This content originally appeared on Level Up Coding - Medium and was authored by Jared Flatow
If crypto were a startup, it would be the biggest unicorn anyone has ever seen. It has the ultimate product fit, surviving assault after government assault, and not just that, but thriving. Sure, there’s crazy volatility, and plenty of scams, yet crypto has flourished in spite of those things. Every industry faces fraud problems, and crypto is no different. This essay isn’t written for people that are already convinced that the only purpose for crypto is to commit crimes and launder money. Those people can have fun staying poor (crypto joke). This is for the people that truly want to understand what crypto is good for, but just don’t get it yet.
Why write this? One need look no further than the US Senate for evidence that crypto is becoming mainstream. Last week, a crypto amendment to the Infrastructure Bill was the topic of a heated debate, which was partially responsible for a delay in voting on the bill. A few weeks ago, the Senate held a hearing entitled “Cryptocurrencies: What are they good for?”.
It seems that many in Washington DC are now asking that question. They want to know how crypto will benefit society, besides the “decentralization, efficiency, & wealth creation story”. They want to know what positive changes will come as a result of these things. To be fair, people everywhere have been asking these questions for years, and the crypto community has been so focused on bootstrapping an unstoppable global ecosystem, it hasn’t really done a good enough job at answering them for average Americans.
To be sure, some folks will never receive satisfactory answers to these questions. As Upton Sinclair famously stated,
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
This observation applies equally well to women and Treasury department secretaries as it does to men. This essay is not written for them either. If you earnestly want to know why crypto is good for us, then this essay is for you.
Decentralization ?… so what?
Over the last few years, I’ve often heard the refrain “nobody cares about decentralization”. I too have even said this, because in the context of building products, it’s not untrue that individual consumers tend not to care about decentralization as a feature. But when we’re talking about long-term societal value, it’s a totally different conversation. In that context, decentralization is a huge freakin’ deal.
When you stop and think about it, an astounding number of soul-crushing problems people face in the world are due to some kind of concentration of power. I’m not sure if a soul can actually be crushed, except by a concentration of power. Centralization is the process by which power becomes evermore concentrated. And if centralization is not the sole cause of a problem, many harmful effects can at least be mitigated by adding decentralizing forces to a system. So first off, let’s stop pretending this doesn’t matter, or that large-scale decentralization wouldn’t actually be a massive achievement in and of itself.
America is supposed to be decentralized. People fought a revolutionary war over the principle of self-determination, rather than to allow themselves to be ruled by a remote kingdom. Democratic ideals were a defining feature of America, and innumerable lives have been given in the name of trying to preserve them. Having a say was once thought to be a thing worth dying for. Lately it would seem that is not the case. I don’t think people stopped caring though, I think they mostly just feel hopeless to change anything against faceless and overwhelming dominion.
It’s not surprising that people would feel hopeless and appear not to care about self-sovereignty. Throughout history, that was probably the norm. Most people weren’t willing to fight and risk death for an abstract idea of freedom. The will and coordination required to form America were an exception, rather than the rule. I don’t think people were unable to conceive of democratic ideas prior to ‘the enlightenment’. But an alternative hegemony probably never felt within reach. It would have involved overcoming tremendous centralized forces.
The killer feature of the American government was supposed to be its separation of powers: its system of checks and balances between the branches of government. Yet that system has remained under considerable pressure since the beginning of the American republic, and for the last 70 years or more, one could make a strong case that it has at least started to erode, if not been entirely eviscerated. The executive branch has expanded its powers considerably, both in terms of lawmaking, and ability to interpret laws as it sees fit. That’s centralization of power at work. You might agree with centralization policies in specific instances, but if there’s no balancing force to counter it overall, that power goes unchecked and continues to grow uncontrollably.
Would America have spent the last 70 years as a perpetual warfare state, spending trillions upon trillions of dollars on the military and propping up a leviathan military-industrial complex if it were actually up to its people to decide? Maybe, I’m not sure, but I actually suspect not.
Would the choice for United States president in 2016 have been between Hilary Clinton and Donald Trump if power were not concentrated in a two party system? Would we blame the media for everything, if it weren’t so centrally controlled? People almost universally tout the benefits of an independent media, but establishing one will remain an uphill battle in the absence of countervailing dynamics.
Would insurance companies have the American people in a stranglehold, if they weren’t centrally plotting to do so? Could claims be denied systematically, with regular practices designed to encourage attrition amongst both patients and medical professionals, if there weren’t such a strong actor in the middle, coordinating its efforts with the purchase of government protection?
Would there be a Big Tech, or Big anything, to complain about, if not for the forces of centralization? Of course not, concentration of power is the defining feature of these terms. The “Big” in Big Oil and Big Tobacco is just a euphemism for “unconscionable power held by a select few”. People have an instinctively adverse reaction to this concept, which is why these terms generally hold a negative connotation. These are monopolies and oligopolies by definition, could there be a way to discourage these from forming by design, rather than playing whack-a-mole on them after it’s already too late?
Ask Steve Donziger whether concentration of power has anything to do with his 2+ year lockup, as a result of him helping indigenous Amazonians sue Chevron (for dumping 16B gallons of oil into their Ecuadorian ancestral lands). Or whether Chevron could have refused to pay the 18B dollars in damages it was found to have owed, or if it could have refused to clean up the land, if not for a concentration of power. Could the Dakota Access Pipeline have been built if not for the same centralized forces? Whatever your personal politics, I assure you we can easily find examples where centralization is the cause for concern. I bet I don’t even have to convince you of that.
Centralized systems can be great when they work. They are generally more efficient than decentralized ones in terms of resources and decision-making. The problem with them is what happens when they become oppressive. At that point it’s generally too late to do anything: the divided masses are powerless to overcome their oppressors. Moreover, it’s difficult to enforce the same set of rules for all individuals and institutions. Governments and corporations tend to sit above the law, as they have the means to circumvent and change laws when it suits them. At least, the largest most powerful ones do (i.e. the most disproportionately concentrated).
Decentralized blockchains provide a solution to this problem, as the network security is collectively enforced by all participants preventing even the most powerful individual actors from cheating or bending the rules. Principles which we as a society determine to be valuable enough to enforce, can begin to be codified in such a way as to require them to be upheld, no matter who they are being applied to. Experiments around these ideas have been ongoing for more than a decade in crypto, and we’ve learned a lot about what they look like in practice. Of course there are still difficult questions for society to answer about how to regulate them, but we must face these questions regardless, or we are living in hypocrisy. The reality is that in today’s world, power dynamics are severely skewed, and affluent individuals and institutions can and do get treated differently. Continuing the status quo should not be an option.
From a different perspective, decentralized blockchains deliver a public good by creating a Rawlsian “veil of ignorance”. By codifying laws and systems and providing them as services via blockchains, we can limit subjective human judgment in how rules are applied to people. In this way we can hold ourselves accountable to a higher form of justice, one which does not discriminate because it cannot discriminate. We need to think carefully in how we construct such systems, but they do not need to be rigid: they can be changed over time by agreed upon democratic processes.
At a societal level, decentralization is a feature that people want: it is the ultimate check and balance on authority. We need more of it, and that has a lot to do with why crypto has such incredible demand. Crypto is built to be decentralized, beginning with the way that it’s mined. Builders apply the principle of “can’t be evil” at every level, binding protocols to initial decisions which enforce fairness at a protocol level and which cannot be changed except when enough stakeholders decide to do so. Technology which can help democratize society is a technology people want, precisely because they know it’s good for them. Even if they can’t always articulate the reasons why.
To understand crypto today, and why it addresses centralization problems at its very core, there are at least two stories which need to be taken into account: the bank bailouts which were a result of the subprime mortgage crisis beginning in 2007, and the Snowden revelations on global surveillance which began in 2013. These stories and the consequences which have ensued are far too big to fully document here, and too recent in history to get enough perspective on to truly understand. But they were monumentally formative events in the development of the crypto industry because of the way they impacted the people who have gone on to build blockchain technology.
The Bitcoin genesis block famously and permanently records in its contents:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”
Bitcoin began with the dream of creating a self-sustaining, independent monetary system, which could only be controlled openly by democratic consensus. Proof of work, an invention of Bitcoin, was a breakthrough in the ability to implement democracy at scale. A technical solution to a social problem. The whole thing seemed laughable.
Many people in the United States and abroad viewed the mortgage crisis and the government economic policies which resulted from it with disdain. The Occupy movements which swept the globe in 2011 and 2012 were a reaction to these and other policies. People felt self-serving decision-making had been forced upon the vast majority of people by an elite ruling class (the 1%). In other words, the problem they were describing was too much centralization. These movements quieted down when they were forced to disband, and then seemingly disappeared from the public eye. Much of what was happening seemed to be disorganized chaos. By my own account, the most constructive elements of these movements were actually channeled into crypto. This was the energy which fueled Bitcoin’s early growth.
In 2013, the same year that Ethereum was conceived by Vitalik Buterin, Edward Snowden began releasing evidence of a large-scale surveillance program being conducted by the U.S. federal government. This continued for some months as he proceeded to make clear the colossal scope of the program, and as the government simultaneously proceeded to charge him with espionage, while publicly lying about the existence of such a seemingly illegal operation. These and subsequent events had a profound impact on members of a generation which had never really experienced government betrayal of this magnitude before. I think the civilian tech community was particularly deeply affected by the revelations which Snowden accelerated. Many felt deeply wronged, and yet fundamentally powerless to do anything about such concentrated power. As naively optimistic yet cynically determined millennials, we sought ways to fight back and rebuild society in a way that would make such abuse impossible. Sooner or later, many of us turned to crypto as the only glimmer of hope against a tyrannical state. This was the energy which fueled a new wave of development.
In the United States, cryptography is considered a munition. Ever since World War II, the spread of cryptographic technology around the world has been monitored and interfered with by the United States military apparatus. It has long been known that this technology possesses a tremendous decentralizing power, which would limit the ability of an organization like the NSA to conduct mass global surveillance. Cryptography is a core technology in cryptocurrencies and blockchains, as obviated by the name ‘crypto’. It should be no surprise that the growth of crypto mirrors the growth in awareness about the surveillance state we live in.
There are numerous dimensions in which crypto decentralizes, it would be difficult to cover all of them here. But it is probably sufficient to note that decentralization is so important to builders in this space, that they actually compete based on it. Bitcoin maximalists frequently mock Ethereum users and DeFi (decentralized finance) projects because they feel they are not decentralized enough. Chris Blec, the most annoying man in DeFi, has been able to make a career out of criticizing DeFi projects when they exhibit a lack of proper decentralization, because the community values these principles so much.
One way that things happen democratically in crypto, is that you are free to choose which coins you want to own and transact in, and which networks you trust. Coins may be used to form DAOs (decentralized autonomous organizations), in which coin holders self-govern by voting. The novel thing about cryptocurrencies as opposed to governments, is that the former aren’t bound to geography. We can simultaneously participate in all of the diverse networks, or none of them, or anywhere in between. It’s like having states with competing laws to choose from, but better, because you can choose as many as you like; they are not mutually exclusive.
Clearly I think decentralization is important, but it can feel like a completely abstract concept. In the long-term, I think it’s largely what will define the impact crypto has on society. But for people not steeped in it, it can be hard to imagine what kind of effect it will have on their day to day life. This contributes to what I think is becoming an enormous generational divide, because the people that get it (often younger) can’t stop seeing applications everywhere: they become obvious, and crypto can be used to transform everything they see. Those that don’t, can be left wondering how it’s going to change anything at all. Personally, I think it’s important to bridge that divide, so next I’ll do my best to paint one little picture of how the everyday world might change.
Cryptopia ?
For the uninitiated, one basic principle of DeFi is that markets can either be pools of capital (which accounts interact with in aggregate), or order books (in which ‘makers’ place orders that a ‘taker’ can take the other side of). DeFi protocols don’t run on servers that companies have to maintain. Rather, developers upload programs to a blockchain, and miners on the network provide the servers (and hence access to these protocols) in exchange for payment. A key to these networks is that they do not discriminate which programs they run, which is ensured by the economics of decentralized blockchains. Incidentally, or perhaps as a result, DeFi is currently the most open, inclusive, least discriminating, most cooperative industry on the planet, and in all of human history. Likewise, wealth is already being created indiscriminately with regards to sex, race, color, gender, shape, or size. This is a fantastic achievement of crypto culture, and one that will invariably spread, as it’s contagious.
In one popular DeFi protocol, assets are pooled in a smart contract, and people can borrow other assets against a portion of the collateral they’ve locked into this pool. The contract is enforced by the network and kept healthy by incentivizing liquidation. There are no intermediaries. This, in effect, creates a basis of trade between assets. The assets you own but aren’t currently using can generate a return for you when locked into such a contract. Wealth is effectively created by the capital efficiency of such a system. The more assets which can be represented and collateralized, the more wealth that can be created, and the wealth accrues directly to the market participants. This is how it works already today.
Imagine your bank allowed you to instantly borrow things you might find useful, like say a car, against your account. You’d be charged a rental fee for the length of time you borrowed it, and you’d be on the hook for more if you didn’t return it, but you could just go pick up the keys and drop it off whenever you wanted. Now imagine you could also put your cars in the bank, and borrow dollars against them, and all the other combinations of things you can imagine. If people borrowed your cars or dollars, you’d get paid automatically too. That’s sort of what the protocol is like, except there’s no bank: just a program running on a decentralized network following a strict, predetermined set of rules about what’s allowed and what’s not.
Every day, more things of value from the legacy world are finding representations as assets in the new world on-chain. What this means is that at some point, everyone in the world will control a substantial amount of value on a blockchain. With a bit of imagination, you might see that were you able to collateralize all of the things of value which you had ever created or acquired in your life (perhaps even including your reputation), you might already be rich beyond your desire. When you aggregate this across all of society, we are talking about fabulous sums of wealth. What’s more, is that this then starts to create even more cool opportunities for deploying that wealth back into society as investments in other things, directed by the people to whom the wealth is accruing. This creates a virtuous cycle, and if it seems too good to be true, it’s understandable why you’d make the mistake of thinking that. The cooperative nature of crypto blows up everyone’s expectations about reality sooner or later.
One thing people might start to do with such newfound digital native wealth, is to shift from the internet ad-based business model in which they themselves are the product being sold, into one in which they drip resources according to their own attention and preferences. This isn’t so far-fetched, there’s already a popular web browser being developed around such an idea. If the web were inverted in this way, it would be a cultural revolution in its own right. A renaissance might ensue, as companies stopped focusing on advertising real-estate and started focusing on delivering value to consumers. The advantages to even having a large company would likely start to diminish, as individuals and small teams would be on equal footing in this new game. In fact, this too has already begun to happen in the DeFi world.
Taking things further into the future, it’s entirely possible we could get to a place where even taxes start to become magical. When the resources needed to govern society are a small enough fraction of the wealth being generated, we could choose to stop taxing the transfer of assets between people (aka income), and start levying a fixed total tax on the wealth. Such a world might be too radically cooperative to consider yet, but the incentives actually align to make such a system not only possible, but a likely attractor state we would find ourselves in. If this idea makes you angry, don’t worry, there’s plenty of opportunity to iron out the details. The point is that blockchains set up the conditions necessary in order to evolve to such a world, and are an efficient way to both experiment with and implement such ideas.
To me, each of these potential benefits on their own would be enough to convince me that it’s worth pursuing a technology which could deliver on them. But perhaps you’re still not sure. That’s okay, there’s plenty of other ideas in crypto that are worth exploring, and the exploration is as much part of the fun as anything. If your curiosity is piqued, I highly recommend checking out Crypto Twitter (feel free to follow me @jmflatow and ask for recommendations).
Finally, if you think you can do better, you should go do so! Today, anyone with an internet connection can instantly deploy an unstoppable program on a blockchain like Ethereum. If the network is decentralized and healthy, no one else can stop them, or anybody else, from deploying or executing their program. That program can be a protocol which coordinates the exchange of real value, and/or whatever else it’s authors can imagine. For anyone who feels powerless, they should realize this amazing capability is literally at their fingertips. No force on earth can take that power away from you. Of course, nobody will be forced to use the program you create, but if it benefits someone to do so, they just might.
Conclusion
Like all technology, blockchains can be used for good or evil, they are in and of themselves neutral. Like any democracy, we are only as good as our people. Fortunately, the crypto community is top notch. And it’s the passionate people that work in crypto that make it great.
Sure, there are bad actors too. But even the worst attacks in crypto are often not as bad as they seem. This past week, one of the largest hacks in crypto history was executed for $600M, culminating in the attacker slowly returning the funds and posting a Q&A on why he did it. Whatever the reasons for capitulating, for as much as it can feel like the wild west, the net effect here was self-regulation. And while the frequency of such events might scare you away from crypto, I don’t necessarily think that’s a bad thing for now. There’s a whole spectrum of risk and plenty of ways to protect yourself, but the truth is that this technology is still experimental and I’m not trying to convince you to use it. My goal is only to give you some reasons why Americans should be allowed to keep innovating in this space.
One of the keys to crypto, is that it’s based on consensus (aka agreement), and to be part of it you need to understand that on some level. Because of that, I actually don’t think fortune has anything to do with the crypto community’s success, but rather a systemic race-to-the-top effect which gets created (a bit like open source software, which much of it is), but I’ll save that story for another time.
Thanks for reading and making it this far (or skipping to the end). Perhaps I persuaded you that crypto is good for America, and worth trying to foster continued innovation in the United States. Or maybe not. If you were looking to understand what positive impact on society crypto could have, I hope I at least gave you something to think about. Personally I think humanity has a lot to gain from crypto and its culture now, and I’m excited to see what happens next. But there’s still a lot of work to do to get where we are going, so in the meantime I’ll get back to building. I just hope I don’t have to move to another country to do so ;)
Why Crypto Is Good For America was originally published in Level Up Coding on Medium, where people are continuing the conversation by highlighting and responding to this story.
This content originally appeared on Level Up Coding - Medium and was authored by Jared Flatow
Jared Flatow | Sciencx (2021-08-16T15:50:18+00:00) Why Crypto Is Good For America. Retrieved from https://www.scien.cx/2021/08/16/why-crypto-is-good-for-america/
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