Digital Property Rights
Locke on the Blockchain
We’re interviewing Yat Siu on the podcast this week. He’s a big shot in the crypto world. He co-founded Animoca Brands, a titan in web3. Notably, Animoca led a seed investment in Axie Infinity and partners with Bored Ape Yacht Club. He is a public advocate for crypto: he advises the Hong Kong government and gave a TED talk, (which he references at every opportunity). In the talk, he claims that blockchain will create a decentralized metaverse by enabling true ownership of digital property.
I’ve been out of crypto for about a year now, after a 2.5-year stint in the industry. I left feeling deeply disillusioned. Deception is rampant: insider trading, fake growth stats, broken promises, and outright theft. The technology is intellectually interesting, and there are all sorts of innovative experiments on blockchain. But the culture has adopted a mentality of “fake it ‘till you make it” and “style over substance” in the pursuit of a quick buck. I’ve been reading Yat Siu’s articles to prepare for the interview, and it triggered a dormant rage inside of me.
Yat Siu’s TED talk follows a common crypto pitch template:
Illustrate a high-minded societal problem (ex: digital serfdom)
Claim that your project will solve that issue
Spew technobabble until your audience is overwhelmed
I’m dubious about the ability for blockchain to manage off-chain assets. While ownership of the token symbolizes ownership of some other asset, the off-chain entity can always revoke that. When you own a token, you own a key but not the lock. I’d analogize NFT assets to a P.O. box; you may possess the key, but the post office can always change the lock. Additionally, a central authority with the threat of violence (like the police) is usually required to enforce property rights.
But technology continues to subvert my expectations, and perhaps this seemingly impossible problem is solvable. Let’s assume it is. I want to examine the problem itself: digital property rights.
Property rights are critical in liberal theory (European enlightenment liberal, not “blue team, USA” liberal). They’re part of John Locke’s big 3 inalienable rights: life, liberty, and property. Liberals claim that property rights supercharged economic growth under capitalism. A homeowner is more willing to repair and improve their house, since they will capture the gains from those investments. However, a renter (or serf) could care less. Most of the gains from improvements would go to the landlord, as the property could be reclaimed at any time. Property owners are also able to conduct mutually beneficial trades; an aging techie can sell their house in San Francisco and move to Florida to retire, whereas a serf is tied to the land. Moreover, property rights incentivizes landowners to care about their community; their stake in the land means that improving the community will improve their property. Following this theory, many early democracies required land ownership to become a citizen. I generally subscribe to this.
Yat waxes poetic about the importance of property rights for economic prosperity and a liberal society, with frequent Locke name-drops. He claims the same benefits of physical property rights apply to digital property, an umbrella term covering intellectual property and data. But he fails to acknowledge key differences between physical and digital property.
Unlike physical objects, digital content can easily be copied and re-used (“non-rivalrous” in econ jargon). This changes the dynamics of maximizing economic surplus from property. If other folks benefit from being able to copy a new innovation or artwork, and the creator can retain their original copy, isn’t society better off by allowing free copies? The trade-off is upstream; the creator may lose their incentive to create if they are unable to financially capitalize off their work. This trade-off is central to intellectual property law, which I discuss in-depth here. It is a tricky problem, and the general consensus (prior to the generative AI art controversy) was that intellectual property law was too strong in America and too weak in China.
Data ownership is a new frontier. Unlike intellectual property, most data is generated with no real effort, unbeknownst to the user of some digital product. Unlike inventions or artwork, most users do not require incentives to create besides the utility of the app itself. Most of the controversy around data ownership seems to stem from the fact that most users are unaware that their data is being collected and are shocked when they see targeted ads or spam mail. Tech companies seem to value the data more than the users, and can “pay” for it via the apps’ functionality; users can simply opt out by avoiding that app. This gets tricky when a tech company has monopolistic control over some critical modern resource, like Google or Amazon, but I won’t get into that today. For the most part, data has similar easy-to-copy, non-rivalrous attributes to intellectual property.
When cryptoheads discuss digital ownership, they always analogize to physical goods. You own your clothes, your chair, and your car. Ownership is total; you can use them, break them, or sell them as you see fit. But if this same mantra was applied to intellectual property, it would be a dramatically stronger and productivity-limiting increase in protection. The cost-to-produce and cost-to-reproduce ratio is dramatically different for digital property, and this changes the economic dynamics. But in his zealotry to promote digital property, Yat glosses over this critical difference and seems to assume the same economic benefits of physical property ownership apply analogously to digital property.
Aside: Locke’s “Life, liberty, and property” are echoed in the American and French revolutionary slogans: “Life, liberty, and the pursuit of happiness” and “Liberté, égalité, fraternité”. Property itself is notably absent from both slogans. I suspect this is because requisition and eminent domain were common in the revolutionary wars, and the propagandaists didn’t want to appear as hypocrites.