It has been five years (as of June 2021) since I wrote this post about blockchain and values. I left it unchanged as an archaeological artifact. However, the argument holds even more today than it did five years ago.

A 2021 view on blockchain

We can be sure right now that blockchain technology will significantly impact the way we live. But that doesn’t mean it will change everything. My goal in this post is to show that some changes commonly attributed to the blockchain revolution miss the point, while others, not yet foreseen, could be far more substantial.

First, I must make a disclaimer: I have a Bitcoin wallet with 4,500 Satoshi that I received as a gift. I don’t understand how I got it. The transaction involved a specific barcode and a friend who handled it. I don’t understand the concept of mining, though I find it very interesting and worth exploring further, especially since it alludes to offline mining. Right now, this allusion doesn’t help me understand blockchain mining, but it does reinforce that what you get from offline mining isn’t free! As much as mining gold isn’t free, mining the sun for “free solar energy” isn’t free, as explained earlier.

The point is, I don’t understand Bitcoin mechanics, and I don’t understand any other cryptocurrency. But from the moment I began to understand that cryptocurrencies are a negligible, even non-representative, part of blockchain technology, I became interested.

Technology is just technology.

First of all, I realized that blockchain technology is pretty simple. I don’t mean I could program a blockchain, but that the underlying programming rules and techniques are straightforward. What makes blockchain interesting, compelling, and disruptive is its underlying logic and potential applications.

As one expert who recently spent time with me to introduce me to this world often said, “You can transcribe the entire offline world onto the blockchain, but not every event in our world is worth transcribing.” Some aspects of our lives will remain analog forever, and some functions will remain centrally controlled.

The emergence of law and order

What makes blockchain truly disruptive is its core philosophical feature: decentralization. Yes, we are talking about a philosophical feature. While the internet was a step toward a system our brains could simulate as a prime example of decentralization, it is just a network that enables decentralization. Blockchain feeds into the network “software” that enables various participants (humans and computers) to act simultaneously as both actors and overseers (trusted parties).

So far, we feel we can act as agents, but only until a higher authority (a centralized entity) intervenes. The state and its institutions most often exercise that authority. If blockchain technology enables peer-to-peer monitoring, many state-run institutions will no longer be necessary. We could end up in a situation where states perform only the two tasks envisioned by enlightened philosophers and politicians: defense and protection from violence. All other transactions will be conducted and monitored on a peer-to-peer basis. A pure libertarian society.

Such a statement might be perceived as anarchistic. But it isn’t! Brains do not descend into anarchy but operate in a decentralized manner, with agents acting and supervising simultaneously. One could even find a larger-scale example in the offline world. Traditional neighborhoods in India, which could be quite large, did not need police agents (central institutions) to root out thieves and other wrongdoers. Their condensed peer-to-peer communication system allowed them to track them down quickly and reliably without the added cost of maintaining a centrally run police force.

My point is that, in principle, law and order emerge as an emergent property of highly decentralized peer-to-peer systems. Law and order become an issue only when centralized systems are introduced into the natural, decentralized order. As we know, yet often fail to realize, evolution is based on decentralized agents connected in complex relationships and acting in their own interest (cui bono, who benefits, in the famous words of Richard Dawkins).

Life as a value-creating enterprise

What needs to be understood is that life is nothing but value exchange. It is based on the creation of value. The output value should be higher than the input value. Life rests on such gain, which, of course, is not just financial profit. The six capitals, recently introduced in Accounting through integrated reporting (IR), demonstrate that the idea of value creation, which is not merely financial, is spreading. What makes blockchain technology compelling is that it can program the value exchange of products of any capital. For this reason, I consider Bitcoin to be a negligible part of the Blockchain disruption.

This part has been underestimated by the blockchain community, at least as far as I know, but it is essential. However, another part has already been reflected, though overstated. Blockchain will not make agents (people) more equal, it will not make machines work for us, and it will not give universal basic income a more solid foundation.

Blockchain will increase inequality

It is often claimed that the internet will transform democracy and restore equality. This misconception stems from the idea that inequality is only about the distribution of wealth, not about equality before the law. The majority forgets that it was the latter that libertarians championed in the 18th and early 19th centuries. Peer-to-peer decentralized systems like blockchain will not equalize our ability to create value. On the contrary, decentralized systems will make inequality in benefits even more transparent, since no higher authority can hide the fact that I suck at developing game apps and never get 100,000 people into a stadium like Ronaldo.

Likewise, machines will never replace humans, as Elon Musk prophesied. Humans, not machines, create value. We exist only through the exchange of value! We exchange value because the potential energies among us are unequal. This is why even blockchain democracy cannot make us equal in terms of output. And this is why, in principle, machines cannot create value. They allow us to create value (for us), but machines themselves do not. The distribution of wealth will always (in a free society) be based on the inequality of people’s potential energies and will arise only from human interactions.

Blockchain and parasites

What blockchain will curb parasites subsidized by the state? Parasites thrive on centralized food sources rather than on value approved by a decentralized peer-to-peer system.

To what extent the needs of centralized systems will disappear with blockchain technology remains to be seen. I have assumed that at least defense and protection from violence will remain centralized. Why? These two functions do not create value but allow decentralized agents to exchange value freely. I am sure that crime rates will drop significantly with the introduction of blockchain technology, for the reasons I explained above. To what extent, I don’t know. That might be a topic for one of the following posts.

See also:

Benefits of the circular economy fake trend