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The Blockchain and Global Challenges

It has been suggested that wherever trust is an issue then the Blockchain might offer a solution. The Blockchain, as the front cover of The Economist signalled, is a Trust Machine (The Economist, 2015), and an absence of trust has been implicated in the perpetuation of a number of significant Global Challenges, most particularly those relating to Common Pool Resources (CPR), such as: atmospheric air quality, oceanic fishing grounds, forests and so forth.

Common Pool Resources are characterised by excludability and subtractability. This means, first, that if not impossible then it is difficult and costly to exclude people from using the resource. Second, one person’s consumption of the resource reduces the availability of that resource for others to use.

In 1968, Garrett Hardin published the now widely cited paper “The Tragedy of the Commons” in which he argued mankind’s self-destructive inability to sustainably manage a common resource in the absence of some external authority. Hardin asks us to imagine a common pasture for grazing livestock, open for all to use and owned by no-one (excludability). Each new animal brought to the pasture represents personal, private profit for its owner, but the cost of its grazing is borne by all users (as each animal consumes resources that otherwise would be available to their animals - subtractability). It is therefore economically rational for each user to load as many animals as possible onto the resource, but with the consequence that the resource becomes over-grazed: unviable. In the fourth Century BC, Aristotle summarised this as:

“What is common to the greatest number gets the least amount of care. Men pay most attention to what is their own; they care less for what is common; or at any rate they care for it only to the extent to which each is individually concerned. Even when there is no other cause for inattention, men are more prone to neglect their duty when they think that another is attending to it.”

Hardin’s Tragedy of the Commons argument predicts the over exploitation of resources held in common. The solution he proposed was the imposition of rules by some external authority: either nationalise or privatise the resource. For decades, Hardin’s ideas were highly influential in policy circles (Bromley and Cernea, 1989). That is, until they were challenged with powerful empirical evidence by Nobel Laureate Elinor Ostrom (1990) which demonstrated that people were more willing and able than Hardin’s theory suggested to work together to solve problems of ‘The Commons’. Over time, from her own and colleagues’ observations from around the world, she was able to induct a set of ‘design principles’ for managing Common Pool Resources.

Hardin argued for top down solutions externally imposed. To many readers, then and now, Hardin’s propositions can appear drastic, unworkable and unpalatable though his important contribution was in helping to frame a problem. On the other hand, Ostrom identified multiple successful bottom up collaborative, evolutionary, locally-applicable solutions to the challenge. The limitation of Ostrom’s work is, though, that her guidelines appear to have little traction beyond local Common Pool Resource issues.

Consequently, neither of the proposed solutions to the Tragedy of the Commons appear to have traction at the level of Global Challenges such as air pollution, over-fishing, global warming, climate change and so forth: challenges that are no respecters of national boundaries. Hardin’s nationalisation or privatisation do not work because there is an absence of a global, over-arching authority to impose and enforce a solution. Ostrom’s guidelines are constrained by their ability to scale. This raises the question, does the Blockchain, offer an alternative approach?

In Tragedy of the Commons situations, it is in an individual’s economic self-interest to over-exploit the resource, behaviour that is also motivated by the expectation that presumably neighbours will be behaving similarly. In the absence of co-ordination mechanisms, regulations, effective sanctions, and the fear of free-riders the system is driven, eventually, to collapse. Frequently this behaviour has been modelled as a “Prisoner’s Dilemma” (Axelrod and Hamilton, 1981), which demonstrates how such situations might arise.

There are a number of variants of the Prisoner’s Dilemma but, in its basic form, two prisoners are held in communicado from each other and have the choice either to confess to the crime of which they are accused or to betray the other. If both confess, each receives a sentence of one year; if one confesses and one betrays the other, the confessor receives a sentence of five years and the betrayer is released; if both betray each other, each receives a sentence of three years (see Figure 1).

Unable to communicate with each other or trust in the other’s decision, the individually rational choice for each prisoner is to betray the other because this results in the best individual payoff (go free) as well as avoiding being taken for a ‘sucker’ by confessing if the other betrays. The selfish choice of betrayal (not co-operating with the other prisoner) is always the smartest move. If Prisoner 1 confesses, Prisoner 2 gains the most by betraying them; if Prisoner 1 does betray Prisoner 2, then Prisoner 2 can mitigate this by also betraying Prisoner 1. In this way, betrayal is the dominant strategy, but produces a sub-optimal outcome for both prisoners.

Druzin (2016) considers the issue of Tanzania and the Democratic Republic of Congo (“DRC”) sharing access to Lake Tanganyika through the lens of the Prisoner’s Dilemma (Figure 2). In this case, instead of confess or betray the options the countries have are either to conserve the resource (co-operate with each other for its preservation) or not conserve (do not co-operate for its preservation). As Druzin (2016) describes “If Tanzania and the DRC both choose to conserve, both players will receive three points—a good outcome (in that it is a sustainable one). However, if either party chooses to cooperate while the other party does not, the result will be disastrous for the cooperating party. The non-cooperating party will receive five points, but the cooperating party will receive zero points. This creates a powerful temptation for both Tanzania and the DRC to not cooperate in that they can gain greater advantage by doing so… noncooperation is always the smartest move”

Druzin (2016) notes that the recent Paris Agreement on climate change was a remarkable achievement in international diplomacy with nearly every state in the world pledging to reduce their greenhouse gas emissions, but that no government faces consequences if they fall short of their commitments under the agreement. The reason for this, he suggests, is because there is no authority able to coordinate the behaviour of the relevant stakeholders and no institutional regimes capable of sustaining compliance in the face of mutual distrust.

The solution Druzin (2016) offers is framed neither in terms of the solutions Hardin (1968) proposed, regulation and/or privatization, nor in Ostrom's (1990) guidelines. He proposes to build transnational trust through countries contributing an upfront “deposit” – to the ‘Commons Management Fund Deposit Scheme’ - an international regulatory body with the understanding that all or part of any contribution will be forfeited should that country fail to honour its treaty commitments. Druzin recognises one inherent weakness of his proposition, that states may be reluctant to provide deposits of a sufficient value adequately to signal their commitment to such a scheme.

Smart contracts executed on the Blockchain may offer a resolution to this problem, allowing countries to retain deposits but still signal commitment to the principle. Smart contracts are automated, self-executing actions reflecting agreements between participating entities. Smart contracts, then, are programmes encoded to act in specific ways if and when certain conditions are met.

Smart contracts may, then offer one approach to resolving problems of the commons at a supranational level. However, if the Tragedy of the Commons is realised through an absence of trust, can the Blockchain, the ‘Trust Machine’ be more widely utilised to engender the sort of trust that is lacking between global actors to the extent that current global challenges can be ameliorated if not resolved?

To address this question, a research agenda might focus on exploring the extent to which blockchain technology enables Ostrom’s (1990) guiding principles to be scaled to a global level. The principles she and colleagues inductively derived are:

  • Define clear group boundaries.
  • Match rules governing use of common goods to local needs and conditions.
  • Ensure that those affected by the rules can participate in modifying the rules.
  • Make sure the rule-making rights of community members are respected by outside authorities.
  • Develop a system, carried out by community members, for monitoring members’ behaviour.
  • Use graduated sanctions for rule violators.
  • Provide accessible, low-cost means for dispute resolution.
  • Build responsibility for governing the common resource in nested tiers from the lowest level up to the entire interconnected system.

What blockchain initiatives exist, at any stage of development, that make these principles meaningful at a global level?

REFERENCES
Axelrod, R. & Hamilton, W.D. (1981). The evolution of cooperation. Science, 211, 1390-1396.
Bromley, D.W. & Cernea, M.M. (1989). The management of common property natural resources: Some conceptual and operational fallacies, World Bank Publications.
Druzin, B.H. (2016). The Parched Earth of Cooperation: How to Solve the Tragedy of the Commons in International Environmental Governance. Duke Journal of Comparative and International Law, 27, 73-107.
Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243-1248.
Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action, Cambridge university press.
The Economist (2015). The trust machine. The Economist.

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