Founded by a small group of graduate students with a vision for a fairer society, this startup aims to start a revolution as big as the Internet itself
All over the developed world, the middle class is feeling stressed. Inequality is growing while the Forbes billionaire’s list fills its ranks with tech billionaires. Startup entrepreneurs dream of winning the “exit” lottery, while masses of freelancers survive from gig to gig with hardly any safety net.
The sharing economy is a hot buzzword in tech circles. Companies like Uber, TaskRabbit, Fiverr, Applause and Airbnb are celebrated as the wave of the future. At its best, the sharing economy consists of an efficient marketplace for matching supply with demand. But too often, the company that coordinates transactions between buyers and sellers grows insanely rich while the regular folks who produce all that value earn bubkes.
It’s no wonder that Hillary Clinton recently lambasted the “sharing economy” in a campaign speech, saying that it “is raising hard questions about workplace protections and what a good job will look like in the future.”
In economist Robert Reich’s view, “the euphemism is the ‘share’ economy. A more accurate term would be the ‘share-the-scraps’ economy.”
We didn’t plan for things to be this way. In his 2006 book The Long Tail, Chris Anderson argued that the Internet would be a boon for the little guys. But as tech theorist Jaron Lanier has explained, most Silicon Valley business schemes promote a power law, or winner-take-all distribution of outcomes, as opposed to a bell curve where the fruits of the labor are more evenly distributed. Digital technology offers an irresistible temptation to companies “to turn yourself into a communist central planner,” where those at the strategic hub points hold all the power.
So what can be done to level the playing field? Matan Field, Primavera De Filippi and Tal Serphos, co-founders of Backfeed are three big thinkers who independently came to the conclusion that there is a mismatch between contributions and rewards in our digital economy. Matan has a PhD in theoretical physics, specializing in String Theory. Primavera is a research fellow at the Berkman Center for Internet & Society at Harvard Law School and Tal comes from a finance background and completed a masters in population genetics at the Hebrew University.
The trio looked at the way our societies and economies are organized and, together with a growing community of decentralization enthusiasts, decided they could do better. The result is Backfeed, one of the deepest and most ambitious startups in Israel’s tech scene. If successful, its founders say, it will launch a revolution on a par with the Internet itself.
What’s wrong with centralization?
“It’s so clear our economic and organizational structures are really messed up,” Matan Field told Geektime over a lunch in Tel Aviv. “They’re not optimized.”
Field doesn’t use words like social justice or equality when describing what is wrong with the current power structure and he bristles if you describe him as a hippie. He prefers terms like “efficiency” and “optimization.” Nevertheless, the 30-something father of two lives in a moshav shitufi, a cooperative village similar to a kibbutz, in Israel’s Galilee region. Field was among the founders of Jerusalem’s organic food cooperative, and previously founded a ridesharing cooperative called LaZooz.
“I’ve experimented a lot, but even the cooperative framework is inefficient,” he explains, referring to the fact that cooperative schemes like kibbutzim often devolve into a situation where lazy members freeload off of others, not to mention the age-old organizational problem of political in-fighting, or as most 9-5 workers know it, office politics. Add to the fact that co-workers are also neighbours and co-owners, and it can be a recipe for disaster.
What makes today’s economy inefficient, Backfeed’s founders explain, is that there are huge networks of people online creating economic value, but these people are not being rewarded for their contributions.
“Take Facebook,” says Tal Serphos. “The value of Facebook comes from the users. The same with Airbnb and Uber. If you decentralized these services, they would be more efficient and the motivation of everyone in them would be be much higher.”
Serphos says that in the beginning, the administrators of services like Facebook, Google Search, Instagram and many other giant Internet services created the feeling that if you participated, you would be rewarded. They did this by offering useful services for free and through gamification.
And it is true that there is some reward. For instance, Facebook users get rewarded with likes and comments from their friends, journalists get rewarded by Google with eyeballs and Uber drivers can make modest amounts of cash in their free time. But in each of these cases, the users who actually provide the value get small or intangible rewards, while the companies — Google Inc., Facebook Inc., and Uber Inc.— reap billions in the tangible reward of cold hard cash.
According to Serphos, users of these services are starting to feel shortchanged.
“Once you realize that together a million or a billion people created an enormous amount of value but all that value goes to some boss, people don’t want to participate anymore, or not at the same level. It’s not sustainable.”
Serphos points out that Facebook is seeing a decrease in adoption as users migrate to other services. These are the rumblings of a backlash.
The movement to decentralize the Internet
De Filippi explains that the evolution of Internet giants like Google, Facebook, Amazon and Uber was no accident, but a necessary step in the evolution of the Internet.
“People were hoping that on the Internet you would have a lot of small firms that focus on their core competencies. Instead, we got centralization.”
What happened is that even though transaction costs are much lower on the Internet than in the physical world, the sheer quantity of the transactions was unmanageable.
“The problem is that on the Internet, you can theoretically have a peer-to-peer economy where you don’t rely on the intermediary anymore, but it’s very difficult because it’s hard to coordinate ourselves.”
All this was true, says De Filippi, until 2009, when the blockchain was developed. The blockchain is best known as the underlying technology of Bitcoin, but what is most interesting about it are two of its mathematical features.
First, it is a decentralized public ledger that is accessible to all via the Internet but that cannot be controlled (or corrupted) by anyone. And second, there is its economic (game-theoretic) model for “mining” — an incentivization mechanism that contributes to building a critical mass of users, by rewarding early adopters with a shared value of the Bitcoin economy, in exchange for their participation in building the network.
“Before Bitcoin you could not have an accounting book on the Internet that was completely decentralized,” explains Field.
But now, thousands and even millions of individuals can connect directly, transfer value among themselves, decide and cooperate without the need to rely on any centralized entity or intermediary. The Facebooks, Ubers, Amazons, and PayPals of the Internet are becoming superfluous.
There is also a movement underway to develop decentralized apps on top of the blockchain that can carry out the P2P transactions, including Synereo, MaidSafe, GetGems and OpenBazaar to name a few, and venture capitalists like Marc Andreessen are super excited about them.
The instigator of this movement is Ethereum, says Field, which raised $18 million last year in the third-largest crowdfunding campaign in history. The Ethereum platform and its cryptocurrency has served as the backbone of building up the global trading network. In particular, the use of smart contracts on the platform that allows for anonymous users to safely collaborate with one another on their projects.
“Ethereum really opened minds,” he said.
HTTP for the decentralized Internet
Ethereum can be credited with the idea of using the blockchain for more than just financial applications. Where Backfeed fits into this picture is that it’s trying to constitute the protocol layer, the interface between the blockchain layer and the actual user-facing applications of the new decentralized Internet.
“Imagine the Internet before 1995,” explains De Filippi. “There was no web and a lot of online applications. People had to install their own client to interact with the other applications.”
“Then in 1995 the http protocol came along, a standard protocol. On top of this you can now deploy apps, and then there is the web browser and you only need one web browser to connect to all those web apps. Backfeed is like HTTP for the decentralized Internet. That is what we are working on.”
Backfeed’s protocol will develop a set of rules for the distribution of economic value among contributors. It will also develop the interface with those users.
For instance, say you decide to develop a decentralized news magazine on top of Backfeed’s platform. At first, a few dozen journalists will come together and start writing articles. The journalists will upvote and rank each other’s contribution and will be rewarded, at first with shares in their own company, and later with Bitcoin cash-like tokens as the service starts selling, as determined by the community. Later, when the company launches, readers will have to acquire tokens to read articles. The only way to get tokens is to buy them from the journalists, and this is how the journalists will get paid. Backfeed says its “rules are engineered to shift the community away from the Nash-equilibrium state of non-cooperation towards that of cooperation.”
Is it like a kibbutz?
“It’s like a kibbutz where members split the profits based on the contribution each [one] makes as perceived by their network in real-time,” agrees Field.
How it works
Backfeed will be a platform for all kinds of groups that want to cooperate to create decentralized organizations. There will be decentralized taxi services, decentralized social networks, decentralized insurance companies, even decentralized school systems.
For instance, let’s say your child’s preschool teacher is excellent, and all the parents would like to pay her a bonus to stay on for another year. But in the current system, salaries are determined by a bureaucracy and the only way for her to earn more is to move to another job or another profession, an outcome neither she nor the parents want.
“A community of 10,000 people could run their own educational system,” explans Serphos. “The collective decides together how much the teacher receives. Good teachers get more money. The worst ones will leave because they won’t be getting what they think they should be getting.”
You can imagine the possibilities: Your boss doesn’t sufficiently value your work or refuses to give you a raise? In the present system, your only option is to leave your job. In a decentralized organization, your contribution will be determined by the community in real time, not by a single person who happens to have a higher position than you. However, if the entire community fails to value your contribution, and you feel unappreciated, your best option is still to go elsewhere.
But will it reduce inequality?
“It may or may not reduce inequality,” says Field. “But it will reduce unfairness.”
It all depends on how much others value your contribution.
For instance, let’s say you are a cab driver and you decide to join a decentralized Uber-like organization. On the one hand, you won’t have to pay Uber, or any centralized dispatcher, a cut of your profits. On the other hand, driving a cab is not a highly specialized skill and if you are not extraordinary at it, you may not be able to earn much.
“What we provide with Backfeed,” explains De Filippi, “is the opportunity to create a decentralized Uber service, that is run by the drivers themselves, and whose commercial agenda is therefore completely in line with that of the drivers. This will not resolve the problem of competition in the market (in fact, it’s probably going to increase it, since being a Decentralized-Uber driver will be more attractive than being an Uber driver today).”
Regarding barriers to entry that taxi drivers currently enjoy, like special licenses, De Filippi says, “Any regulation that is designed to create an artificial scarcity to allow certain categories of people to collect more rent by virtue of a monopoly is simply an arbitrary mechanism that is distorting the actual value provided to society by these people.”
Thus, a cab driver who can’t make a living in a decentralized Uber would be encouraged to join another decentralized organization, say one that provides archery lessons to kids, where the community will value his contribution more highly.
But what about people who are below average at everything and have nothing to contribute? They still deserve to live, don’t they?
“There will be networks that create welfare for them or teach them to contribute,” explains Field. “This is about tools. It’s not political.”
Yes, but how will it scale?
Backfeed’s platform is currently in development, but the founders predict it will launch in about a year.
Once this happens, the three founders have imagined a scenario for how it will take off.
The first members of the community of decentralization enthusiasts, which is already “quite large,” will begin to develop apps on the platform. Eventually, one of these projects or groups will scale up if it is better than what exists in the current market.
Field predicts that the first decentralized organization to really scale might be a social network, a transportation network, or an insurance network.
“Journalism has strong odds to be the first one,” says Field.
“It will be in people’s interest to join,” explains De Filippi.
“Today you have this economic cluster. It is impossible to break in. You would need to raise so many millions of dollars to compete with Google or Facebook. They are the incumbents.”
“With this model you can start a decentralized social network and it’s if a nice one people will come and come, and eventually, companies that are not as big as Facebook but are somewhere in the middle will realize there is no way they should be doing anything else but joining. Eventually you can get so many people that you can actually outcompete Facebook. It will eventually be in the interests of Facebook to actually decentralize themselves, because otherwise it will be dead.”
How will you make money?
“Just as with any revolution, those who come in earlier will also profit from that,” explains Serphos. “We expect to earn from this as any early adopter or developer would expect to earn from value he creates, but we don’t expect to have 10 percent of a 200 billion dollar company.”
“We will make money as a collateral effect,” says De Filippi.
“But once these tools are operational, the first thing we’ll decentralize is our own operations. We will hand it over and lose control over it.”
A revolution as big as the Internet
Field says the decentralized Internet doesn’t need widespread adoption to become a formidable force.
“In the first decade only the first million geeks were on the Internet, but then the impact was so big that it made the rest of the world run after them. The same thing will happen here.”
Backfeed’s vision sounds utopian. Since the platform is not operational, it’s hard to know if it will work out as planned. And even if it does, as with any utopian scheme, there are often unintended consequences.
But in an age where one prevailing ideology is that a dog-eat-dog digital economy is inevitable, that robots will soon take everyone’s job, and that the gap between rich and poor will only grow, platforms like Backfeed offer hope to many people who have been left behind. And those people still have the power to vote with their keyboards. That is, if Backfeed can dumb down its message enough so the masses of people can understand it.
“We don’t need to be against anyone,” says Field, quoting Buckminster Fuller. “All you need to do to change things is to build a new model that makes the existing model obsolete.”