Blockchain exchange of values

What we can be sure by now is that blockchain technology is going to affect the way we live substantially. That does not mean it will change everything. What is my goal for this post is to show that some changes that are commonly attributed to blockchain revolution are in fact missing the point while on the other hand some other, not yet envisaged, might be much more substantial.

First I have to make a disclaimer: I have a Bitcoin wallet with 4.500 Satoshis (I hope I named it right) that I received two months ago as a gift. I do not really understand how I got it. There was a certain barcode involved in transaction and a friend that performed it. And I don’t really know how to use the valet. I am quite sure that I would learn fast to use it, but so far I did not. I do not understand the concept of mining, though I find it extremely interesting and worth exploring further since it allude to offline mining. For the moment this allusion does not help me to understand blockchain mining but to reinforce once again the fact that what you get in offline mining is there not for free! As much as mining of gold is not for free also mining of sun for “free solar electricity” is not for free, as explained in earlier post.

The point is that I do not understand Bitcoin mechanisms and I do not really understand any other cryptocurrency either. But from the moment I started to understand that cryptocurrencies are negligible and even not representative part of blockchain technology, I started to be interested in.

Technology is only technology

First of all I recognized that blockchain technology is fairly simple. With that I do not want to say that I could do blockchain programming, but that underlying programming rules and techniques are simple. What makes blockchain interesting, compelling and disruptive is the logic on which techniques are based on and potential applications. As an expert who recently spent some time with me to introduce me to this world often said: you can transcribe whole offline world into blockchain; but not every event from our world is worth to transcribe. Some features of our life will stay analogue forever. And some features will stay centrally operated.

Emergence of law and order

What makes blockchain really disruptive is its main philosophical feature of being decentralized. Yes: we are talking about philosophical feature. While Internet itself was a step towards a system that could simulate our brains as a prime example of highly decentralized system, Internet itself is only a network that allows decentralization. Blockchain feeds into this network a “software” that allows various participants within this network (people and computers) to participate at the same time as actors and as supervisors (agents of trust). So far we feel that we can act as actors but only until a disagreement when higher authority (centralized entity) interferes. The state and state institutions most commonly enact such authority. If blockchain technology proves to really enable peer-to-peer supervision, many state and state induced institutions will not be necessary any more. We might come to a situation in which states will perform two tasks that were envisaged by enlightened philosophers and statesmen only: defense and protection from violence. All other transactions are going to be run and supervised on peer-to-peer basis.

Such statement might be perceived as anarchistic. But it is not! Brains do not sustain in anarchy, but are operating exactly in such decentralized manner of agents that act and supervise at the same time. One could even find an example in larger scale offline world. Traditional neighborhoods in India that could be fairly large didn’t need police agents (central institutions) to single out thieves and other villains. Their condensed peer-to-peer communication system allowed them to detect them fast and reliably without extra costs needed to maintain centrally run police force.

My point is that law and order comes as emergent property of highly decentralized peer-to-peer systems in principle. Law and order become an issue only after centralized systems are introduced in natural order that is decentralized order. As we know but at the same time to not recognize real value of, evolution rests on decentralized agents connected in complex relations acting for each own interest (cui bono, who benefits, in famous Richard Dawkins words).

Life as value added enterprise

What has to be understood is that life is nothing but value exchange. It rests on added value. Output value should be higher than input value. Life rests on such profit that is not only financial profit, of course. Six capitals that were recently introduced in accounting thorough integrated reporting (IR) prove that the notion of added value that is not financial only is spreading around. What makes blockchain technology really compelling is that it can program value exchange of products of any possible capital tangible in digital world. That is why I stated that Bitcoin represent negligible part of blockchain disruption.

This part so far was undermined so far by blockchain community, at least as I know, but is highly important. But there is another that was reflected already but is over evaluated. Blockchain is not going to make agents (people) more equal, it will not make machines working for us and it does not give universal basic income more solid ground.

Blockchain is going to enlarge inequality in distribution of wealth

It is often claimed that Internet will change democracy and that it will bring back equality. Contrary to the fact majority understands only equality of distribution (equality of wealth) and not equality before the law as essential. Majority forgets the fact that it was the later that was devised  by libertarians in 18th century and beginning of 19th century.  Peer-to-peer decentralized systems like blockchain are not going to equalize us in our ability to add value. On the contrary: decentralized systems will make inequality at outputs even more transparent since no higher authority will be able to mask a fact that I’m poor at developing game apps and that I will never be able to bring to a stadium 100.000 people like Ronaldo.

Similarly machines will not de-toil humans as Elon Musk prophets. Humans create added value only, not machines. We exist only in value exchange! We exchange values because potential energies between us are unequal. For that reason even blockchain democracy cannot equalize us on the level of outputs. And for that reason machines cannot add value in principle. They enable us to enlarge added value (for us) but machines themselves do not. Distribution of wealth will always (In free society) rest on inequality of potential energies of humans and will always come from human interactions only.

Blockchain will though restrain parasites

What will blockchain restrain are parasites that state subsidies. Parasites live from the centralized sources of nutrition and not from values approved by peer-to-peer decentralized system.

It still stays open to what degree all needs of centralized systems are going to vanish with blockchain technologies in place. I started that defense and protection from violence are going to be centralized at least. Why? Because those two functions do not create added value but allow decentralized agents to freely engage in value exchange. What I am sure is that the rate of crime will drop significantly with enactment of blockchain technology for reasons I have explained above. To what degree I do not know. That might be a subject of one of following posts.

Andrej Drapal