Cab Morris is blockchain strategy lead for the Illinois Blockchain Initiative and deputy director of strategy and operational performance for the Illinois Department of Financial and Professional Regulation.
The following article is an exclusive contribution to CoinDesk's 2017 in Review.
Let's all acknowledge that things are looking pretty positive in the world of blockchain.
Bitcoin's price continues to skyrocket. Digital Asset's production implementation shows private blockchains can add value to enterprise IT. Token offerings, SingularityNET and Sweetbridge – to name a few – are building platforms and applications to solve complex problems, maturing the utility token beyond what developers have concisely described as "decentralized autonomous meta-crypto token liquidity exchanges."
Slowly, it seems, the pieces are finally coming together.
In the not so distant future, financial services, supply chains, accountancy, insurance and even governments will be disrupted and replaced by their "dapp equivalent." People across the world will issue tokens to raise capital, building goods and services in collaborative global communities.
The need for intermediaries such as lawyers, central banks and government identity systems will diminish as the world moves towards a "truly" decentralized, self-sovereign, peer-to-peer society enabled by blockchains.
Sounds great, right?
Although blockchain technology may prove to be one of the most disruptive innovations of the 21st century, the truth is that the technology is currently considered more mature than it actually is.
Many implementation hurdles at the technical, regulatory and governance level risk limiting mainstream adoption for both public and private blockchain networks. Blockchains are "network technologies," meaning that without wide-scale collaboration and coordination, their power to improve society will never be realized.
For the last three years, the Illinois Blockchain Initiative has had an omniscient view of all aspects of the community. We have spent countless hours listening, learning and studying the ecosystem as it develops at breakneck speed. So, for whatever our 0.0000011 BTC is worth (our two cents), we urge the blockchain community to take a step back and acknowledge how people fit into this emerging world.
We do not have to burn down all societal structures and trusted institutions because we have a new "hammer in search of a nail."
Questions regarding the technical feasibility of sharding, debates about block size parameter or the merits of expressive versus constrained smart contract languages are immaterial if the social, political and juridical questions of this technology are not thoughtfully addressed.
We will dive into three topics we consider to be most pressing:
- Governance cannot be replaced by a decentralized algorithm
- Tokens can create unintended consequences
- Self-sovereignty or absolute control over our own identity may infringe on other rights we value as a society.
The shortcomings of decentralized, algorithmic governance
Governance is about people.
Contrary to popular belief, decentralized, peer-to-peer algorithmic governance does not automatically mean fair and equitable rule of law. Democracy cannot be reduced to majority rule, and consensus is a nuanced theory which requires concepts such as minority rights, equal access to decision making and legitimacy of procedure.
Bitcoin's recent scaling debate and ethereum's DAO scandal have brought to light the notion that code is not law and that a 51 percent majority does not always equal democracy.
Now, many claim that central authority and governments are the products of a patriarchal, hierarchical and a gerontocratic mindset. But, it is also necessary to recall that many of these trusted political institutions have emerged through a complicated, historical process of emancipation from private powers and churches.
Legitimate procedures were set up not only to overcome problems of scale or to coordinate distant groups, but most importantly, to protect consensus and individual rights.
As a guarantor of these fundamental rights, government is not an unwieldy third party that will eventually be disintermediated. It is connected to the concepts of public interest, citizens' rights, coordination and redistribution of resources, all of which cannot be resolved to market laws or smart contract-based interactions.
We certainly agree that society must develop bottom-up governance models to better approach its problems.
However, it is also important to recognize the necessity of a coordinating body in society, a neutral arbiter that can help individuals balance self-interest and come to constructive and expedient political compromise.
Tokens are not immune to platform capitalism
Although often cited as a more equitable or peer-to-peer way of raising capital, token platforms are at their core, digital platforms, which makes them prone to the same platform capitalism as their centralized counterparts.
The structure of many token sales provides purchasers a stake in the platform and a right to vote on future decisions, giving more voting power to those with more tokens. Individuals who have resources to purchase more tokens, or first comers who could purchase tokens at a lower offer price early on, have more sway over decisions.
Those in lower socio-economic brackets or who came in later and could not afford the increased market price are at a disadvantage.
In particular, decentralized governance models based on proof-of-stake mechanisms may easily lead to discriminatory forms of plutocracy (rule-by-the-rich), where decisions are made based on the quantity of digital tokens stakeholders hold in the platform.
In spite of the possible benefits of tokens, incentivizing large-scale collaborative action towards common goals, wide-scale use of tokens could easily create "digital feudalism." The intended purpose of collaborative decentralization could end up balkanized, mediated by speculative networks and disproportionately monetized through transaction fees.
Offering tokens as an incentive to participate in a platform can shape human behavior in unintended ways.
Extrinsic incentivization often makes individuals act more rationally and robotically, more predictable and even programmable. While some degree of techno-social engineering is inevitable in any digital platform, it poses significant concerns related to personal responsibility and freedom.
If individuals are no longer intentional agents and are objects manipulated by software and algorithms, we risk losing deliberate ethics and authentic motives.
Owning your identity has unintended consequences
Self-sovereign identity is a term frequently used in the blockchain space:
Self-sovereign identity is an identity which the identity owner (an individual or organization) owns and controls. No organization, government or other individual can take this identity away from the identity owner. In the digital world, it is the natural evolution of online identity mechanisms.
At face value, self-sovereign identity seems like a noble concept given the abysmal state of personal data security and privacy globally. Drilling deeper into individual or sovereign control over our data, though, brings to light the potential tradeoffs for society as a whole.
We must first recognize that identity can be broadly categorized into two groups: reputation (the story others tell about you) and personal information (the attributes unique to you). Owning and controlling your reputation is impossible because reputation is determined by others and is a function of opinions, which can be voiced at will.
In the U.S., preventing people from voicing their opinion, and therefore protecting your reputation, would Congress and the States to get rid of this right:
As you can see, owning and controlling your reputation infringes on essential human rights we value as a society.
Additionally, explicit control over all your personal information creates a host of issues. We value privacy and control over our personal information, but we also value access to financial services and public safety. Obtaining credit requires submitting personal information at the discretion of a financial institution. There is a trade-off between privacy and access to credit.
Without a clear view of a person's history of repayment, a financial institution cannot accurately allocate risk.
Similarly, society-wide questions emerge: Are we willing to value sovereign control of privacy at the expense of public safety? Should we allow individuals to control whether or not they disclose their history of DUIs when applying for a driver's license? Should we allow individuals to omit a felony charge for dealing narcotics when applying for a pharmacist license?
What does this mean?
Blockchains are great examples of how the economic, political and technical decisions factor into system design and can influence its outcomes. They can provide immense opportunities for broader economic and social objectives, but this needs to be handled carefully because the risks are shared by societies globally.
The need to answer these questions will be increasingly important as we build blockchain networks for the world's systems of value. Choices we make will deeply affect the way future generations interact and transact.
The fundamental questions that we should be asking are not related to platform efficiency or technical design, but instead, what type of society do we want to build and sustain? What obligations do we owe to past, present and future generations, and how should those shape the technological, economic, legal and social institutions we build?
This should not dissuade us from pursuing blockchain's real promise, but rather to highlight the fact that the technology is not currently, and never will be a panacea for the world's problems and a global social redemption.
The State of Illinois team is filled with believers in the transformative power of this technology.
You'd be hard-pressed to find a state, national or local government more committed to this ecosystem in its many shapes and sizes (cryptocurrency, public, private, permissioned and permissionless). We have shown our willingness to learn and experiment because ultimately, technical code, algorithms, legal code and public policy are all artifacts of human design.
Technology writ large does not create prosperity, people do.
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