Crypto Co-ops and Game Theory: Why the Internet Must Learn to Collaborate to Survive

If the internet was a person, ARPANET was its first tooth, Facebook was the pubescent rage of middle school and Bitcoin was the key to its first car. Today, we find ourselves riding shotgun, unsure of what direction the internet will take next.

There are those who feel we’re about to careen off a cliff, and others who write off the internet’s dangers as inevitable growing pains of innovation. 

The internet allows us to work together while simultaneously incentivizing us to tear each other apart. That dynamic isn’t sustainable for long. Perhaps over the next 10 years the internet will go through one more phase of reckless adolescence (who could forget their post-college twenties?) before arriving at the plateau of middle age and all of the wisdom, maturity and better judgment that comes with it. 

Positive-sum games

At any given time on the internet, more than four billion people have the ability to collaborate or compete with one another. Through social networks, memes and subcultures take on a life of their own, iterating off of each other like a psychedelic fractal. On the internet, we create, play and share new games that have never before existed.

These games are helpful frameworks to model out the tension between selfish incentives and community benefits. Informally, a zero-sum game is a competition where one player’s gain is the other player’s loss. In contrast, a positive sum game is generally thought of as a win-win situation. 

What is the optimal balance between cooperation and competition?

The key feature of positive-sum games is that collaboration leads to better outcomes than competition. That sounds great doesn’t it? But, in practice, collaboration often gives way to competition.

A decade ago, many people considered social networks like Facebook and Twitter positive sum games (look at all of the connections! all of the value generated! how fun!). Now the pervasive narrative is that our attention, our data and democracies around the world were a dear price to pay for the explosive growth of digital advertising.

Credit cards were also once considered positive-sum games – until you factor in predatory loans, crippling interest rates and discriminatory scoring systems. And for a moment it looked like liquidity mining was turning out to be another zero-sum wolf in positive sheep’s clothing. Or was it?

As communities shift from the monolithic platforms of Web 2.0 to the decentralized protocols of Web 3.0, it raises the question: what is the optimal balance between cooperation and competition? 

Platform cooperativism

“Platform cooperativism,” coined in 2014 by New School Professor Trebor Scholz, establishes a framework for digital platforms that are cooperatively owned and governed by their users. Advocates of cooperative business models say they are more resilient, more equitable and more sustainable. To a crypto audience, this narrative should sound temptingly familiar. 

More and more, people are demanding input over how platforms are governed and managed. They want to weigh in on content moderation on Facebook, ad standards for children on Youtube and predictive AI models used by law enforcement. 

In his essay “Exit to Community,” Nathan Schneider said platforms should let the users decide these questions. He extolls the benefits of platform cooperativism and cites examples of big tech companies like Twitter considering this option. Vitalik Buterin seems to be a fan of this approach as well.

Governance tokens and auditable open-source code allow individual contributors to work together to determine the direction of a project. Airdrops and developer funds align incentives between end users and developers. Don’t think that cooperative models mean the absence of competitive mechanisms. In proof-of-work mining, individual nodes are pit against each other to compete for the block reward.

What makes these systems cooperative is that projects can update rules and redefine the game so long as they reach (and maintain) consensus among their members. On Ethereum, what started with gerbils in 2017 morphed into sushi three years later.

As we get better at coordinating, we will get better at reinventing and redefining the world we want to live in. 

Twitterswap: What does this look like in practice?

Is platform cooperativism the way to turn a zero-sum game into a value-add system? It’s probably part of the solution but you can’t just shill some tokens and expect the community to follow. Let’s consider a hypothetical to better understand what positive sum games and participatory business models look like in practice.

From Twitter to Uniswap

In December 2019, Jack Dorsey announced that a special R&D team at Twitter was developing “an open and decentralized standard for social media.” Imagine if such a standard was released and widely adopted within the next decade. 

This move could help correct some of the challenges faced by social media today. For starters, it could assuage antitrust concerns. It could also cut down on bot activity and ad fraud. These platforms already have enormous developer communities who could quickly start building, hacking and integrating these networks to other services, spreading more open, decentralized standards across the web. 

Uniswap’s new governance token illustrates how powerful aligning incentives can be to protect a cooperative platform. By rewarding its users, Uniswap not only doubled its liquidity but also ensured the continued cooperation of community members. While people have been writing about crypto coops and Ostrom’s principles for years, examples like Uniswap prove that these models can bear fruit and are worth implementing.

It is imperative that we consider a better future is possible without deluding ourselves into thinking it will happen naturally and without sacrifice.

Now, imagine a governance token for Twitter. Imagine a mechanism that would allow users to weigh in on protocol upgrades, community rules and business strategies. While this scenario is extremely unlikely given that the top three investors of Twitter are Vanguard, BlackRock and Morgan Stanley, it is still fun to consider. 

In this world, Twitter users would not only have an incentive to improve the platform, but they would also have to coordinate with each other to do so. Developers would need to coordinate with each other to maintain a reliable and secure standard. End users would need to coordinate to understand the impacts and second-order effects of community decisions. If users in the United States want to remove all political advertising on the platform or censure politicians for violating community guidelines, how does that impact political dissidents in China or Belarus?

There are challenges with decentralized governance and cooperativism. Earlier this year, when a single hacker hijacked multiple high profile accounts, Twitter admins were able to freeze accounts and isolate the issue. This would have been a feat more difficult to coordinate in a decentralized system.

Keep your hands on the wheel

Whether you believe the internet is driving us through dark forests or digital gardens, this is not going to be a smooth ride. It is imperative we consider a better future is possible without deluding ourselves into thinking it will happen naturally and without sacrifice. 

In his latest post on Coordination, Buterin describes an unsettling feature about cooperative games, “We can prove that there are large classes of [cooperative] games that do not have any stable outcome … In such games, whatever the current state of affairs is, there is always some coalition that can profitably deviate from it.”

The internet in 2030 will be exciting and in flux. However, if we keep our hands on the wheel, focusing on shared objectives and aligned incentives, we should be able to steer ourselves in the right direction.