New Traction for Blockchain-Backed Cooperatives

Platform Cooperativism vs. the Sharing Economy —New School Talk — Rosa Luxemburg-Stiftung, July 2015

People are grappling with blockchains, cryptocurrencies, and their efficacy in moving toward a more decentralized web. The mood in my corners of online has grown increasingly hostile to these tech tools! A lot of social media influencers are throwing around terms like “scam” or “grift,” having judged that cryptocurrencies lack any real-world uses.

Lotta ballgame left! The annual revenue of giant companies like Amazon Web Services, Facebook, and Uber is in the tens of billions of dollars. Their market sizes are in the hundreds of billions. Decentralized tech like blockchain-based apps have the potential to start taking the outsized market share of these incumbents, which are used by hundreds of millions of people every day, and direct it into thousands of independent, worker-owned cooperatives.

These new startups are likely, through the competition-enhancing features of blockchains, to be far more equitable for their stakeholders and beneficial for society compared to the current corporatized internet. (I’m trying to avoid the term “Web3,” because the current internet uses such a patchwork of servers and services that I’m resistant to call it Web2, and I think the benefits of change can get lost in inertia for the status quo, but I’ll use it as shorthand below.)

It’s been strange to watch the term “Ponzi scheme” landed-upon by some on Twitter about decentralized technologies, because public blockchains are built on and encourage open standards. I worked as a product manager for open-source projects in 2005, when the open standards of blogs and RSS and BitTorrent were taking off, and it was important then that platforms were open, in order to be trustworthy and code contributions to build a commons.

Since then, the centralized internet of Amazon, Facebook, and YouTube have had tremendously negative effects on open-source tech innovation and labor rights, while their companies have contributed behind the scenes to growing economic inequality. Now, as new open-source projects develop using open tech standards, we have an opportunity to decentralize the market power of the monopolies, their lobbying forces, and their powerful institutional investors.

If a new streaming-music project launches on servers powered by the Filecoin blockchain with a marketplace powered by the Ethereum blockchain, it doesn’t diminish independent culture at all; but if the Amazon Web Services cash cow and Spotify’s meager payouts and Instagram algorithms continue to dominate online infrastructure and cultural sharing, they’ll continue to lobby against corporate tax fairness, basic worker protections, and financial system regulations.

I think the worlds of political and media Twitter are a bit separated from the world of decentralized-web Twitter, which includes longtime open-source developers and open-access advocates who can articulate the potential benefits of Web3. One source of confusion, in my eyes, is that some of the potential decentralization — ”Uber on the blockchain” — was promoted back in 2016, and in the financial regulatory fog of the past few years, it hasn’t been clear if blockchain-based apps are getting traction in various geographies and markets. The developments of Web3 aren’t well-covered by the mainstream media and some of the discussion in places like Substack or Mirror remains pretty opaque, so I think there’s been a sense of ambient confusion and worries of missing out.

The serious harms of the current system, meanwhile, get discounted — I emphatically agree with my media-cooperative colleague Maria Bustillos that a prime driver is the ego of the used-to-being-listened-to and already-comfortable, when untold millions of ambitious creators don’t enjoy a full-time salary or health care benefits from their labors.

One key introductory point is that blockchains can generate tokens, which can be used in a variety of ways outlined below, including as digital money that gets transferred to fiat currencies, but a blockchain-based startup does not necessarily need its own tokens to appreciate in value in order to deliver practical, useful services in the years ahead. Even if a blockchain startup uses a fraction of a token to do things like execute contracts transparently between parties and guarantee the transfer of payments, that can be a huge step forward in disrupting the entrenched market power of everything from DoorDash and AWS to PayPal and AT&T. Altogether, many of the things that centralized companies currently do — host your video streaming service, or call you a ride, or rent a vacation house — can be done on the Ethereum platform, or on Solana, or Cardano, or Tezos, or Avalanche, or Polkdaot.

Briefly, blockchains can be public or private, large or small. They can be used to underpin a global platform (like Ethereum), to power a single application (like an independent music-streaming service), or to form the equity in a network of stakeholders (like a worker-owned ride-sharing cooperative). A cooperative project can choose to run on any blockchains to which it has access, whether Ethereum and Avalanche and Polkadot, or moving from only Ethereum to only Avalanche.

The public blockchain-based platforms run on open standards, much like other applications like the peer-to-peer file sharing protocol BitTorrent or the federated social media project Mastodon. Public platforms running on open standards are different from closed platforms like Apple’s App Store or the Facebook API because any developer can build on them without requiring permission from the giant company. Public blockchains like Ethereum are permission-less in the sense that anyone can offer a room-renting contract on them, and a person on the other side of the world can confidently book a reservation to stay with them based on their on-chain credibility rating alone, assured that the blockchain will correctly process the transactions involved.

Blockchain protocols can be either proof-of-work (PoW) or proof-of-stake (PoS), with PoS platforms comparable to other applications in their energy consumption, Fortune and Bloomberg confirmed in May. The Bitcoin blockchain remains PoW and energy-intensive, as do those of Litecoin and Monero.

Ethereum is successfully transitioning to PoS, to be done next year, and the other blockchains I mentioned above are all PoS as well. Ethereum’s shift to PoS can be tracked in venues such as the Ethereum Foundation’s YouTube channel, with over 42,000 subscribers, and its core developer calls, which feature dozens of participants worldwide, as well as over 100 contributors to its meeting agenda repository on GitHub. The work is cutting Ethereum down to 1/10,000th of of the current network’s energy consumption.

(Some confusion may have arisen because the Ethereum blockchain’s transition to PoS was delayed for several years from around 2017–2019 for technical reasons, creating a gap in progress updates. The shift to PoS and Ethereum 2.0 has been planned since 2015, but it has not been easy, from outside of crypto-world, to track all the energy efficiency gains made.)

Overlooked in the skepticism over Web3 is that around 100 million Americans are using cryptocurrency every day: Amazon Prime points, Starbucks Rewards “star points,” Delta SkyMiles, Chase Ultimate Rewards, the Sephora Beauty Insider Program, etc.

Brand loyalty programs, now three decades old, seem normal because they contribute to the revenue and stock prices of well-known corporations that we hear about every day in the media. Though some 55% of Americans own stock, we’re accustomed to hearing breathless news every morning and evening about the stock market, carried by the blaring financial news networks of Fox and CNN, and even chased by National Public Radio.

One-third of Americans participate in 401(k) retirement programs and clearly they want to do everything they can to keep stock prices inflated and thus their mutual fund portfolios trending up. The rest of us hear a lot more about the concerns of the well-off on social media and cable news, so naturally this becomes a focus of our collective attention — even as their economic inequities and labor violations of large corporations pile up, seemingly without a way to effectively address them. Popular stocks and companies advertising on cable news are irredeemably bad actors on labor rights, the environment, and fair taxation: Amazon systemically exploits its workers, Delta and Starbucks bust unions, Chase is the top financier of the global fossil fuel industry, etc. Who can take on their combined, entrenched power?

Corporate lobbying doesn’t receive the daily coverage of the stock market, but its effects are massive, with two top business groups, the U.S. Chamber of Commerce and the Business Roundtable, combining to spend $100 million in disclosed lobbying last year, and Amazon and Facebook leading all individual companies with another $38.6 million. Their groups lobby against proposed increases in the corporate tax rate, from a mere 21% to 26.5%, and against a global minimum tax floor. In other avenues of influence, large companies offer a lucrative revolving door to policy makers and government officials, sponsor compromised academic research, and blast out misleading PR campaigns.

Because there’s so much money to be made by insiders in the current financial markets, it’s fairly hard to access information about giant corporations’ market shares, profit margins, stock buyback programs, and dividends for investors. The Fortune 500 list publishes top-line figures of revenue, profits, and employees for companies like Meta, but most people don’t have easy-to-understand resources for a company’s monopoly position. We hear about individual companies and industry consolidation in news articles, but while the morning news tells us whether the Dow Jones is up or down that day, it doesn’t give us much of a story about the incumbents’ anti-competitive history, lobbying activities, and astroturf PR campaigns.

Traditional digital rewards programs like hotel rewards points run on internet servers (perhaps even Amazon Web Services), consuming electricity probably generated from burning fossil gas or coal, according to the Energy Information Administration (EIA). The Nov. 2021 short-term energy outlook from the agency finds that in 2022, American electricity will come from methane gas at 35%, coal at 22%, renewables including hydropower at 22%, and nuclear at 20%. This past year, the U.S. put even more pollution into the atmosphere, with coal consumption up by 18% as Americans watched Netflix using AWS using fossil fuels in the grid. The economic and environmental impacts of the digital sharing economy and electricity grid are largely closed-off and under-scrutinized, so flagging the sustainability problems with the current system seems unpleasant to many who are deeply enjoying the nightly news of the Dow Jones’ rise.

Whereas currently, VC-backed companies like Lyft have incentives to achieve a monopoly in a region, lobbying against regulation and pressuring down wages for workers, a given blockchain coop is less likely to engage in the worst offenses, because coop members who disagree with a policy can always move to another network on the same blockchain, or join a different blockchain. There are likely to be more ride-sharing networks available to join when the duopoly of Uber and Lyft are disrupted, and drivers could bring records of their reputation scores in moving to another blockchain-backed network. While some opt-in networks might have rules that mean losing your deposit if you drop your activity, the changeover for an individual agent might not be too costly, and there might be positive competition to attract highly-valued participants–say, AirBNB superhosts — to another collectively-owned network.

Blockchains can generate tokens, which can serve a variety of functions:

  • they can be a small buy-in, ensuring you’re committed to observing a platform’s rules in order to transact in the network;
  • they can be a larger buy-in, serving as equity shares in a startup;
  • they can be a deposit for transacting on a network, lost if you’re found to be a bad actor against the rules;
  • they can be a proxy in voting or deliberation, like in a liquid feedback platform for democracy, or a token-curated registry;
  • they can exchanged for coins from other blockchains, opening up liquidity pools and markets;
  • they can be a currency used for in-network purchases;
  • and, through banking intermediaries, they can be cashed-out for fiat currencies like U.S. dollars.

Blockchain math guarantees that a token moved as expected between parties and can’t be double-spent; anyone on the internet can verify any transaction on a public blockchain, and participants in a private blockchain can see the wallet addresses of transactions and the permanent ledger of decisions. It’s the major reason that a given decentralized network and its associated tokens would be trustworthy enough on which to build new tools and community. Participants can earn tokens in the network — for example, on the Filecoin blockchain, by storing files on their hard drives, as an alternative to the AWS cloud — which could increase in value as the network grows to take some of Amazon’s tens of billions in annual revenue from its hosting service.

The potential of decentralized autonomous organizations (DAOs), token-curated registries, and “exit to community” of stakeholder equity in tech startups have been around for years in the fields of platform cooperatives and Web3; they’re not wholly new here. After all, it was back in 2016 that the potential of a blockchain-based Facebook sharing ad revenue with its users was floated; versions of “decentralized Ubers” tried again in 2018, and Ethereum and Filecoin were featured in the New York Times Magazine that summer.

“If the whole system ends up working as its advocates believe,” Steven Johnson wrote, “the result is a more competitive but at the same time more equitable marketplace. Instead of all the economic value being captured by the shareholders of one or two large corporations that dominate the market, the economic value is distributed across a much wider group: the early developers of [a blockchain app], the app creators who make the protocol work in a consumer-friendly form, the early-adopter drivers and passengers, the first wave of speculators.”

It’s taken a while, but now again, developer activity is increasing in Web3 projects. Profit-extracting incumbents like Uber could face renewed competition from the next wave of blockchain-based apps, which like a company’s proprietary database and bank accounts can also verify identities, hold funds in escrow, and guarantee contracts were counter-signed between two parties:

  • AirBNB hosts could list properties on an Ethereum-backed platform that digitally signs a reservation, holds deposits, and transmits complete funds when both sides confirm the terms of the contract were met. Fees would be drastically reduced, and similarly-minded hosts in different cities could band together to form groups on the network offering their own rewards for visits between them. The rewards would be most beneficial if they’re generated by participation in the network — say, helping with marketing and customer support. Out of an around $88-billion global market for vacation homes, with AirBNB at $100 billion valuation and about 20% of the market share on $20 billion in revenue, a new network picking up 0.05% of the market, $10 million in revenue, could be enough to generate significant equity for its stakeholders.
  • Lyft and Uber drivers could pick up passengers on a blockchain-backed reputation system, without the fees of the giant lobbying corporations. A drivers’ coop could offer all-electric vehicles and even democratically vote to support congestion pricing measures in cities, transparently verifiable by policy makers and the press. Some drivers may choose to receive payment in ETH instead of fiat, in the possibility (though not guarantee) that ETH might increase in value. By one measure, the nearly $27 billion ride-sharing market is growing so rapidly, at 16% a year, that it will reach $344 billion by 2030; Uber and Lyft, with market caps of close to $70 billion and over $13 billion, currently split the entire U.S. market about 70–30%.
  • Blockchain-backed music streaming platforms like Nina and Audius (on Solana) are rolling out to compensate artists without the fees of Spotify, using a dollar stablecoin. Streaming music’s $27 billion market size underpins Spotify’s nearly $44 billion market cap and nearly one-third market share. The startup Sound claims that it “generated 21 million streams’ worth of revenue for seven independent artists, in under seven minutes.” This vision has been called “1,000 true fans” who each donate $100 a year — or 100 fans at $1,000 a year — to support a creator or a project, and in return receive early access and artist chats and online comment forums, with NFTs serving as tickets to special supporter events.
  • New publishing platforms like Mirror have shown promise in initial efforts like the crowdfunding of 20 ETH for coverage of Coinbase, or 1.3 ETH for a new Web3 explainer that people thought was important to support. Mirror’s automated “splits” of rewards for pieces published could provide income streams in ETH for researchers, editors, illustrators, fact-checkers, and video-makers who receive contributor bylines and shares of attention rewards. Platforms using tokens, for attention rewards or microtipping or smart crowdfunding, can help sustain independent news startups. The near-zero transaction fees of cryptocurrencies would allow a reporter to support themselves with 3,226 donors at the equivalent of a nickel-a-day, or 16,129 donors at just a penny-a-day—a much better value for the donor as well, compared to the $6-a-month cost of a typical Substack subscription.
  • Social media services like Facebook, Instagram, and Twitter make money with time-on-app, generating data used to target advertising to users, but blockchain-backed platforms could be collectively owned. Time spent posting on a network could earn tokens exchangeable for ETH or other coins, with curation and expertise rewarded like Reddit gold is, with the ability to spend more widely — for example, by converting tokens to travel rewards, and turning time spent on an Instagram clone into a trip abroad.

Through interchangeable tokens like Ethereum’s ERC-20 standard, a startup cooperative super-host’s credits could be exchanged for grocery deliveries or marketing time at a more valuable ratio than cash. A ride-sharing cooperative or a digital marketer might choose to accept some of their compensation in crypto instead of fiat because they believe the coin’s value will rise as more local cooperatives take on AirBNB, Lyft, and delivery services in more areas.

Startup services could emerge for legal compliance and customer service around blockchain-based AirBNB and Uber competitors, with new creative markets around promotion on social media services, compensated in tokens that might help pay household bills. Mass financial services like loans, banking, consumer credit scores, and online payments could be made more responsible and favorable to consumers — the long-awaited disruption of PayPal’s transaction fees.

The blockchain-backed Helium network is taking on the telecom giants with a p2p 5G network, a mesh formed by nearly 430,000 hotspots. It’s possible to imagine, in decades ahead, cooperatives providing the cable modem internet service and mobile phone service that currently costs exorbitant prices from regional monopolies like Comcast and Charter and untouchable mega-corporations like AT&T and Verizon.

Around 2005–2006, before the dominant rise of Facebook, the internet seemed poised to grow in more-open directions, as blogging caught on and open standards like BitTorrent and RSS feeds took off, which are capable of delivering an entire movie or TV series subscription for mere pennies. For a while, whether a platform was open — like Wikipedia or WordPress — or closed — like MySpace or Apple — was a huge guarantor of its public trustworthiness. Convenience and profits won out, in the form of Facebook’s inflammatory algorithm and YouTube’s instant-rewards streaming, and wealth was concentrated in Big Tech companies and their institutional investors like the powerful Vanguard Group and hedge fund giant BlackRock.

Facebook is closed not only in the technical sense that games and apps on its platform require developer approval, unlike a web app hanging out there on the internet, but also because it guards the bulk data of which of its users are publicly joining which groups. The Twitter account @FacebooksTop10, which documents the right-wing and conservative and misinformation-laden sources being seen by untold millions of users every day, is powered by Meta’s own analytics service, CrowdTangle, the four-year old startup that Facebook acquired in 2016.

As much as I don’t care for the aesthetics of much of the currently-dominant NFT art, I also recognize that most blogs weren’t for me — I don’t care much for celebrity gossip, for example, but that’s of huge interest for a lot of people, and created a lot of community in comment forums. I’m not very interested in how-to videos or crafting tips, but tons of people are, and right on — their open Blogspot comment forums didn’t weaken my local news organizations, as Facebook did. But Facebook did make online culture poorer, putting its fists on the scale toward inflammatory content, promoting whatever gets them more user data to offer, say, Procter & Gamble. The outrage factories like Fox News on Facebook beat out local journalism, instead of small, independent media being able to monetize a mass readership.

In the same way, some of the savviest social media users now are loudly complaining about mainstream NFT aesthetics, when I think the question is whether a creator-owned economy is likely to be better for independent artists and culture than Instagram and Spotify are. Some artists wrote earlier this year, during the NFT frenzy, about what they see as the benefits of NFTs, such as unlocking new markets for their work that were previously much harder to access, encouraging generative digital art works, and creating a more equitable platform through collective ownership structures. Artists have said NFTs increase their standing by allowing investors to purchase a share of a work, as opposed to artists receiving a fixed amount, and offers both creators and supporters the potential upside of selling ownership in secondary marketplaces, with Ethereum serving as a guarantor.

Besides, some NFT galleries are well-curated, are inspiring new publications and areas of study, and the artists involved are participating because they think their livelihood and creative project stands to gain. If a scrappy artist sells a share of a multimedia work for 0.25 ETH and pays their rent that month, they’re more in control of their practice — and potentially, far more likely to establish a relationship with a collector — than they would be trying to game the Instagram algorithm for views of a video that establishes them as an influencer. It’s not for everyone — some creators will pursue mass fame, and it’s a free country — but a lot of Substack publishers I know would benefit immensely from “1,000 true fans” if the benefits of backing a DIY creator with $100 a year were more widely distributed. If 1,000 fans who aren’t donating now for a Substack newsletter would press the donate button for a re-sellable NFT certificate of a limited-edition work, that could be life-changing for independent artists.

Major challenges with decentralized networks’ scaling and app usability remain, but Web3 defenders remind critics that Bitcoin was hard-to-use in 2011 as well, and now some people are using it to send tips on tweets. Blockchain-based apps can deliver the same services and products as AWS, Instacart, and Uber, with the likelihood of being far more governable by the stakeholders, encouraging the growth of institutions like local credit unions, solar rooftop community resources, or EV drivers’ cooperatives. In the same way that my laptop’s electricity can come from solar power instead of fracked gas when I plug it into the socket, my streaming music can come from an app that pays artists more and pays them directly, with files hosted by a server whose company isn’t lobbying my state lawmakers against a minimum wage increase. The near future can be better for independent creators than an Instagram shop, whose fees are funding former Republican Joel Kaplan’s lobbying on behalf of the anti-democratic Facebook monopoly. A Web3 future has the potential to be more egalitarian and innovative than the way U.S. wealth currently concentrates in stock gains for BlackRock shareholders, for the two-thirds of us without 401ks.

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David Moore

Co-founder ReadSludge.com, investigative journalism on money in politics. Previously: OpenCongress, AskThem, Councilmatic.