As the Greece debt crisis unfolds and capital controls are forced down the throats of their people, bitcoin has moved back into the mainstream spotlight. With long lines in front of ATM machines reminiscent of the Cyprus bail-in, once again bitcoin appears to offer a safe haven.
While many people focus on bitcoin’s price fluctuations and potential increase in adoption, currency is just the first application of this game-changing technology. The core of the blockchain provides an alternative governance model to the current oligarchic control shown in the harsh austerity forced against the will of the Greek people.
In the six years of its existence, public awareness of this technology has grown by leaps and bounds. Now, most who are aware of this groundbreaking innovation know the blockchain is a ledger. Yet, this ledger is not simply for accounting monetary transactions.
At its core, it is a platform that allows people to come to agreement on virtually anything without intermediaries. It provides a foundation to make social contracts based on the principle of consensus. Foremost, it enables a larger function of accounting; performing checks and balance on the self interests and the corruptible tendencies that exist in society.
In his white paper published in 2008, anonymous creator of this technology Satoshi Nakamoto noted it was invented as a solution to the inherent weaknesses of the trust-based model. Roger Ver, aka 'Bitcoin Jesus', an angel investor in bitcoin startups, recently remarked on the Greek financial crisis, pointing out the fallible nature of the existing forms of governance that create one-way contracts:
Governments don't have the consent of the governed. They have forcible control of the governed, with the "consent" of a third party. #grexit
— Roger Ver (@rogerkver) July 14, 2015
Bitcoin self-regulates through algorithm, eliminating counter-party risk and the need for traditional legal and regulatory tools that have shown to be ineffective in events such as HSBC money laundering and the giant banking industry’s currency printing and market rigging. The core of this invention is distributed trust and is enabled through a mechanism called proof of work.
Proof of work
In his presentation Consensus Algorithms, Blockchain Technology and Bitcoin, security expert and author Andreas Antonopoulos described how proof of work is composed of specific cryptographic hash functions and sets of game theoretical equilibrium systems that dynamically adjust and create economics of scale.
Proof of work plays a vital role in securing the system. Adam Back, inventor of Hashcash, which contributed to the fundamentals of bitcoin, noted how it “constructs a computational irrevocability from proof-of-work and consensus”.
This means no one can undo the work one has done. No one can fake the work or go around it. Miners at the heart of the bitcoin ecosystem have to perform hash operations by using precious resources and if they play by the rules they receive value, and if not, they lose value. In other words, all are held directly accountable by being required to spend their resources and show the presentation of their work.
This makes the blockchain bulletproof and resistant to manipulation. It also guards against the hyperinflation created as a result of government intervention through measures such as quantitative easing. When looked at as a larger governance model, this accounts for potential selfish attempts that try to benefit from the good will of people.
Genius of economic incentive
What gives the impulse for this self-organizing system and, most of all, where does this force of accountability come from? There is no central planner in bitcoin. In a sense, Satoshi’s anonymity embodies the technology’s essence. There are effectively no fingerprints on this technology. At the center of this mathematical invention is a vital economic incentive that spontaneously organizes miners to make the ledger decentralized and immutable.
This incentive structure manifested in its built-in digital scarcity is an underlying current behind the bitcoin network. This was built with a realistic and honest assessment of man’s self-interests.
History is filled with evidence of what happens when we fail to account for our selfish tendencies within. Dark memories of atomic bombs, slavery, Holocaust and genocide remind us of the cruel and violent parts inherent in humanity and the mass destruction we are capable of committing.
“The blockchain creates incentive for participants to work honestly, where rules are applied to all equally.”
When self-interests are not acknowledged, they quickly escape consciousness. Lower aspects of our humanity that are denied can then easily gain the upper hand. They become a kind of insatiable hunger that drives people to the pursuit of power, creating fraudulent systems where anti-social forces attack networks, take over economies and undermine the sovereignty and will of the people.
Through accounting for selfish motives and greed and using rewards to encourage good behavior in a transparent open network, the blockchain creates incentive for participants to work honestly, where rules are applied to all equally.
This way, the system can more effectively mitigate the risk of humanity’s destructive potential.
The bitcoin network fosters a true consent of the governed through voluntary participation and enables self-regulation taken up by each choosing to abide by the rule of consensus.
What emerges in this innovation is a new form of social accountability. Unlike traditional representative models of governance, where systems of checks and balance are exercised through third parties, under bitcoin’s consensus model, accountability is distributed directly and exercised by all in the network.
This removes single points of failure and provides far better security than existing systems. With the blockchain's transparency, those who prefer profit without work will have no place to run and no place to hide.
There are already creative initiatives to strengthen political accountability through the use of this technology. London mayoral candidate George Galloway is calling for the city to adopt blockchain-based accounting in order to provide full transparency for the public of the city’s financial activities.
Along with the host of the RT’s financial report Max Keiser, Galloway created The Mayor's Chain Project that would put the city’s annual budget on a blockchain to foster collective auditing by citizens.
Enshrined in the bitcoin protocol is a blueprint for decentralized forms of governance. This is a real invention and can’t be uninvented. As the global crisis of legitimacy deepens, austerity will continue, with insolvent banks bailing themselves out and hedge funds getting away with cooking the books.
Bitcoin might not be able to save Greece in this moment, but its core technology offers tools for those who want to innovate a truly viable alternative to the centralized institutions of mandated trust and move into a society based on networks of distributed democracy.
Network image via Shutterstock