In every age, power has primarily rested with whoever owned the means of production. In the agricultural age it was land, in the industrial age it was factories, and in the post-industrial time, it is data. Consequently, the key to an equitable world is sharing of data: If we can share data, we can share the societal surplus.
The Old Internet
The Internet is mankind’s common nervous system. The protocols are not controlled by governments – they are global, and community owned. The Internet can survive a war: If a node in the network is destroyed, data just runs another way.
Over the last 25 years, two layers of “World Wide Web” have emerged on top of the Internet:
- Web1 – a network of static documents connected via hyperlinks.
- Web2 – a network of people connected by social graphs of “likes” and “follows”.
Web1 made it possible to share information almost for free and Web2 made us all creators. Anyone with a smartphone can publish text, images and sound to the whole World.
The Dark Side of Web2
Unfortunately, the Web2 centralized the Internet in the hands of an oligarchy consisting of Google, Facebook and Amazon. In exchange for access to information, we let them harvest our personal data and monetize us as products. They have built proprietary platforms and stored our data in centralized silos – vulnerable to misuse, cyber attacks and technical breakdown.
The proprietary networks have won and big tech is using our data to monopolize machine learning. Facebook collects seven million times more data about the citizens as the secret East German police STASI did (source).
There is a new digital divide underway between a surveillance capitalism in the USA and a surveillance state in China. The rivals basically do the same: they collect citizens’ data to feed the machines and gain social control. Both sides try to balkanize the Internet and they hide behind the proprietary algorithms of Facebook and the “Great Firewall” of China.
Many politicians are talking about regulating the Internet and introducing ethics as a governing principle. They apparently forget that corporation have a sole responsibility to their shareholders and should not be trusted with ethical responsibilities. The only way to secure data is to decentralize the Internet and keep data under control of the users. Instead of telling the operators not to be evil, we must ensure that the Internet is build in such a way that they cannot be evil.
The New Internet
Fortunately, a new Web, that makes it harder to be evil, is underway. The users achieve sovereignty and will be in control of their identity as well as of their data. It is called Web3.
Web3 will not only be on your desktop, like Web1, or on your smartphone, like Web2. Web3 will be everywhere and connect everything with the help from machine learning.
Web3 will populate the physical world with:
- Trillions of connected devices (IoT) with robotic sensors.
- 5G global networks with gigabit connection speed.
- Edge computing, which pushes computing power to self driving cars, robots, and drones.
- Access to a Metaverse of virtual or augmented reality that is harder and harder to distinguish from the real world.
Distributed Ledger Technology
This new Internet is based on “Distributed Ledger Technology” (DLT) which is a shared database operated by multiple participants in a network. The database can only be updated if a majority of the participants agree, and if one of them tries to tamper with data, the others will immediately detect it.
The technology is still under development, but it can potentially replace a lot of intermediaries: We need no banks to transfer our money, no “Facebook” to follow our friends and no “Airbnb” to rent out our spare room. By virtue of cryptography and distributed governance, we don’t need to know and trust each other to make business.
A distinction is made between permissioned and permissionless networks. A permissioned network is like the “extranet,” we know from Web1, where entities worked with selected partners in a private network, while permissionless networks are decentralized and disintermediated networks owned by nobody and open for everyone to participate and to run a node.
The most widely used way of distributing encrypted ledgers is “Blockchain” – the technology behind Bitcoin.
It can run on multiple, independent data-centers, personal computers, smartphones, smart watches, etc. in a distributed network like a decentralized version of Amazon Web Services (AWS), which is back-end for a large part of the Web2.
On a open, permissionless network like the Bitcoin, a consensus mechanism makes the operators (“miners”) compete on who first solves a mathematical puzzle. The winner is allowed to update the registry and is rewarded a number of bitcoins. This mechanism, called “proof of work”, is used to give the coin value by virtue of the work put into mining it in the same way that gold has value only because it is expensive to extract.
Another mechanism, which is being implemented by the Ethereum Network and others, is faster and less energy intensive. It is called “proof of stake” and here the operators (“validators”) are economically incentivized to remain truthful by a collateral that is destroyed in case they behave fraudulently.
Web3 will work like a collective brain, capable of both sharing memory and keeping secrets. I will give us programmable money, programmable assets and programmable organizations.
Blockchain is programmed using so-called smart contracts: i.e. small computer programs, stored on a blockchain.
Smart contracts make it possible for people to enter into agreements – and fulfill them, such as:
- A lease, which automatically pays the rent every month.
- A train ticket, that automatically pays out a compensation if your train gets delayed or is canceled.
- An electronic bet, on which team is winning a match or which candidate is winning an election.
- A testament, that transfers your bitcoins to your heirs the moment it is recorded that you have passed away.
- A vehicle, that automatically pays congestion charges and parking fees.
- Shares, that automatically pay taxes on a company’s profit.
With old-fashioned legacy agreements, a debtor can refrain from paying a bill, and the creditor’s only legal way to recover his/her receivables is to go to court – and even if he/she gets upheld by the court, there may be no money to follow. In the same way, an enterprise may operate in violation of the law and, for example, not meet the requirements of solvency or liquidity. When a payment is enforced by a smart contract, the amount agreed will automatically be locked up in an decentralized escrow service or backed up by a collateral. Smart contracts will also be able to regulate businesses, so that a company is automatically dissolved, if it approaches insolvency.
DAOs – Decentralized Autonomous Organizations
Blockchain protocols will transform human organization and will represent a paradigm shift in how individuals organize themselves. The most powerful feature of Web3 is the DAO ( Decentralized Autonomous Organization). It is like a government built on top of Web3 protocols, but it has neither a President nor a Prime Minister. Instead of restricting power to a few, everybody can vote on decisions. DAOs let people govern, work, hire, design, and allocate resources collectively. It can hold a small cooperative as well as a worldwide organization (like the Bitcoin, which is basically a DAO).
DAOs are more transparent than traditional organizations since all the funding, decision-making, and transactions live in open and public databases. DAOs are egalitarian and corruption-proof.
Companies are investor-owned – DAOs are community-owned. DAOs are a revolution of efficiency and they will probably replace companies in this century. Shareholders, working for individual profit, become stakeholders, working for a common cause.
A DAO consists of collections of smart contracts (encoded bylaws), which together define the corporate governance of the organization without resorting to a traditional hierarchical model. A DAO is pure software, it has no jurisdiction, can not be regulated, has no headquarter, and no employees. It lives solely on the Internet and can not be shut down.