Bronwyn Howell explains why humans might remain at the top of the chain of command.
Crypto-currencies, and the blockchain technology that underpins them, are widely-cited as game-changers in technology, fiercely fought-over by entrepreneurs such as Elon Musk and Mark Zuckerberg, via their increasing armouries of tech platforms. Zuckerberg’s Metaverse is one example where the technologies are coming together, possibly to alter the way humans interact with each other and with the technology.
Recently, Politico’s Derek Robertson posed the question “is crypto is going to be foundational to the metaverse”. Robertson pitted the case that “crypto is the only way to guarantee digital property rights” – as embodied in non-fungible tokens (NFTs) – against the crypto-sceptic view. He asked: “why use blockchain for record-keeping or fundraising, for example, when DocuSign and Kickstarter work just fine”? The latter view, he suggested, may even be starting to prevail among former crypto-evangelists. His evidence: gaming staple Minecraft, which recently clarified that NFTs and the blockchain technology underpinning them will not be allowed to be integrated into its game. He also noted the US Treasury Department’s 2022 crackdown on crypto-mixer Tornado Cash for its role in helping hackers launder stolen money, implying this may further dent the confidence of those advocating the use of crypto-currencies for legitimate transacting.
There may be some validity to all of these arguments (for an outline of the various elements, and their relationships to one another.
Blockchain is a technology that allows digital records to be stored on a distributed ledger held on a vast number of computers. All computers hold the authenticated version of the ledger, so unlike classic ledger systems (as held by banks, for example) no single firm or person controls collation of, or access to, the information held on the ledger.
The information can be viewed by anyone, but adding new information is controlled by a combination of cryptography and complex computer algorithms. The algorithms mean it is highly unlikely that information can be altered once it has been added to the ledger in blocks chained together in order of addition – which gives the technology its name.
Blockchain’s apparent resilience to tampering, and the transparency of anyone being able to view the contents at any one of the distributed sites have been viewed as advantages, particularly from those welcoming competition for conventional “closed” ledgers.
However, currently, and probably indefinitely, the current metaverse is a hybrid state set up to meet the needs of humans.
Blockchain’s use in creating, issuing and recording transactions in crypto-currencies (in competition to sovereign governments and traditional banks) reflects its potential. A further benefit is the ability for computer code to be stored on some blockchains (for example, Ethereum) and enacted in the future – so-called smart contracts. This has led to suggestions that entire complex institutions such as firms, markets and even complete societies can be automated and operated online, removing the need for a wide range of human-mediated institutions such as courts and even governments. It is easy to see how these concepts have spurred conceptions of a metaverse where all activity is confined to code.
Smart contracts are code stored on a blockchain ledger to be triggered when predetermined conditions have been met. For example, a smart contract releasing funds from a purchaser to a supplier can be triggered when the ledger entry confirming that the goods have arrived at their destination can be pre-programmed when an order is placed.
A big problem with smart contracts is that their content must be decided in advance and the code fixed when it is entered into the ledger. And the blockchain ledger is tamper-resistant.
In an ideal world, all possible alternatives could be foreseen and have co-tangencies coded to take account of them. In the real world, however, humans are “boundedly rational” – they can’t foresee all possible events, so the code will be incomplete. In the event that something unexpected occurs a smart contract will fail to deliver a desired outcome. Because the ledger cannot be tampered with, the code can’t be altered – even if the event is discovered between lodging and executing. For this reason, smart contracts are less well-suited for activities that take place in the distant or even mid-term future. They are best for events with a very short time horizon.
However, currently, and probably indefinitely, the current metaverse is a hybrid state set up to meet the needs of humans, who ultimately underpin the avatars, and the digital institutions serving them, carrying out their activities in digital space. While it is possible to create a digital property, lodge the code for the property, record its provenance and ownership transfers on a blockchain, and remunerate the various transactions associated with it using crypto-currencies, the human actors remain firmly grounded in the physical world, subject to its rules and limitations.
The veracity of the ledger relies upon the physical world activities matching the digital ones.
So a human may create the code for a digital “skin” for a game character, lodge it on a blockchain and create a NFT to record its provenance and ownership. But access to it is controlled by possession of the relevant private key. The human does not “own” the NFT – what matters is control of the key, which can be revealed to (or stolen by) another person in the human world. If the key code is forgotten, the NFT continues to exist digitally, but cannot be accessed for human purposes. What can be done in the metaverse remains contingent upon activities in the physical world.
Likewise, blockchain ledgers can record activities in the physical world such as the movement of goods between two points in a supply chain, and smart contracts can be triggered based on those activities – crypto-payment for the goods can pass from the buyer to the seller. But the veracity of the ledger relies upon the physical world activities matching the digital ones. For example what if the packers put the wrong contents in the package that was tracked, recorded and paid for?
And as for crypto-mixers – they break the link between a depositor of a crypto-currency sum and the actual tokens by pooling the deposits and paying withdrawals using other tokens in the pool, just as traditional banks do with cash. The transactions may be digitalised, but the process is identical. The human intentions, and not the code managing the process are what matters for law enforcement purposes.
It appears, then, that Derek Robertson has asked the wrong question. Humans, and not crypto, are foundational to the metaverse, and will remain so for similar tech platforms into the future. Crypto, blockchain and the tech platforms are merely tools for humans to use.
Bronwyn Howell’s 2021 paper, co-authored with Petrus Potgieter, “Uncertainty and Dispute Resolution for Blockchain and Smart Contract Institutions“, JOIE 17(4): 545-559, which this blog draws upon, was a finalist for the 2022 Elinor Ostrom Prize, established to further Ostrom’s pioneering work in the interdisciplinary field of institutional research.