Why I am excited about Blockchain

I am going to start with a bit of a personal story. When I was growing up I was fascinated by the idea of becoming a great leader. Someone whose name would reverberate across time. Do great things and make life better for the common man. Be a hero. I wanted to emulate great leaders of the past and carefully studied life histories of great men to plot my own.

I had a clearly laid out plan on when I would first run for political office, the policy plank I would run under and studied how to run a strong campaign by volunteering in the Obama campaign headquarters in Chicago late 2007.

Whether it was a desire to seek adulation or pure ambition fueled by the power of idealism I do not know. What I do know is that I no longer have that desire.

And the reason is I think I have a better understanding of how the world works. While I do continue to believe that great leaders have a role in how societies progress, their importance is overstated. Societies and the era shape great leaders rather than the other way around. And societies are a product of their value systems they subscribe to and the incentives that are on offer for individual actions.

For instance, growing up in India we were always taught we have a great civilization and our values are the best in the world. I am a complete believer that values determine outcomes. What I could not comprehend is if our values were so great how was it that people from a small island thousands of miles away came and ruled this country for over a century.

The real answers come only after we peel through the obfuscation offered by those who are unwilling or unable to recognize the true laws of nature.

Indian society over the centuries ossified. Its adherence to the value of superficial respect to elders, tradition and hierarchy meant asking uncomfortable questions was frowned upon or outright proscribed.

Asking the question, “Why?” is the basis of all progress. Why does a certain thing work the way it does, Can we have a better solution?

While Indians do exceptionally well when they go overseas, there has been hardly any major pure science innovation that has come out of India for several centuries. If you cannot ask “Why” innovation does not happen.

This article is not meant to bash India or other hierarchical paternalistic societies, but rather it is meant to lay down the foundations for explaining how actions happen and if there is a better framework for them.

All things being equal, men will always act in their own self interest. Two parties will engage in a transaction that exchanges mutual value. The sandwich maker will make a sandwich and exchange it for $5 with someone who is hungry. Both the sandwich maker and the hungry man are happy. One got money and the other got sustenance.

But when possible, men being men will try to use force to bend the other party to exchange something of value they have in return of no limited or no value.

For instance in the above example, the sandwich maker is shaken down a local thug (or worse a cop) who eats the sandwich but does not pay for it. This is an example of physical force distorting outcomes.

In another scenario a religious leader of the sect which the sandwich maker subscribes to, or a freeloader uncle of his comes and guilts the sandwich maker into giving them the sandwich for free.

This is an example of emotional force.

In both cases value was exchanged for no or limited value in return. In the long run such systems run out of victims to fleece and the system denigrates downwards. Not having the ability to question, “Why” is of paramount importance to sustain such systems. And the reasons given are myriad, respect for elders, traditions, enemy laying siege, nation/culture in danger and so on. Whatever they may be such systems cannot generate prosperity.

On the other hand systems that allow questioning become robust through self correction. They facilitate value in exchange of value and then the surpluses that are created lead to virtuous loops. The sandwich maker reinvests his profits into buying a machine or hiring more men to create more, cheaper, better sandwiches. More people benefit and wealth is created.

So what can such a system look like.

We started off as animals and the most physically powerful got to have the last say. Kings and Queens despite all their claims of divine right were basically those who monopolized the power of the blade.

Eventually we had the rise of Democracy which for all its foibles is held up as a system better than anything we previously had.

That while is true, it does not mean Democracy is necessarily a good system. Often we end up replacing the tyranny of the few with the tyranny of the many. Electoral democracy often springs up strong men and bludgeons minorities.

Consider a small island of 5 people, 3 of one group and 2 from another. If they ran a democracy then the 3 would always overwhelm the 2. The fear of being locked into a permanent minority is what led to the partition of India. The same fear gave the American founding fathers sleepless nights and led them to setup America as a republic of laws, not of men.

Yet such republics are run by men, elected men who will often be tempted by the desire to play to the gallery. The age of internet, where free flow of information should have led to an era of rational decision making has been supplanted by an age of social media where we live our lives in echo chambers of our own biases. Logic and rational debate has been replaced with shouting matches intended to drown the other view point.

Democracy has a fundamental flaw. It elects rule makers who then try to bend or frame the rules to the benefit of the groups that helped elect them.

This is a conflicted model. Imagine if the principle of Democracy was applied to sport and the Indian cricket team was allowed to field a number of players proportionate to its population. Or the countries kept voting on what rules to have as the match progresses. No one would want to play if they did not what the rules were or if the rules were not fair or cleanly enforced.

If we want certainty, fairness in the rules of sport then same should be the case in real life. Why should 3 people be able to change rules to their own self interest and against those of the other 2?

But what if there was a better way. A mechanism by which human caprice was taken out of the equation. Rules need to be fair, and enforced without fear or favor.

Rules need to be immutable and contracts self enforcing.

That is where smart contracts and Blockchain comes in. For the first time in human civilization we have a mechanism in which decision making can be fully transparent and contracts can be enforced without the need for a trusted third party. This is absolutely as radical as the invention of fire or the wheel and will probably end up having even more fundamental ramifications than both of them in terms of human progress.

Democracy is often held up as the least worst system of governance. Well now we do not have to work with the least worst and have an option that is fair to everyone. Force whether physical, emotional or even that of numbers would not influence decision making but predetermined rules that would self execute will turn all the wheels.

But what happens if these rules are not fair or efficient, who sets up these rules?

States often have constitutions that lay down the rules by which they expect their citizenry to act. States have physical land they control. And if you happen to live in a state whose rules you do not agree with it, walking away and setting up your own new set of rules is not an easy option. Even if you have the support of a substantial group of people, Nation states do not allow secession so easily. Civil wars happen when one group decides to walk away but the other (usually larger) group is not ok with the land their nation controls from being divided.

But in the Blockchain world, if you do not agree with how a particular chain is governed you have the ability to propose your own set of rules and fork the chain. If your ideas carry merit you will attract more followers and it is perfectly possible that your chain may end up supplanting the original one. No party even contemplates the possibility of employing force to shut down a competing idea.

Ideas prosper and die on the dint of their merit and the value they can create for the largest number of participants and no other considerations.

This is a simple idea, but one that will radically change for the better how we will do things going forward. We now have the ability to shape human history by working on setting up the foundations for this new system.

And that is why I am excited about Blockchain.