A view from outside the bubble: breaking down blockchain idealism

The world of blockchain is such an interesting blend of cypherpunks, computer scientists, academics, and most recently day traders. These are currently the loudest voices in the room, but are also quite biased as to what views they have about how the world of blockchain will evolve (as we all are). For this analysis, I will call them ‘enthusiasts’. Those who love the blockchain for what it can do for the common man, decentralization, and the like, and have no business interests in it. Unfortunately, businesses control all the technology that we interact with today, and it will be no different for blockchain. Hell, bitcoin core is already looking like a classic corporation. I care far less about the idealism of the technology and more about how the forces that control it with bring it to bear. Idealism galvanizes the masses and brings energizing hope, but it is also what causes irrational exuberance. In this article I will talk about the ways that the blockchain community discusses strengths around certain blockchain projects, and why those may be at odds with the social mechanisms around adoption. I will also go into detail about what I believe are the true strengths and most immediate benefits we can obtain with blockchain technology.

Enthusiast Principle 1: Decentralization

Decentralization is often heralded as the ‘killer app’ of blockchain. It allows people to be in control of their own money that plays by rules that anyone can read and audit to make sure they’re getting a fair shake. But what value does this add to the world? Ultimately the same core functions are served whether it’s a centralized database or a decentralized one. The argument against this has a couple faces:

1. Tyrannical governments cannot confiscate your capital — Great, but in this new decentralized utopia will we change the laws so that if you don’t pay your loan there is no penalty, and you cannot have your collateralized assets seized? I would guess not. Then we can think about third world countries, where assets are actually quite often get seized by governments for no legal reason. A man could protect his financial assets, but physical assets like housing, land, and family are often the most important. The problem with this argument is that this is a social problem, not a technological one. Until we can decentralize physical power (and we are a long way off) blockchain has nothing to say about social progress. It can and will definitely be used to create systems that are harder to counterfeit (i.e. individual government workers adding money to a bank account), but I don’t think Robert Mugabe would have halted his land seizures simply because a blockchain said that these people owned it. That is a problem we have to face personally.
2. Banks are no longer in control of our money — This is all well and good, and it is one of the primary reasons that bitcoin itself was created, but this really is simply a change in principle. Currently, it is actually more expensive to move transactions with blockchain than with banks. Sure, the 2008 crisis was unfortunate, but let’s remember the cause of this shall we. Home mortgages were turned into tradeable and more than that they were split up and combined into more complex assets to the point that few people could reliably value them. This caused banks and other financial institutions to work off of greed and continue to give out mortgages to homeowners that couldn’t afford them. Eventually these homeowners couldn’t pay their bills, and firms that were too heavily invested in these mortgage backed securities went under (i.e. AIG), as did a lot of firms that had financial ties to those firms. If this erodes your faith in banks you are misunderstanding the issue. This should erode your faith in humanity. We are greedy creatures no matter where or in what job/institution you find us. The crypto bubble is just the latest example of this, and when it pops a lot of people are going to get hurt. Cryptocurrency is not a defense against human greed, in fact we are in exactly the same situation as the 2008 crisis today with an asset that is too complex to value but making people too rich to question it. As Vitalik Buterin has said, “I’m skeptical that people involved in cryptocurrency are better people than people involved in the banking industry.”
3. Censorship Resistance — This one is super cool. No complaints here. This can help Chinese citizens evade the great firewall of China and Iranians bypass crackdowns of telegram and instagram. A problem here is that there is always a level at which governments can ban technology. If you make a censorship resistant internet, they’ll just make their own and require its’ use. If you make hardware that can only run censorship resistant software, they’ll ban that too. This being said, it is a step in the right direction, and is definitely positive.
4. Blockchain Control — This is the main reason that decentralization is significant in the blockchain community. The purpose of blockchain decentralization is that you cannot have control of a financial asset class widely used by the public owned by anonymous individuals with no accountability. For all that we dislike banks they are held accountable by our governments to not steal others’ money and aid and abet criminals. They are decentralized in the sense that they must answer to the world. Lisk is a great example of what happens when we sacrifice this codependency. Lisk is a delegated proof-of-stake network that is run by ~50–60 elite members. This ruling class quickly created two political parties and bribed users for votes. When you have the ability to do this to asset classes worth over $100B you better believe that powerful forces will soon start to get involved. In the world computer, everyone will be fighting for control so it is important to let nobody have it.

Enthusiast Principle 2: Immutability

Immutability is a prerequisite for what blockchains have to offer to the world. It is the core fiber of a system that allows multiple parties to act in unison with each other to achieve conformity. In practice, they have achieved this… to date. Traditional banking systems have achieved this for the most part as well. What is beautiful about the blockchain is that in theory it prevents unconfirmed changes entirely. This, however, can be a crutch in a world that has come to expect bailouts and re-dos. We have seen this over again with the Parity and DAO hacks, what do you do with an immutable system when it fails? We can clearly see that a wrong has been done, but in a way are powerless to stop it in ways that legacy structures would have rectified in an instant. The DAO fork was an interesting move on the part of Vitalik and the ethereum community, a subtle dismissal of one of the core principles of the blockchain community, so it stands to ask why was it followed through on?

This is a brave new world we enter today. We are going to stumble and fall countless times before we perfect it. In my opinion, immutability is not something we should strive for in the short-term. Now is the time for innovation, moving fast and breaking things. This is ridiculously hard to argue now that we have over half a trillion dollars of largely individuals’ money at stake, but it wasn’t supposed to be like this. The future of blockchain surely will and should move towards a more immutable future, but without mutability we sacrifice so much. Can we imagine what the internet would be like today if we stressed perfection on version 1.0? While the crypto bubble surely has made it much more difficult to think in these terms, we must keep pressing forward so that one day we can make this technology what we all want it to be today.

Enthusiast Principle 3: Digitalized Assets

To me, this is the core differentiation that blockchain has to offer to the world. Digitalized assets exist in a sense today, but not in the sense that this technology will bring it to bear. Blockchain enables assets to not only be digitalized but to be operated by code. This is in part enabled by the concept of decentralization, but is mainly a stand alone value in and of itself. Code is what brought the internet to bear in the first place. A way of constructing procedures for information to be sent across vast distances in a reliable manner. But now we have the ability to do this with money. The possibilities are endless. Every traditional marketplace will be disrupted, and I mean every. Wherever there is a middleman today, he will be replaced by a machine. Any market of value from a simple auction to a tokenized real asset will be reinvented. But it doesn’t stop there. New asset classes will be created in ways that we can’t forsee today. Siacoin and Golem have visions to tokenize real assets in this way, and that is a great starting point for the technology. But we have only scratched the surface of what asset computing will be used for. We will be able to build digital assets for things that never could have been made into assets. To illustrate this concept I will use a layered example:

1. The basic attention token creates a marketplace for user attention on the web. This tokenizes user attention as users get rewarded for selling their attention and publishers get rewarded for being worth of attention.
2. A layer two solution can then build on this network to improve the efficacy and enjoyability of user attention. When the user goes to see ads, this layer two token would serve them ads that they particularly enjoy based on the content that they are viewing, as well as improve the performance of the advertisement in profit for the firm paying for it.

In this example, the layer one digital asset has enabled the existence of a new digital asset class that can move incentives like never before. This is important not in the sense that we have created another thing of value for people to get rich on, but because now we can analyze and reward improvements using the free market. In the legacy internet system we have today, the big players like google and facebook have no incentive to move towards this model, because they have nothing to gain. As Brendan Eich put it in his recent AMA,

“[Google and Facebook] are stuck, they have limited ability to disrupt themselves” -Brendan Eich

With this new paradigm, all disruption is up for grabs. Moats will be filled in, and castle walls will be broken down. The blockchain is the free market 2.0.