaking. 

So it doesn’t seem impossible or even far-fetched that the social graph and underlying user data/content for social networks could be made available and interoperable via a protocol rather than a gated, centrally-controlled developer platform. If Facebook, for example, were a protocol rather than a platform, social networking could become decentralized without losing the network effects of having everyone able to connect with everyone else.

Individual clients/apps built on top of that protocol could make content policing decisions and build new features on their own (just like email), minimizing the risk of any disastrous fuck ups by ultra-powerful and largely unaccountable oligopolists. But it’s so much bigger than Facebook or social media or even communications overall. What if everything, our whole economy could be similarly decentralized?

This is when I went full galaxy brain.

Wait a minute, I thought to myself, why does this suddenly sound so familiar?

Without meaning to or even realizing what I was doing, I had basically made a full-throated and impassioned political, economic, and moral case for cryptocurrency and blockchain.

I had previously been so limited in my thinking about crypto just as an asset class, rather than a governance mechanism or infrastructure design. What if we didn’t have to choose between regulatory wack-a-mole and internet governance by billionaire fiat? What if we could directly incentivize people to work on the protocols that would replace the centralized platforms rather than relying just on their goodwill?

It’s usually the crypto crazies spouting off on the necessity of trust-less institutions, decentralized authority, and distributed systems, not normal people like me.

And yet, once I began thinking in these terms, it suddenly seems ludicrous to entrust the management of our entire economy to the 12 governors of the Fed board. At least with a decentralized currency/store of value (like Bitcoin), we can minimize our risk and lesson our dependence on the decision making of a few people because every bitcoin holder has proportional say in monetary policy. There are not just 12 points of failure (functionally a single point of failure).

I truly have no idea whether prices will go up or down, whether cryptocurrencies today are a financially viable instrument, whether the underlying technologies are sound, or whether anyone will adopt enough of it to matter one way or another in 25 years. What I do know is that it has the theoretical/rhetorical potential to enable the kind paradigm shift towards a more competitive and less risky economy that I was advocating for.

That on its own is really exciting to me.


Special thanks to Mike Demarais for being my spiritual guide on my journey to galaxy brain bitcoin maximalism.