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Not too long ago, in a more restive age, the Internet was a collection of computers communicating with each other on a fairly equal basis. A few central computers managed the small but intensively creative traffic. In 1969, for example, the Internet freely allowed each computer to act as a server as well as a dumb terminal. This enabled computer programmers to share resources without a central clearinghouse. This peer-to-peer arrangement worked well when the Internet was a remote, government-funded project that drew little attention outside a coterie of scientists.
However, with the rise of the World Wide Web and e-mail, this peer-to-peer model moved offstage – deferring to the ascendant client-server paradigm. With the web, users connect to a server that distributes web pages or redirects mail to recipients. Commercially this makes perfect business sense since centrally located resources are more efficiently managed.
But a subtle shift is taking place – proving that computer technology, too, comes full circle. Today, millions of users world-wide are connecting their own desktop computers to each other – collaborating spontaneously to form groups, their own file systems and search engines and even virtual supercomputers. This movement is aptly called peer-to-peer or P2P.
P2P enthusiasts believe – with religious fervor– that the Internet must revert to its initial design. That is to say that information and resources can be shared more directly without the elaborate and sometimes limited infrastructure now in place. “Peer-to-peer is useful where the goods you're trying to get at lie at many end-points, in other words, where the value of the information lies in the contributions of many users other than the authority of one,” writes Andy Oram, an evangelist for P2P.
"When a revenue stream that information providers have counted on for over 200 years threatens to dry up, powerful reactions emerge," says the editor of this volume.
To date, peer-to-peer has been widely misunderstood, in part owing to the legal trials and tribulations of Napster, the online music-sharing server.
But that's not the heart of the matter. P2P is a social phenomenon with far-reaching economic implications. As Oram notes: “When a revenue stream that information providers have counted on for over 200 years threatens to dry up, powerful reactions emerge.” This revenue stream is nothing less than the working of the free-market system as founded on laws guaranteeing contracts and intellectual property rights.
Recently, the U.S. Court of Appeals courts have effectively forced Napster to shut down, in a celebrated blow for copyright protection and the recording music industry. At its height, Napster was popular among music lovers because it enabled users to exchange MP3 music files between two computers using the internet as a medium. Several prominent musicians and recording artists such as the heavy metal band Metallica successfully argued in court that Napster encouraged piracy of their copyrights. The Recording Industry Association of America (RIAA) argued that Napster put a damper on compact disc music sales.
As controversial as the application of old property-right laws in the digital economy may be, the technology underlying Napster is only the tip of the iceberg. In other words the message to copyright holders is, you ain't seen nothing yet.
Just as the emergence of the personal computer severely disrupted the world of mainframes, so too will peer-to-peer technologies disrupt accepted concepts about internetworking. But there's an economic story underlying the hype of yet another new technology. Peer-to-peer is positioned to dislodge the market institutions that have served the old economy well. The low marginal costs of file copying, the redefining of fair use of copyright material, the impossibility of censorship, the prevalence of anonymity and the prospects for distributional computing all pose serious challenges to market institutions.
Consider a few of the prominent P2P technologies:
Gnutella. This file exchange protocol is far more effective in cloaking a user's identity than Napster, which was able to identify which users kept Metallica's unauthorized music on their hard-drive. This allowed the band to eventually build its legal case against infringement. In contrast, Gnutella allows users simply to punch in keywords. Then available computers randomly respond if requested files are matched. Thus, it will be more difficult to sue Gnuttella users and enforce copyright protection because it's impossible to identify users.
Freenet. Maintained mostly by volunteers across the globe, Freenet's distributed resources provide anonymity, prevent censorship of documents, remove single points of failure and provide plausible deniability for contributors. Freenet is tailor-made for whistle-blowing and the trafficking of trade secrets. One recent report noted that it would not be long before drug formulas would be traded over P2P by Third World nations.
Publius. Taking the pen name of the authors of The Federalist Papers, Publius, like Freenet, is a web-based publishing system that resists censorship – enabling authors to update or remove their previously published material anonymously. Publius is geared to assist dissidents who live under repressive governments.
SEIT@home. Astronomers currently use the SEIT@home model to detect intelligent life outside Earth. This is not science fiction. SEIT@home employs a technique that allows a group of users to exploit the enormous amounts of idle time wasted on personal computers. Intel recently announced plans to employ millions of PCs in a computer intensive molecular research effort that will use idle cycling time.
These new exciting provocative technologies are the subject of Peer-to-Peer, a highly technical but essential work that ought to appeal to economists and public policy makers. Several of the contributors to Peer-to-Peer explore the economic issues raised by peer-to-peer and are familiar with the work of Ronald Coase and Mancur Olson.
Among the most fascinating issues explored is the free-rider problem, a concern of economists. While the success of peer-to-peer relies upon cooperation there will always be those who take from the system without giving back. Because it's difficult to initiate any kind of pricing system, free riders can significantly harm the efficiency of peer-to-peer. Some authors suggest there's a technical workaround to such issues but they live beyond the grasp of a typical computer user.
Peer-to-peer poses other problems. In his short essay, Dan Bricklin, the co-creator of the original spreadsheet, VisiCalc, believes that peer-to-peer reverses the concept of the “tragedy of the commons,” introduced by the biologist Garrett Hardin in 1968. What we have now, says, Bricklin, is a “cornucopia of the commons. ”
But Bricklin and other authors are overly optimistic in believing that harnessing the energy of users will lead to abundance. These optimists need to understand that, because of its disruptive nature, peer-to-peer can, like other applications and protocols, overwhelm the infrastructure at large. Peer-to-peer can be destructive as easily as it can be benevolent.
According to Hardin, the nature of the commons enables an individual, pursuing his own interest, to overtax the public land. “Freedom in a commons, “ wrote Hardin, “brings ruin to all.” A good example would be the overfishing of the waters off New England. Because no one owns those waters, no one has an incentive to limit his fishing to the level above with increased fishing will deplete stocks.
Peer-to-peer enthusiasts forget that the bandwidth upon which the Internet depends is, like the number of fish in the sea, finite. When users treat the bandwidth as a common good, they are likely to fish intellectual property to extinction.
Economists argue that the solution to Hardin's “tragedy” is a system of property rights and market-determined prices. Give someone – anyone – a property right over the common good and the owner of that property right will price its use at a level commensurate with its preservation. But a fee-based system would run up against the ubiquity of a self-organizing, peer-to-peer model.
Peer-to-peer may just be a variation on the Internet infrastructure, another chapter in the ongoing wave of productivity growth and innovation rather than an investment opportunity with a direct rate of return. But it will also fundamentally change the relationships of people and institutions, returning again and again to the question: How can you realistically enforce copyrights?
Information owners are trying, perhaps vainly, to extend their control into domains where they have previously been excluded. Technology, they find, only muddles the issue further.
In Article 1 of the U.S. Constitution, the Founding Fathers operating without knowledge of Internet time and recognizing the powerful incentives created by copyrights and patents, granted exclusivity to authors and inventors. Peer-to-peer contradicts this carefully mapped out plan. Copyrights, themselves a product of compromise between producer and consumer, need to mature in the digital age; they need the equivalent of a software update. Peer-to-peer enthusiasts need to understand what they are restoring before they destroy it.
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NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2003. All rights reserved.
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