Of all the esoteric, hypertechnical advances we're drowning in, none is more misunderstood than Bitcoin. Once obscure, bubbling up from time to time in the paper's financial and technology section, the currency is gaining more attention and traction by the day.
Despite being a market worth nearly $8 billion, Bitcoin, and the blockchain technology that drives it, feels like an impenetrable, specialized and even cryptic field. What can a piece of software atop a network, bound by excruciatingly difficult math, mean for us?
This text and its annotations are intended as suggestive, as provocation for ongoing discussion. We hope this project will generate meditation on larger issues, from the sinking economy to the marginalization of artists. We also hope it will generate more models that use the blockchain to make our lives richer.
The Myth of Satoshi Nakamoto
In March of 2014, Newsweek journalist Leah McGrath Goodman claimed to have outed Dorian S. Nakamoto as the enigmatic founder of Bitcoin. Goodman’s cover story supposedly debunked the prevailing theory: that Nakamoto is a group of genius developers using “Satoshi Nakamoto” as a pseudonym.
From the moment the digital currency was born, the media has tried its best to unveil its creator. Dorian, a 64-year-old former engineer living outside of Los Angeles, looks alternately hassled and exasperated in Newsweek’s photos, holding his hands up before reporters.1
Dramatic anecdotes about Dorian made the match seem plausible: he had worked under classified cover for the U.S. military and defense corporations, possibly building “warships”; family described him as obsessed with anonymity.2 He’d been loosely employed for the last decade with little paper trail and had suffered a home foreclosure. Dorian, Goodman argued, had both the knowhow and motivation to create an anti-authoritarian code that could (technically) disrupt the banking state.3
Soon after the piece ran, Dorian denied his role in creating Bitcoin, stating that he has never “worked on cryptography, peer to peer systems, or alternative currencies.”4 He does not own a fortune estimated at many hundreds of millions of—at one point, a billion—American dollars. He is planning to sue Newsweek, claiming distress from the global attention from the piece.5
As of December 2014, it was widely accepted that Dorian is most likely not the creator of Bitcoin. For one, Dorian’s programming experience does not necessarily link him to creating an advanced cryptographic protocol. The name Satoshi Nakamoto is extremely common in Japan, and there is no evidence that Bitcoin’s founder ever wrote in Japanese.6 The trail of Nakamoto’s encrypted e-mail accounts “would take something like a court order to open them up for investigation,” which is impossible without proof of illegal activity.7
At its highest point in 2014, Bitcoin had a market cap (USD) of $11.4 Billion.8 Today, one Bitcoin is worth appx. $382 USD.9 It’s estimated that 10,000 Bitcoin from 2010 are today worth $750,000.10 A considerable number of the original investors are millionaires.11
The growth has baffled more traditional investors. Driven in large part by belief in how valuable its underlying technology is, Bitcoin’s value regularly tops the biggest tech stocks.12 Chief scientist Gavin Andresen describes Bitcoin as a “huge $8 billion project” sustaining a worldwide economy, whose underlying code has to be refined and maintained with care.13
Bitcoin is not controlled by any government. This “hedge against the entire global currency system,” however, is on the radar of nearly every major American regulatory body, from the FBI to the SEC to the Federal Reserve.14
The burning intrigue over identifying Nakamoto reflects a wider curiosity about Bitcoin itself, which the creator defined in 2008 in a white paper.15 His argument was straightforward: People needed better ways to pay for goods without a third party, like a bank, that commodifies trust. The traditional model that grounded most electronic payments was inherently flawed and too expensive. In allowing one point of authority to be the arbiter of trust, people would always be at risk of becoming victim to corrupt or compromised systems.
Nakamoto’s solution was elegant. A currency stored in code, on hard drives. One Bitcoin would be a stamped piece of ultra-specific code, produced along a massive, shared, peer to peer network of transactions, taking place on computers all over the world. Direct transactions between parties would be secured through cryptographic proof.
A single person could produce money by syncing her computer with the Bitcoin network. Her computer would work on verifying the transactions, and she could buy and sell from someone in Algeria through Bitcoin without running through local banks or regulatory institutions.
Popular speculations on the founder’s identity remain: that he is Bit Gold developer Nick Szabo; that he was cypherpunk cryptographer Hal Finney, who passed away in August.16 At the moment, Nakamoto could be one or many scholars, mathematicians and programmers spread around the world.17
Mining Money at Earth’s Edge
The real story of Bitcoin, however, is not about Nakamoto’s identity. The real story is in the cryptocurrency’s staggering mining operations, taking place in covert warehouses in northeast China, on the plains of Reykjanesbær in Iceland, along the banks of the Columbia River in Eastern Washington State.18 These rogue industrial operations often take place in secret.
Inside the mines, you’ll find scenes reminiscent of Bond villain Raoul Silva walking through his cyberstronghold in Skyfall. Hundreds of racks and towers of ASIC chips and processors humming, calculating obscenely difficult algorithms. They produce a crop of bitcoins every ten minutes.
Bitcoin 2.0 Protocols
Second-generation protocols offer specialization along the Bitcoin blockchain. Each uses the blockchain differently; some use its timestamping system to secure their own blocks; others use the blockchain to store its transactions.
Mastercoin creates securities, commodities and currencies on top of Bitcoin, with developer J.R. Willet arguing that building a layer on top of Bitcoin is important, because “alternate blockchains compete with bitcoins financially, confuse our message to the world, and dilute our efforts.”67 Mastercoin and other protocols like it can take advantage of the mining power and security of the original Bitcoin network.68 To a Bitcoin user, one Mastercoin transaction looks the same as another, as the metadata specific to Mastercoin clients is buried in the encrypted transactional data itself.
Counterparty tries to offer secure, “free and open financial tools” and markets. It uses its own currency, XCP, and has its own wallet. Users can create and send the assets, even their own currency; they can bet and trade derivatives; they can crowdfund projects and take part in smart contract negotiation.69 Similar to Mastercoin, it uses the Bitcoin blockchain to store data.
Bitshares is a term for a system of Distributed Anonymous Companies or DACs. Where a Bitcoin is a single currency, Bitshares are designed around software-based business models. The shares of these businesses offer profits to shareholders while remaining autonomous and decentralized; one can mine bitshares points for stakes in DACs or buy them on an exchange.70
In one heavily guarded facility in Iceland, over one hundred computers, each worth $20,000, are held in ten-foot-high metal lockers. The mining overheats the computers, which are cooled by Arctic air and whirring fans running on clean, low-cost energy.19
At a recently covered mystery location in northeast China, enormous fans and complex wire cooling systems rig the outside walls of 3,000 square-meter warehouses that spring up in two weeks’ time.20 In another mine in Hong Kong, the scene is more makeshift but, still, functional: processors are crammed close together, the chips cooled down in a special liquid.21
These industrial mines are a visceral reminder that the work of Bitcoin, despite its being an abstract, invisible tender, is physical. They are also a reminder that this is a global competition organized around fairly amoral principles in an unregulated field. May the most ingenious and ruthlessly efficient win. Individual enthusiasts mining on their home computers have given way to entrepreneurial miners, brute-force extracting the bitcoin pool, capped at 21 million.
The appeal of a cryptographically proven currency like Bitcoin goes beyond that of a mere technical curiosity. Erasing one single source of power opens up all sorts of possibilities for transactions and communication. And risk-takers from Peter Thiel to Mark Andreesen to the Winklevoss twins are betting that Bitcoin can and will become the basis for future exchange.
They argue that it, and other open-source, decentralized models like it, created anonymously, managed along a network, can solve some our era’s most pressing financial, legal and cultural problems.
A Brief, Painless History of Decentralized Currencies
Cryptocurrencies and virtual currencies are not particularly new. Experimentation in alternative electronic currencies that could disrupt established economic paradigms reaches back to the late ’80s: as long as microcomputers have been around. Well-known cypherpunk activists like Vinay Gupta have been kicking around these ideas for years.22
Some of the earliest generators of virtual cash protocols are well-known names today, if not to the general public, then certainly to economists: David Chaum, Nick Szabo, Stefan Brands, Hall Finney, Niels Ferguson. All played seminal roles in advancing cryptographic payment and exchange.23
Nick Szabo in particular, wrote about cryptocurrencies long before Bitcoin, effectively defining the field of smart contracts, secure micropayments, and distributed applications.24 He shaped many ideas around the brilliant personal finance possibilities the Internet could offer: from censorship-proof publishing to unforgeable transactions to user-friendly expression of decision theory through automated (self-enforcing) contracts and trading.25
The history of decentralized currency starts with American cryptographer David Chaum, who invented the blinding formula in 1983.26 This formula allowed an individual to source and spend digital currency from a bank without the bank tracing the transaction. One electronic number, (or ‘coin’ in Chaum’s terms), could be sent while retaining a signature of the issuer.27
Chaum was obsessed with protecting individual privacy and power, seeing digital cash as the key to a true democracy.28 Later that decade, he became head of cryptography at the Center for Mathematics and Computer Science (CWI) in Amsterdam, and worked on electronic payment systems. Chaum’s invention, Digicash, had huge potential, but went bankrupt after turning down hundreds of millions from Visa, Netscape and Deutsche Bank. He failed to play well with the financial industry.29
In the void, hundreds of competitors fell in to jockey for primacy. In 1998, Peter Thiel and Max Levchin launch Fieldlink, so Palm Pilot users could store encrypted information. They developed Paypal in October of 1999: payments e-mailed in the first hand-to-hand cash system. That winter, Thiel and Paypal moved to eBay.30
Another major entry was E-Gold, founded by Douglas Jackson. Individuals sent their junk silver and gold to Jackson in Florida in exchange for digital gold. The company grew to be second to PayPal, with 3.5 million accounts backed by $85 million in gold. E-Gold was shuttered by the U.S. Department of Justice in 2005.31 Finally, there was Bit Gold, the closest precursor to Bitcoin, developed by Nick Szabo. Bit Gold only existed in theory, but its many parallels to Bitcoin are well-documented.32
Each of these developments pushed closer: to increased anonymity, to better security of valid, peer-to-peer transactions, to a currency that could work outside government oversight. The hunt continued for an international, stateless coin that was ready for a global information age.
Bitcoin: Distributing Possibility Along the Ledger
Bitcoin emerged in the shadow of the U.S. financial crisis, with major banks bailed out after catastrophic collapse. Bitcoin.org was registered in August of 2008, and Nakamoto’s white paper was published through a cryptography mailing list shortly after.
Many alternative currencies, or altcoins are based on altered Bitcoin code. There about 70 recognizable ones, with names like Peercoin, Namecoin (used for decentralized domain name registries) and DarkCoin (a truly anonymous coin). The contenders have managed to differentiate themselves from Bitcoin, whether through different proof-of-work models or limits on total number of coins mined.71 Their value is often directly related to Bitcoin.
Litecoin, the closest contender has a scrypt-based mining process (a move away from a SHA-256 algorithm), and produces coins four times as fast: transactions happen every 2.5 minutes. ($100 of Litecoin in 2013 would, come January 2014, be worth $30,000).72 Litecoin is based on Bitcoin but can be mined using consumer hardware.73
Primecoin uses an original proof-of-work model that actually solves problems: finding prime number chains.74
Nxt prizes itself on using new software, not a fork of Bitcoin source code. It is 100% proof of stake instead of proof of work; this means it does not use mining, cutting out the energy costs of hardware.75
Bitcoin allows online transactions to take a place without an intermediary—a bank, a credit card company—to track the transaction or charge fees off it. The ledger, documenting that the transaction took place when it did, is built into the system, using a technology called the blockchain.
Each Bitcoin is its own proof of authenticity, holding in it a digital record of every Bitcoin transaction that has taken place along the chain before it. This is accomplished through proof of work, done by those mining computers in Iceland and Hong Kong and the plains of Kansas.
The computers try to solve algorithms to produce a hash. If they are successful, they produce a Bitcoin with a digital record attached. An individual can buy a Bitcoin on an exchange, receive it in a transaction, or mine it himself. The network authorizes the transfer. The blockchain is open and public, so transfers can be checked by anyone.
Joining multiple systems—digital networks, software and currency—Bitcoin was disruptive and potentially revolutionary in multiple senses.33 The first: it was a currency no country could claim or control. Second: its technology was self-verifying, cancelling out the need for banks, a Federal Reserve, or any third parties; it could be transferred without being copied while remaining open. And the third: it was unregulated and impossible to counterfeit, eventually, without a specialized mining computer.
The pressing question remained: Why, and how, are Bitcoin, and distributed ledger technologies, valuable? In response, Gavin Andresen, Bitcoin’s lead programmer, offers the most succinct answer: “Why does any tool have value? It is valuable because it is useful.”34 People choose to agree that that money has value, and so it does as long as we share that belief.35 Bitcoin is useful because it works.
The first block, the Genesis Block, was mined on January 3, 2009. The first version of Bitcoin was released on January 9th, containing the generation system that would mine coins up to 2040; Hal Finney and Nakamoto made the first transaction.36
Over the next months and year after the founding, new versions of the Bitcoin program were released. An initial surge of faithful proponents and speculators started to use bitcoins to trade and exchange goods online. The Mt. Gox exchange, which would become the largest trader of the coin, was established in July of 2010.37
As with any innovation trying to survive in a hostile environment, there were glitches and skips, such as bad transactions caused by bugs in the code.38 In two years, the currency weathered a bubble, a crash, and thefts of owners’ virtual wallets.39 Bitcoin’s developers adapted to each roadblock, refining and strengthening the code. A major hack of the Mt. Gox exchange in June of 2011 temporarily dropped the value of Bitcoin to pennies on the dollar.40
By July 2011, the collective value of all bitcoins tipped over $100 million.41 The market worth passed one billion dollars after a price surge started in January of 2013, on the heels of the European Union’s financial crisis.42
Colored Coins, which are still in development, are meant to introduce new applications to Bitcoin by pegging different coins to different assets. A bitcoin could represent a piece of property; whenever a colored coin is transferred, the ownership of the asset is transferred.76 The coin would be stored and transferred digitally while ownership remains anonymous.77 The attempt to create a smartcoin could meld bitcoin with smart assets and create a new layer above the core protocol.78
Adam Back, developer of the Hashcash algorithm which underlies Bitcoin’s proof-of-work system, and entrepreneur Austin Hill have been critical of Bitcoin’s structural and long-term ability to support financial transactions.79 In order to protect and unify the Bitcoin space as a whole, the two created sidechains. Users transfer their bitcoins to new sidechains pegged to Bitcoin. They benefit from the network effect and the (relative) stability and resilience of the main Bitcoin blockchain.80
Major “real world” investors and venture capitalists start to show interest in legitimizing the currency, with the Winklevoss twins accruing $11 million worth in June of 2013, and filing a proposal to allow investors to trade bitcoins like stocks a month later.43 Andreessen Horowitz, the investment group, stepped into the field, financing OpenCoin, the developer of Ripple, an open source payment protocol.44
At a Senate hearing on November 18, 2013, government regulators acknowledged that though digital currencies have allowed illegal trade sites like Silk Road (shuttered by the Feds in October 2014) to flourish, Bitcoin and its relations were also major potential players on the financial field. That month, one bitcoin would be worth $780, and the total bitcoin pool over $7 billion.45
Limits of Bitcoin
Bitcoin’s pitfalls are a source of debate, just as much as its potential. Many point out that the system’s efficiency and transparency are countered by its price volatility and openness to theft. One major roadblock to growing the ecosystem is security, as basic consumer protection is still anemic; transactions cannot be protected, ending up in 1 out of every 10 bitcoins stolen or lost.46
Another: the computers that mine and store Bitcoins aren’t necessarily secure.47 As mining software can be installed on any computer, many thousands of less honest miners harness botnets to mine.48 Hoarding coins for speculation is a big problem; the growing bubble affects the fluidity of the market.49
Organizations have emerged to try and organize the Bitcoin community. The sheer number of Bitcoin institutions, from Lighthouse to exchanges like BTCe and Bitstamp, is overwhelming. The most visible player is the Bitcoin Foundation, whose mission is to “standardize, protect and promote the use of Bitcoin cryptographic money for the benefit of users worldwide,” dealing with issues like block size along the network, and scaling bitcoin to be viable long-term.50
Among all the developments covered here, Ethereum might be the most forward-thinking post-Bitcoin development to date. Its founder, Vitalik Buterin, is 20 years old. He was born in Russia, moved to Canada in 2000. He started out as a Bitcoin enthusiast in 2011, founding Bitcoin Magazine that fall. He left his studies at university early to work as a software developer.81
Having worked on Mastercoin and colored coins, Buterin began to see some of the weaknesses and flaws in building protocols on top of Bitcoin, given its scalability. To verify a colored coin back up the chain to its genesis, each single transaction needs to be verified, which means one would have to verify hundreds of transactions.82
Buterin’s creation, Ethereum, is a blockchain-based, Turing complete scripting platform, designed to allow other decentralized applications to be built on top of it.83
It has its own built-in programming language and user interface, Mist.
It has its own blockchain. The mining currency is ether, mined much like Bitcoin. Where Bitcoin’s script is binary, Ethereum’s contracting language has multiple states.84
Buterin won a $100,000 Thiel Fellowship from Paypal’s Peter Thiel in 2014,85 and the ether sale for the project has raised over $15 million.86 Ethereum has gathered a formidable team of supporters, investors and coders, and cryptography experts.
Key here is that Ethereum is both a DAO and a platform for trustless agreements. Ethereum’s contract model is an autonomous agent that self-corrects and appends itself (the contract’s internal code is activated by transactions). It is not a currency or simply a payments alternative. Individuals can choose to use any currency they want.87 Ethereum applies blockchain technology to not just the financial sphere, but the legal and social sphere as well.
As an operating system, Ethereum can be used for a whole slew of applications, from smart contracts, to financial speculation and derivatives trading to peer-modeled governance. Developers can use the Ethereum platform to create decentralized applications, or dApps.88 These can be both financial and non-financial. Ethereum users can create their own currency, or new decentralized file storage programs, social networks, e-mail and messaging applications.89
In a forthcoming cover piece about Ethereum in Harper’s, Sam Frank presses Buterin on Ethereum’s potential. The author tells Buterin, “The belief that math, perfect information and market mechanisms would solve the problem of politics seemed naïve.”
Buterin counters: “What was really naive was trusting corruptible humans and opaque institutions with concentrated power.”90
A final, pressing issue is the cartelization of mining, a lesson in how power in an unregulated market will naturally gather in concentrated clusters. As the network difficulty increases by orders of magnitude, the work of mining requires faster computers with more processing power to run Bitcoin’s open-source program.
The industry that has grown in response to Bitcoin’s rising value has given rise to pools of computers that could handle the program. Some of these pools have tipped close to the network’s majority threshold, most notoriously in April of 2013 and January of 2014.51 Combined, all mining machines are estimated to be 4,500 more powerful than the IBM Sequoia, the most powerful U.S.-owned supercomputer.52
Bitcoiners seem committed to maintaining the spirit of decentralization. In June of 2014, GHash.IO, a mining pool, accumulated more than 51% of the network’s computational power, making it a real potential majority power. Hypothetically, the pool’s owners could have started gatekeeping with fees or threatening to block transactions along the ledger. Instead, GHash.IO miners moved out of the pool to competing consortia, dismantling the majority.53
Whether future iterations of pools will follow suit to protect the system balance remains to be seen.
There has always been a utopian tone to Bitcoin rhetoric: people might just, one day, become true owners of their money and content. That a decentralized solution through which peers can chronicle “truth” that they all agree on has potential to financially re-engineer global inequities. That this might just be an alternative to the hegemony of bankers amassing obscene personal wealth in a system that favors them.
The controlling theme here, that, as Felix Salmon writes, “Bitcoin is a protocol which requires faith in no individual, institution, or state — all you need to believe in is cryptography,” is intellectually alluring for many.54 And yet, the political power of cryptography arguably changes “year by year, generation by generation,” demanding careful thinking on what that power could mean and how it can be deployed.55
Others are more pragmatic, less interested in dreamy talk of a super egalitarian futures and more in the tangible savings bitcoin offers. One analyst at Goldman Sachs estimated that bitcoin could drop global transaction fees on $550 billion of remittances, from $49 billion to $5.5 billion (almost 90%) and retailers could save $150 billion at points of sale56 Paypal announced in September that select merchants would accept bitcoin, suggesting that digital currency may be not just tolerated but embraced by the establishment.57
Thinkers like Vinay Gupta argue that Bitcoin’s ultimate purpose is to stabilize the system, offering a “protective [and] balancing function that didn’t exist before.”58 Sidestepping Wall Street and major institutions might not only be pointless, but counter-productive. The more likely middle ground, Gupta and other thinkers suggest, is that virtual crusaders have to learn to collaborate with traditional institutions.
Blockchain as Origin
Bitcoin was just a start: an experiment on the blockchain. The “brilliance” of Bitcoin, according to lead programmer Gavin Andresen, is “not so much in the code itself … but in the design, which unites functions to reach multiple ends.”59
Andresen’s point is crucial. Nakamoto had wider systemic goals in creating the blockchain ledger. The blockchain is itself a building block, one piece supporting any number of distributed systems. Its cryptographic protocol sets it apart from other decentralized technologies and opens up astounding possibilities for ownership and content distribution.
Turning to the wider implications of blockchain technology, we might consider a few questions:
- • What applications can blockchain technology support, and what does it mean to distribute ownership in this way?
- • What are some radical and productive uses of the multi-chain crypto-economy?
- • What kinds of larger economic and cultural issues can distributed peer networks solve?
By design, the blockchain is ideal for running the fiduciary code underlying financial contracts and payments. It can easily sync with both financial and non-financial platforms that Bitcoin doesn’t have the bandwidth for.
Being able to cryptographically verify a transaction and authenticate users along a peer-to-peer network is already being channeled in several new directions: 1) to produce alternative currencies 2) build secure decentralized applications on top of the blockchain, and 3) to generate new systems of sharing and exchange.
Some of these innovations will require new sidechains, which will build upon and interact with the original bitcoin chain. Others are building their own blockchains and distributed ledgers to better combine with real-world information. Some developers are creating autonomous agents which trade on a blockchain network—think of a car driving itself and receiving payment through the network.60 And decentralized autonomous companies earn profit for shareholders while continuing to work atop a blockchain.61
As the Economist describes these dizzying developments:
Such “permissionless innovation” ... should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.62
Take a simple object: car keys. Take a problem that needs solving, like transportation in a major city. One could create a peer-to-peer rental transaction arrangement. In a basic smart property model, a key to a rental car could be downloaded once traded on a decentralized exchange. This key would unlock the vehicle, without need for a company in between to manage the transaction. Property can become increasingly smart with these arrangements, exchanged directly between asset owners, using a blockchain to register ownership of the asset. One could rent out or sell a computer, a vehicle, or a house that is represented by a coin based on the blockchain.63
Szabo uses an effective comparison here:
A very productive approach is to think of fiduciary applications by analogy to traditional legal code that governs traditional fiduciary institutions. Fiduciary code will often execute some of the functions traditionally thought of as the role of commercial law or security, but with software that securely and reliably spans the global regardless of traditional jurisdiction.64
What else could be secured along a blockchain model? Trading, voting, derivatives, bonds, and private equity are some of the most commonly cited exchanges.65 The blockchain could be used to verify public records, like property titles and deeds of ownership, by serving as legal registry.
In the case of a trust, or a distributed autonomous organization, the money within a trust could be protected by multiple signatures along the blockchain. On-chain registries could verify records from building permits and ID cards, to licenses, trademarks and copyrights.66
Below, we review a few of the most compelling developments.
Art & Music Along the Blockchain
Ethereum and Bitcoin 2.0 protocols suggest a concentrated push to apply blockchain technology to problems beyond niche financial speculation. Private individuals, content creators, and investors across the board are showing serious interest in using the blockchain to simplify content distribution. Consider the musician, the photographer, the writer, and both the traditional and the digital artist in 2015: all contribute their work to online platforms, only to see it copied and proliferated endlessly without payment, and rarely with attribution.
If the Internet runs on the extraction of value from digital objects, creative work and labor, blockchain technology could help digital artists fully own their work, by establishing provenance and verifying the uniqueness of a digital piece. An asset could be marked by a cryptographic hash published on the blockchain; subsequent transactions would be signed with a private key. Along the blockchain, artists could also sell their work directly to buyers, build decentralized applications (dApps) to specifically establish a digital asset’s creator, or create self-updating contracts with gallerists.
A few evolving architectures, built atop the blockchain, seem poised to serve artists. Organizations like Ascribe, Mine, Monegraph and Ethereum all believe solutions to the license management problem lie along the blockchain. Mine is an application using the blockchain’s digital signature protocol as proof of ownership, linking the meta-data fingerprint of a digital work with its creator. Another contender is Monegraph, first presented at Rhizome’s Seven on Seven Conference: a tool for digital creators to produce a license for their work’s use. Currently, a creator can upload their .PNG, .JPG or GIF, set a license contract that binds the buyer and owner, and claim a username to publish to one’s personal public catalog, all along the blockchain. The system takes management of blockchain transactions out of the equation, with the ultimate goal of creating a thriving digital art-marketplace.
Ascribe goes a step further, helping digital artists use a cryptographic ledger (the bitcoin blockchain) to register original work, verify provenance, and securely transfer of ownership of works to galleries.91 Speaking to Futures recently, Masha McConaghy, co-founder of Ascribe, described the the importance of treating online art as intellectual property. As detailed in the Ascribe white paper, publishers often create impenetrable and difficult Digital Rights Management (DRM) systems in an effort to control their sources of revenue, opening up “compelling need for a workable solution to the ownership and attribution problem, especially as higher value items such as digital art, videos and even 3D printer templates become readily accessible online.”92
McConaghy stressed that Ascribe is marketplace-agnostic, and also seeks to work with the institutional and legal world as it exists, effectively forming a bridge between the blockchain and how things are now. “Artists, galleries, marketplaces and others in the ecosystem already have established practices in how they market and sell their art. We’re working within that system, to make it easy for them to adopt, rather than asking for dramatic change in their process. What’s been lacking in their process is simply an easy way to properly transfer the title of the digital work in a secure, trackable, legal way. That’s where intellectual property comes in: existing copyright laws support this; and we make it easy via our out-of-the-box legals and cryptographic certificates of authenticity."
Ascribe got its start in the summer of 2013; it launched and got underway in 2014. As of the fall of 2015, Ascribe has thousands of users and works registered. Its members have backgrounds in art with “tech- in their DNA”; McConaghy herself is a curator with a background in the institutional art world, with a PhD exploring the relation between art and commerce. Ascribe has worked with artists in every genre (including comics makers, and one science fiction novelist who ‘ascribed’ digital editions of his work), museums, and galleries. They are working with Creative Commons France.
Other tools platforms can be used and channeled toward questions of digital ownership; Ethereum’s scripting language, for instance, encodes deeds and contract transactions into its own blockchain, so digital assets could become “smart property.” Eris Industries offers another option, creating developer tools for dApps with minimal overhead and, it claims, more flexibility than Ethereum or Bitcoin. Speaking to Futures earlier this year, Core Developer Ethan Buchman described how a group of artists and gallerists could customize their own Eris blockchain for the exchange of work; this could develop into a reliable platform protecting digital asset ownership.
The Speculative Case For Music (Editorial: Lars Holdhus)
In no field is simplification in asset distribution more needed than music. If DACs can theoretically create new systems from voting to asset exchange, they could be used to distribute music as well. What solutions could the blockchain offer for the notoriously convoluted world of music distribution? There is a clear opportunity, right now, to merge music history with the blockchain.
With a bit of editorializing and speculation, we’d like to conclude on three propositions that could open up, we hope, a larger public discussion, following the context of our crypto-history above. These are seedlings of ideas on how the blockchain might affect music, and we hope you’ll continue to elaborate and develop these ideas, based on your interest.
Applying blockchain technology to proven conceptual models could aid in the distribution of all types of music and media. Artists can end up with more direct funding and better exposure by combining the benefits of cryptocurrency with peer-to-peer file sharing.
The history of digital distribution, particularly music distribution, is rich and far beyond the scope of this piece. But in brief: the transition from vinyl, tapes, and CDs to online streaming and torrents has made content free and instantly available to anyone with an Internet connection. The cost of entry to making music has dropped as production has become increasingly automated. This has made for inflation in the rate of music production; as music is increasingly produced by AI, much more music is produced per year than before.
Labels and entertainment outfits have found a way to benefit from the digital tide. Companies depend on data-heavy streaming programs, like Pandora and Spotify, to gauge which artists will resonate most, and so, who they will invest in and support. Music executives use the app Shazam to detect which songs will be hits.93
But digital distribution, particularly streaming, means trouble for artists. The user-centric model creates a massive disconnect between the artist and fan. Revenue for musicians is already at an all-time low as people spend less money on music.
The user-centric model is fundamentally a company-centric model; streaming businesses work in service of users. The company that runs the service generally makes the biggest profit, and the artist is the least important factor in this triangle.
Streaming services benefit users, but again, at a great cost to the artist who allows her work to be streamed. The artist gives away her music essentially for free. The ease of listening for free results in the artist’s work being diminished. This in turn devalues the craft of making work, and makes it very difficult for any artist, other than the very biggest acts, to succeed. The dominance of the biggest acts stifles creativity that might otherwise flourish.
Another issue is the secondary status of the digital download. Even as more music is released digitally, its value is still primary in physical objects. An artist may release her work only digitally, but her record will be minimally reviewed, and barely considered a release. If a fan buys a record, he gets digital downloads secondary to the music object. This odd inequity, again, favors artists with weighty financial backing, whether from record label support, personal wealth, or state funding.
Artists face a load of frustrations outside of all these digital distribution issues. There are more visible, self-promoting artists than ever, which makes recognition more difficult. Licensing one’s music to advertisements pays little, not without serious negotiation. The only option for making a viable amount of money is constant touring and selling merchandise, and this is not possible for many.
No matter the hurdles, artists will continue to create music. Creativity will exist in nearly any system. If the current situation is unworkable for artists, then some new ideas might prove useful. The changing roles of management in this new era have made artists often their own managers and promoters, which means they have more choice in how they want to distribute their work.
There are both financial and psychological incentives for artists to use cryptocurrency and ledger technologies. Just as Ethereum targets the peer-to-peer community generally, artists can easily tap into the community ethos of open source sharing. The development of open tools and open source distribution can be used to their advantage. A decentralized, open network could erase network actors.
Decentralized networks are already being used for archiving and registration of all kinds of media in which rights and credits are a major issue, and in which meta-data is split between unaligned databases.
Musicians are starting to propose comparable solutions. D.A. Wallach, one of this site’s annotators, has argued that ledger technologies can help collect and archive all the data around rights information and credits. He has also proposed a decentralized network for paying royalties to all creators using smart contracts.94
Below are three possible models for music distribution and archiving along the blockchain that could benefit niche and emerging artists.95
The first model would be the BitShares Music Block Chain, a decentralized exchange run by the BitShares Music Foundation. This could potentially be the “first blockchain to be used by the masses,” as anyone - a music group, an individual - can create an entry on the exchange by creating digital tokens, or Artistcoins.96
Multiple services can be built on top of the BitShares Music platform. This model deploys all of the blockchain’s advantages - as a trust network, as a decentralized market, as a distributed ledger.
Initially, Peertracks is one front-end (a centralized gateway) for this blockchain. It is a space where fans can store their artistcoins and where artists can crowdfund. Fans can get better prices on merchandise depending on how many artistcoins they have. It gathers peer-to-peer recommendations and playlists.
The technical details of exchange are simple. Each time a song is sold on PeerTracks.com, a certain percentage of this income goes into the market. This buys the lowest ask price for the artistcoin for that artist. The artistcoin is taken out of circulation and the seller is cashed out, which increases that artistcoin’s liquidity. The artist is paid for her content, and demand for her artistcoin increases while supply is reduced.97
Benefits are clear: artists would be paid directly. Transaction fees would be cut down to a minimum. Fans, too, would be paid, just for engaging, and in the process, artists would get free promotion from their supporters. Just as Bitcoin and altcoin owners have economic incentive for their currencies to be accepted, the idea of self-promotion is already built into the BitShares Music protocol. Artists can get their fans to represent them and distribute their music.
If this model proves successful, it could compete with torrenting and be applied to video sharing, potentially competing with the YouTubes and Vimeos of the world.
There are risks, as well. The process, if abused, could encourage self-interested work like black hat music sales. Everyone participating, in some way, becomes a type of speculative daytrader. This kind of exchange could devalue music even more than it is in today’s market.
The second possible model involves creating a sidechain of Bitcoin or a Bitcoin-based blockchain to at least try and organize the flood of music that is produced through inflation and enjoyed for free. The idea here is that energy can be better invested in archiving music for our cultural heritage.
An extra blockchain would automatically archive music and store historical data. A digital library would be built on top of it, effectively switching the physical object with immaterial representation. This would aid in pushing a purely digital distribution system in which the digital is valued first, making objects—records, CDs, vinyl—secondary.
Through this blockchain, people could archive music for free—and the music itself would be free. There wouldn’t be any incentives for daytrading or speculation built in. Downsides would include an increase in illegal downloading of free content, the absence of copyright controls and even further inflation in music production.
The third potential model could be a combination of the previous two: a platform that integrates a direct sale or artistcoin exchange with a blockchain for archiving and visualizing music. Physical music objects would be transitioned into the digital, given a unique ID and address. A fundraising model similar to Kickstarter could be built in, so that music is released after an artist raises enough money or produces enough artistcoins. This model could move music data across platforms and have publishing and embedding functions integrated in.