Why Mark Zuckerberg and Jack Dorsey Are Warming to Blockchain

Michael J Casey
Mar 27, 2019 at 18:45 UTC
Updated Mar 27, 2019 at 18:46 UTC
news

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


“Left to their own devices, computer scientists would recreate the Soviet Union.”

That line belongs to Preston McAfee, an economist whose job history includes senior positions at tech giants such as Microsoft, Google and Yahoo. As he explained to an audience at the SXSW conference in Austin, Texas, recently, it refers to software engineers’ tendency to favor centralization as the most efficient design principle for any computing system.

The point, he said, is that decentralized networks, such as those based on blockchain models, can often enable more positive overall social outcomes despite the relative inefficiency of their command-and-control architecture. It’s useful to contemplate this idea, and McAfee’s colorful metaphor, in relation to the current state of play on the Internet.

For the first time since they emerged as the victors of the post-dot-com bubble shakeout at the turn of the century, the platforms that dominate our online lives are running up against the social limits of their centralized models.

A backlash is emerging against “surveillance capitalism” and against the broad strategy of mining users’ data to capture audience for advertisers and to shape consumer behavior. Manifest as both political pressure and user rebellion, it is forcing a design rethink at these companies.

Perhaps the Internet is facing its Berlin Wall moment.

This is ultimately why some of the principles underlying blockchains and cryptocurrency technologies are finding favor in the business development strategies – or at least in the PR signaling – of social media companies.

Warming to Decentralized Models

Facebook especially has attracted much attention in this area.

CEO Mark Zuckerberg recently made a bombshell post outlining a “privacy-focused vision for social networking” that suggested a move to embrace end-to-end encryption of users’ data on Facebook, Instagram and WhatsApp.

In a separate post of a video interview with Harvard Law professor Jonathan Zittrain, Zuckerberg speculated on the prospect of Facebook using a blockchain model to enable decentralized logins without its servers acting as authenticators. All this came around the time The New York Times reported that Facebook is developing a digital currency that its users can trade among each other and exchange on cryptocurrency exchanges.

Meanwhile, Twitter CEO Jack Dorsey appears to have gotten religion when it comes to cryptocurrencies. He has declared that bitcoin will be the “native currency of the Internet,” has invested in Lightning Labs, which is developing payment channels for bitcoin based on the lightning network, and recently announced that Square, the separate payments company that he heads, will hire crypto engineers and likely pay them in bitcoin.

It’s fair to say there is a significant degree of skepticism that social media companies, having made fortunes out of a centralized model that accumulates user data, will change their stripes.

Facebook, in particular, has come under criticism from pundits who argue that it won’t be able to shift its business model. Given data abuse scandals such as the Cambridge Analytica affair, skeptics such as cryptocurrency pioneer David Chaum argue that Zuckerberg’s decentralization and privacy mantra is nothing more than a PR message.

But the departure of certain senior executives, including those who oversaw the development of the centralized data-gathering model and the algorithms that mine that data to deliver audiences to advertisers, has led others to conclude that Zuckerberg is indeed serious.

Winds of Change

One thing’s clear: there’s pressure for change, whether it comes in substance or merely in message.

Much like citizens who reach a breaking point and rebel against political leaders who act in their own interests rather than those of the public, users of these social media platforms are starting to signal that they won’t stand for data abuses.

Obviously, without users, these businesses fail. So, these companies are now contemplating a revised model in which, to paraphrase Bruce Schneier, users are no longer the product but the customer.

It’s an open question whether such companies can make money on a model in which the nodes in the network are free from control by the center. But let’s continue with the McAfee-inspired metaphor and contemplate how governments in capitalist economies accrue power and influence when their citizens are empowered to transact with each other. Similarly, we can imagine how a Facebook or a Twitter that helps its vast number of users conduct peer-to-peer exchanges can extract great value from the expansion of such networks.

Either way, the winds of change are coming to the centralized systems of the Internet. Whether the incumbents survive those changes, or whether they go the way of, say, MySpace is not clear. More important, let’s consider what might arise in their place and how smoothly we transition to the new era.

These are questions for developers of decentralized solutions such as those enabled by blockchain technology. What kind of governance models will be in place so that users are truly able to maintain a healthy degree of autonomy even as new centralizing forces emerge to extract value within the new paradigm?

Remember, the Soviet Union collapsed, but it was hardly replaced by a utopia.

Image via CoinDesk archives