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NFTs and the future of work; Corporations aren't crypto-bros.
Day 10: 30 Days of Crypto-modeling
This is part of 30 consecutive series of posts related to understanding and modeling cryptocurrency-related economic activity. We are sifting through hype and speculation to find quantitative insight.
Dror Poleg is an old acquaintance from back when we both lived in China. He writes, teaches, and writes, gives public talks on the intersection of technology and real estate (check out his excellent book).
So I was keen to read his take on the current NFT bubble, since much of the bubble centers on virtual real estate.
To my surprise, rather than writing about virtual real estate, he shared his thesis on NFTs and the future of work.
You should read his entire post, but his core thesis is that NFTs and smart contracts will enable a company to track how much work an employee is contributing and compensate that employee for that work.
I think the argument is appealing. I once had a Boiler Room-style sales role. I made cold calls to members of a dying industry (newspapers) during the 2007 financial crisis. Base pay was a pittance; compensation depended on performance.
The job was awful and I burned out in a year.
But that sort of sales role is the ultimate exemplar of an intimate tie between contribution and compensation.
Poleg's example of the software engineering role comes in as second place, albeit a distant second place. He points out, GitHub and other version control software allow one to track how many lines of code or how many commits each developer on a project is contributing.
These metrics are only a proxy for the actual business value that code generates (unlike sales, where a dollar of sales equals a dollar of business value). An analyst could use the data in Github to analyze the relationship between code contributions and business value, but such an analysis would be subjective and hard to automate. That said, we can inspect that relationship and build compensation schemes around it, if we wanted.
With NFTs and smart contracts, it is now possible to integrate all of the above with a proper compensation mechanism. It is possible to allow every contributor to get paid exactly according to their contribution — not just once the work is done, but indefinitely: Every time the code gets used anywhere, all contributors can theoretically earn "royalties"; and if the code is part of a big startup exit, the contributors can earn a commensurate piece of the acquisition price as well.
He suggests that if it would work for code, it would work for even less structured chunks of work without version control, such as emails, slack messages, and meetings. He proposes that machine learning could take such unstructured data and structure it into formats fit for smart contracts. I think that is true.
But let's focus on the code example. There are a few problems here.
Firstly, paying coders code royalties would create perverse incentives. Good code is as concise as possible, both in form and function. Compensating based on how much of their code gets executed would lead to the coder equivalent of the taxi driver who takes a circuitous route to ramp up the fair.
More importantly, let's look at the core question we need to answer when considering applying NFTs, smart contracts, and blockchain applications in general -- what is the value of a decentralized version of this application relative to having a third party provide a centralized service?
After all, it would be trivial to do a bit of metaprogramming (code that modifies other code) that sends a message to a third-party API. In Python, it might look like a decorator:
@robert_wrote_this_code def roberts_code(): ...
Every time code was run, the service behind that API credit my account with a royalty payment.
What would be the advantage of using a decentralized platform in place of such a service?
Trust and privacy? Empirical evidence shows companies and employees are happy to give up privacy and trust third parties until the third parties violate that trust.
Cost? A fixed third-party subscription fee would be better than paying blockchain transaction costs like Etherium's gas, especially if those transaction costs fluctuated due to speculation.
My last point is not an objection so much as an extension. Poleg's article reads as though NFTs and smart contracts will give employers better ways to track employee's work and compensate them accordingly in the future. But consider how corporations behave:
This technology would make compensation public. Most employers keep compensation confidential because it gives them negotiating power (this is particularly damaging to women, minorities, H1B visa holders, and people who are competent but lack institutional pedigree).
This technology would make executives more accountable. Why would they want that? Indeed, the more powerful individuals are in an organization, the more leeway they have to inflate their contributions and obscure their failings. It is these powerful people who would decide to adopt this sort of technology. Doing so would harm their personal interests.
This technology would give employees a portfolio they can showcase in the labor market. They could say, "look how much f-ing money my brainchildren have created from utter nothingness!" But employers tend to want to make it harder for performant employees to jump ship, not easier.
In tech in particularly, startup CEOs on the VC treadmill want to tell stories to potential investors about the rosy future of the company. Those CEOs probably aren't keen on how radical transparency of how the tech creates real business value when they craft their stories.
I suspect if technology were poised to enable people to have their work contributions earn royalties based on the economic value they create, corporations would want to squash it.
I suppose the fall of the modern corporation is precisely the crypto-libertarian utopia the crypto-bros are hoping for.