Decentralisation and Blockchain
What is Blockchain and could Public Blockchains be the next big step for Humanity?
Corruption and Inequality are familiar in headlines about third world or war-torn countries. But it’s easy to go about our daily lives with the misconception that it doesn’t affect us. What you are about to discover may significantly change the way you see the world.
When we think of big steps for humanity we think of things like the Industrial Revolution or the Internet. For something to qualify, it needs to solve a big problem that we may not even fully appreciate yet, allowing humanity to make a jump forward.
Humanity’s problems, the ones that can be fixed, depend on us making the right choices and doing the right things.
But why wouldn’t we choose to do the right things?
Even with the best of intentions, individuals are biased, everyone has their own interests and perspective. This is why, modern political systems are based around the idea of democracy. Democracy is our best attempt to allow us all a fair say in what happens in a today’s society and uses the ‘Wisdom of the crowd’ principle.
But how truly democratic are our modern political systems?
The status quo distracts us with tired subjective political arguments instead of objectively moving forward. We rarely get to decide on individual issues, instead we have to trust in elected individuals to make choices on our behalf.
This same need for trust appears in most other services that we rely on.
Examples like the recent Facebook & Cambridge Analytica scandal spring to mind.
It is a characteristic concern with current ‘Centralised’ organisations and societies. To function, modern society has to trust in organisations like governments, banks and corporations to manage things of value, on our behalf. Whether it’s our personal information, health, money, etc.
Blockchain is a technology that promises to set us free from this current world of handing over control and power, so we can avoid having to blindly trust individuals or small groups to do the right things. It opens the door to a more Decentralised world of transparent and competitive services. Being borderless enables people to make more personal choices instead of being defined by where they live.
Many people find that once they start to understand the potential of Blockchain, it consumes their thoughts with excited possibilities!
To understand where we are headed, we should first look to our past to understand where we are now.
During the early history of humanity, we lived in small decentralised groups, until about 10,000 years ago when we began to organise using centralised social structures. These pyramid shaped social structures allowed us to create and maintain order and form big businesses. They allowed us to organise, work together and do things on mass, gaining from efficiencies of size.
But these benefits came with a significant risk. Centralised organisational structures required trust in those given positions of power! History is littered with examples of abuse of power.
“Power tends to corrupt and absolute power corrupts absolutely.” Lord Acton “Everybody likes to get as much power as circumstances allow, and nobody will vote for a self-denying ordinance.”
We will come back to those last few words later.
Since then, we have continued to create ever larger centralised organisations in nation states, banks, corporations etc as these organisations try to out-compete each other. Centralisation has become engrained in us as the ‘go to’ solution for adding structure and order.
All the while, there are diminishing advantages to be gained from organisations growing and increasing negatives like, poor coordination, impact of security problems or collapse, reliance on trust, complexity and inflexibility to name a few. It is easy to see how growing big can be risky for everyone.
How does Blockchain remove the need for trust?
A Public Blockchain is a network belonging to no one in particular and made up of the computers of people using it. This network has the ability to store records like a database. In the spirit of transparency, a Public Blockchain is a network that is developed openly by its community, in a way that means anyone is allowed to see how it functions. You can download a copy of the full code of instructions that make it work, something software writers call ‘open source-code’, and even use it as the basis for your own version if you really wanted to. So its functions, the processes that it performs, are transparent. This transparency means we don’t need to trust in its creator(s) that they made it do the right things.
What remains now is to remove the need for its users to trust each other. A Public Blockchain gives us a way to compare and agree on the validity of the data it processes and record it keeps, a way to prove who has an untampered copy and who doesn’t.
This is possible because every user of the network holds a copy of the record, albeit strongly encrypted for security. We can then test if the contents of the record have been tampered with using a mathematical key. This key was created when the record was last updated and allows us to confirm for certain that the contents are correct without necessarily allowing us to read them.
For a new update to be made to the record, a new ‘Block’ is added. Rather like adding a link to a chain, the new block’s key is made using both the new block and the data from the previous block or blocks. This links the blocks together and now means we can be sure that, if the current block is valid so must be all its predecessors. At any stage going forward, with just the current key we can verify the whole record.
Now we can distribute the records and processes that make up a service between all of the people using it, ensuring the information can’t be lost or falsified.
The result is, we can deal directly with each other, within a framework of programmed rules (to enforce laws and terms of business), without needing to trust in people in positions of power and knowing that we can easily spot anyone who tries to falsify information. We also get to retain the order and efficiencies of scale that we gained from working together in centralised ways.
Another bonus of being decentralised is that if any one place on the network were to fail in some way or be attacked, it would pose no risk to the rest of the network. This limited impact of a localised problem means Decentralised systems often have the opportunity to learn and evolve, becoming more resilient over time. A property that Nassim Taleb refers to as ‘Antifragile’.
Enough with academics. Let’s look at some existing examples.
This is where things really start to heat up.
The trouble with Currency
“It is staggering that in the 21st Century, half of the world’s population (that’s three and a half billion people) own no more than a tiny elite whose numbers could all fit comfortably on a double-decker bus (85 people)” Oxfam’s executive director in 2014.
In the world today, most of what we call ‘Money’ is actually just borrowings, (aka Credit or an I owe you). Only about 6% of the US Dollar exists as originally printed currency, the rest is all borrowings.
This may sound odd, but your bank is allowed to lend out most of your currency while keeping only a small percentage in reserve for people that might want to withdraw some. Once this same lent currency has been paid into the recipients bank and re-lent out a few times, this means borrowings massively outweigh the original amount of currency available to ‘pay it off’. So most ‘Money’ doesn’t even really exist. These loans/credits are really just ‘I owe yous’ that the banks write so they can lend out more and make more from interest.
But what about the original currency, what gives it value?
The value of currency comes from the work we do to earn it, in order to pay for the things that we need.
But, the more of something that is available, the less value each one has. In economics, this is the ‘Supply’ part of Supply and Demand that dictates values. The same thing applies to all forms of currency. So, to maintain its value, the amount of a currency in existence needs to remain stable.
Gold is a good example and has historically been used as a form of money because it is rare. Its value can’t be diluted because we can’t suddenly produce lots more of it, making it a reliable store of value.
Where did our Currency come from anyway?
Many people have no idea that Currency is regularly conjured into existence by a process between governments and banks and used by the governments as a less obvious alternative to directly taxing people. If anyone else did this, it would be called counterfeiting, they would be dealt with as a criminal, and for good reason!
This printing of more currency is a stealth tax, diluting any wealth we have and causing prices of everything we buy to increase. But making more currency, known as ‘Quantitive Easing’, has been used by governments repeatedly over the years to smooth over problems without really fixing them. If not managed carefully, this of course tends to end badly.
During a period between 1918 and January 1924, the German mark suffered Hyperinflation. It caused considerable internal political instability in the country, the occupation of the Ruhr by foreign troops as well as misery for the general populace.
Again recently, in Venezuela cash has become so worthless you need a large pile of it to even buy a cup of coffee.
Both creating Credit and creating more Currency are ways of channelling wealth away from the people who spend their lives working for it and giving it value, into the governments and banks that created it. Once you add the Interest that is charged on both these counterfeit forms of currency, you start to see the depth of veiled enslavement and systemic inequality at work.
Another interesting point to note is that an increasing population means more ‘Demand’ in the Supply and Demand for currency. This means more currency can be created without anyone noticing a change in value and price rises. It is in the banks and governments narrow interests to encourage population growth and this only makes all problems bigger.
Enter, the first-ever Public Blockchain
In 2009, the first Decentralised currency called Bitcoin was released. Owned by no-one, the purpose of this network was the potential of a currency that people could manage by themselves, removing any need for a trusted party like a bank that would have control over it and potentially misuse it.
The Bitcoin network is a globally distributed record that contains all transactions for all Bitcoin accounts. The way that a Blockchain ensures its record cannot be tampered with, means there can be no doubt as to where every amount of Bitcoin is. So no-one can send some and still keep a copy, known as the double-spend problem, or decide to create more of it than was already programmed to exist.
The ongoing experiment turned success story that is Bitcoin is not claiming perfection. It has already evolved past its original concept and continues to develop. But the really interesting part is what enabled it to do these things. Bitcoin was the first use of Blockchain. The next few uses of Blockchains made were essentially altered copies of Bitcoin, intended to be an improvement on the idea of a Blockchain-based currency. These Blockchain-based currencies have all since been referred to as Cryptocurrencies.
Money isn’t everything – it was just the beginning.
Blockchain has the potential to impact on many other areas:
Voting Systems – “I don’t see the point in voting!”
“It won’t make any difference anyway”. This is sadly a very common attitude with more than a small amount of truth to it. The best voting systems and the pollical systems behind them leave much to be desired. Even in the western world, voting can be of surprisingly little consequence.
There are many voting systems around the world all relying on people to go to a central point and cast a vote using a ballot. Ballots are then moved to another location to be counted by people. This is slow and leaves potential for errors and manipulation.
Intimidation through threats, acts of violence and even attacks on polling stations have been used to prevent people from casting their vote. While misleading ballot papers, misuse of proxy voting, destruction or invalidation of ballot papers and even voter impersonations have been known used to affect results.
The internet was meant to empower us not to turn us into the product
“Facebook Cambridge Analytica scandal: Mark Zuckerberg issues grovelling apology ahead of US hearing”
Primarily driven by advertising, herding and collecting data about you is the way that most of the Internet works today. Social media is a classic example. We are pushed into using common logins on our devices allowing most of what we do to be traced. Services we regard as ‘free’ are funded by farming information about us. At its best, to sell us things, but who knows where it goes and what it could end up being used for.
The current energy supply markets in most of the world are far from transparent and there are many cases where suppliers aren’t behaving competitively to keep prices down.
These are just a few modern world problems. The list goes on.
If there are key themes amongst these issues, they are-
A need for Trust and Positions of Power to perform services.
We have to trust in an organisation (a small number of people with power) to manage the service or act on our behalf. By trusting them we are giving them power and the more power we give, the more incentive exists for corruption.
Associated with this are three other issues-
Lack of transparency
Often, all we get to see is a bunch of Terms and Conditions from service providers and then the result, without really being able to see how they operate. This provides the opportunity for corrupt or unwanted behaviours to happen without being seen.
Security and reliability
Can someone attack or steal from the service from the inside or outside. Service providers are sometimes a target for attacks because they can be located at a single or few places, making an obvious place to target. This also means that a failure can result in loss of service/money/information.
Greed and lack of competition
Big service providers are often harder to compete with because they have an established network and have relatively smaller operational costs from efficiencies of size, like bulk buying supplies. This means bigger profit margins allowing them to squeeze out any competition.
Collectively, these are the issues commonly associated with ‘Centralised’ services that we are all familiar with.
Incredibly, in many cases, Blockchain presents us with the opportunity to leave each of these problems behind.
As a secure network of individual’s computers with no central or controlling point, it doesn’t rely on any specific points of the network to function. A need for Trust is removed because the network is designed around mutual distrust between users.
Anyone is allowed to see details of how the network works. So, any services that are based on them inherit a high degree of transparency
A practically permanent history of all changes is also kept by each participant in a chain-like record. So, records and information can be updated but no-one can hide its true history. Useful if you’re keeping track of ownership or a record of something.
Concentrations of power are minimised which removes incentives for corruption. These consensus networks can also cope with failures of, or attacks on many of their participants with no impact on the broader purpose.
The ‘Open’ nature of allowing people to see the inner workings makes the likelihood of greedy services being set up very low, because it would be relatively easy to copy the service and make the new one cheaper. So, they are naturally competitive environments, where value comes from the people that support and develop the network as much as the service it provides. No room for middlemen and erroneous admin fees. Automation of processes also adds to this cost-effectiveness.
Potential Blockchain solutions
Blockchain has the potential to show up in many areas we haven’t begun to consider yet. But some of the more obvious places are services that allow you to manage your own identity record and information such as health records, allowing you to decide when and how much information to allow others access to. Linked with your identity, trust rating systems could build profiles from interactions with others and services. Once you can verify your identity on a Blockchain, you can also build incorruptible, transparent and instant voting systems.
Micropayments can become a viable way to fund very low fee services like websites, instead of advertising or farming and selling your data. A network of consumers can use group purchasing power and compete directly with big energy suppliers. You can verify the authenticity and history of products before buying them, including seeing the supply chain record of key components or ingredients.
Music artists and other media content producers can distribute their work directly to the public, without having to trust a company to tell them what they have sold. Cutting out the middle man means, they can realise the value of their work without buyers being overcharged and with both sides having proof of the transaction.
Plus, many more as yet unconceived, ways of putting us all back in control of our data and the services we want.
Societal collapses of the past have often resulted from environmental changes. These concerns seem all the more relevant in a world with a massively disproportionate and ever-increasing number of humans, consuming finite resources. As has been noted by many already, “there is no second planet!”
All our problems today are both entirely of our own making and within our ability to fix. But people typically don’t see any convenient solutions or feel that they can make a difference as an individual. These problems really boil down to us being able to make the right decisions and not ones made for the short-term interests of a few.
The same thing really applies to most problems; the more we can involve those who stand to be affected by the outcome of a decision, then the fairer and more often better the outcome. And the more we can limit the area or number of those affected by a decision, the less the impact if it turns out to have been wrong. This decentralised approach allows many decisions, correct as well as mistakes, to be learnt from more safely and faster.
Decentralisation technologies like Blockchain hold great promise to really improve our world by propelling us in the right direction and we should all be aware of them. But they are largely still a work in progress, not a finished product as most people are accustomed to.
Currently, most Blockchain communities are working on ways to increase the capacity of their networks, known as the ‘Scaling Problem’. Developing ways to allow Blockchains to handle the amount of traffic that could be expected globally, is the main focus. But most developers believe solving this is just a matter of time.
Inevitably these early forms are not very refined yet and so have their own set of risks. Risks such as the current irreversible nature of sending cryptocurrencies gives scammers a bigger opportunity to take advantage. But this is an exceptionally fast-moving area and we are learning fast to overcome or deal with issues. We need to keep sharing the learning in the spirit of this new opportunity.
When we see comments in the news, it is important to understand the real motives behind them. There are clearly many very powerful influences who may feel they have something to lose. Sadly, this short-sightedness misses the greater dangers to us all of not adapting our behaviour.
The short history of Blockchain is already littered with attempts to influence, extinguish or delay it. Several high-profile people and banks have expressed bad opinions of the technology only to then buy into it later. Could this be a genuine change of heart or a cynical attempt to hit its value, so they can invest at a cheaper price?
Some organisations have adapted or developed versions that are similar but aren’t decentralised, such as Private Blockchains. These are still controlled by a central authority. For example, several governments have looked into issuing their own cryptocurrency. The Venezuelan government recently issued one called the Petro, claiming it is backed by their oil and mineral reserves. Having demonstrated highly questionable management of their traditional currency, this government-run Cryptocurrency misses the point by not being decentralised. Who is to say they won’t decide to release a load more Petro one day?
On the matter of tax, there is no avoiding the fact that public services need to be paid for. If we are going to convince governments to accept a decentralised cryptocurrency, then we need to build functions that allow us to generate relevant and verified accounting information for tax offices.
In reality, whatever your opinion on Blockchain, we all have a lot to lose if we don’t adapt our ways and make better decisions.
What could this all mean for me?
People are used to seeing and using finished products. When projects are being openly developed in this ‘work-in-progress’ way, it is a very different thing to get used to. This often leads to premature criticisms of about the unfinished projects.
Blockchain doesn’t remove the opportunity for business. Far from it, it just helps to ensure that businesses are competitive and that we are paying only for things of value, not middlemen. Allowing us to focus our money and efforts on useful things and progress.
Although we might be tempted to expect ideal solutions and perfection from new technologies, Blockchain is not a perfect solution to everything and is only as good as the development that went into the ‘use case’ concerned. That said, it certainly appears to have the potential needed to provide the next leap forward for humanity. In time, its services will grow in flexibility and become more and more user friendly, beating current services. Only now more transparent, fairer and cheaper.
Probably the key element that Blockchain helps us to solve is the issue of Trust. Our perception ‘from the inside’ of the current state of affairs means we don’t really appreciate just how much of an issue Trust is. Every aspect of our lives that we don’t deal with directly ourselves involves some degree of Trust. This article gives just a few examples of where it can go wrong. click image
Spaces to watch!
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