I keep hearing an opinion that “Bitcoin (or any cryptocurrency, or blockchain in general) is decentralised”. It is presented as a “good” property of cryptocurrencies that distinguishes it from older fiat money such as US dollar. Most recently, by Balaji S. Srinivasan:
The people who complain most about filter bubbles are complaining about the plural: there was just one filter bubble they controlled, and now they’re annoyed there’s more than one. The complaint isn’t about filter bubbles, it’s about competing filter bubbles.
The answer isn’t reform, it’s radical decentralization. One component is citizen journalism, where everyone is a journalist, as opposed to corporate journalism. The alternative to the hereditary dictatorship running media corporations is experts write as a duty, not for profit.
A second component is decentralized cryptographic truth. With cryptocurrency, it is now possible for an Israeli and a Palestinian, a Chinese person, a Japanese person, a Democrat and a Republican to all agree on the state of the Bitcoin blockchain.
Regardless of your views or geography, people agree globally on how much Bitcoin someone has. This is an incredible triumph because a million dollars is the kind of thing people fight over and disagree on. There’s essentially no dispute on who owns what BTC.
Once you can develop consensus algorithms that can get people to agree on what Bitcoin someone had at what time, you can extend them to get people to agree on what properties somebody had at what time. Less obviously, you can extend that to what events happened at what time.
Right now data feeds happen in disparate silos. But you can put them together into a Ledger of Record: a feed of cryptographically timestamped, undeletable history. While crypto & digital signatures don’t offer a perfect set of checks, but they offer a better set of checks.
The feed becomes incorruptible. It becomes an indelible ledger, and it becomes cryptographically validated. It becomes a crypto oracle. You’re no longer relying on fallible humans to tell you what is true. You rely on decentralized cryptographic truth not than corporate truth.
This is the alternative to a few people in Brooklyn trying to determine what is true for the entire world. That never scaled and today it’s obvious that it doesn’t.
In this post, I’ll discuss the problems I see with this opinion.
The first thing to note is that the statement “blockchain is a decentralised truth” is too vague. Let’s try to answer some more concrete questions:
Who governs the blockchain system and issuance?
Usually this is an open-source community of developers. Note that I say that developers control the cryptocurrency issuance because despite the issuance is (usually) determined algorithmically, developers have the power to change these algorithms.
I totally agree with Primavera De Filippi’s view that this governance structure is highly centralised and undemocratic:
Implicit in the governance structure of Bitcoin is the idea that the Bitcoin core developers (together with a small number of technical experts) are — by virtue of their technical expertise — the most likely to come up with the right decision as to the specific set of technical features that should be implemented in the platform. Such a technocratic approach to governance is problematic in that it goes counter to the original conception of the Bitcoin project. There exists, therefore, an obvious discrepancy between the libertarian vision of Bitcoin as a decentralised infrastructure that cannot be regulated by any third party institution, and the actual governance structure that dictates the technological development of Bitcoin — which, in spite of its open-source nature, is highly centralised and undemocratic. While the (a)political dimension of the former has been praised or at least acknowledged by many, the latter has remained, for a longtime, invisible to the public: the technical decisions to be taken by the Bitcoin developers were not presented as political decisions, and were therefore never debated as such.
If we compare this system with the US dollar system governed by the Federal Reserve, the Supreme Court of the US, the Congress, and the US government (in different ways), I’d say that the blockchain developers are at least as likely to become corrupt, coerced, or influenced by the system beneficiaries than the Fed and the Government officers and judges because the latter are 1) older on average, and more senior people tend to act more independently; 2) much better protected, physically and financially.
I don’t want to say that the US monetary governance is just, democratic, and independent. In fact, I think that by now, the US financial system is largely uncontrollable and exercises “its own will” of sorts which emerges on top of interlocked incentives of all organisations and individuals who exchange US dollars. However, I do want to say that blockchains are likely even worse in this regard.
Also, I suspect that most cryptocurrency developers have big portions of their net worth stored in the very currency that they develop. The developers are biased when they make decisions regarding the project because the relative value of the cryptocurrency can change a lot as the result.
How the agents verify that the their counteragents transferred them some money?
In the case of cryptocurrencies, the agents consult the distributed consensus system.
The proponents of cryptocurrencies usually claim that it’s a handful of large corporations such as Visa and Mastercard and large banks who “determine” and “verify” the account values of the economic agents and control the transactions. The ultimate authority over these payment systems and banks is the Supreme Court of the US.
I don’t understand whom exactly Balaji referred to in the phrase “a few people in Brooklyn trying to determine what is true for the entire world”, but in any interpretation, I don’t agree with this.
Organisations and individuals throughout the world exchange US dollars under jurisdictions other than the US. Credit card companies operating under jurisdictions other than the US can process US dollars.
Even if the US government would try to “cancel” some country by severing it from all major exchange infra such as SWIFT, Visa, Mastercard, etc., the central bank of that country can decide to convert all US dollar accounts in the local banks into the local currency.
The above arguments assume there is no cash. Cash transactions are hardly controlled and are completely decentralised, if we can put it in that way.
But we can go even further. In “Debt”, David Graeber tells how after the collapse of the Roman Empire and the Carolingian Empire, people kept local debt accounts in the currencies that didn’t exist anymore for decades and even centuries. In these cases, people “verify transactions” in their own minds and written accounts, and the “dispute authority” were perhaps the elders in the community.
Distributed consensus doesn’t imply decentralised authority
When people say that blockchains are “decentralised”, they often conflate the computing operations structure and the logical structure of the system. Blockchains rely on distributed computation, but they also represent a singular logical stream of transaction history.
Balaji write about this himself, of course, and even calls this property of coherency of a blockchain “an incredible triumph” (which I’m also skeptical about).
However, it seems to me that when the proponents of blockchain through in phrases like “decentralised truth” and “radical decentralisation” along these lines they are effectively deceiving less tech-savvy listeners, because when people hear such phrases they think about about the libertarianism or even anarchy, i. e. the absence of a single and omnipotent authority, or having many such independent authorities.
But in blockchains, we have something almost opposite to that. Since blockchain systems are logically indivisible, and also in many ways more formal and algorithmic than traditional financial systems, blockchains practically defy any authority, even the authority of people over their own accounts.
Simple examples of these are when people lose their private encryption keys and therefore lose their money. Transactions, accidentally routed to wrong addresses, cannot be cancelled or disputed.
In effect, blockchains are totalitarian algorithmic systems. They anticipate the rule of soulless machines over people described in many dystopias and that can very realistically come true if we as a society keep being as excited and mesmerised by the developments such as cryptocurrencies.
Decentralised computing makes cryptocurrencies unstoppable. Is this really a good thing?
One feature that cryptocurrencies gain from their decentralised computing design is that they become very robust to potential attacks from national governments.
The proponents of cryptocurrencies say this is a good thing because it ensures that people have more financial liberty.
However, from the global system perspective, creating such unstoppable systems is dangerous because at the root of the complex system evolution and stability is that the agents (subsystems) in the environment can die and give way for newer, better things. Nassim Taleb criticises cryptocurrencies mainly as deflationary Ponzi projects, but I suppose he would not like them from this system perspective either.
Disclaimer: I don’t possess any cryptocurrency at the moment of this writing.
UPDATE: I’ve published a follow-up of this post: “Design systems to bring about the best in humans”.
This article was originally published on Substack.