The Breakdown - Bitcoin, Property Rights, and Why the Old West Says You Should Own Your Socials, feat. Nic Carter

Episode Date: June 11, 2020

Today on the Brief: A record week for peer-to-peer exchanges in the developing world A digital dollar gets discussed in Congress  Previewing the Federal Reserve’s FOMC guidance  Our main topic: A brainstorm on digital property rights Here’s a radical idea. What if by virtue of the fact that you had put so much time and effort into building a following on social media and filling that following with content you had legal claim to and distinct property rights around your corner of social media platforms?  It’s wild in the context of today’s terms of service, but has significant legal precedent in the world of physical land.  In this new type of deep-dive 20-minute episode we’re calling a “Breakdown Brainstorm,” Castle Island Ventures investor Nic Carter looks at: The two schools of thought around digital property rights The historical precedent for squatter’s rights What the specific example of the USA’s Westward Expansion can teach us Why this type of approach can be highly economically generative, according to economists like De Soto How John Locke’s theories provide a moral basis for the argument  Why today’s platforms are akin to anti-democratic feudal lords How bitcoin provides a model and a mechanism for digital rights enforced on the protocol level rather than by a state or other external actor  Find our guest online:Twitter: @nic__carterWebsite: niccarter.info

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by BitStamp and Cipher Trace. The Breakdown is produced and distributed by CoinDesk. And now, here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, June 10th, and today we are introducing another new format experiment and And this one I'm really excited about guys. I'm calling it for now Breakdown Brainstorms.

And here's where it came from. Every once in a while, I'll see someone share an idea, a specific idea that I think is really fascinating and really important and worth more exploration. This recently happened with Nick Carter when he tweeted out basically a thread about digital property rights and why Squatters' rights effectively might apply to your social media, why you should actually have legal claim or property claim over the social media profiles that you've built by putting your time, sweat, and effort into it. I started thinking about this, and I thought it would be really cool to do some episodes as 20-minute deep dives on a single idea rather than kind of a

traditional interview format, which can go all sorts of different places. So that's what we're doing today. We're going to do a breakdown brainstorm, the first ever with Nick Carter, actually, about that idea, about the idea that inspired this whole concept of brainstorms. But first, let's do the breakdown brief. First up on the brief, it was a record week for P-to-P exchanges in the developing world. This comes from Matt Alberg from Useful Tulips, and he wrote that Paxville and local bitcoins saw combined year-to-date records, and this was the first week that Paxville actually exceeded local bitcoins, at 42.8 million in volume to 41.7 million in volume. Some highlights from this, dollar trading saw a new record for the first time in over a year, which kind of reflects what we've

seen in terms of the importance of U.S. dollar exposure in the current climate. Argentina almost broke its volume records, but really the headliner in the big story is India. India had a new record of 3 million USD equivalent in Bitcoin trading, which was the most since the 2017 bubble. This is important in the context of India's larger environment as well, where banks have just officially been allowed to re-engage with the Indian crypto landscape in a way that was held up by the Supreme Court before. So a lot of both formal and informal centralized exchange and decentralized exchange type activity happening there. Why does this matter? Well, in my estimation, emerging markets

represent perhaps the most important and current use case of cryptocurrencies and Bitcoin in particular. But we're seeing it not just in Bitcoin, we're seeing it for stablecoins. For people in these places, they need to be able to transact in different ways. First, in a lot of places where debts are denominated in U.S. dollars, they need exposure to dollars to pay debts, whether that's because they're importers or something else. And in a world where dollars get tight, which is what we've seen over the last few months, synthetic exposure via U.S.D. Stablecoins can actually be really powerful. This is something that obviously we've talked about on a lot of podcasts before. Bitcoin, on the other hand, provides a way outside of the system in a bigger way, right? It

provides a truly outside the system alternative. By way of example, there was a great tweet from Lucas Nuzi a few weeks ago where he said, just sent Bitcoin to family in Brazil, a country facing economic calamity after COVID. The Brazilian Real is down 26% year to date. Bitcoin is up 30% year to date. Is Bitcoin a good store of value? Is just a matter of perspective? For many Brazilians, it's their best chance for social mobility. Second up on the brief today is a digital dollar in Congress. So what's happening? The House Financial Services Committee task force on financial technology is holding a hearing on how to better deliver stimulus money during emergencies like a COVID-19 type pandemic or other times that mediate an

emergency response. Headlining the witness list is Christopher Giancarlo. Giancarlo is, if you'll remember from the Money Reimagined episodes of this show, heading up a project called the Digital Dollar Project that is advocating for and actively providing designs for a U.S.-based digital dollar. Giancarlo has a lot of. of credibility with this committee, obviously, being the former chairman of the CFTC. Why does this matter? Well, I think that it's very clear to me that the pandemic, and specifically the fiscal stimulus response to the pandemic, created a new context for the digital dollar debate. It moved outside of the realm of just Libra and China's response to Libra, and to something that was urgent and relevant.

If you'll remember, one of the proposals for stimulus from the house before it was wiped out and switched around, actually had embedded in it the idea of a digital dollar that would be held through a Fed account where average citizens could actually have an account with the central bank. This was nixed for a number of reasons, not least of which is that there is an extremely dicey issue as it relates to the relationship between consumers and the Fed, which would cut out commercial banks, but still, there was this major Overton window shift on the idea of a digital dollar that came from this. And so now we're starting to see the follow-up, as the immediate issue of COVID-19 recede, at least theoretically, we're seeing some of those things that came up during

that time come into the public conversation in a bigger way. Finally, on the brief today, previewing FOMC guidance. The Federal Open Market Committee is the group of the Federal Reserve that determines interest rates, and they are just finishing up their two-day meeting. They will release a statement at 2 p.m. and also release their first quarterly forecast since December. Here's what people think we're going to hear. First, there's wide consensus that we're going to keep the overnight rate at a target range of 0 to 0.25%, which is where it's been for a while now.

That's part one. Part two is, according to economists surveyed by Bloomberg, most think that the open market committee is likely to project that it will raise rates only in 2022, with some seeing no hikes before 2023. So the zero interest rate paradigm is projected to be the name of the game for some time. Some economists also expect that we will have some discussion of a policy known as yield curve control where the Fed monetary policy targets specific yields for specific treasury maturities. So let's discuss what yield curve control actually means because this is a term you're

likely to hear a lot more in the coming months. The idea of yield curve control is that the Fed targets some specific long-term rate and basically commit to buying enough long-term bonds to keep the rate from rising above. that target. So whereas QE deals in quantities, yield curve control focuses instead on prices. So QE focuses on the quantities of bonds purchased, yield curve control focuses on the prices of those bonds. Brookings put this really nicely, so I'm just going to quote them. They said, under QE, a central bank might announce that it plans to purchase, for instance, $1 trillion in Treasury's securities. Because bond prices are inversely related to their yields, buying bonds and pushing up their

price leads to lower, longer-term rates. Under yield curve control, the central bank commits to buy whatever amount of bonds the market wants to supply at its target price. Once bond markets internalize the central bank's commitment, the target price becomes the market price. Who would be willing to sell the bond to a private investor for less than they could get by selling to the Fed? So that's basically the yield curve control. It is a way for them to stimulate the economy if just bringing the short-term rate to zero doesn't do enough. Why does this matter? Well, outside of Robin Hood investors,

the Fed is the single most important force in the economy. And the economy, specifically the markets, follow along with everything they say, all of their guidance, all indications of what they're going to do next, with bated breath, right? This is must-see TV. This is the single most important guiding factor in what the markets expect and will do next.

So the Fed meeting, the FOMC meetings are really the quintessential events to kind of understand the market around. I'll have a recap tomorrow, perhaps, of what they actually say. But right now, the headliner expectation is that these rates are going to stay where they are for some time to come and that we're likely to start to see some conversation about yield curve control, even if it doesn't really come into play until September or later this fall. But with that, let's shift our focus to the main topic for today, our first ever breakdown brainstorm on digital property rights. So as I mentioned at the very top of this show, I had the idea for these brainstorms when I saw this thread from Nick Carter on property rights and digital platforms, effectively arguing for a different form of digital squatters rights. And I think that it's such a fascinatingly important conversation that is really outside of the mainstream about,

how we think about digital platforms now. But in some ways, once you accept the premise of some of these arguments, it's very hard to go back from them. So I'm going to shut up now. I'm going to let Nick do the talking, and I really hope you enjoy this idea. All right, we're back with Nick Carter for something really cool, a breakdown brainstorm. I'm calling this in my head. We'll see if that sticks. But basically, the idea here is to explore a specific idea in a little bit more depth with someone who's been talking about that idea. And so today we're talking with Nick about the idea of property rights and digital platforms. Nick, I've been watching you kind of start to dig into this idea. And I know there's a few other people that you've been kind of referencing and seeing this emerge too.

But we're going to go through the whole argument. But maybe let's start up with the current argument or the two schools of thought around private platforms. On the one hand, they're private. They can do what they want. On the other hand, there to use your words, novel alternative jurisdictions. Maybe you can kind of just walk us through what each of those different ideas means. Sure, yeah. And thanks for having me back on. So the default view is the idea that internet platforms can make the rules and they have certain terms of service and which they can enforce with their full discretion. And, you know, they don't owe anyone a microphone, so to speak, and if you misbehave, you get kicked off, that's been accepted as the default way that things operate.

And for the most part, people don't really question that. It seems to work just fine, as long as you color between the lines and so on. And maybe some people don't like the fact that there's more and more sort of algorithmic suppression or elevation of certain ideas. But for the most part, people are kind of happy with that. And then there's this alternative idea which hinges on the key thought or realization that online platforms are actually places, like real genuine places, that, you know, with the caveat that they don't actually physically exist anywhere, but they are real kind of jurisdictions. So they're like countries. And the people and organizations that run them are effectively the local. government. And in that analogy, you might think to yourself, well, hang on. If I'm in closing, you know, a certain namespace here, you know, I occupy a handle, and then I labor and I fill it with value and I accumulate a social graph and followers and reputation, and I create content add

value, I should actually be able to capture some of that value. Those are the fruits of my labor. I should be able to benefit from them. And this starts to sound a lot like property, except what the reality we have today is that people that exist and, in some cases, scrape out of living on social platforms, they have no claim to that property, none whatsoever. The people to run them look a little bit like feudal lords or totally unaccountable dictators, effectively. And they might be benevolent dictators. You know, they have an interest in, you know, that digital society being orderly and functioning properly. But they're unaccountable dictators nonetheless. So basically, I wanted to introduce this idea that your actual

handle, there's definitely an analysis whereby you can think of it as proper. not just an area that you're effectively leasing from, you know, Mark Zuckerberg or Jack Dorsey, who ultimately controls everything. So I think that the key point here is that in this second conception, right, this digital space that we occupy and give life to and effectively, you know, create functionally through the work that we put into it is more parallel to land rights, right? It's more parallel to a sort of digital version of land, which brings in all sorts of kind of legal precedent from the view of land. So, you know, one of the ways you put into censorship and deplatforming become eminent domain and expropriation,

I guess, you know, for those who aren't familiar with kind of, you know, the legal rights of property around land, what are the precedents around this? I know it's messy. And I know, it's messy. And I that this is an area that you're exploring versus something that you're, you know, a particular legal expert on or anything. But can you talk a little bit about this idea of maybe squatters rights, where we've seen this in the American continent and expansion? And even in the context of, you know, the sort of squatters rights laws that we see now in play in the world. Yeah. And, you know, by no means am I a historian of property rights in the West or anything. This is a concept that I started to explore in order to evaluate this concept of digital squatters rights.

But there are some great resources. So the number one direction I would point people would be Hernando de Soto's Mystery of Capital, which is his treaties to explain why capitalism works in some places and why it doesn't work in other places. and his hypothesis is that capitalism works if individuals have a codified legal right to certain capital that they own, typically property, and they can instrumentalize that capital, so they can take out a loan against it. But if it's gray market or black market and it's not a formalized claim, they can't really take out a loan against it. They can't really monetize or instrumentalize the capital. So there's a societal loss there. So his whole hypothesis is

capitalism works in places where people are able to take claims on things that exist in a very real sense and transmute them into legal, kind of codified, accepted claims. And that is, if you think about the American frontier, that's actually kind of what happened. So, you know, obviously there was a genocide of the Native American population. So, you know, you can't admit that part. But, you know, what happened after that was there were large empty tracks of land, which were actually, in a legal sense, owned by states or absent landlords. And what happened was people just started settling on them. And they staked out what were called Tomahawk rights, which meant that you would actually cut a cross and, to a trees on the perimeter of fewer property. And that's how it was delineated. So it was a claim, but it wasn't a codified or legal claim, right? Because the laws hadn't caught up with the advancement of people across the continent. And you had these massive fights, and this took place over hundreds of years. You had these fights between settlers or squatters, and the landlords

that actually owned the land in a technical sense. And the squatters were able to make the convincing and persuasive case that they should be the real owners of that land because really nobody was using it before them or the absent landlords or the stakes, they certainly weren't. And they had developed the land. They had mingled their labor with the land in the Lachian sense. and there were lots and lots of legal battles, but what happened in the end, actually, for the most part, was the squatters won, and the laws changed, and the laws came to recognize Tomahawk rights as a template for legal divisions.

So, you know, then you have acts like the Homestead Act, which is pretty famous. That's kind of the 40 acres in a mule theory. which staked out lots of land further across the American Midwest. What people don't know about that is that was actually kind of a recognition of a de facto state of affairs. People had already settled, and the government needed a way to bring that into legality. So this was a struggle taking common claims to land and rendering them into legal claims. This was a struggle that has lasted hundreds of years in the U.S. And then, you know, obviously now those common claims and legal claims, there's a one-to-one mapping. But, you know, there's an analogy here, right?

So people lay claim to their digital property right now in an informal sense, but there is no ratification of that claim, right? Because the people that own these platforms, they want to retain total discretion. They want to be able to censor. indiscriminately, they would like to be able to elevate certain concepts. Maybe they can monetize that discretion, right? Maybe they can tell advertisers, hey, like, we'll make this topic trend and we'll de-boost the other topics, right? So what I'm envisioning here is potentially a movement where people seek to actually codify their claims to certain namespaces online,

whether that's actually compatible with the current state of affairs and the way things work right now on Facebook, Google, and Twitter and so on, you know, maybe not, but maybe the next generation of platforms will kind of be more mindful of this reality. BitStamp is the original global cryptocurrency exchange. Since 2011, BitStamp has been the preferred exchange for serious traders and investors, trusted by over 4 million customers, including top financial institutions. BitStamp is built on professional grade trading technology. Their platform is powered by a NASDAQ matching engine, and their APIs are recognized as the best in the industry.

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One of the really interesting points that you bring up in the piece that you just wrote about this on CoinDesk was, I mean, discussion of Locke as a kind of how you frame the moral authority for these systems, right? And obviously, this is outside the digital realm. And you had a quote that was basically said, nor was this appropriation of any parcel of land by improving it any prejudice to any other man, since there was still enough and as good left and more than the yet unprovided could use. Obviously, hold aside, as you moved out very quickly, the fact that in the Westward expansion, there was prejudice to any other man. But the interesting thing is you apply this concept to digital rights is you have this concept of infinite extensibility, which feels really important.

The idea that these are actually infinite universes of space, right, when it comes to, it doesn't add, all it does is add and expand the universe of Twitter when you add a new account. It doesn't infringe upon anyone else's. And it feels like that's actually an important point as we're kind of talking about the moral basis of this system. Yes. And to be clear, this is a moral argument, right? So in a legal sense, my argument is wrong because anyone with a brain could just read the terms of service for Twitter and say, well, Nick, actually, you're describing something that doesn't exist, right? So I am making a moral argument. And the basis for that moral argument is the Lockean theory, which is not the sole theory of property rights. You know, let's be clear. It's one that, you know, libertarians tend to like. But there's lots of competing theories. There's Marxist theories of property rights which hold that they are, you know, they cannot be grounded in consent and they're fundamentally exploitative and so on.

But yes, the Lockean proviso is what you're referring to. That was a term coined by Robert Nozik, the philosopher. And basically, it's the most controversial part of Locke's theory. So the proviso holds that, you know, property requires excludability, and excludability is okay if you're not really, if those resources aren't rival with other resources. So if me staking out my claim doesn't deprive you of your ability to some resource. And Locke makes the analogy in his book of someone drinking from a river doesn't really deprive you of your ability to drink. But the truth is, In the natural world, resources are scarce and they are rival. So this is why a lot of people really disagreed with Locke's proviso, and they felt that was the weakest part of his theory. And they sought to stake out alternative interpretations. But the beautiful thing is, in this context, the Lockean proviso, it's not troubling at all because my Twitter handle is,

not rival with yours. In fact, anyone additional, you know, any marginal new joiner to Twitter, for instance, actually tends to enhance it for everyone because these things have network effects. So it's quite the opposite from property that's instantiated in Meetspace. New people staking their claim actually make it better for everyone because they bring more attention attention is really the key resource here. So the theory doesn't have this constraint, which is the reason that people really object to it in the traditional context. So, yeah, I think this is actually the most important key insight. You know, from a moral perspective, applying Locke's theory to digital worlds, which obviously wouldn't have made sense to Locke himself, it seems to work.

So I don't think this is really sufficiently appreciated at present. So, okay, let's actually take at present because I think there's an interesting context for why this argument is happening now. And it's, or this discussion is worth having now. And it's almost two parts. The first part has to do with cracks in the default model, which you got into maybe a little bit around, you know, control algorithmic curation, for example. But I know you have a number of other examples. So on the one side, there's cracks in the default model. which potentially create demand for an alternative.

Then on the other side, there's what alternatives might exist. And on this part, I want to actually talk not about alternatives in the sense yet of the competing social networks per se, but the concept that Bitcoin introduced of actually being able to determine data scarcity and value, right, actually being able to determine or allocate digital property rights, which was a key and perhaps underappreciated innovation of the system, right? So there's kind of a, for the first time we're seeing maybe the faults in the system as well as a mechanism to think differently. Yeah, Bitcoin is a technology that allows us to have a registry of property rights independent of the state or any authority. And that is a significant

thing. I mean, you can describe Bitcoin solely in the sense of it being a secure registry. For property rights, it just so happens that the specific slots in the legislation, slots in the ledger and Bitcoin don't actually mean anything. They don't relate or refer to any property anywhere, but the system is so great that people find those slots to be valuable, which is pretty cool. But yes, this is, you know, the public key infrastructure that Bitcoin relies on, that is a technology which can be applied for other contexts such that we don't need to use the state or corporations to be the registrar of identity. So that is an enabling technology

that allows people to actually instrumentalize these visions for the first time. And that is the foundation of the Web 3 movement, but it's also the backbone of something like Erbit. And so I wouldn't say it's exclusive to Web 3. But, yeah, I think that is kind of a key technological enabler, which allows us to actually, for the first time, really try and, you know, like, adhere to this new model.

So let's maybe close out by talking about the challenges this faces, right? Because to your point, both that you were just making and also the one from the article, this is sort of a founding pillar of the idea of Web3, especially if you kind of look at the Chris Dix and argument, call it, right? Which is largely about the point at which platforms no longer have shared interest with their users and start to compete with their own users, right? That's a lot of the basis for the kind of the crypto side of Web3. But even on top of that, holding aside all of the kind of the ICO madness and tokenization and all those sort of questions, there's also this underlying challenge of network

effects and user behavior and the value proposition. And so I guess what's your read on the state of this shift to an alternative, not just in the context of Web 3, but maybe like what comes after Web 3? Yeah, it's hard to forecast, of course. I think some of the Web 3 projects were building systems, which looked very similar to the existing ones, without really reconsidering the underlying framework. What I think would be really interesting and create a significant consumer surplus and would just generally, speaking, be good for the world,

would be if the actual software layer became commoditized for, let's say, social media. And users were able to own their own identities in a cryptographic way, or at least have discretion over them. And users were able to maintain their own social graphs and lists of people that they wanted to have relationships with. And then the platforms would have administrators and they would have rules and there would be discretion in those systems because you kind of need rules. That's the thing I didn't talk about. But there would be a free and open competition there. So there would be a constellation of different nations where you do have people running them, you have moderators running the show, and you have the ability to exit from one

if the administrators are misbehaving or something. So, you know, a commoditization of, of the software layer and competition on the legal layer, on the terms of service layer. And, you know, I think it's very naive to try and compress everyone on earth into the same uniform terms of service. In fact, it's impossible. There's no such thing as international law that everyone adheres to. There's no single world government. So it's very naive to think that, yeah, we could get everyone to unite under the same

banner. So, you know, let's plan for that fracturing for the patchwork and allow for there to be, you know, distinct digital nations. But the precondition for that is that users do need to have the ability to actually instrumentalize an exit, which they don't right now. You know, they're being held hostage in a way. So any system which is mindful of those realities, I think, will eventually be successful. but that seems kind of a really long way off as well. So I guess one specific example that I'm interested in your take on. In December, Jack Dorsey tweeted out that Twitter is funding a small independent team of up to five open source architects, engineers, and designers to develop an open and decentralized standard for social media.

The goal is for Twitter to ultimately be a client of this standard. Do you have any sort of optimism around a project like that that comes from within one of the kind of giants of today? I think it's very unlikely that one of the incumbents would disrupt themselves vanishingly unlikely, in my opinion. And if you actually compare the major kind of internet platforms, Twitter is arguably the most disruptive in terms of instrumentalizing the opinions of the people that run to. Twitter and having discretion over the content that's visible there. It's interesting that Mark Zuckerberg, who pioneered this idea of fact-checking things and algorithmic timelines and so on and keyword-based censorship and so on, he's actually eased off on that because he recognizes there's risk if he's perceived as having too much discretion. Whereas Jack Dorsey has actually leaned into the concept,

So I think it's pretty unlikely that a team at Twitter is able to disrupt itself because they've been the most pro kind of discretion of all the major platforms. Nick, this is an awesome start to a conversation that I think is really relevant for the future. One, where can people find you and follow you? And two, if people want to read more or just think more about these topics, what would you recommend? I linked to a few other pieces in my coin desk article. There's a really good one by Alan Farrington, which looks at some of these alternative potential systems, considers blue sky. Elaine who wrote probably the canonical piece on Digital Squatters rights, which was what inspired this idea. And so I would definitely check those out.

And then as for following me, I'm on Twitter. Nick underscore underscore Carter. That's where you can find. Nick, the surf on Jack's feudal kingdom, right? That's it. I mean, that might change, but that's the reality today. All right, Nick, thanks so much for hanging out. Thanks very much. The only thought I want to add by way of ending the conversation is that I wonder to what extent the existing legal realm doesn't afford any pathways forward on this. I wonder if you could actually make compelling arguments that follow some of these precedents as it relates to existing social media platforms. Thinkers like Nick, I think pretty clearly believe that it's going to need to be

almost a generational shift in paradigm, an expectation that's kind of user up and that is embedded into new entrepreneurial endeavors where this new type of understanding of digital property rights is just native to the platforms that get built. But there's the part of me that wonders if there is no room for legal challenge in what we have already. I'll leave it there for today, guys. Let me know what you thought of this idea of a brainstorm, a 20-minute session on some really important idea. And if you like it, let me know what other ideas are intriguing to you. If there's something that a lot of people are interested in, I'll go out and try to find

someone who is a good voice for bringing that up. Anyways, I appreciate you listening, as always, and until tomorrow, be safe and take care of each other. Peace.