The Evolution of Emergent Institutions

Evolving Institutions with Interoperability, Privacy, and Identity

In a previous post, we went over the concepts surrounding the emergent governance processes present in the communities and expansion of major crypto-assets like Bitcoin, Ethereum, and ZCash. It is of utmost importance that when designing and analyzing decentralized systems, one understands functionally the concept of emergence. Maintaining complex systems of varying stakeholders can be difficult with so many moving parts, personalities, and communities, so it is essential that incentives work correctly from the ground up.

Forms of governance inevitably change and evolve, especially at scale. However, the static institutions that comprise robust governance (specifically in crypto) must be resilient, and able to adapt to perturbations. Whether that is through the direct will of a collective body of legal persons, or through the actions of other emergent processes, adaptivity and liveness through various forms of rigor determines a system’s future lifecycle. This path dependency is crucial, as the present state of the system, and its past, are what help a complex system to be less chaotic over time as it weathers the stresses of the market.

Hayek, for instance, was interested in showing that institutions need not be designed in order to be effective. Institutions such as language and free markets are effective even when they are not under direct authoritative control. They arise naturally, emerging in response to common human problems, and have a tendency to self-optimize (for example, languages add vocabulary to communicate new ideas, and markets identify new situations which in exchange enhances welfare). He called these kinds of institutions “spontaneous order” and contrasted them with centralized government institutions that try to design complex systems in detail and from the top down. Governments, he rightly argued, do not integrate information as well as spontaneously ordered systems.

But there are two ways of looking at institutions. One way is to look at individual institutions, such as the Spanish language or the Australian government. A second way is to look at classes of institutions, such as “language”, and “government”. Every “class” of institutions looks like a case of spontaneous order: After all, government as such seems to repeatedly “spontaneously” arise in human society, just like markets and language. Conversely, individual instances of the same spontaneously-arising classes of institutions can be quite fragile, and often fail spectacularly to integrate necessary information. For example, even if language as such lasts forever, particular languages routinely evolve something entirely different, or else pass from use. Likewise, spontaneously arising governments, markets, and economies frequently fail to integrate needed information, resulting in their own collapse.

That’s why we think the Hayekian worry about centralization, planning, and non-spontaneous order really hinges on the concept of authority. By concentrating authority over a complex system in some person or persons, institutions involving authority (not only governments) can create a sort of information-bandwidth choke-point — leaving an otherwise stable system gasping for spontaneity so it may evolve.

Authority is a form of spontaneous order. We won’t get rid of it, because it solves coordination problems. But we can restructure it, in making it more information-rich and legitimate. Blockchain systems promise to enable this by making authority more shared and participatory. Here are a few criteria for the emergence of healthy, flexible authority in emergent blockchain-based institutions:

Democracy

  1. Systems aren’t fully participatory / legitimate / responsive if they aren’t democratic.

  2. Democratic systems allow people to form rich, responsible identities by giving them participation in power.

  3. But democratic functioning depends upon (among other things), privacy:

Democratic systems permit authority to be legitimized by the active input and consent of the governed. But, of course, democratic mechanisms can be information-rich or information-poor. Voting processes that distort or compress information from voters do a worse job at this than processes that transmit high-resolution information and encourage maximally active participation from a greater majority of those actively being governed.

Identity

  1. People cannot vote in a democratic system unless they know that other participants are real, unique, and accountable. But it is insufficient.

  2. Power should be shared socially, not only resting with the individual

Traditionally, we think of the individual as a unit/agent inside a democratic systems. This is not a bad place to start, but it is increasingly important to consider groups and networks as having their own kinds of interests and being unique constituents of sound democratic processes. The simplest way of understanding why is simply to acknowledge that in many cases individuals do not really act as individuals. They make their decisions under the influence of social pressures, they have genuine concern and empathy for others, and they may even collude. All of these are cases where voters are not specifically “thinking for themselves”. Democratic systems need to acknowledge these non-individual interests and make political decisions about whether they should have a seat at the table, and why.

Hard Privacy

Privacy enables people to vote privately, thus exercising their judgment in steering institutions without being influenced by others. This is important because where there is collusion and pressure, we aren’t getting the full sum of all participants’ intellectual contribution or political honesty. Privacy also enables the kind of important activity that takes place within democratically governed institutions. For example, people may wish to transact or converse anonymously. These things should be possible. And, in an information rich democracy, people have to be able to feel safe so they may eventually converge on a solution, or organize to take action against a tyrannical force.

Related to identity, privacy is a necessary but insufficient tool to incentivize voters to “think for themselves”. After all, where there is collusion or pressure, voting processes aren’t really enjoying the full benefit of the participants’ participation. Privacy makes collusion and pressure harder to orchestrate at scale, curbing the efforts of malicious parties by making identity verification to punish less likely.

Interoperability

In order to build these kinds of rich emergent institutions, we need architectures that allow people to verify certain aspects of their identities (while obscuring others), dynamically and flexibly. This is necessary to verify key facts such as voting eligibility and uniqueness, without revealing other aspects of identity that we desire to keep private. That means a lot of important institutional activities will need to take place in zero-knowledge black boxes, and it is likely that independent identity protocols will need to evolve to allow identity information from one system to port over to another.

The extensibility and generality of a rich democratic system enables and sustains the growth of spontaneous emergence, allowing a system to socially evolve to more greatly benefit the needs of those acting as free citizens.

Fig. 1: The many pillars that make up a truly sound institution that must stand strong amongst the presence of a fair democracy.


Institutional Evolution

Over time, our conceptions of identity in a democratic system will continue to evolve. The hastening pace of technology assures that sound governmental systems focused on fair participation and outreach will never remain static for long. Cryptographic assurances of privacy and democracy allow for continued innovation and reinvention of what it means to be a free citizen in a functioning democracy. Though you may be able to grant others access, or insights into your collective identity and political perspective, our unique digital identities deserve their own rights and protections against undue influence.

Services such as Facebook, Twitter, and LinkedIn are prime examples of centralized institutions that individuals presently permit to influence their democratic experience. We trade them information for access to their platforms, sometimes at the expense of subtle but important personal freedoms.

The importance of privacy in a centralized world of permission-less digital authority must not be understated. The growth and expansion of machine-learning and A.I. related tools will make it more difficult to rein in and protect the integrity of your own digital identity. Keeping your data away from the hands of unwanted institutions that may seek to influence your future freedoms is extremely important in maintaining personal sovereignty. That means strong privacy is a must when constructing systems that will expand spontaneously overtime. As the evolution of institutions continues, their need to directly harbor your data publicly, without your permission, should slowly perish.

Your personally identifiable data points hold value and power. Strong privacy assures that both individuals and groups can retain control of their identities, making them productive and empowered members of a fair society.

By: Steven McKie and Matthew Prewitt

Maintaining Social Order in Decentralized Communities

Common Practices for Maintaining Adept Teams

Distributed, Coordinative Project Management

Often in the day-to-day mumblings around crypto, especially in the Ethereum community, the conversations around governance continually evolve.

Now that more literature has become available on the topic [12, 3, 4], we must strive to continue to dive deeper into these discussions around privacy, governance, and community; doing so concurrently, while deriving the appropriate norms to more aptly achieve our goals of decentralization, collectively.

Whether you’re an investor, engineer, or a retail speculator on the sidelines, you have to respect the second order desire for all of us to somehow build resilient, trust-less systems that stem from our deep infatuation with spreading the ethos and concepts of decentralization.

To do so requires apt and timely communication that is delivered from diverse groups of stakeholders, consistently, to the appropriate parties, in order to distill these perspectives to the generalized public.

Note: The Systems Bible is an entertaining read for anyone interested to an introduction to systems project management

My project management teacher in college stressed over and over to “be here now”, and focus on the task at hand. Only by being present, can you truly listen, and effectively communicate with vital stakeholders (both technical and business) to see a project to its successful fruition.

In technical project management, there are a lot of moving parts. We’re all building machines, but we ourselves are not mechanical, and we need fluid communication to ensure milestones are completed in an efficient and timely manner. When working to build decentralized, distributed systems, this becomes even more difficult with all the diverse stakeholders at play. It’s a game of mass social coordination — one now aided by incentives presented by public blockchains.

But, there are rules when we have to coordinate on the social layer to enact our grand technical visions on a massive scale. To ignore these norms and strategic methods to making a team cohesive, means you’ll either have to learn to implement these skills on-the-fly in the future, or never get the chance due to almost assured failure.

Organizational Behavior 401

We’ve discussed governance in the form of blockchains, emergent governanceDAOs and the usefulness of programmatic assistance when coordinating groups and motives, but what about the most basic of norms and strategies for aligning groups to complete localized goals?

Have you ever heard of the concepts of “forming”, “storming”, and “norming”? If not, you’ll definitely want to. In short, it’s described as the natural process any group goes through when adjusting for performance upon initial formation. A new formation (forming) of highly exposed public facing devs may cause drama while things storm (tumultuous period of establishing common practices and communication), and eventually normalizing those into methods to be cohesive on a regular basis (norming). It’s an emergent phenomenon that every group goes through. And, no group is exempt from this process; it’s simply a model of how people engage and interact.

When going through these phases, clear and concise communication is paramount, as imprecisions in language are typically what causes humans to work together ineffectively.

And like real governance, social governance should move slowly. You want a slow and rigorous process of checks and balances so a tyrant can’t reign in control and inflict damage on your governmental norms and legal procedures. This is a feature that ensures tyrants can’t disassemble precious social norms and inflict societal damage on a populace, and is a part of making sure the citizens’ (or users) stay in control at all times.

Fig. 1: The scale of social governance and distributed coordination can be visualized as notated above. Citizens in control means they are empowered to make choices (ideal); citizens who are given symbolic powers, but officers of the law and decisions are still made without them, are mostly just consultants to the incumbent political forces. Once the citizen has no power (bottom of the scale), they become subject to manipulation.

Tools to Ensure Consistent Communication

Let’s now get to root of how this is all done, so we can make note of how to best establish the norms necessary for further social scalability. Let’s break it down into sections for what’s most important to remember:

Participation: Individuals participate in systems in variable ways, and they should seek to act together. And the support of independent community interests should be funded and supported. Important so the individual isn’t disillusioned to their real capability or power, even if participation is limited by function.

Entrenchment & On-boarding: Many systems can struggle to sustain due to the inadequate construction of initiating individuals into a group. Without this initial engagement, eventually social trust erodes.

Control: When creating decentralized systems, we must decide how little or how much control to allot to others. This means deciding where on the ladder in Fig 1. you wish to place your eventual citizens/users.

Granted Powers: Participants must then of course understand their power and abilities, else they can’t exercise them. You cannot fear loss of control, power must be distributed evenly from the start so it doesn’t appear a scarce resource worth capturing.

Defined Roles & Practices: The participants in your system must then know their individual roles, given their granted powers, and what is ultimately expected of them as a practitioner maintain your open source system.

Stakeholders & Community: You must engage with, and actively maintain your community to continue to onboard new users to grant the power of controlling your system so it may scale outward. Everyone who participates in a system will not do so equally, so you must understand who holds the most influence (in crypto this is technical developers writing code/specs).

Partnerships: These partnerships can come from anywhere, and should not be confused with stakeholders and community. They are outside parties with mutually beneficial interests (think public assets, and the exchanges that list them and provide liquidity). All the partners don’t have to contribute equally, but they do have to trust and share the commitment of those building your community.

Commitment: You cannot let apathy get the best of your growing system. People must commit to achieving some goal (often communicated via memes in crypto). If people seem apathetic to your proposals in your community of stakeholders, it’s likely they don’t relate to the interests of those formalizing them. This is why diverse community engagement and growth is crucial.

Group Accountability: The concept of “not invented here, not accepted here”, is very prevalent in technical communities of developers. To reduce the likelihood of this zero-sum group-think, practice running many different workshops and events to think through hard problems presented to the community and attest to their practicality. This allows the community to slowly negotiate with others as to whats deemed acceptable when compared against an existing framework of organically constructed community norms.

Confidence: To tie all of the above concepts together, you need people capable of delivering these visions in your community. In crypto, this is again the aptitude of the low-level developers you have actively participating in their roles. Your stakeholders need to feel confident in everyones’ ability to deliver on their accepted milestones. The ability to make complex decisions and integrate them in a moving system does not happen overnight. These norms are honed and learn in time, by utilizing best-practices.

Moving Beyond Theory

Keeping the above in mind is just the beginning of understanding the key parts of organization at scale. There are other best-practices you can employ as well.

Here are some other other tips to improve upon your social coordination methodology, and increase your propensity for success.

  1. Public discussions with community stakeholders with wide variety of interests are great for improving participation in a fledging community. But remember, a conference panel limits major discussion points, who can speak, and only address some of the perspectives of community members in the audience. Use them wisely and strategically. Stick to purpose-built events for more engaged discussions on specific matters.

  2. Know who’s accountable, and make sure they have the skills to deliver. Important not to just give power to those who have too much responsibility, and/or lack the ability to deliver, simply because they appear best for the job on paper.

  3. Recognize that volunteer groups that formalize outside of your core community are important. However, they will possess their own agendas, budgets, and motives. They should not be seen as mere neutral “helpers”. Ensure to empower the volunteer orgs that are deemed healthy after checking your sources, and utilize their expertise where you can.

  4. Understand that subject matter experts are merely consultants, and do not represent the full voice of your stakeholders and community members. And, those experts may also not feel comfortable being seen as representatives of a whole community (think Ethereum core developers).

  5. When employing the use of outside consultants to help educate or come to consensus on a future matter to be deployed, make sure the consultants’ purpose and power is clear, and there exists healthy boundaries between them and your stakeholders in the community. Encourage them to ask difficult questions that others may not have thought to inquire, and make sure that whoever employs these consultants can deliver on integrating their feedback, to avoid community unrest if social sentiment trends towards others complaining of stagnation in its implementation.

  6. Do not downplay an opportunity to consult subject matter experts as consultants when a project’s success may depend on it. To excuse that opportunity may have future consequences, with multipliers too. If skipping SME consultation is absolutely necessary, explain the constraints why clearly (to the whole community), and produce an educational resource for those that may miss those points so they can have a crash course. This helps ensure smooth social consensus.

This essay will hopefully serve as a future resource for anyone trying to wrap their heads around decentralized communities, and how to best govern their community of granted stakeholders more effectively. Sound governance processes and procedures should be met with equal efforts in employing structured and sensible community governance standards.

By: Steven McKie

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Podcasts: Amentum GP Educational Interviews

POV Crypto & Baselayer Podcasts

CEO of Amentum, Steven McKie, was recently on a string of podcasts in a continued effort to educate others on the deeper fundamentals of how crypto works.

He provides context on a social level, as well as what it takes to master the innate technical complexity when investing in this new disruptive asset class.

The “POV Crypto” Podcast: A popular independent podcast interviewing developers and investors in the crypto industry.

Medium: https://medium.com/@TrustlessState/pov-crypto-episode-45-emergent-communities-gamified-societies-and-yanggang-with-steven-mckie-f4f4900f753c

🎵:iTunes Link

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🎵:LibSyn Link

Arca’s “Baselayer” Podcast: A family office focused firm with a podcast focused on crypto investing.

🎵: Spotify Link

🎵: Podbean Link

🎵: iTunes Link

Identity and Incentives

The Search for Decentralized Identity

By: Matthew Prewitt, Co-Leader at RadXChange; Cryptoeconomic Advisor at Amentum

With the rise of naming related protocols and services like Handshake and the Ethereum Name Service, it’s important that we understand human-readable names online, and why it’s critical for us to eventually land on a solution that makes sense, globally.

Our Missing Identity

Many blockchain “ecosystem” projects aim to create environments for economic exchange that are more efficient than the real world. The reasons for trying this are clear: If the efficiency of exchange in a blockchain environment exceeded its fiat money counterpart, it would take off. It would not only capture the relevant segment of the real-world economy, but probably expand it by easily operating across borders, at fast transaction speeds, and with little intermediation.

The most important reason this has not happened to the degree many expected a few years is the blockchain ecosystems are hard to govern. This piece will make the case that the principal reason for this ungovernability is the lack of a sufficient and secure identity layer.

Straightening Out Our Concept of Governance

It is tempting, but totally inadequate, to say that governance means solving collective action problems. In fact, a governor need not solve any problems at all to count as governing. Wicked or incompetent governments can still govern without any real recourse or action — much to our dismay.

Governance is best understood as the exercise of authority. But what is authority? Following the view of philosopher Scott Hershovitz, it is “a feature of roles embedded in practices”. To illustrate, a Head Chef has authority in a kitchen. Why? Because the people in a kitchen are, willingly or not, assuming certain roles, such as line chef and dishwasher, and the role of the Head Chef happens to have the feature that he or she gets to tell the other people in the kitchen what to do.

Note that on this view, authority is not inherently legitimate, or illegitimate, or good, or bad, or useful, or harmful. These evaluations of authority, important as they are, depend wholly on the qualities and moral characteristics of the institutions or communities within which the authority is being exercised. Moreover, authority does not depend on anyone “believing” in it. It is basically just a feature in a multiplayer game, which exists as a feature of the game even after all the players recognize that the game is bad, stupid or unworthy of their faith.

Still, even though there is nothing inherently good about it, authority is important. You cannot have legitimate authority without authority.

What Do We Mean by Blockchain Governance?

Blockchain governance (more here) usually refers to the authority to make changes to blockchain-based systems. Such authority might be written into software, so that certain people can de facto make changes. Or it might refer to the social practices (the social contract) by which groups of users of a public blockchain decide — or are persuaded, led, incentivized, or coerced — to collectively adopt certain changes to the blockchain systems, such as protocol updates that constitute a hard fork.

Alternatively, blockchain governance can refer to the use of blockchain technology to structure or exert authority over non-blockchain social practices. A real-world property registry living on a blockchain is an example of this, one where no central party controls the registry, and the state of the registry is maintained by the commons, via individuals who use it as a utility.

What is the Problem?

The single biggest challenge for both kinds of “blockchain governance” is the lack of a decentralized unique identity protocol, by which I mean a trustworthy decentralized oracle that verifies and attests that a person is a real person, who only controls one account and identity.

Without real-world identity, authority cannot arise, because authority attaches to people and their social roles. An anonymous address, which might represent more than one person, less than one person, or no person at all, cannot participate in the human practices in which role-based authority arises. More concretely, basic features of legitimate governance such as voting cannot be conducted.

How Does This Connect with Cryptoeconomics?

Fig 1. Understanding the relational flow between Governance, Identity, and Authority.

Markets don’t arise out of the ether. They are structured by authority. For example, without contract enforcement and the policing of property lines, capitalism as we know it would not exist. Yet these kind of authoritative practices depend upon identity, such as the identification of voters who participate in governance decisions, or property owners who pay the property taxes.

In a just and efficient economy, the rules compensate people in proportion to their labor. The real world economy, however, is not perfectly just or efficient. It has distortions, and often allows unearned fortunes to accrue to players who control economy bottlenecks. We cannot fix this without better governance.

Therefore, the question of building efficient cryptoeconomic ecosystems and blockchain governance are inseparable. A unique identity layer is the key to both.

The Rise of Global Identity

With such a protocol, potentially revolutionary governance practices may become possible on blockchains, such as quadratic voting, quadratic finance, partial common asset ownership, and more. The entire blockchain ecosystem awaits this solution, and will flourish when it arrives.

We believe that the identity system that cracks this nut will involve verified two-way connections between individuals and institutions, in a peer-to-peer manner. A network of connections too vast to be spoofed will become the proof of unique identity. And the network may or may not use blockchain technology in the traditional sense. This is a hard problem, but we are on the lookout for a solution, and one which we believe could be coming soon.

Edited by: Steven McKie

More Reads on Governance & Identity:

The Crypto Governance Manifesto
Loosely Coupled Governance and Its Effects on Future Economies and Statesmedium.com

Blockchain Communities and Their Emergent Governance
Thoughts on Legitimacy and Narrativesmedium.com

The Case for Handshake
A Compelling Bid to Decentralize Domain Namesmedium.com

Video: Open Protocol Mental Models

Understanding Where Crypto Matters

This was a quick video made after all the noise around Facebook/Libra has finally calmed down, and we can start to analyze its importance (or rather, unimportance, depending on who you ask).

Now that we see the tech they’ve built for what it is, we can more easily gauge where Facebook, and other major firms, will find themselves this next decade as finance is disrupted by some of the world’s largest players in the tech and banking sectors.

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