Understanding Blockchain's Social Impact

In some of my previous posts I have shed light on important blockchain capabilities:

This allows blockchain systems to transform human interactions by facilitating new “cooperative games” which come to complement existing “competitive games”.

^{There are far fewer “cooperative” than “competitive” games. “Pandemic” is one of the best known cooperative games – players cooperate against a common threat. In real life, cooperation is more difficult to conjure than around a board game}

In this post, I contend that one of the most important contributions of blockchain technology is facilitating the “exit” strategy when individuals are confronted with an oppressing or dysfunctional political construct.

I also argue that “centralization”, far from being “the problem”, is actually a hallmark of social and economic progress. On the other hand “decentralization” so beloved in the crypto-world is not quite the savior of the human society as many crypto-afficionados hold it to be. The value of decentralization comes from it being a new force for equilibrium, able to restore balance and counter the abuses of centralization.

The journey of the human society is like riding a bicycle

The most important concept to keep in mind is that of dynamic equilibrium.

What do I mean by “dynamic equilibrium” in the context of an ever-evolving social construct? In order to make myself understood, this concept needs linking with others which readers have already understood and feel familiar with. So think of the human society through the ages as a “bicycle journey” – in order to avoid falling down, we need to keep pedaling, to keep advancing.

There are forces pushing “the bicycle” to “the left” and others pushing it to “the right”. At the “extreme right” we have absolute despotism. At the “extreme left”, we have absolute anarchy. If the forces pushing in any one direction are not compensated adequately, we “fall” (metaphorically) and can hardly advance, can hardly progress.

^{“How to improve your bike handling”, from Cycling Weekly}

Centralizing forces are strong

Let’s have a look back at the history of the humankind. What we have experienced during the whole of human history, were the benefits of division of labour and accompanying specialization. Take a group of autonomous, interacting agents (e.g. humans …) which share a motivation for personal betterment and begin by being versatile, able to do a vast range of things, albeit with greatly different abilities.

^{Decentralized society}

Left to their own devices, these autonomous, interacting agents sharing the aim of personal betterment have, are and will always realise that their best strategy is to divide responsibilities, specialize, organize, and then trade.

^{Centralized society}

When you divide responsibility, some people end up in charge of “making decisions”. they get to wield power. Power becomes “centralized” in these people who the society has (more or less aptly) selected to specialize in decision making.

We have experienced in the past half century the benefits of centralization. Wealth and power have accumulated in the hands of ever fewer people, of ever bigger and more dominant companies and organizations. The search for effectiveness and efficiency begets “centralization” – i.e decision-making power accrues to those best equipped – or more willing – to make decisions.

Why is then “decentralization” even a thing?

You get a glimpse at it from the example chosen above to illustrate a “centralized society”: the Egyptian pyramids are a monumental feat of humanity, yet they came at a huge cost in human lives.

As the value of human life has continuously increased, our societies became less and less tolerant of bad decisions (which might end up costing human lives).

Thus the main issue human societies have focused on tackling is how to prevent those in positions of power, those entrusted with making decisions from making bad decisions.

There are two kind of political constructs: “monopolistic” (e.g. Nation States) and “competitive” (e.g. political parties, labor unions). A subject of a “competitive” political body is more or less free to “punish” bad decision making by “voting with his feet”, i.e. renouncing membership of the party or union he’s a member of and then joining a competing one. The cost of doing the same when “trapped” by a monopolistic political construct is much higher, although in case of Nation States it has come down significantly during the past centuries.

Consequently, one of the measures people have pushed for has been to organize Nation States as “democracies”, despite their ineffectiveness at picking the best decision makers. Democracy, on the other hand, is at least facilitating getting rid of a bad leader.

The figure below illustrates the typical framework for analysing people responses when confronted with bad, oppressing political situations

^{When dissatisfied, people can actively “voice” their discontent or plan for “upping sticks”. Or they can passively “endure”, stay loyal, keep hope that things will improve, or become numb, listless or cynics}

One of the best analyses of this forces shaping the advancement of human societies can be found in this classic book from the ’70-ies, “Exit, Voice and Loyalty” by Albert Hirschman

^source

When thinking in these terms we realize that in the crypto world, the famed “decentralization” has become a distraction and the subject of a “pissing contest” (“My blockchain is more decentralized than yours”). It has clouded the thinking of people in the space.

Yet blockchain breeds trust among interacting agents and facilitates value exchange, thus enabling new social and political constructs.

While previously the choice was almost binary, between “fully centralized” (thus prone to slip into absolute despotism) and “fully dencetralized” (thus anarchic and inefficient), blockchain introduces a host of granular choices of varying degrees of centralization.

It does this by allowing groups of people with a shared notion of value to materialize that value into a dedicated “currency” and then engage in activities which might not seem to have value to people outside that group.

^{Kissi pennies – courtesy Brooklyn Museum [CC BY 3.0]}
Currencies materialize a shared set of social values, but they need to exhibit a series of properties (portable, durable, divisible, easily recognizable, stable).

An illustration of what blockchain enables: when SMTs will be around, a group of people could choose to assign value to a digital version of these “kissi pennies” (that were used as currency in West Africa in the past), rather than to a “monopolistic” fiat currency of a Nation State which lost their trust.

Centralization is the result of a natural search for effectiveness and efficiency. Decentralization is inefficient and, by hampering specialization, leads to lower effectiveness. Decentralization is thus not of benefit per se, quite the contrary, it bears a cost.

Decentralization benefits human society indirectly, by making centralized systems more robust and resilient when confronted to bad decision making and abuses of power.

If previously the main political construct of the human society was the Nation State (with its sovereign currency), blockchain is a tool which now allows groups of people more organizational choices.

These choices are made durable by the possibility to coordinate, allocate effort and capital, and track value through a “currency”.

Blockchain makes the cost of decentralization bearable.

By implicitly weakening the power monopoly of the Nation State and reducing the cost of the “exit” strategy, blockchain thus increases freedom.

Yet the Nation State is a dynamic construct as well, and has shown it is able to adapt and evolve. Confronted to a challenge to its power monopoly, with “competition”, we can hope that it will improve in order to stay competitive.