Conflict, mutuality, and order

Credible commitments and the fundamental benefit of blockchains.

Oliver Beige
Jul 22, 2017 · 4 min read

This is a little wonkish note to elaborate on a comment I made in a twitter exchange, on whether “censorship resistance” is the correct term to describe the fundamental benefit of blockchains. The original thread by Adam Ludwin of Chain is quite worthwhile, so I recommend you read it first. I would like to be more clear why I prefer “mutually credible commitments” over “censorship resistance”, but I also want elaborate a bit on the transactional foundation of blockchain.

Censorship is the ability of an actor who is vested with some kind of authority to alter the statements of others — in particular the ability to suppress or erase them. In the context of blockchains, this mostly refers to the ability to alter past transaction records to facilitate double spending. In the context of all transactional databases (systems of record) it is crucial to have an unaltered record of past transactions, so censorship resistance is necessary wherever multiple participants rely on the veracity of the past record. This is a necessary but not a sufficient criterion to install the highly redundant and inefficient database structure of blockchains.

This is why I prefer mutually credible commitments. Let me explain in some detail.

Photo by Igor Ovsyannykov on Unsplash

The concept of credible commitments was first proposed by Nobel Laureate Thomas Schelling in his seminal 1960 book The Strategy of Conflict, in which he also proposed a number of ways (“strategic moves”) to achieve credibility. One of the moves is to demonstrably give up control over the future course of actions.

In the world of governance, commitment is a key element of contracting. The basic unit of economic interaction is the transaction, defined by Oliver Williamson as a transfer of good or service across a technologically separable interface. A contract is then the legal container for such a transaction.

The terms transaction and contract are often used synonymously, and normally we only differentiate them when a written contract accompanies a transaction, but the same transaction could be governed by an implied, oral, written or notarized contract (to name just a few options). This progression reflects a gradual decrease in trust between the contracting parties, so they (or the lawmaker) resort to more explicit and unalterable safeguards.

Transactions are simple endeavors when all items can be exchanged simultaneously: an ice cream cone handed over the counter for a cash payment. But this pure simultaneity almost never holds, and most real-world exchanges contain an element of asynchronicity or even expressly incorporate future exchanges. This requires more explicit contracting, and generally written contracts describe a sequence of promises: future actions to which the participants commit themselves. Which puts us in the world of (not yet credible) commitments.

To make these commitments mutually credible, the contracting parties normally include a resolution mechanism which requires both sides to cede control, and instead hand the resolution authority over to an outside party which in turn they do not control: the flip of a coin, a notary, an arbitrator, a plenum, or the courts of law.

Ignoring the coin flip, these outside parties are what the literature on blockchain refers to as “the middleman”. Middlemen or trusted intermediaries work well as long as they can credibly establish that they don’t have their own agenda (distinct from the agendae of the contract parties) and/or don’t have the power to enforce it.

Clearly this argument is going in the direction of “who is watching the watchmen?” and this brings us back to Ludwin’s censorship resistance: once we cede control over an aspect of the contract in order to signal credibility, we also have to make sure that the other participants, be it the counterparty or the intermediaries, cannot alter the contractual agreement or transaction record.

What I am missing in Ludwin’s terminology is the element of self-restraint: in a contractual situation I’m not only interested in holding others to account, but I also want to keep myself to account: I want to credibly establish that I didn’t alter the record. This is what credible commitment does.

We should not fool us into believing that blockchains are “self-enforcing” or even “ownerless”. In governance there is no such thing. The ingenious idea behind blockchain is that it folds the process of control by plenum into the transactional process. Entering a transaction and verifying past transactions are intrinsically linked. As Ludwin points out, for most purely transactional purposes blockchain is a rather inefficient database model. For establishing credibility of commitments it is quite effective.

Regardless, we should expect a massive amount of evolution in governance mechanisms before we can expect blockchain adoption on the enterprise level.

Oliver Beige

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I write about how technology shapes the world we live in.

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