Token Exchanges and Digital Assets for Social & Economic Good: Some Provocations and Proposals

 

WHITE PAPER: WORKING DRAFT

 

©Dr. John Henry Clippinger, February 7, 2017

 

Preamble:

 

This is a work in progress. It is also a provocation to begin an ongoing conversation and course of action to reconsider and re-invent some of the most basic, sacrosanct and cherished beliefs and principles of industrial democracy and market capitalism. Given such a massive scope, it necessarily is short on references and details. What is hoped for is a compelling and rigorous way for imagining, testing, vetting, and eventually scaling future democratic and economic institutions in an increasingly science based, networked and digital world. (Please forgive absence of editing and copy editing. That will come.)

 

Introduction:

 

The introduction of cryptocurrencies and digital assets in general has forever transformed global finance and the role of central, commercial, investment, merchant and retail banks. It has also transformed currency and commodity exchanges by fundamentally changing how assets of any kind are verified, valued, priced, and exchanged. It has not only eliminated the need for third party intermediaries through the blockchain and decentralized and autonomous authentication, clearing, and verification, it has also introduced a new kind of highly mutable asset class, the “digital asset”, that can “shape shift” into any kind or combination of assets, eg. a dynamic derivative, depending upon data driven criteria that are overseen - autonomously by “smart contracts”. Through the issuance of “tokens” or coins whose attributes and behaviors are defined by smart contracts that respond to specified risk or data driven parameters, such tokens become crypto-digital assets that can be exchanged and traded for different kinds of value. They can behave as commodities, currencies, securities, notes, options, with any kind of arbitrary rules or instruments to better manage risk, liquidity and forms of value creation. Their value depends upon how well they behave in the networks and exchanges in which they live. They really do not rely upon different forms of traditional “banks” or ‘authorities” for their issuance and clearance.

 

All that is built into the digital asset itself as a self-executing entity.

 

Background

 

From a traditionalist point of view the notion of a digital asset makes no sense unless it is backed by a physical asset. One cannot just “print money” ! This has been the traditionalist objection to cryptocurrencies in general, especially with respect to Bitcoin and Ethereum. Yet both these currencies do just that, but under certain inviolate rules (ideally). The traditionalist “trusts” that an asset backed currency, ideally gold, has universal value and hence liquidity, although there is not enough gold nor transport in the world to back every transaction with gold. The other argument is that governments through their central banks will “back” any currency. Yet the tenuousness of that argument has been well demonstrated in the last nine years, which is mitigated by the hope that somewhere, e.g. the U.S., there are solid reserve currencies that can resist the defaults of other national currencies. Yet with trillions of dollars of debt and through quantitative easing, the U.S. itself like all issuers and backers of fiat currencies. is also caught in an impossible and contradictory position - deflation - depression - inflation - economic chaos.

What one is seeing is that the notion of a physical asset backed currency - gold, silver, commodities, or whatever is a surrogate for trust in the validity of a contract or exchange value. Gold is a valid signal and it cannot be spoofed - any assayer can verify the purity of gold or silver. It does not require an authority as it is inherent in the unit of exchange. What prevents “false signals” around gold, that is, counterfeiting, is that its supply is naturally limited. It cannot be manufactured and has an inherent cost based upon scarcity. As a physical asset, it is a rivalrous good - only one person can hold it. Hence, limitation of its supply increases its value.

 

This same quality is inherent in crypto-digital assets as well. By virtue of what they are, as cryptographically signed tokens whose behaviors are controlled by secure algorithms, they can be mathematically trusted - proven - to be what they purport to be. 

But the traditionalist would say, all fine and good, but what gives them value? Unless they are backed by gold or a basket of commodities they are no better than pyramid scheme. What is to prevent any Tom, Dick or Boris from issuing their own currencies, pumping up their value, and then exiting the transaction into a tried and true fiat currency? This of course is done with commodities and all forms of securities, not to mention many of the 3,000 or more cryptocurrencies.

 

Yet the value of a crypto-token is really no different from that of a fiat currency. A fiat currency is a bet on the integrity and the viability of a national economy and government, and in purchasing that currency, one is becoming a member of that exchange network. 

At no point does anyone expect that they can go to a government and redeem their fiat currencies for some physical asset. Perhaps, they can and must use it to pay their taxes and hence, they are coerced into having to use and value that specific currency by virtue of their having to have a physical residency. 

 

Yet corporations have developed highly sophisticated methods to arbitrage different tax and residency jurisdictions.

However, with the advent of “digital citizenship and e-residence” the options for mitigating the power of governments to coerce the use of their currencies, thereby falsely valuing their currencies - will decrease. Like a fiat currency a cryptocurrency or crypto assets is a bet on the integrity and viability of an issuance and exchange network which in this case is based upon virtual borders rather than physical borders. 

Therefore when one purchases a cryptocurrency, one is betting on the trustworthiness of that network being wholly secure and cannot be captured by any special interest. (This is also a problem from time to time with fiat currencies, equities, and commodities whose price and supply can be manipulated by dark pools and large and unidentified players).


Backing for Digital Crypto-Assets (DCAs)

 

Another way of thinking about crypto-assets is as an instrument, a token, for generating value in a network of exchange relationships. Its issuance is based upon an expectation or promise that the intended use of the asset will enable exchange value between parties which hitherto have not been able to realize some form of exchange value. What a token can do is to enable an exchange between different parties and capture in its price and supply a specific signal of value exchange.

 

Energy exchange tokens are particularly interesting this regard in that a choice for an energy source can be something that is highly utilitarian - cost per BTUs or joules - and a social preference for sustainable energy sources. 

 

In one sense, the cost of energy is an objective function and dependent upon the cost and supply of different sources - gas, oil, hydro, coal, solar, and wind. While the price of energy inputs depends upon the hard numbers of supply and demand and the need to generate BTUs at a required level, thereby constraining the viability of different mix of energy supplies, what some groups are willing to pay for certain forms of energy reflects social preferences. These social references may not only price certain forms of energy above market value, but in effect, direct long term investment and change the actual costs of some forms of energy supply. In other words, collective intent and preferences, can change technology investments, which in turn change the objective - material condition for the supply of different energy sources. So the notion that a “market price” is somehow an objective reflection of supply and demand, needs to modified somewhat to reflect the fact that social preferences are reflected in market prices and that an “above market” purchase is not so much irrational or even non economic, but a kind of future option on the change in the cost of a particular energy source.

 

Note what fracking technology has done to the price of oil and coal by altering the economics of natural gas recovery. Someone knowledgeable in fracking technology would then have been in a position to short coal and oil prices by in effect investing in uneconomic natural gas reserves prior to impact of fracking. Arguably, this is what Elon Musk has done through his investment in solar technologies and vehicles; he is actually changing the costs through technological and product innovation for low cost solar. Were there a breakthrough in fusion technology at a very low cost with minimal safety risk that too would totally change the supply equation for all energy sources. This change in supply would have nothing to do with the current physical availability of resources, but be the consequence of social preferences and scientific investment. These factors are not easily captured in traditional energy markets or pricing mechanisms and really are informational assets that need to be broken out and valued.

 

Use Case: Energy Digital Crypto Asset

 

With the design of an “energy crypto-asset” social and economic incentives could be designed into the asset as a kind of “dynamic derivative” that would adapt to different circumstances to incentivize carbon reduction behaviors and reward the more efficient use of sustainable energy resources, Such a coin would help create a “market” or more properly, a “value creation exchange” that over time would direct resources and behaviors towards generating sustainable energy. The price of the energy coin would also capture and reflect those factors that affected the
supply and cost of solar energy, in this case, compensate for its nocturnal shortcomings by capturing it in its price and making it tradable, thereby enabling time and geo-arbitrage and supply leveling. (Thanks to Simone Giacometti for this example.)

 

Backing as Trust Equity in DAC Exchanges

 

It is important that the traditionalist notion about having to back currencies with physical assets be more fully explored. It is an artifact of an industrial era that we have long abandoned in practices but failed to realize in current policy. Increasingly and globally, much of human activity is embedded and reinvented in a global data ecosystem. The efficiencies, economies, and rate of innovation, learning, and adaptation are orders of magnitude greater and faster when digitized. It is not an adjunct; it is a new reality of the fusion of the digital and the physical. Digital networks can be designed to accommodate different social and economic purposes and the value of the assets and currencies that they issue and exchange are dependent upon the trust and equity that is built up in those networks. If the network is very well designed, secure, trustworthy and effectively realizes some social and economic purpose, then its equity value will increase and so will the value of its digital assets and currencies. There will be demand to participate in that network, and as result, the equity value of the digital assets will increase.

 

One way of thinking about a crypto-asset is as a security in a startup, which begins with a $10 million valuation and becomes a $10 billion dollar entity. Instead of stock splits, the founding crypto-asset gets denominated in smaller and smaller units; in this case 1000 to one. Here everyone in the network is an equity holder who has an incentive to increase the equity value of the network. All of this depends upon how well the initial crypto-asset and its governance contract are designed and protected. In this instance, good governance, e.g. oversight, yields predictability, security and effectiveness, which in turn, creates value for all token holders.

 

Interest Free Digital Crypto-Assets

 

One of the great dilemmas of contemporary capitalism is having to issue debt in order to increase money supply. Concomitant with that is the need to charge interest for lending money where there is a fixed physical asset that only one party can possess it. Therefore, the holder of that asset can charge rents to allow for another party to use their asset. 

 

Currency is considered such an asset since it is perceived to be backed by physical assets. Therefore to increase the supply of currencies is to dilute the individual value of each unit of currency since it is backed by a perceived fixed physical asset - rather than the ability of an issuer to generate value through the circulation and use of that asset.

 

In the traditionalist capitalist world it is in the interest of a debt holder to limit the supply of debt in order increase competition for the loan or credit instrument, and thereby, charge higher interest rates. If there is minimal risk associated with providing credit, in that the loans are guaranteed by a government, then the creditor has every incentive to issue as much credit as possible to generate revenue without regard for risk.

 

Since the risk controls are not built into the instrument itself and have not been effectively enforced with the network of trust, traditionalist financial systems are doomed to live in a boom and bust cycle, dependent upon the periodic rescue by the governments and the absorption of the risks and losses by the public.

 

With crypto-assets there is no need or justification for charging interest for use of a digital crypto- asset. It is information, a non rivalrous good whose value does not diminish when held by one or more persons. As the complexity economist, Brian Arthur (2003, 2015) has argued, information has “increasing returns” the more people possess it, the more value that is created. Hence, there is no justification for charging rents; rather just the opposite - charging fees for not circulating it. If there is no debt, then there is no inflation.

Too good to be true. Not quite. There needs to be an upper and fixed limit as to the number of digital assets issued or in circulation. 

For if the full network of people or parties has been saturated with the asset, then there is an oversupply of that asset and a diminishment in its continued value. But the good news is that there is a natural, measurable limit to the supply of the issuance of both the volume and kind of crypto-asset. 

 

This limit is based upon well established scientific principles for maintaining a stable equilibrium for complex systems. In other words, control of the supply of a digital asset unlike a fiat currency or even a stock issuance, is not a matter of putting one’s finger to the proverbial wind of public and expert sentiment, but well established algorithms in cybernetics and information control theory.


Types of Self-Executing DCAs for Social and Economic Good

 

When thinking of a crypto-asset it is best to think of it as a cryptographically signed (verified) token that acts like a dynamic derivative which in turn is controlled by an algorithmic contract that responds predictably to different data driven conditions or states. This asset is also part of a network which has its own self-executing governance rules, exchanges and oversight. The value of this network depends upon how trusted and effective it is in achieving its own form of value creation for its members. The formation of a crypto-asset network is much like an initial stock offering where shares - in this case, tokens - are sold for fiat currencies or other cryptocurrencies such as Bitcoin. 

 

In effect, an individual is buying access to the platform or network in order to purchase services with crypto-assets. So in one sense, the buyer is purchasing an equity and therefore is subject to securities regulations, yet if he is using the crypto-asset as a store of value to exchange value, then it is acting more like a currency since it is redeemable through multiple fiat currencies. 

 

If it is not convertible into fiat currencies and can only be used for services in the network, then it is more like a closed loop currency and would be treated not as a security by regulators, but more like a frequent flyers rewards program.

 

A Self-executing DCA could also function like equity swap program with a future option or warrant. So rather than pay interest, the token could payout a kind of dividend or royalty at some future date. Likewise, the token could be designed with calls and puts to act as a hedge and lock in value of the asset. In other words, a Self-executing DCA is highly plastic and what it “is”depends upon the rules of its contracts and how it is regulated within its exchange network. In this sense, it is “self-sovereign” in that it defines and plays by its own rules. The challenge for it is to have other sovereign networks, countries and exchanges accept the terms and conditions of its sovereignty.

 

Sector Specific DCAs and Exchanges

 

A key consideration in creating and issuing DCAs and building exchange networks for specific sectors such as housing or energy, is that both the sector network and and the DCA generate sufficient net value that the entire sector asset class appreciates sufficiently as a whole to bolster the value of specific DCA instruments, If, for instance, there is no appreciation in housing value as a whole asset class, or that an individual project contract was a bad idea, or poorly executed, then the value of the housing sector DCA would resolve to its physical liquidation value. 

By giving the a sector based DCA equity value or call on the right to use that particular asset, such as a time and use share, then the equity value of the SECA can increase over time and act to incentivize the supply of needed resources - such as housing, clean energy, transport or even income generating work. This could work in much the same way that the aforementioned use case in energy.

 

Furthermore, there could be a public subsidy to a DCA or combination of DCAs which underwrites some of the perceived risks and is paid back with the equity and value created in the network as a royalty stream, dividend, warrant or option. 

 

All these could be tightly designed into the self-executing tokens. In contrast to current derivative markets, such as mortgage backed securities, here there can be independently provable attestation of risk and attributions and transparent controls through a blockchain mechanism to lock in risk and dampen volatility.

 

Since such networks would be opt in private networks but open to the public through an Open Sector participation and oversight rules, there is no reason that they should be heavily regulated in the more traditional manner. Rather full disclosure and verifiable transparency could be built in through the blockchain to provide provable compliance with both regulatory and private contractual agreements. 

 

Furthermore, there are objective and independent measures by which to measure both the risk, efficiency and value yield of such networks. For instance, “perfectly “ designed exchange networks would have zero exchange entropy as there would be no uncertainty as the price or clearance of value of a transaction or relationship. 

 

In short, it would be a wholly trustable and efficient network where every seller found every buyer at the right time and price. Of course, this is an impossibility, but it provides a measurable real time benchmark by which to assess all DCAs and their networks, and unlike current security rating methods, it would independently and objectively measurable.

 

Public DCA Financing of Infrastructure and Public Works

 

Is it possible to enable public investment in infrastructure and other public goods without having to incur significant debt and to endure onerous and costly banking and governmental processes? 

 

Is there a way that a project could in effect fund itself by having the proper built in risk and trust adjustment mechanisms if a self-funding “platform” were sufficiently well designed and independently vetted, might it be a vehicle through which investors, the public, stakeholders and entrepreneurs could use to finance and build infrastructure projects? 

 

The viability of such a “public works” project is predicated on the notion that the project will create sufficient value to all that directly or indirectly use it thereby benefiting users, builders,and stakeholders of the project. In one sense, a public project if it is needed and well executed, is, in effect, “printing money” (currency) by generating value for all its stakeholders. The challenge is how completely self-sustaining it could be and how quickly it could “pay back” its initial investors.

What DCA technologies and especially SE-DCAs (self-executing) can achieve is something that was inconceivable prior to digitization and self-administrating processes.

 

These technologies are reducing the coordination and administration costs for regulating and enforcing the rights of equity holders through complete automation. In other words, micro-rights and micro-payments can be enforced and transacted at minimal costs thereby enabling the the designs of complex contracts and payout schemes that are virtually costless and at the same time verifiable and transparent.

HyperLoop “Private” Funding Use Case

 

To illustrate the potential for DCA public funding let us consider another rather disruptive and perhaps speculative technology, Elon Musk’s HyperLoop. The HyperLoop is a novel mode of passenger and freight transportation that propels a pod-like vehicle through a near-vacuum tube at more than 700 mph. Given that such a project is considered too risky by most governments (with the notable exception of Dubai) how might it fund itself based upon the value it creates for its stakeholders? 

 

As a highly risky but potentially transformative technology, is there a form of “qualified crowd funding” technology for issuing (DCAs) crypto-coins for rewarding early backers and direct and indirect beneficiaries so that they would not only benefit as first time users, but get a long term benefit for “paying above” market rates? Rather than have a traditional 30 year municipal bond or debt instrument, issue self-executing equity coins that would pay out royalties or dividends proportionate to their equity stake. Depending upon the type of project and its perceived risk and public benefit, there could be different classes of crypto-coins for private and public investors and underwriters. Elon Musks proposed HyperLoop transportation tunnel from Los Angeles to San Francisco, distance of 350 miles, estimated y $7 billion dollars, with trip time of roughly 40 minutes, with a one way cost of $20, and an estimated 15 million riders per year, yielding roughly $300 million a year in revenue. 

Rather than funding it as a one time project, it should be considered a “rolling startup” whose technology could be licensed and replicated around the world. Hence, the capitalization of the project would be similar to that of a promising startup where there would be issued and authorized coins that would be sold on an exchange. 

 

In this case, there is a significant incentive for managers and owners of the project to succeed not only for the benefit of the initial project, but to appreciate the value of the “Loop coins” for future projects as the price fluctuations would reflect current and future value of the project. 

This is not dissimilar to Google purchasing green energy supplies well above market rate as a means for having a kind of option on the future of a green or solar based energy infrastructure. Being the first in on an emerging infrastructure not only moves a company up the learning curve but it also acts as a kind on first mover, lock-in advantage. That should reflected in the issuing and pricing of coins.

 

Work,Value-Creation and Universal Basic Income and Assets:

 

It has become widely recognized that neither “free market capitalism” nor “welfare state capitalism” are adequate solutions to growing income inequalities and unemployment arising from automation and global labor arbitrage. The solutions to these fundamental issues reside outside the framework of traditional industrial democracies and “free market capitalism”. These issues are foundational in that they derive from a false division between “worker/labor” versus “equity holder/management” in the traditional framing of policy choices around income and work. 

Such a framing creates an unnecessary schism between the owners of capital and the providers of labor that historically has been responsible for the structural clashes between labor and management since the the inception of market capitalism. 

 

Similarly, this division inherently leads to income inequities so prominent that even income redistribution policies, such as payment transfers progressive taxation, and entitlements, have been incapable of resolving. The core of the problem comes down to the notion that debt is required to generate new value whether through issuing currencies or debt instruments and that debt in a “traditionalist economy” is a rivalrous good that must be backed by physical assets. Labor, skills, knowledge, however, are intangibles, and therefore, cannot be secured and exchanged as can physical goods and their representatives, e.g. securities. It is easy to see why this was such a foundational issue for an industrial, pre-digital economy where the manufacture of standardized physical goods was predominant and information and coordination costs were high, and hence, the need to attribute value creation primarily to the ownership of exchangeable securities. 

 

In contrast, it was difficult, if not impossible, to verify the validity of an intangible skill, asset or transaction without a “trusted” human intermediary, a bank, government or corporation, which have an institutional duty to their representatives, shareholders and overseers, who in turn, have provided the effort and risk capital to finance, organize and manage labor. In this sense, the opportunity to receive wages for labor was dependent upon the success of asset owners and banks to provide the requisite capital. Not surprisingly, those individuals who occupied the critical roles of raising and allocating capital were in a structural position of power (true also of socialist and collectivist economies) and would negotiate the lion’s share of the generated value. Labor in this case was simply another “input”, an asset that was implicitly, if not overtly, deployed and owned by the corporate shareholders and management.

 

The digital economy has the potential to be something entirely different and resolve this contradiction between ownership and labor. 

If the issuance of a new digital asset is not rivalrous, as previously argued, and there is no need to pay rents to an owner of that asset for the use of that asset, then the provider of the labor and the asset holder/value generator can be the same person. 

 

Securities law recognizes that “passive income”, such as investment is different from earned active income. In other words, if I receive passive income from owning a security that is treated differently than if I receive income or a “coin” for work for value created. The latter is not considered a security.  Therefore, through my own agency as a worker, I am also an asset owner and value generator if my activity is verified as a value creation by my exchange economy or community. 

 

The Self-Executing DCA technologies - such as the blockchain and “smart contracts” are critical here because they make it possible to have decentralized, autonomous, tamperproof and verifiable proofs of “claims” for kinds of work and value created. This is an extremely important point with respect to arguments for entitlements, transfer payments, or Universal Basic Income allotments as it gives agency and responsibility to the individual and does not reduce them to a passive recipient of a welfare payment. 

 

As a member of society, every individual has a duty to that society. There can be enormous variance in both what different citizens need and should receive. Fairness is not a matter of equal receipt, a common denominator of value (such as Universal Basic Income) nor a form of collective equality. Rather fairness, indeed, social justice, recognizes the value of differences, (“variation” in evolutionary terms, or “variety” in cybernetic terms) and that variation and diversity are essential for social well being. 

 

It is important that each individual and entity generate their own kind of value and variety and that this value is recognized and compensated for through the issuance of DCAs, which in this case, are both income and assets. There is no division between the equity holder-owner and the laborer. What can be highly variable, and which is a community or societal decision, is what level of supply for different types of value creation is needed or required and how this is to be adjusted by circumstances and time. There are also well established scientific principles for how govern the supply of such DCAs.

 

Open Sector and Public and Private Sectors

 

This latter point surfaces another dualism of industrial democracy, the division between the public and the private sectors. We often seem to be confronted with all or nothing choices - privatize or collectivize. Both unacceptable decisions but for different reasons. The public sector can be seen as surrogate for “big government”, and collectivism, a necessary “evil” that is justified in order to provide equity and oversight. 

Hence, the assertion of “private” interests and ownership as a necessary counterweight to support “freedom” and “free markets.” The private sector choice seems to abandon public and common interests to self interests. In this regard, the much quoted Adam Smith passage:

 “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interests.” 

is incomplete without reference to another passage, from his epic book, Moral Sentiments: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others,”. 

 

Adam Smith did not subscribe to such a dualism and anticipated the scientific findings of evolutionary biologists on cooperative evolutionary strategies ( Novak, 2009, 2012,et al) and the work of neuroscientists (Zak, 2009) , on “mirror neurons” for “wired-in” empathy. 

Self-interest is neither absolute nor atomistic and has to be seen in the context of a network of reciprocating relationships which are self-organizing to achieve local and group equilibria, in short, a poly stability network of networks. Again, the digital ecosystem and the rise of decentralized, self-organizing networks of self-executing DCAs removes the need for the rigid dualisms of industrial democracies.

 

There are “publics”, “open platforms” or “commons” that can be governed in a self governing, decentralized and effective manner to avoid the ‘tragedy of the commons” without capitulating to narrow self interest. 

 

As the sole female Noble Laureate in Economics, Elinor Ostrom, demonstrated, there are eight basic principles for governing common pool resources.

 

One of the great promises of DCA technologies is for new forms of digital institution building and governance that have the real promise of resolving seemingly intractable flaws in industrial democracies:  “who guards the guards”, the “collective action” and “principle-agent” problems. There is no requirement to allocate authority and power to a single, fixed or permanent authority such as a legislative, judicial or elected executive bodies whereby trust and authority are granted without effective recourse, accountability and correction. 

 

Whereas elections and petitions and judicial challenges are intended to effect periodic accountability and control, they in practice, are often out of phase, can be captured, and typically function with incomplete, if not false information. Where there is a lack not transparency and accountability but there is an incapacity to heal themselves. Many current democratic institutions are governance mechanisms that are artifacts of their time and are vulnerable to physical limitations in coordination and verification.

 

In the digital sphere, there is the potential for new digital hybrids where the power, authority and legitimacy can reside not in individuals or even the institutional roles filled by those individuals, but in testable, evolvable distributed and verified protocols and mechanisms that can be created, adopted, and abandoned by members of a networks. In this case, the private sectors and public sectors need not be set against one another, as was the case with ownership and labor, but rather, in a similar fashion, it should be possible to design and deploy self-executing crypto-assets and networks that combine both public and private qualities within themselves.

 

This fusion of the public and private sectors can evolve over time through the formation of Open Sector that is a “free and safe space” where joint collaboration and invention is possible, and the legacy interests of neither dominate.


Nation States and Self-Sovereign Network States

 

 

When physical borders break down as a viable means for asserting sovereign rights and protections, it becomes increasingly important to establish human rights and global self-sovereignty within “digital borders.” To date physical residence has been the sole determinant for asserting and projecting national identities and sovereignty, but with the digitization of nearly everything, including geography and distance, it will become increasingly important to assert and protect digital residency based human rights and individual sovereignty.

 

Digitally sovereign borders will not mimic national borders as they are determined by digitally defined and enforced rights and relationships rather than by physical proximity. In point of fact, “digital borders” may be a better expression of shared values and dispositions than the physical borders of traditional nation states. Such digital states” or “Self-Sovereign Networks States” (SSNS) will be able to innovate and compete at a rate that would be unimaginable for physical states, and thereby exert influence over both individuals and physical assets with greater force, authority, effectiveness and hence, legitimacy than many physical states.

 

SSNS Use Case: Sons of Liberty and ISIS

 

SSHS are often started by those who have little or no standing within a dominant social and economic order. By the norms of their time, they are often seen as deviant and criminal. As difficult and indeed, blasphemous, as it might seem, the progenitors of the American Revolution, The Sons of Liberty, who formed the original Tea Party and advocated a more violent opposition to British Rule, were “terrorists” for their time, aggressive, young male smugglers who were held in disrepute in many circles in Boston. They were a “weak links - strong ties” network of “agitators” who pushed their older, fellow colonialists into forcibly resisting British rule, into an outright declaration of independence. 

This is not to draw any form of moral equivalency between them and ISIS, but to point out that radical social innovation in governance and authority invariably begins its life in the shadows of contemporary laws and norms. In this respect, there are parallels with ISIS, an asymmetric network with distributed authority both attacking and reaffirming the norms of authority their time.


The Islamic State, ISIS, for all its horror and regressive aspirations, is paradoxically a powerful example of a “modern” Self-Sovereign Networked State. It uses social media extremely effectively to recruit and deploy assets through its own secure networks to establish a 9th century Caliphate across modern nation state borders. It is an example of a fundamentalist idea becoming manifested digitally through the latest social media and cryptographic technologies, theocratic state.

 

“Residency” is not established by place of birth nor by residence, but by a vetting of dogma and participation in the physical and digital global networks of ISIS. It has become both a virtual and a physical place where the disaffected around the world can find identity, agency and purpose in sacrificial opposition to the norms and powers of secular states.

 

The rise of ISIS, as well as the rise of global authoritarianism, are clear markers of systemic failings and changes in traditional nation states. 

They are also evidence of the power of digital networks in not only recruiting and organizing opposition, but in actually creating alternative forms of governance, identity, and institution building. The ability to assert, enforce and project sovereignty through social networks, and in the not too distant future, deploy DCAs and decentralized technologies to create new kinds of institutions, authorities, legal regimes, and economies could will be a dominant theme for the remainder of the 21st century.

 

Hence, it will be vital that the “origin myths” for future of democratic societies not be dominated by the prevalent nihilistic narrative of techno-utopianism and reductionism. Openness, science, and evidence based deliberation and self-critical continuous experimentation need to be guiding principles any “origin myth” for viable democratic futures.

 

Global Reserve Currency and Self-Sovereignty: The Ostrom

 

If one accepts the premise that we are the dominant species residing on the sole, known life bearing planet in the universe, then we have a transcendent stewardship duty to effect technological and institutional change in a manner and scale that both preserves not just human rights but all life on the planet. To do so entails a fundamentally rethinking the nature of sovereignty and the scope and basis of global authorities. 

To do so, begins with establishing the inherent rights, powers and duties of the individual.

 

Individual self-sovereign rights are not to be set by any one state but by a globally acknowledged, evidence based protocol grounded on the proposition that every person is a resident of this planet, and as such, they have “standing” as a peer among all other persons.

 

By virtue of their birth, every person has inherent value, significance and standing to participate in the world economy and society. This right is not given to them by a king, a bank, a social network, a church, a parliament or a “people's party”. It is an inherent, unbounded, self-sovereign and transcendent right. Persons can exercise that right by asserting and verifying their unique biological identity through the use of a open source protocol that uses bio and behavior metric “hashes”derived from their smartphone to create a “core ID” which is a unique cryptographic signature that is uniquely associated with them. The individual can then submit that to an autonomous decentralized authority that can cryptographically verify and sign that token and issue an verified token which is like a master token that can issue related tokens for different “personas” such as those associated with banking, governments, work, personal, and recreational identities. These tokens would be pseudo-antonyms that could be issued a unique digital ID which would in effect eliminate the need for passwords and provide a far more secure, efficient, friendlier, and trusted means for authentication. With the verification of the core identity every individual would be issued 200 Ostroms.

The Ostrom is a global crypto reserve currency whose supply is limited by the number of persons in the world (est.7 billion) , hence a total reserve currency of 1.4 trillion Ostroms. In this sense, the value of the Ostrom is backed by the value of people in the world. It is a “people backed” currency with a fixed supply. Every person is also given a personal data account (PDA ) in which to securely store their own personal data and identities. This PDA gives everyone in the world an inalienable asset that is globally exchangeable that they control and which they can use to generate value.

 

Since the security and privacy of the individual can be verified, it has actually generated significant value which could meet international Know Your Customer (KYC) and privacy regulations (EU General Data Protection Regulations) standards, thereby generating verifiable commercial value in an estimated range of $200-$800. It should also be noted that if the value of this global network increases, then the value of the Ostrom would appreciate as well, thereby giving everyone on the planet a stake in the future of the planet. This, of course, will be essential for implementing any form of collective action for curbing and reversing Climate Change.

 

Conclusion:

 

The scope of this White Paper is unapologetically sweeping. It is one of those arguments that is so inherently disruptive, alien and contrary to customary categories that it has to be argued in its own terms. Only then can it be retrofitted into the ensemble of more traditional frameworks. and vocabularies.

 

This is also deliberatively sketchy, highlighting possibilities, applications and implications without getting into the weeds of technical arguments and implementations. But those details are available and very worthwhile discussing and exploring. The best argument for such a radical thesis as proposed here, is a living , breathing, successful implementation that proves its worth by how it performs in reality. by actually doing what it purports to do. It is that kind of discussion, direction and collaboration I am especially interested in.