What Are Blockchains Actually Good At?

Let me break it down into four key ideas.

1. Programmable money

The importance of being able to specify dynamically and securely what occurs as the result of moving value around the world is difficult to overstate. To understand why, let’s start with plain old money as described by Yuval Harari, author of Sapiens:

For thousands of years, philosophers, thinkers and prophets have besmirched money as the root of all evil. Be that as it may, money is also the apogee of human tolerance. Money is more open-minded than language, state laws, cultural codes, religious beliefs and social habits. Money is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age or sexual orientation.”

This open-mindedness comes from the fact that money asks us not what we find valuable, but rather, whether we can agree with others that there is indeed something of value in the first place (even if it is simply the act of agreement itself).

Blockchains ensure that the rules which guarantee agreement about value (by controlling how money moves and who owns it) are native to the medium in which it moves and that everyone has access to it, because it’s just another part of the internet. This means we do not need to trust institutions to broadcast messages on our behalf, and can instead co-ordinate directly with our peers in ways not before possible.

We’re seeing new kinds of payroll smart contracts (Status Open Bounties is a great example), new financial instruments, new music and art platforms, and entirely new breeds of organisation. But what will really matter here in the long term is data.

Trent McConaghy is the man to read on this point.

We may not all be born equal, but we certainly are all valuable data points. I think that any financial system which manages a stable society through increasing levels of automation and human redundancy will need to be responsive enough to reward people in real time for the quality of data they produce (which is an easier sell than ‘merely for existing’, though they amount to essentially the same thing). Blockchains are the only technology we have which could conceivably achieve this securely and fairly.

More generally, wealth in capitalist systems is actually a blockage in the flow of money. Wealthy people use their money to invest in other financial assets, which results in a fairly closed loop and makes things like Quantitative Easing difficult to do successfully. The money only moves through a small portion of the economy and, in fact, ends up exacerbating inequality.

Making money programmable means we can incentivise certain economic behaviours aimed at ensuring — for instance — equitable distributions of value, or stable units of account etc. Of course, your network need not be so noble or high-minded (Bitconnnnnecccct!), but it is possible to program such systems should you so desire.

2. Decentralised Assets

Decentralised networks capable of handling assets offer us the chance to own something that is simultaneously virtual and unique, which was not possible before. Again, given the advent of VR, AR, and the increasing shift into digital worlds that a large part of humanity is making, it is difficult to overstate how important this will be in the next few decades.

Others have written far more eloquently about this than I can here, so go check these articles out if you want to understand the importance of unique virtual goods in the future:

3. Trust minimisation

This phrase is useful because blockchains do not, contrary to some popular rhetoric, remove the need for trust entirely. You’re trusting client developers, network availability, that the internet will be accessible, that your local machine is not corrupted etc. whenever you run a node. Likely the best article about this is Ray Dillinger’s, who reviewed the original Bitcoin code.

Are the two mutually exclusive?

What blockchains allow people to do very well is verify each others actions and prove misbehaviour. Gambling and drugs, where no-one trusts each other — where there is no common root of trust — have been great successes in the blockchain world. Obviously, blockchains have far greater utility than this, but it is always the outlaws who adopt useful technology first. Prometheus, after all, brought light to civilisation by stealing fire from the gods.

Take, for instance, the contemporary example of social media. How do you trust ranking algorithms to show you relevant and not manipulative content; how do you trust ads to be from who they say they are, and to come where they say they come from, especially political ones? By providing an immutable and public record of provenance, networks like Ethereum can offer unique, valuable and interesting solutions to these problems.

To explain, here’s some recent history. Bitcoin solved something called the Byzantine Generals Problem, which is essentially a question about how to co-ordinate in public and adversarial environments without any one, trusted leader. This may seem obscure to you now, but coordination will be — I submit — the single greatest challenge of the digital era. How we organise ourselves around trustworthy news sources, valuable information and ethical advertising will define our success or failure as a generation.

In order to construct the kinds of systems which could conceivably handle our growing coordination needs, we rely on this inefficient but very beautiful machinery we all share.

4. Self organisation

Simply put, organisation is a function of communication. The more trustworthy the medium, the more reliable the message and the more stable the social structures that appear around that message. Status leads the pack on this front.

Decentralised networks provide a more direct means for us to connect and communicate what is of value without needing to route the trust implied by the word value through an institution of some kind. Therefore, blockchains allow for different and potentially more equitable global organisations independent of any one person, jurisdiction, government, or other point of failure.

A shoutout to all the shibes out there.

Moreover, in offering us a shared history of events that is agreed upon by everyone using the network, they actually provide a linguistic basis for collaboration at scales never before possible for humans. To understand why, we need to discuss the origins of human language and what sets it apart from other kinds of communication in the natural world. Harari argues that:

“Most likely both the gossip theory and the there-is-a-lion-near-the-river theory are valid. Yet the truly unique feature of our language is not its ability to transmit information about humans and lions. Rather, it’s the ability to transmit information about things that do not exist at all. As far as we know, only Sapiens can talk about entire kinds of entities that have never been seen, touched or smelled.”

Which is really just a fancy way of saying that fiction is the unique feature of human language. It is on fictional foundations that we have built ever increasing scales of organisation; from kingdoms and empires, to religions, to money and the global markets. At each new scale — brought about by what Harari describes as the Cognitive, Agricultural, and Scientific Revolutions — we have required a new mythology by which to navigate the world in ways that allow greater collaboration, less hampered by censorship or tradition.

We are storied apes who have built a world out of our ability to share the contents of our imaginations and collectively suspend disbelief. This is because writing and money break the data-processing limits of the human brain and allow numbers of people way in excess of our inbuilt biological limits to organise around shared ideas. Here’s the inevitable catch though:

“Telling effective stories is not easy. The difficulty lies not in telling the story, but in convincing everyone else to believe it. Much of history revolves around this question: how does one convince millions of people to believe particular stories about gods, or nations, or limited liability companies? Yet when it succeeds, it gives Sapiens immense power, because it enables millions of strangers to cooperate and work towards common goals.”

There are two particularly interesting words in Harari’s account: history and cooperate. If we can agree about the story we are reading and writing together, and make it possible for as many people as we can to participate in forming a shared and coherent version of our past (and our current state), then we can cooperate in numbers and in ways not before possible. This is the promise of blockchains from a historian’s perspective.

Conclusion

“We believe in a particular order not because it is objectively true, but because believing in it enables us to cooperate effectively and forge a better society […] It follows that in order to change an existing imagined order, we must first believe in an alternative imagined order.”

The thing is, though, there’s something qualitatively different to our belief in fictions like money and limited liability corporations than in fictions like Jitterbug Perfume. Fictions like the latter, the best of which are almost always also religions, ask us to believe in something.

Money and law ask us to believe that other people believe in something. This extra layer of abstraction enables economic feedback loops, based on public sentiment and implemented with tools like derivatives, that allow Picketty’s capitalism-defining equation of r > g to hold true, at least temporarily. However, this sort of rampant growth seems unsustainable and the increasing gap between super-rich and the rest of us will lead to less efficient use of available resources and therefore a reorganisation (or destruction, if you’re a pessimist) of society.

What we need is a more efficient system of checks and balances that is able to respond in real time to the now-global flow of information and value, which takes us all the way back to programmable money.

Blockchains offer us the means not only to communicate effectively our belief in others’ beliefs (the current system does that anyway, and more efficiently), but to prove to ourselves that others subscribe to a certain version of our shared history without the need for intermediaries.

So far in the modern era, our ability to tell convincing stories that enable more people to collaborate has lead to the rise of networks: nations (an imagined community of citizens) and markets (an imagined community of consumers) being the most obvious examples.

Could a different fiction — one which is not controlled by any single person or institution; one premised on a fundamentally different kind of network— lead to a more open and permissive community of creators and collaborators?

Fiction isn’t bad. It is, in fact, vital. Without commonly accepted stories about things like money, states or corporations, no complex human society can function. But fiction is a means, it is not an end in itself.

Fiction enables human beings to organise around ideas that don’t actually exist in great numbers — it is the lie that reveals the truth of our interconnectedness — and, used well, it can restructure a society by reshaping the stories on which that society is built.