“Web3 thinking” and the obfuscation of late-capitalism
I previously wrote about why the most prominent ideas behind Web3 are bullshit, and how proponents of the trend confuse a technological problem with a political one. I also explained that while confronting Big Tech is necessary, blockchain isn’t the right solution.
This time I’d like to go further and talk about how what I call “Web3 thinking” is trying to obfuscate many elements of progressing late-capitalism.
Let me first explain what I mean by “Web3 thinking”: it’s the idea that blockchain based technologies not only are desirable, but can also help and empower regular people. The most extreme version of this point of view is the belief that blockchain technologies disrupt the status quo, and somehow are a middle finger pointed at the “big guys”.
“Smart” contracts
One of the reasons why fans of crypto try to find many applications of blockchain is the concept of smart contracts: in simple terms, they are a piece of code which gets executed on a blockchain when certain conditions are met.
Oranburg and Palagashvili (2018) claim that “this can solve many problems in contracting that currently need intermediation”. The idea here is that you have a trustless framework, where things are done deterministically. They give an example of a factory purchasing oil at a fixed price:
(…) instead of selling as much as the buyer claims to need and relying on courts to determine good-faith need in the event of a dispute, a smart contract can be programmed to sell as much oil as is truly needed. If a factory wants to maintain a temperature of 68 F from the hours of 9 am to 5 pm, the amount of heating oil required to do this can be calculated based on external weather conditions.
The idea here is simple. The buyer buys as much oil as they “truly need” depending on the temperature. The decision is made based on weather conditions, which are an objective source of information.
Except that they are not. What we run into here is the “oracle problem”. Who is responsible for measuring the weather conditions? Are they trustworthy? Do they have a conflict of interest? Does the data they submit get validated? If so, how, and by whom? What if the oracle gets hacked or suffers a technical issue? What if there is a dispute?
Imagine a weather station providing weather information. There could be a technical fault or an anomaly affecting some of the sensors, rendering the data invalid. The security of the station could be compromised, with an attacker modifying the data. Finally, a malicious actor could purposefully modify the data to achieve a certain result. This is all before the data gets immortalised on the blockchain.
This is why blockchain technology has found little adoption outside digital currency and assets, because the idea of achieving a trustless framework is a pipe-dream. You will always need to have some authorities, and you will always need to trust them. It is possible, and maybe even desirable, to decentralise many aspects of our lives, but the idea that everything can be independently decided and determined by a bunch of code is really naive.
Some proponents of blockchain-based smart contracts also seem to only have discovered the concept of automation and computation in general. The ability to automatically trigger payments and orders isn’t anything new or exciting.
The code of the smart contract is publicly visible and verifiable, and is generally guaranteed to be executed without interference, which is a good thing: this transparency is possibly its most attractive selling point. However, one has to understand the code to verify it. For a non-technical person, it makes no difference if it's executed on the blockchain, or on a private server — they still need to trust the other party. Moreover, we’ve already witnessed situations where the code of a smart contract had security issues, which due to the irreversible nature of blockchain transactions has caused some serious repercussions (DuPont, 2017). Remember the “oracle problem”? You also lose transparency because of it.
There are other technicalities which we could discuss, like whether the Turing-completeness of some of the languages used for smart contracts is a good thing (Jansen et al. 2020). However, the main point here is that, like every technology, blockchain based smart contracts have pros and cons, and some of the solutions used create new issues.
The “benefits” of blockchain and transaction cost economics
“Transactional cost” is a term predominantly associated with economist Ronald Coase, who discussed “costs of using the price mechanism” in his 1937 paper The Nature of the Firm (Ketokivi & Mahoney, 2017). The term itself became widely known thanks to Oliver E. Williamson’s paper Transaction Cost Economics (Pessali, 2016) and later influenced the ideology of right-libertarian economist Richard Epstein (Oranburg & Palagaschili, 2018).
In general, as the name suggests, transaction cost economics (TCE) look into the cost of performing economic trade in a market. For instance, one may look at when firms decide to employ someone or contract someone instead, and conclude that the decision is made based on the transaction cost. TCE scholars are also obsessed with employees “shirking on the job” and behaving “opportunistically”, while completely ignoring opportunism on the other side: wage theft, which for example in 2019 in Britain amounted to an estimated £35 billion.
Oranburg and Palagashvili (2018) argue in their paper The Gig Economy, Smart Contracts, and Disruption of Traditional Work Arrangements that blockchain technology can reduce transaction costs associated with the gig economy, leading to “more decentralised work” that mirrors the fundamentals of “contract at-will” employment. The TCE thinking here pretends that this can benefit society as a whole, while, once again, it will only benefit the people at the top.
But let’s take a step back here. Gig work is sold to the public by some by describing it as a “flexible work arrangement” that is beneficial to the “contractor”, who can choose their own working hours and “be their own boss”. People can earn extra money by working during their downtime. Oranburg and Palagashvili also imply that the “sharing economy”, which they associate with the “gig economy”, allows “underutilized resources to be put in use”.
This however doesn’t reflect reality. Looking at Transportation Network Company (TNC) drivers in Los Angeles for example (Dolber et al. 2021), according to one survey, 47% of respondents drive for such companies as their only job, and 66% depend on driving as their main source of income. 56% would like to become an employee, 81% would like to be able to negotiate a contract, and 79% would like to belong to a union or similar organization. Moreover, over a third of drivers either purchased or leased a car specifically to be able to drive for a TNC.
This clearly shows that this arrangement is more beneficial to the company owner, who can shift risk onto the “contractors” who are responsible for their equipment (e.g. taking care of the vehicle, paying for insurance, petrol, maintenance). The majority of the “contractors” work “full time” for their companies, but without getting any of the benefits of full time employment.
On-demand business models necessitate a flexible labour supply. However, solutions to this prioritize company owners above workers. If Uber has too many ride requests and not enough drivers, they increase their prices. On the other hand, if there are not enough ride requests, drivers lose an opportunity to earn money and waste time. Again, the business risk is shifted onto the drivers.
As Marxist economist Christian Marazzi argued during one of his lectures attended by Mark Fisher, the transition from Fordism to post-Fordism and the disintegration of stable working patterns was in part driven by the desires of workers. It was they who, quite rightly, did not wish to work in the same factory for forty years. However, the end result is not necessarily beneficial to the worker — not because of the nature of their desire, but the nature of the system itself.
Smart contracts and labour
With all of this in mind, let’s go back to blockchain and the theoretical use of smart contracts in labour arrangements. Oranburg and Palagasvhili suggest that blockchain makes it cheaper to monitor and discipline employees, thus reducing the transactional cost. They argue that discipline could be coded into the program:
The smart contract could automatically verify that the driver took the most efficient route based on extrinsic evidence such as traffic data. It could also verify that the pickup and drop-off happened timely by using the GPS on the rider’s smart phone.
We could again point out the oracle problem here (e.g. GPS does not track objects, it provides a signal that allows the object to determine its location, meaning GPS location data needs to be reported by an application). However, let’s ignore it for now. Let’s focus on the implications of the above: alienated labour.
We already see how big companies use work agencies as a “layer” between them and their workers, for instance in the hospitality industry. This often means that workers are deployed to different places, often work with different people which fragments employment relationship (Marti et al. 2019). It also means that if the company using agency labour does anything wrong, instead of complaining to that specific company, they have to go through their actual employer — the agency. All of this makes things convoluted, and complicates prospects for collective bargaining.
Using software to monitor employees creates the illusion of impartiality and fairness, and often focus on penalising the worker. Things that are monitored may be arbitrary and decontextualised, and made difficult to dispute. This fulfils the role of the “layer” between the employer and the worker, but this time it’s not even human anymore.
But let’s look at other aspects of the theoretical use of smart contracts in labour arrangements. To aid us in this we can use an existing proof of concept technical design by Pinna and Ibba (2019), which presents a blockchain-based decentralized system for handling of temporary employment contracts.
The concept is quite simple really. It envisages a system where a central authority (sorry ancaps…) approves the creation of legitimate employer and worker accounts. An employer can create job offers published on the blockchain, workers can apply for them and get approved for the job. A successful worker performs the job, and gets paid for the matured work day. The wage gets escrowed during the creation of the job post, guaranteeing that the employer has money to pay the worker. Everything is transparent, with things like payment of wages being automated (this of course necessitates the use of cryptocurrency, but that’s a different subject).
The authors of the concept had to make some simplifications to present the idea, e.g. there exists only one typology of job and wage, and the worker always completes a job. They also seem genuinely concerned with protection of workers’ rights. But the things that were simplified are simultaneously the most important aspects of such arrangements: how does one handle disputes? The worker only gets paid when an employer approves the time the worker has spent working on the job.
Does this system then make it easier, or harder for workers to handle any issues related to their temporary employment? Would an UBER-style rating system work in this case? Does this solution consider the over-arching context of capitalist power-relations, and does anything to rebalance it in favour of workers? Personally, I don’t think so.
To their credit, Oranburg and Palagashvili ask an interesting question: what happens to the firm when it gets replaced with a decentralised platform? Do big corporations just disappear, and we end up with some agorist-style world where most people are self-employed and interact with other self-employed workers?
This is highly doubtful. Call me a pessimist, but I only see two solutions: a greater financialisation of the economy, or a greater emphasis on rent-seeking (or a combination of both).
The meatgrinder of capital will keep going. We already see with Uber how the company itself literally rents out cars to its own drivers via partner companies. With increased costs of living, it is more likely that workers will have to turn to such solutions.
One can slowly see how the reduction of size of “the firm”, reduction of managerial and monitoring costs and delegation of such functions to impersonal, unnegotiable and undisputable mechanics benefits owners of capital. Workers take on all the risk, are highly fragmented making any collective bargaining difficult, while capitalists focus on generating rent — the rest is forwarded to the market, where power relations will always favour those with capital. This leads to even more concentration of capital.
We can already see how this rent-seeking mentality is embedded in the “Web3 thinking”. One of the more recent widely ridiculed initiatives is Color Museum, an OpenSea competitor, where one can “buy a color” and own it on the blockchain. You then get “royalties” for people using “your color” when they publish and sell artwork in the form of NFTs on the platform.
Obviously this is a ridiculous example, but it nonetheless represents the quintessential aspect of NFTs and Web3 projects.
To confront its internal contradictions, capitalism first expanded spatially through imperialism. In the last few decades, in the era of financialization, by repackaging and gambling with debt, it has been expanding in time into the future. Now, with “Web3 thinking”, it is expanding across realities, by commodifying things that don’t actually exist.
The good news
It doesn’t seem all doom and gloom however. Capital’s latest attempt at expansion is being met with strong resistance.
Game companies toying with the idea of using NFTs for their games are facing strong backlash from players and developers alike. Rich celebrities uncomfortably promoting NFTs during cringeworthy segments on their TV shows are met with an awkward response from the audience, and ridicule online.
Moreover, more and more people are gaining a good understanding of the creation of money and the money supply, and aren’t just exposed to shallow cryptobro “analysis” in the form of “central banks and fiat bad”. Because of this, cryptocurrencies are not only rejected as bad for the environment, but as a really bad idea to run world economies as a whole. This means that the latest crypto “green offensive” and push for proof of stake blockchains won’t change the overall perception much.
Web3, because of its strong association with crypto, is also being rejected as a load of hogwash. The venture capitalists investing in the concept struggle to find any compelling ideas to gain public interest, while software engineers scratch their heads wondering how is it any different or significantly better from the tools and decentralised platforms already available.
We are quite lucky because so far nobody, except perhaps people in El Salvador, is forced to be part of the crypto fantasy world. Considering all of the above, it seems unlikely that crypto and blockchains will be widely used for anything else, like employment contracts. People are not getting fooled, and even cryptobros are slowly realising that the resistance to crypto isn’t because of lack of understanding.
Will the crypto bubble burst soon? Nobody knows. Owners of crypto will keep promoting it and encouraging others to join, even if it’s just for exit liquidity. Rich venture capitalists will keep fighting and lying to themselves that their investments in Web3 weren’t all for nothing. However the question now doesn’t seem to be whether crypto will succeed, but whether crypto will die quickly and suddenly, or slowly.
References
Oranburg, Seth and Palagashvili, Liya, The Gig Economy, Smart Contracts, and Disruption of Traditional Work Arrangements (October 22, 2018). Available at SSRN: https://ssrn.com/abstract=3270867 or http://dx.doi.org/10.2139/ssrn.3270867
DuPont, Quinn “Experiments in Algorithmic Governance: A history and ethnography of “The DAO”, a failed Decentralized Autonomous Organization” (2017) Bitcoin and Beyond: Cryptocurrencies, Blockchains and Global Governance. [Accessed 30 January 2022].
Jansen, Marc; Hdhili, Farouk; Gouiaa, Ramy; Qasem, Ziyaad (2020). “Do Smart Contract Languages Need to Be Turing Complete?”. Blockchain and Applications. Advances in Intelligent Systems and Computing. Springer International Publishing. 1010: 19–26. doi:10.1007/978–3–030–23813–1_3. ISBN 978–3–030–23812–4. S2CID 195656195. S2CID 195656195.
Ketokivi, Mikko; Mahoney, Joseph T. (2017). “Transaction Cost Economics as a Theory of the Firm, Management, and Governance”. Oxford Research Encyclopedia of Business and Management. doi:10.1093/acrefore/9780190224851.013.6. ISBN 9780190224851.
Pessali, Huascar F. (2006). “The rhetoric of Oliver Williamson’s transaction cost economics”. Journal of Institutional Economics. 2 (1): 45–65. doi:10.1017/s1744137405000238. ISSN 1744–1382. S2CID 59432864.
Dolber, Brian; Kumanyika, Chenjerai; Rodino-Colocino, Michelle; Wolfosn, Todd. The Gig Economy: Workers and Media in the Age of Convergence. (2021). United Kingdom: Taylor & Francis. ISBN 9781000391350.
Lopez Andreu, Marti; Papadopolous, Orestis; Mandi, Jamalian. / How has the UK hotels sector been affected by the fissuring of the worker–employer relationship in the last 10 years?. Department for Business, Energy & Industrial Strategy, 2019.
Pinna, Andrea; Ibba, Simona (2019). A Blockchain-Based Decentralized System for Proper Handling of Temporary Employment Contracts. Intelligent Computing: Proceedings of the 2018 Computing Conference, Volume 2 (pp.1231–1243). DOI: 10.1007/978–3–030–01177–2_88
