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Home/Magazine Archive/December 2022 (Vol. 65, No. 12)/Building a New Economy: Data, AI, and Web3/Full Text
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Building a New Economy: Data, AI, and Web3
Credit: ArtemisDiana
During the last 30 years, digital data and artificial intelligence (AI) to exploit that data have emerged as central to management of our society. At the same time, the development of digital networks and big computing centers has promoted centralization of data and digital systems, leaving individuals and communities outside of this new digital ecosystem and without the ability to control local finance, health, or governance systems. New distributed technologies, loosely described as Web3 and employing technologies such as federated AI, blockchain, Internet of Things (IoT), and others, have the potential to give back control of data, AI, and its benefits to individuals and communities. In addition to the many private efforts now being launched, some national governments are aggressively pursuing this new suite of technologies, but with much stronger government oversight. Consequently, there is an urgent need to develop standards that guarantee a Web3 economy that remains truly distributed and yet provides global interoperability along with adequate protection for individuals and communities.
Power Grab
During the last decade, all segments of society have become increasingly alarmed by the amount of data, and resulting power, held by a small number of actors. But this concentration of data and control is not as new as people may think: from the 1980s onward, the first wave of digital technology made it cheaper and easier to manage diverse communities from a central database using centralized administration. The resulting concentration of information and financial capital led to more than half of the U.S.'s community financial institutions disappearing over the next decades, as did local hospitals, and neighborhood-level governments. Services became cheaper and more uniform, but communities lost their local institutions and the skills, engagement, and local knowledge that go with them. With the loss of community control came the loss of citizen trust and engagement as well as the ability to tailor solutions to individual communities.
The core problem is that while it became more efficient to have uniform programs that cover the whole country, people do not live "in the whole country." They live in specific neighborhoods with specific problems. When you establish a uniform policy, it is mathematically certain you are also marginalizing atypical communities. Centralized, uniform management is one-size-fits-none. Inclusive policies—those that help everyone—must, of necessity, be tailored separately for each different community.
A Solution That Works
How can we fix this overconcentration of data and control? During the last 150 years, questions about concentration of power have emerged each time the economy has shifted to a new paradigm. More than a century ago, as the economy was being transformed by industrialization, private banks and limited liability corporations, citizens felt trapped and exploited by powerful new companies. In order to provide a counterweight to these new powers, citizens joined together to form trade unions and cooperative banking institutions, and eventually governments instituted anti-trust laws, labor rights, and banking reform. Local citizen organizations were key in helping to balance the economic and social power between large and small players and between employers and workers.
Today, Web3 technology can enable local citizen organizations to help us move from the current paradigm of individuals giving up data and control to large organizations to a system based on collective rights and accountability, with legal standards upheld by a new class of representatives who act as fiduciaries for their members.
Capturing the Opportunity: Web3?
An important opportunity to capture the good aspects of data and AI while minimizing the bad, is that today distributed data and management networks can be as cost-effective as centralized databases and management while at the same time empowering local communities by letting them own their data, set their own regulations, and control investment in their neighborhoods. The high level of performance of distributed network solutions is the hallmark of a new generation of digital technology known variously as "edge computing" or "federated computing." Driven by concerns about data privacy and security, these new solutions do not centralize data or control; instead, they use locally pooled data and local analytics to coordinate local actors.
In the last few years these new technologies—typically some combination of digital identity, federated AI, smart contracts, IoT and blockchain—have been coming together to form the beginnings of a reliable transaction platform that is being called Web3. The first versions of Web3 (more commonly called Web 3.0) have had severe drawbacks such as wasting energy, enabling crime, and exhibiting huge volatility. However, the more recent versions of these same technologies have the potential to transform the Internet from a loosely structured communications medium to a reliable but distributed transaction medium. A reliable distributed transaction platform could provide agency for communities, enabling neighborhoods and local organizations to regain control of their resources and allowing them to chart their own future.
Moreover, it is not just private actors that are deploying these systems. Trading nations including China, Singapore, and Switzerland are also introducing a new Web3 "transaction layer" on top of the existing Internet. Their goal is to make it much easier and safer for companies and citizens to do business with each other, making it possible for each party know who they are dealing with, confirm the interaction is not fraudulent, and to have the enforceable outcomes.
China is the most advanced in this change and is beginning to move its Silk Road investments onto Chinese digital systems that are dramatically more agile and cheaper than Western systems.a Singapore has developed a similar digital trade and logistics infrastructure for investments with support of its Temasek Sovereign Wealth fund,b and Switzerland has recently deployed the Swiss Trust Chain.c Finally, most major economies have either deployed or are seriously considering deployment of national Central Bank Digital Currencies (CBDCs), and these digital currencies will likely depend on similar Web3 transaction systems.
Data Cooperatives
These examples make it clear that perhaps the most important question for Web3 platforms is governance: Will they be completely libertarian, with anonymous actors transacting without human oversight? Or authoritarian, with central governments able to record and vet even the smallest transactions? Or do they form a more traditionally democratic fabric, with communities of citizens setting the rules for legal transactions and able to audit suspicious behavior? Today there are no generally accepted standards for monitoring or auditing these flows of information, money, material, environmental or medical data, despite the obvious risk these problems pose to individuals, corporations, and governments.
As a consequence, perhaps the most important element of Web3 governance is control of data, because AI, blockchain transactions, and IoT are all mostly mechanisms to create and use data. When Web 1.0 and Web 2.0 were first developed, they were touted as decentralized systems that would empower marginalized communities. Unfortunately, these hopes faded as big commercial players developed platforms and interfaces that centralized data and AI.
It is promising that the decentralization of data ownership and distributed AI provides ways to ensure decentralization of Web3, something that was not possible when Web 1.0 and 2.0 were deployed. The key is to place control of data in the hands of intrinsically distributed communities such as physical neighborhoods the way we do with voting and government, or legally defined communities such as doctors or civil engineers. Having control of data collection and data use legally anchored in community organizations such as member-owned data cooperatives, where community members vote for the policies they want and the cooperative assures that data use follows those policies, means it is much more difficult to centralize control.
Such democratic governance of Web3 requires the voluntary collaborative pooling by individuals of their personal data for the benefit of the membership of the group or community, an arrangement I call a data cooperative. The motivation for individuals to get together and pool their data is driven by the need to share common insights across data that would be otherwise siloed or inaccessible. These insights provide the cooperative members as a whole with a better understanding of their current economic, health, and social conditions, and can allow much better management of community services without endangering privacy.d
The ability to balance the world's flows of data, money, goods, and intellectual property depends on creating a balance of stakeholders.
It is technically straightforward to have a third party such as a cooperative hold copies of their members' data in order to help them safeguard their rights, to represent them in negotiating how their data is used, to alert them to how they are being surveilled, and to audit the large companies and government institutions using their members' data. Nor does the creation of such data cooperatives require new laws; many community organizations (such as credit unions) are already chartered to manage member's personal information for them. In fact, my research group and I are currently working with entities like Consumers Union and similar community organizations to do exactly this, using the software architectures developed in our book Building a New Economy: Data as Capital (MIT Press).
Many countries are actively developing their own versions of data cooperatives. In Korea, the government is licensing data fiduciaries based on their new data protection law (known as PIPA). In India NGOs like iSpirit are working with the government to build the "India Stack" and already have hundreds of millions of users. In the U.S., my research group is helping to deploy APIs that automate the privacy rights provided by California privacy law (see for instance https://bit.ly/3S4AsQd). In the U.K., there are active efforts within 10 Downing Street to empower local neighborhood Councils to be data fiduciaries for their residents.
Next Steps
The ability to balance the world's flows of data, money, goods, and intellectual property depends on creating a balance of stakeholders. By leveraging cooperative worker and citizen organizations we can change the current situation and create a sustainable digital economy that serves the many and not just the few. If the 100 million U.S. consumers who are currently members of local credit unions and coops could also control their data, they would be a force to be reckoned with. The same potential for community organizations to balance today's data monoliths exists in most countries around the world.
The key challenge for such a transformation is to ensure safety and ownership rights while still ensuring global interoperability. Data is a new primary means of production, like capital, labor, or land, but it is so new that there are no institutions to guarantee that everyone benefits from data use. There are efforts beginning in many nations to regulate crypto ("Web 3.0") but these efforts do not address the larger problems of global interoperability, safety, and inclusiveness. This suggests that a new "Digital Bretton Woods" standards effort is required, in order to forge standards and governance of Web3 platforms covering both private efforts like Etherium or Libra and national platforms such as those developed by China, Singapore, and Switzerland. Unlike the World War II Bretton Woods effort, such coordination must not only be centered around banking and finance but must be focused on developing digital technical standards for all sorts of transactions, including communications, trade, finance, and government, and must also support sustainability and other social factors. Creation and maintenance of such a standards body need not be expensive or large, as illustrated by the governance oversight platforms developed for the Internet and the World Wide Web.
Footnotes
a. See https://bit.ly/3VCcCyg
b. See https://bit.ly/3S4AmIl
c. See https://bit.ly/3MC4QR4
d. See https://bit.ly/3Tuy9Hn
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