The Token Society

The next cohort of Hype-Free Crypto is accepting enrollments. The previous cohort sold out within a week. Click here for the full schedule and curriculum.

The emergence of industrial cities reshaped society. It changed how, where, and why people interacted for pleasure and profit. The emergence of the World Wide Web had a similar impact. Now, the evolution of the web promises to reshape society once again, in new and surprising ways.

The technologies behind cryptocurrencies will power this evolution. They will enable people to buy and sell more things, including their attention, gestures, and sympathies. And they will force humans to develop new institutions, new relationships, and new reasons to be kind to one another.

To understand where we’re headed, let’s start with some urban history.

Cities of Fortune

In 1903, the sociologist George Simmel was intrigued by a new profession that emerged in Paris, the quatorzième. Parisian society considered it bad luck to sit at a table with thirteen people. To mitigate this “risk,” parties paid someone to join them and bring the party to fourteen, quatorze in French. At first, this probably happened at random. But over time, it developed into a proper profession. As Simmer explains:

"They are persons who identify themselves by signs on their residences and who are ready at the dinner hour in correct attire, so that they can be quickly called upon if a dinner party should consist of thirteen persons.”

People were superstitious long before the emergence of cities. But cities made dinner parties more frequent. More importantly, large cities like Paris were populous and compact enough to enable a group of people with a particular need to find a person offering a specific service, on-demand.

“Cities,” Simmel observed, are “seats of the highest division of labor.” Urban density enabled a new level of economic specialization and matching of supply and demand. It lowered the cost of finding, evaluating (by word of mouth), and paying the right person at the right time. Lower transaction costs and specialized labor led to higher productivity.

But cities did not just make people wealthier. They also changed how people related to one another.

The Two Societies

Ferdinand Tönnies, a colleague of Simmel’s, observed that there is a difference between rural and urban societies, which he described using the terms “communal society” and “associational society” (Gemeinschaft and Gesellschaft).

As Britannica explains, in “rural, peasant societies,” human interactions were “defined and regulated” based on tradition. People had “simple and direct face-to-face relations with each other,” and these relations were “natural” and involved spontaneous “emotions and expressions of sentiment.”

In contrast, people interacted differently in “cosmopolitan societies with their government bureaucracies and large industrial organizations.” There, “rational self-interest and calculating conduct act to weaken the traditional bonds of family, kinship, and religion.” In turn, “human relations are more impersonal and indirect, being rationally constructed in the interest of efficiency or other economic and political considerations.”

Industrial cities made most people interchangeable, and they made some people invaluable. They made it harder and less necessary to rely on personal ties and easier to do business.

A century after Simmer and Tönnies, a new type of density reshuffled human relations.

For the Love of Likes

If a city of 2.8 million people can spawn new professions and change the way humans relate to each other, what can a city of 2.8 billion people do?

This is the number of people who use Facebook. In the first quarter of 2021, the company generated $26.17 billion in revenue, a 40% increase over the same quarter last year. It did so by providing a place for people and businesses to find each other, socialize, and transact.

But Facebook is not a larger version of the industrial city. It did not simply enable more business ties at the expense of communal bonds. Facebook turned the community itself into a business. There’s no need to sell or buy anything. Even simply talking to your friends or sending a photo to your mother is now a commercial activity. A growing number of our personal interactions occur on private platforms; these interactions are documented, analyzed, and manipulated for profit.

Online platforms can monetize our online interactions with people we trust. But what’s really impressive is the ability of such platforms to monetize interactions with people we don’t trust, offline.

A Room with a Review

In 2004, Yochai Benkler was intrigued by the emergence of markets where goods and services are exchanged based on social relations rather than money.

In Sharing Nicely, the Yale Law professor focused on two primary examples. The first was “carpooling,” the process of sharing a ride to work, which accounted for a sixth of all commuting trips at the time. The second was SETI@Home, a network of over four million volunteers who “donated” the processing power of their home computer to analyze data collected from space (searching for aliens). In a footnote, he also noted the existence of a website called Wikipedia — “an encyclopedia coauthored by a few thousand volunteers.”

Two aspects of these projects struck Benkler:

1. They were efficient enough to compete with for-profit or government-funded initiatives that addressed the same needs, and
2. they relied on “loosely affiliated individuals” who collaborated in ways that were “utterly impersonal.”

His essay highlighted the need for further research into the “emerging importance of social relations in general, and sharing in particular.”

Within a few years, Benkler’s idea of “sharing nicely” was powering the web’s fastest-growing companies. Uber, Lyft, and their clones around the world turned carpooling into a multibillion-dollar industry. WeWork and its competitors did the same for the idea of sharing an office. Rent the Runway, JustPark, Rover, EatWith, and other enabled strangers to share clothes and parking spots, and visit each other’s homes to take the dog out or share a meal.

Airbnb epitomized the spirit of the new “sharing economy.” Adventurers and desperate souls have crashed in other people’s living rooms since time immemorial. But there was no reason to believe that this type of behavior would become prevalent among people who could afford anything else. As one early non-investor told Airbnb’s founder: “the potential market opportunity did not seem large enough."

But Airbnb pulled it off. More than 150 million guests have used its platform so far, staying in homes managed by nearly 3 million hosts. As Ben Thompson points out, Airbnb did not just enable these people to find each other; it helped them trust each other. It did so by harnessing its community to provide reviews and photographs, offering payment and insurance solutions, and, later, background checks for hosts.

Airbnb systematized and commoditized trust, turning it from a unique personal quality into an impersonal feature that could be “attached” to anyone. Airbnb’s founders saw their platform as a return to the pre-industrial world.  CEO Brian Chesky wrote in the company’s mission statement:

“We used to take belonging for granted. Cities used to be villages. Everyone knew each other, and everyone knew they had a place to call home. But after the mechanization and Industrial Revolution of the last century, those feelings of trust and belonging were displaced by mass-produced and impersonal travel experiences.  We also stopped trusting each other. And in doing so, we lost something essential about what it means to be a community.”

But Airbnb is not a reversal of the process that Simmel and Tönnies identified a century ago. Airbnb is the culmination of that process: the industrialization of trust itself. The conversion of personal favors and characteristics into impersonal products that anyone can buy. Dense pools of people — cities and, later, the web — enabled the replacement of “natural” human relations with a series of interactions driven by cold logic and necessity.

Instead of trusting each other, people put their trust in platforms that regulated a growing number of interactions. Sharing an apartment, borrowing a tool, giving someone a ride were no longer things people did for or with each other. They were products.

But sharing physical space and inanimate objects was just the beginning.

Society à la Carte

“Is it difficult for you to enter a shop on your own? Are you missing a player on your team? Do you need someone to keep a place for you? I offer myself for rent, as a person who does nothing.”

Morimoto Shoji tweeted the above in June 2018. He originally planned to offer his companionship for free but started charging due to high demand. More than 3,000 customers later relied on his services to satisfy a variety of needs. As Emily Cope reports:

“People rent him for various reasons, he says, but most are bored or lonely and simply want to be listened to.

He has been hired to have lunch, pose for photographs on Instagram, accompany someone filing for divorce, catch butterflies in the park and to listen to health care workers struggling with their work.

One man hired him to describe a murder he had committed, while another paid Morimoto to take him from the hospital to revisit the spot where he had attempted suicide.”

Prostitution may be the world’s oldest profession, but this time it’s different. Morimoto is at the forefront of a new type of sharing economy — where people share themselves. But not entirely and not necessarily sexually.

While prostitution was never uncommon, a certain threshold kept buyers and sellers apart unless they were both eager (or desperate) enough. And it was never just about sex. Hundreds of stories have been written about people who go to a prostitute only to get a hug, to have someone listen to them, or just to hear their name uttered by another human being. But people who wanted all of the above still had to go to a prostitute and pay for the whole package even if they only wanted a particular piece.

Online platforms lowered the cost of finding, paying, and trusting strangers. The threshold is lower. As a result, even the smallest gestures and favors can be monetized directly. More importantly, only platforms can match buyers with specific needs to sellers who can address those needs without charging for anything else.

As I mentioned in Lovers and Leavers, this process is epitomized in the growing popularity of OnlyFans, a website that lets individuals broadcast themselves directly:

“According to The Economist, OnlyFans "users pay a subscription to follow - and view - their favourite content creators who typically charge fans around £5-15 a month, with more for extras."

The extras are where it gets interesting — from a business perspective. The fans don't pay to watch; instead, they pay for personalized messages from their idols, for videos that mention their name, and for having a say on what happens next.

It's not a passive act of mass consumption; it's a relationship. As one anonymous analyst put it, OnlyFans provides a "middle-ground between porn and a girlfriend." Like Starbucks, OnlyFans is a third place, something between a business and a home. You pay for the coffee, but someone takes the trouble to write your name on it and call you when it's ready.”

The commoditization of trust enabled the unbundling of personal relationships. Instead of seeking “natural” companionship or a full-service prostitute (or both), people mix and match the necessary components and pay only for what they consume.

But while users no longer have to trust each other, they still have to trust the platform itself. That’s about to change, with consequences for many different professions and society as a whole.

New Online Urbanism

The evolution of the web rhymes with the evolution of industrial cities. Both brought together large groups of people, lowered transaction costs, and enabled better matching of supply and demand. Both enabled people to make money in new ways, changed the distribution of economic rewards, and promoted the conversion of human interactions into commercial transactions.

The web in its current state is like a city without public spaces. People can only interact in places owned by someone else, and a small group of landlords captures an oversized share of all economic activity.

Cryptocurrencies offer an alternative. Most people think of bitcoin when they hear the word crypto. They think of trading and speculation and “digital gold” and whatnot. But the more interesting aspects of cryptocurrencies are the ones that are abstract and harder to explain: the infrastructure that currencies run on and how applications that have nothing to do with trading or speculation can use this infrastructure. This infrastructure is still young and relatively unproven. But it is fascinating and offers a glimpse of a possible future — even if that future might end up relying on entirely different technologies to achieve the same ends.

For our discussion, let me highlight five relevant features that differentiate the blockchain-based web (also known as Web3) and the web as we currently know it (Web 2.0):

1. Decentralized Apps instead of Private Platforms
2. Stakeholders instead of Users
3. Transparent instead of Opaque Governance
4. Pseudonymity instead of Personal Information
5. Programmable instead of Uncertain Outcomes

I am writing a longer piece with a down-to-earth explanation of key concepts about blockchains and cryptocurrencies (email me if you want to help with that, BTW). For now, the following five sections offer short explanations of the features mentioned above. If you don’t need these explanations or want to understand the outcome before you understand the mechanics, skip directly to The Token Society section below.

Decentralized Apps instead of Private Platforms

Blockchains offer a decentralized approach to software development. Instead of a central entity controlling all the code, files, and user data, Blockchains operate on a network on computers controlled by thousands (or millions) of individual entities. These entities cooperate based on a pre-set protocol, and the protocol itself can be altered based on agreement among the participants.

Let’s take music downloads as an example. Both Napster and iTunes allowed users to download music to their computers. But iTunes was entirely controlled by Apple, while Napster simply enabled individual people to share files without storing these files on a centralized server. (and yes, I know that Napster was illegal, but our interest here is in the infrastructure, not what the company ended up using it for)

Blockchains take this logic to the next level by enabling many other services to be delivered in this fashion — and with even less centralization than Napster. There are now blockchain-based social networks, blogging platforms, e-commerce systems, file storage providers, music streaming services, currency exchanges, savings accounts, computer games, and more. They provide comparable services to those offered by Facebook, Substack, Shopify, Google Drive, Spotify, Epic Games, and Bank of America. Still, they do so with entirely different ownership and governance structures.

Stakeholders instead of Users

People who use decentralized apps can — and sometimes must — own a piece of the platform. This ownership takes the form of coins or tokens. They can be used to access specific services, verify one’s identity, earn “dividends,” participate in ongoing moderation and regulation activities, and vote on changes to the rules that govern the platform (or app protocol).

The above brings to mind shareholders in a public company, but there are some key differences. The vast majority of Apple or Facebook users are not shareholders in those companies. And customers of these companies are not required to own shares to use an iPhone or post something on Facebook. In Blockchain-based apps, it is often impossible to be a user without also being an owner. Paying for the product means owning a piece of the entity that delivers it.

This type of ownership structure aligns the incentives of all users in a completely different manner to traditional corporations. Every user has an economic interest that the platform would succeed, and the most engaged users tend to have more direct power over how the platform is governed. I use the word direct because influencers on Facebook have the indirect ability to call on the company to make changes to the platform,  but they do not have any direct control over what the company ends up doing. (And no, the token economy is not a new form of socialism that addresses income inequality — although it might do that, too; but it could also create new forms of inequality)

Beyond communal governance, Blockchain technology also enables individuals to sell an economic interest in their own wellbeing. People can easily issue tokens that allow others to get a share of their future income, invest in their education, and vote on how they spend their time. Some are already doing that.

Transparent instead of Opaque Governance

The structure of decentralized apps prevents any individual entity from having complete control or from making ad-hoc decisions.

Facebook and even Mark Zuckerberg himself have the power to ban specific users and groups on Facebook. 2.85 billion users are at the whim of a single individual or company.

In contrast, a blockchain-based social network would be operated based on pre-programmed rules that enable anyone who abides by these rules to participate. Any change to these rules requires the consent of multiple stakeholders, the process of enacting this change is transparent. Once it is agreed on, the change is applied universally and affects everyone in the same manner.

Since users often own voting rights, more people participate in governance discussions and you don't need to be a giant shareholder to have your voice heard. And the open source nature of blockchain projects make the source code available for anyone to review and discuss.

These mechanisms are not perfect and can still be manipulated and compromised. But they are different from the mechanisms that govern our current internet giants.

Pseudonymity instead of Personal Information

Users of decentralized apps have a public key (akin to a username) that they can use across multiple apps and services. Each public key is associated with a private key (akin to a password) that verifies the user is who they claim to be. These two keys decrypt and encrypt one another and, by doing so, they verify each other’s authenticity. The apps themselves do not store the user’s private key (password).

This solution is theoretically safer than having the passwords of all users stored in a central place, controlled by a private company. More importantly, it means that the fundamental unit of identity is the public key and not a user’s email address, phone number, or other personally identifying details. Decentralized apps enable two people to trust each other and do business without knowing each other’s identity.

Note this is not the same as someone having an account on Amazon that uses a nickname instead of a real name. In our example, the e-commerce platform itself does not know the real name of either the seller or the buyer. And, as mentioned above, the platform itself is owned and governed differently from a traditional company.

Contrary to popular belief, this does not make blockchain-based platforms ideal for criminals. A public key can still be traced to a user’s real identity if necessary. But the normal operation of decentralized apps enables users to trust one another without sharing and storing their personal information with a central, privately-owned company.

Programmable instead of Uncertain Outcomes

Blockchain-based apps are governed by code rather than people. And their users are stakeholders that have trusted identities. This facilitates the evolution of new ways to do business and structure products.

Let me give you an example: My friend Packy wrote an article that quoted multiple other writers (including me). He then sold that article as a digital product. Each of the people quote in the article automatically received a piece of the money generated by the sale. One day, if the new owner of the article sells it at a higher price, Packy and all the contributors can get a share of the profits.

You may wonder what this is a the big deal. Isn’t this similar to music royalties that have been around for decades?

Unlike music royalties, the rights of the various contributors are programmed into the transaction itself. The fact that someone paid for the article automatically triggered the payment to all the contributors, and any future sale could do the same. No lawyers, no judges, no policemen, no bankers, and no “American Society of Composers, Authors and Publishers” are required to complete this transaction. Compliance is baked into the transaction itself.  

This process is much cheaper than figuring out who gets paid each time a song is played on the radio. And all the relevant people get paid immediately, not months later once all the middlemen have complete their work.

By reducing the cost of monitoring and enforcement, royalties and micro-payments can be applied to many other products and industries, no just to songs by famous artists. Suddenly, we can compensate people for their specific contribution to other types of tasks and projects.

I listed five features that differentiate the web as we know it (Web 2.0) from the alternative offered by blockchain-powered apps (Web3). If the above was too abstract, please stay tuned for a longer piece that will explain this topic in detail. For today’s discussion, what matters is that Web3 has the potential to reduce the current costs of online interactions by:

1. Limiting the accumulation of power and economic benefits in the hands of a small number of corporations;
   
2. Empowering users to impact how platforms are government and participate in value creation; and
   
3. Enabling users to transact without compromising their personal information or entrusting it to powerful corporate intermediaries; and
   
4. Compensating people directly and automatically for the tiniest contributions without relying on expensive middlemen and time-consuming processes.

The Token Society

Cities enabled industrial division of labor and new professions like the quatorzième. Web 2.0 enabled the sharing economy and a new breed of influencers. Web3 will enable the financialization of all human activity.

The what?!

To explain what I mean, let’s return to Tönnies. Cities pushed humanity from “natural” and “spontaneous” relations towards impersonal rationally-constructed interactions. Food, shelter, advice, and other comforts or assistance that were previously addressed by the church, the family, or a neighbor were now addressed by for-profit service providers or government bureaucracies.

The internet pushed these dynamics further by enabling vendors to offers more specialized services and enabling customers to mix and match these services as they please. The “vendors” and “customers” increasingly mean “individual people” who are selling pieces of their time and attention to each other.

In some corners of the internet, every human glance, every utterance, every expression of affection are already being sold to the highest bidder. But this process is still cumbersome and requires users to risk their personal information and to pay fees that sustain giant, privately-owned intermediaries. This is why — like all new technologies — it currently caters only the strongest human urges.

Web3 promises to simplify this process and make it easier for more people to trust each other and transact directly for increasingly smaller transactions. As a result, many more gestures, favors, and utterances will be governed by market mechanisms. Some will be paid for on-demand. Others will be bundled together and automated in new ways.

Imagine paying a monthly fee to ensure everyone you see says hello to you. Or letting your neighbor earn a fixed amount every time he keeps the volume down and lets you sleep well at night (your sleep tracker will automatically trigger a smart contract that compensates the neighbor each morning; there’s no need to actually speak to him or say thank you). I’ll leave it to your imagination to come up with other possibilities.

Every act of kindness will become an act of commerce. Is this a nightmare or a dream society?

I’m not sure. But it might not be so different from the world we already know. Tönnies described smaller, rural communities as “natural” and “spontaneous” relations. But were they? Religious and social institutions did not emerge due to some abstract, benevolent instinct; they emerged to address economic and political needs.  Humans have always got along because they needed something. They have always traded and experimented with different incentive schemes.

Web3 is just another step forward. It will give rise to new institutions and social structures that will address the human need for safety, love, belonging, recognition, and self-actualizaiton. We should not assume our current institutions are the best humanity can do. What happens next is up to us.

If you enjoyed this article. Please share it! 🙏

_________

Special shoutout to Elle from Hacking Money who reviewed and commented on a draft of this article.

This piece is part of a series about the future of work and human interaction. Other pieces in the explore the role of the internet, NFTs, incentives, interest rates, income inequality, remote work, and talent:

• Winner Takes Most
• The Ponzi Career
• NFTs and the Future of Work
• The Talent Equation
• The TINA Economy
• Lovers and Leavers