Opinion: Is Cryptocurrency and Blockchain the Remedy to Human Error?

There are Only Technical Solutions to Fixing Money

The French sociologist Jacques Ellul said, 

“There are no political solutions, only technological ones; the rest is propaganda.”

One often hears the terms ‘trust-less’ or ‘permission-less’ in the parlance of blockchain and cryptocurrency. These terms refer to the mode of information-transfer in the blockchain ecosystem, which is inherently devoid of intermediary agents such as banks that play this role in traditional financial systems. To appreciate this, we need to consider some core principles on which blockchain technology is built. 

As discussed elsewhere, blockchain is based on a decentralized network of computer nodes that form a publicly accessible distributed ledger. This peer-to-peer system architecture allows for value transactions that do not need to be verified on the basis of ‘trust’. Transactions that are based on trust can be violated because of errors in human judgement. Instead blockchain transactions are based on the incorruptible principles of mathematical problem-solving, as computers, through network consensus, verify and settle the value of such transactions. The ‘block’ in blockchain  pertains to alphanumerically encoded data that can be added to the network only if it is approved and validated unanimously by all the nodes on the network. 

How Bitcoin Uses Blockchain

In case of cryptocurrencies such as Bitcoin, this validation happens by encoding the added blocks with a solution to a computational problem that is fairly difficult to solve but relatively easy to ratify. Moreover, the validated blocks are timestamped, making them tamper-resistant. In the case of Bitcoin, such a ‘Proof-of-Work’ algorithm ensures that a financial transaction using this cryptocurrency is not falsified or duplicated. And because the process of legitimizing transactions is done through the consensus protocol of the blockchain network, this system creates trust ‘computationally’ rather than by involving outside adjudicators like banks. The advantages of such a decentralized system include prevention of monopolized market power, avoidance of single points of failure, and empowering users with control over their own data.

Social Dimensions of Economic Technology

The sociologist Anthony Giddens has developed modernist theories that analyze institutions and organizations across time and space. His work points out that throughout history, human societies have progressively moved from physical face-to-face interactions (considered primordial) to more virtually based means of connection, transportation, and communication. This progression has been facilitated by technologies like the internet which have dramatically revolutionized the way humans conduct business on spatial as well as temporal scales. We increasingly interact with people who are physically absent and remote in terms of geographical distance. In such a framework — which is still in its relatively nascent stages — the question of trust obviously becomes increasingly relevant. 

From the perspective of economics, blockchain offers specific advantages, such as open access to a shared network. This can be somewhat comparable to a centralized system, but without its aforementioned drawbacks. It is important to note that this validation is done only when the entire network has authenticated the block to be added to its ‘chain’. Because of these reasons, cryptocurrencies like Bitcoin are often advocated for their applications in innovations based in open-source platforms, particularly in countries where there is a real paucity of trustworthy financial institutions. The fixed supply of Bitcoins, the clockwork, timestamp-based scheduling of transactions, and the immutable nature of the blockchain ecosystem, make this a particularly attractive technology for addressing the needs of twenty-first century societies. 

A Technology for Coordinating Human Effort

Nevertheless, the permission-less nature of this system and its non-negotiable dependence on network consensus for making any changes, currently restrict its scope. As a result, the fairly limited adoption of blockchain technologies in the financial world causes drastic fluctuations in the value of cryptocurrencies. However, this is an ongoing phenomenon, which is why latest research in this area is seriously focused on how these limitations (and other issues related to scalability of cryptocurrencies like Bitcoin) can be overcome in the future by engineering better technology. With more research, it is already becoming clear that blockchain technology is more than just a computational framework for exchanging digital money. Some researchers also claim that as an open-source software protocol based on cryptography, blockchain can be better understood as a social technology for coordinating people.

Technology Has Outpaced Our Psychological Maturity

Adam Curtis’s BBC documentary, “All Watched Over by Machines of Loving Grace” emphatically argues that the late twentieth century’s enthusiasm for computers as tools for liberating humanity from its own biases and prejudices, has turned out to be a failure. Curtis observes that instead of making our world more simplified, computers have actually resulted in making it far more complex and distorted than we had ever imagined. Although most of his arguments are rooted in the pitfalls associated with the rise of Silicon Valley culture in the late 1960s, the documentary does offer some compelling lessons for organizing societies around technological paradigms.

I bring this up to emphasize that as we continue to explore the promising future of our technologically driven economic systems, it behooves us to complement our enthusiasm with rigorous science and a deeper understanding of the societal and social dimensions of our material realities. Without such rigour, our situation will be like a modern-day luddite who is hopelessly attempting to load an advanced software on an outdated piece of hardware.