A rather sceptical silence often ensues when I start about entering the crypto and so-called web3 scene. Few have missed the headlines around SBF’s trial and many have picked up on the use of Bitcoin and Ethereum in ransomware, romance scams and other online fraud. Others have heard about the use of blockchain hacks to help bankroll unsavoury regimes, with North Korea being the most damning example. Why on earth is someone like me getting into that scene?
Also, what do I have to gain, with a background as an academic in political science and sociology, from engaging with the utter madness of crypto? It is a scene that has become is infamous for its ICO craze of 2017 and the NFT bubble of 2021. The meme coin bull run of ‘24 will likely rise in public infamy soon. It is clearly a world driven by speculation and greed, that lacks a moral compass. Why is someone, who has spend much of the last two decades researching Islamist movements in the Arab world, interested in the world of crypto?
And, finally, why now? Fifteen years since Satoshi Nakamoto invented bitcoin, and more than a decade since Vitalik Buterin published the original Ethereum white paper, I go into crypto. After all these years, what can a person like me add to the web3?
As a way of introducing myself, let me answer these three questions.
About the value of blockchains to society. Blockchains provide an immutable, distributed, ledger of transactions that anyone can access anywhere at anytime. As a result, they provide a global consensus. They detach the maintenance of such a consensus – required for utilities such as transferring assets and verifying identities – from existing, mostly national, institutions and move it to a distributed ledger. As a result, blockchains widen access to financial services to anyone in the world; they provide alternative stores of value and means of exchange to those caught in national economic meltdowns; they level the playing field when it comes to identity verification; and create online economies that seamlessly integrate into existing online gaming and artistic experiences.
It results in the rise of completely new economies. Economies that currently have a combined market cap of around two and half trillion dollars. For comparison, the market cap of the largest company in the world, Microsoft, is three trillion. Number two, Apple, is 2.6 trillion. With the rise in value, communities emerged around value creation, distribution and the governance of layer-2 blockchains. Examples are NounsDAO, Gitcoin and the Optimism Collective, respectively. Blockchains have not taken over the world, but they have shown their value.
Just to be clear, I am not oblivious to the problems of web3 and crypto. The largest crypto exploit amounts to 624 million dollars. According to Chainalysis, a security firm, addresses involved in illicit activities received 24,5 billion dollars of crypto in 2023, down from 39,6 billion in 2022. The current meme coins craze thrives on coins with sometimes outright racist and anti-Semitic references. According to CoinGecko data there is not just one $HITLER coin: there are six. It got so bad that long time investors asked for the space to follow some kind of common ethical principles; vocal participants rage quit from the entire space, and even Vitalik Buterin begged for a return of Ethereum to its ‘cypherpunk’ days.
But, despite all these problems, the value of blockchains is undeniable: distributed ledgers provide a new way of maintaining a global consensus. As a result, they globalise access to assets and identities and create entirely new global economies and communities.
So why would a political sociologist want to get into this space? Blockchains enable online communities to verify identities, accumulate assets and govern asset distribution. It is the start of a truly new world and brings up all kinds of subjective, social and political, issues. Currently, the lack of enforceable laws turns web3 into something akin to a 21st century global wild-west. Early settlers try to establish communities that, under the constant threat of bandits, are forced to turn to vigilantes for protection. It is a space where it is every person for themselves and where many argue that anything goes as long as smart contract code permits it. Conflicts about institutionalisation, centralisation and control are constant.
These culture wars reflect in a distinct language that is developing, with the web3 buidlers [sic] ridiculing the crypto degens [sic], while together fighting against the outsider normies [sic] that try to regulate them. Age-old social phenomena – racism, sexism, exploitation and inequality – resurface, but this time infused with a spirit of capitalist speculation. It turns out that enabling online communities to accumulate and distribute assets is a political act with huge social implications.
It is amazing to observe the governance experimentation that takes place in this context. There is an abundance of dreams about how blockchain technology can foster a more decentralised, democratic, space that would foster individual freedom, expression and development. Practically, most initiatives revolve around so-called DAOs, or Decentralised Autonomous Organisations, that have been described as an organisation that uses smart contracts, deployed on a public blockchain, to facilitate and enforce decisions voted on by its members. But what the best ways is to link smart contract functions to votes, relate votes to members and define membership is still unclear. Members of web3 communities have come up with many ways to do so. See, for instance, quadratic voting, multi-signature voting, token based (quorum) voting, liquid democracy – and these are just examples of voting mechanisms. Blockchain governance is in constant flux.
So, what can someone like me bring to this space? Despite these innovations, web3 governance has progressed little beyond the basic DAO approach of members voting on proposals. With it, they keep on running into the same issues: power is often centralised among a small set of members (especially when assets define voting power), there are recurrent problems with spam voting (especially when assets do not define voting power), identification and verification of community membership has proven challenging and, last but not least, voter fatigue is a recurring issue.
It has proven incredibly hard to solve some fundamental governance issues that come with managing distributed ledgers and their assets. How do we relate an identity on a distributed ledger, an address, to an individual member of a community? How do we avoid centralisation of power in a community, when the accumulation of assets, knowledge and reputation are inherently centralising forces? How do we foster open and decentralised communities without being crippled by a gazillion bad actors and free riders? And how do we deal with off-chain regulation of existing states? These are just four questions that blockchain governance brought up and that DAOs have had difficulty answering.
Political science and sociology can provide new insights in these discussions and help build proof-of-concepts for innovative web3 governance solutions. The time might be right for such interventions. At the moment, Bitcoin, Ethereum, Solana and many other chains are again at a high. Money is flowing in through renewed speculation. Meanwhile, recent changes to Ethereum have lowered gas costs and the proliferation of layer-2 chains is quickly increasing block space. Together, they have widened the use case for many web3 utilities and social projects. All these changes take place in a context where web3 communities increasingly acknowledge the importance of some type of institutionalisation in blockchain governance. Hopefully, it is a context that gives space for newcomers to add something to these communities.
So, what to expect in this blog? Social and political observations from a newcomer to this space, but one with experience in political science and sociology. Expect mistakes (please point them out), opinions (please disagree) and solutions (please critique!). I will also discuss solidity contracts and proof-of-concepts related to web3 governance and utilities. I don't know where the turn to blockchains will lead. But one thing is for sure: it will not be boring.
seven cedars
