
The blockchain paradox: Why DLTs may do little to transform the economy - jboynyc
https://www.oii.ox.ac.uk/blog/the-blockchain-paradox-why-distributed-ledger-technologies-may-do-little-to-transform-the-economy/
======
rockmeamedee
I agree with this article.

Proponents of blockchain tech argue its revolutionary quality is its ability
to act as a decentralized and trustless database. But I don't ever hear them
sort through the issue of how to agree on the schema for this trustless
database.

For a group of people to use a decentralized DB, they have to agree as to what
to store in it, and how to store it. They need to form consensus about how the
system will work, and how the data will flow.

For example I've seen people on here mention applications such as a
decentralized stock exchange, and a decentralized hotel rooms marketplace.

For either of these, it's necessary to get all the users of the system in a
room and agree what is in scope and what is not, and in general what can be
done with the system and how. At this point they already have a consensus,
they trust each other, they might as well just set up a centralized database
run by a 3rd party that manages the system, keeps it up to date and adds
upgrades, instead of building it on the blockchain and hoping there are no
major bugs in the cloud code and that it will live off gas.

For the stock exchange, that's exactly what we already have. We have
institutions that are dedicated to running exchanges, which act as neutral
arbiters. They use regular old centralised databases. When they have bugs in
their code or the system makes a mistake they can even roll back trades, which
they couldn't do on the blockchain.

Essentially this is the same argument as OP. The 3rd party's act of ironing
out issues, deciding what the rules are and how they interact is synonymous
with OP's term "governance". We agree that using/running the system is
different than defining/implementing the system and the latter can't be done
trustlessly.

And also governance gets a lot easier when you also run the system centralized
;)

~~~
russdpale
With bitcoin, it is agreed upon using byzantine consensus. The only way a bad
actor can manipulate the ledger is if they own enough nodes to gain a
majority, which is virtually impossible. After just a handful of bit times is
economically and mathematically impossible to reverse the contract.

I suggest listening to this Tim Ferris podcast with Nick Szabo:
[http://tim.blog/2017/06/04/nick-szabo/](http://tim.blog/2017/06/04/nick-
szabo/)

The entire idea is that no arbiter is truly neutral, no third party is truly
trustworthy. Block chain is the onset of FAT protocols and trustful computing.

If the poor of the world can understand the social mobility that crypto
currency affords them, there will be no stopping it, in my opinion.

~~~
linkregister
_> The only way a bad actor can manipulate the ledger is if they own enough
nodes to gain a majority, which is virtually impossible._

At times the leading BTC mining pool has controlled greater than 50% of the
nodes. Would this not be enough to alter the ledger?

~~~
Taek
Notably, 'altering the ledger' here has a very restricted meaning. You can
spend money, then reverse the spend back into your wallet. Or you can commit
to a piece of information, then delete it.

But you can't alter the core protocol or fundamental network rules. If you do,
the other nodes will ignore you.

~~~
kahnpro
But this is the fundamental question it's all about... the expectation that
the other nodes will ignore you.

Somehow "the other nodes" have reached consensus about what protocols or rules
to follow, and this is where we end up back at human governance.

------
nemo44x
If I had a Bitcoin for every skeptic that posts a blog on why it can't work...

This may just be my general observation but I feel like Silicon Valley
hegemony has a grudge against crypto currencies and I'm not sure why. For an
industry that has constantly tried new things and saw potential where no one
else did, I just don't see the love for the potential of smart contracts,
DApps, etc. And how this is just the beginning of what is possible and of
course it's isn't perfect but it's fascinating to the curious.

I do see a lot of enthusiasm from Eastern Europeans and all across Asia and
they seem to be leading the charge on what could be the next major technical
revolution.

My working hypothesis right now is Silicon Valley has been getting fat on the
virtually unlimited venture capital power structure and sees this as a threat
they've missed out on to their power.

Maybe the disrupters are being disrupted?

~~~
root_axis
The source of the distaste is obvious: breathless hyperbole without much
substance to show for it. Posts like yours are a great example of it. In this
very comment you write:

> _leading the charge on what could be the next major technical revolution_

Unsubstantiated hype. Where is the revolution? A common thread among
cryptocurrency enthusiasts is that the revolution is coming... except it never
does. When you talk about revolution, non-enthusiasts roll their eyes.

> _Silicon Valley has been getting fat on the virtually unlimited venture
> capital power structure and sees this as a threat they 've missed out on to
> their power._

A classic argument from crypto enthusiasts who have to imagine that people are
literally afraid of bitcoin. It's laughably condescending and absurd. Bitcoin
is not a threat to anyone and most certainly not silicon valley billionaires.
Besides, it's not as if SV VCs haven't invested money in bitcoin, it's just
that bitcoin is a horrible investment, e.g. 21.co, 120 million in VC dollars
flushed down the toilet for a business model that was clearly a failure from
the start, but those investors fell vulnerable to the hype and learned a
valuable lesson from it.

> _Maybe the disrupters are being disrupted_

Another sample of breathless hyperbole that causes non-enthusiasts to cringe.
Where is the disruption? Bitcoin is a smidgeon of a fraction of the commerce
activity happening on the internet, and even with the rising price, bitcoin
remains difficult and relatively unsafe to use (for the non-technical masses)
and provides zero benefits for most people. Yes, peer to peer transmission of
value is cool, I'm not saying bitcoin is useless, but for most people there is
no reason to use bitcoin and there never will be. Contrast these facts on the
ground with the never-ending blockchain hype and the result is overall
disillusionment with blockchains in general.

~~~
moduspol
Watch this video [1] of Bill Gates explaining the value of the Internet to
David Letterman, where he's just not getting it at all. Bill's telling him the
things it can do relative to David's interests, but he just sees those as
problems that don't really exist because they've already been solved.

It took decades before the Internet was useful to "the masses." I don't think
there's some conspiracy among VCs, but I do think dismissing cryptocurrencies
for the reasons you have is short-sighted.

[1]
[https://www.youtube.com/watch?v=lskpNmUl8yQ](https://www.youtube.com/watch?v=lskpNmUl8yQ)

~~~
root_axis
I tire of the internet comparison. You're drawing a surface-level comparison
between the greatest communication and economic innovation in human history
and blockchain software, because people were skeptical of both. And? That
doesn't prove anything except that people were skeptical of both; nothing in
that comparison speaks to the underlying nature of either things being
compared. They are not the same.

~~~
moduspol
Well it's in response to your rebuttal.

> Where is the revolution? A common thread among cryptocurrency enthusiasts is
> that the revolution is coming... except it never does.

A technology doesn't need to have all of its potential realized in the first
few years of its existence.

> Where is the disruption? Bitcoin is a smidgeon of a fraction of the commerce
> activity happening on the internet

The Internet was a fraction of the commerce activity happening relative to
Sears / JC Penney / Walmart. Yet clearly only a few decades later all of these
are disrupted by the Internet.

> bitcoin remains difficult and relatively unsafe to use (for the non-
> technical masses) and provides zero benefits for most people.

...as was the Internet for the first few decades.

> Contrast these facts on the ground with the never-ending blockchain hype and
> the result is overall disillusionment with blockchains in general.

This compares directly to, "Have you ever heard of radio?"

Literally every dismissal of cryptocurrencies you made would have applied
exactly to the Internet in the early '90s or prior. There are far more
similarities than "people were skeptical of both." It's totally fine to take
your position but it's unrealistic to claim these as reasons it can't succeed.

~~~
root_axis
> _Literally every dismissal of cryptocurrencies you made would have applied
> exactly to the Internet in the early '90s or prior._

It seems I'm not getting through to you.

Just because two things have something in common doesn't mean that they're the
same thing.

Showing that people were skeptical of the internet and blockchains does not
demonstrate that blockchains will be as successful as the internet. There is
no connection between the two (besides the fact that blockchains are software
that run on the internet, like all things on the internet). They are totally
different.

~~~
moduspol
I guess I just feel like your rebuttal would be stronger if its only points
weren't the same, yet ultimately irrelevant in the case of a prior technology
with many similarities.

Of course they're not the same thing. That doesn't mean it's now totally valid
to claim that it won't be successful due to the same roadblocks that the
Internet overcame easily.

Do you have any arguments against cryptocurrencies that don't mirror early
problems the Internet had, that people warned about, but ended up being very
solvable? I think that'd be a lot more convincing.

~~~
Naomarik
Other than being a cryptocurrency, everything people are using blockchain
based solutions for can be solved in a much more robust, complete, and
scalable way using conventional software tools.

This is why it's not the revolutionary thing everyone is saying it is. As a
cryptocurrency blockchain is the killer implementation. For anything else it
just becomes a ridiculously bloated, clumsy, and slow database that hardly
anyone understands and wastes electricity.

------
anothercomment
You can begin to see the beauty of Bitcoin when you want to accept payments.
All you need to do is download a wallet, generate an address and put it
online. You don't need anybody's permission, as would be the case with PayPal
or the likes. The risk of somebody deciding on a whim to freeze your funds is
also greatly diminished (again, very different from PayPal and the likes).

"Governance" and "Accountability" seem to be the antithesis to that. No,
Bitcoin doesn't need that and doesn't want that.

Yes, it is a bit scary, it is a system that develops on its own, depending on
the way it is being used (network effects and so on). I guess economists freak
out because they are unsure about the rules, and they can't have that.

But it is also not true that it would be a huge problem if there were forks.
Why would it be? People will simply use what works best for them, controlled
by market forces (they need other people to use the same fork).

Who decides how Bitcoin develops? Ultimately the users do, by using it or not.
Developers and miners merely provide proposals.

And why does a system need 100% agreement on everything? Such a system may
well never exist.

~~~
cortesoft
Your dismissal of the problem with forks is missing a big danger to users. You
say that market forces will control it, and people should just use what works
best for them.

The problem is that you might guess wrong; you might look at the two forks,
make your best guess as to which side is going to win out via the network
effect, and put your money there. If you are wrong, and your fork dies out,
there goes all your money. The market forces did their thing, and they wiped
you out.

Yes, the 'users' are the ones who decide how the system develops, but that
doesn't mean you as an individual user have any say; your voice will be
overwhelmed by the crowd.

Of course, these risks aren't any different from the risks we face in the rest
of the world. You can lose money by making the wrong choices, and your choices
often get forced because of the decision of the crowd. However, we don't
really face that risk using a stable national currency BECAUSE of the very
things bitcoin fans tout as reasons to use bitcoin.

The reason using a currency like the US dollar is so popular is BECAUSE of the
fact that the government forces everyone to accept the currency 'for all
debts, public and private'. People are FORCED to accept the currency, so you
can have confidence that you aren't going to be left with useless money if you
accept dollars in payment. You don't have to worry about some other currency
winning out as the defacto payment system, and losing all your wealth.

Of course, you have to put faith in the US government to maintain the
currency, but it has a pretty strong track record of doing a fairly good job
at that. I can't imagine a cryptocurrency every being able to be as stable as
the dollar for hundreds of years; I mean, just look at the price volatility
for bitcoins.

~~~
snowwrestler
You have to put your faith in something.

I suppose it's not surprising that people with strong affinities for computing
systems would rather put their trust in a computing system than a government
of people. They understand computing, and so they feel more confident they can
understand and mitigate its risks. They might not feel that way about the
solvency of the Federal Reserve, or the fiscal health of the U.S. federal
government.

It doesn't mean they're right. Blockchains might be objectively riskier than
central banking. It's just that we each see the world through the filter of
our own experience.

~~~
cortesoft
The entire point of the article is that it might FEEL like you are putting
faith in a computing system when you use bitcoin, but really you are still
putting your faith in a group of people. It doesn't matter how well you
understand the mechanics of how bitcoin works, what really matters is the
mechanics of how the people involved with bitcoin works, and that is the same
as people everywhere.

You just can't escape human social politics.

~~~
snowwrestler
I agree, and I think the article is essentially right. But again, not everyone
is going to see it that way, depending on their inclination.

------
jasode
I agree with Vili Lehdonvirta's analysis about governance and wrote a similar
conclusion previously.[1]

Yes, the concept of "money" existed before governments and therefore doesn't
require government. That said, _today 's modern money_ is very much an
instrument of government power. This is why alt-coins will not overthrow fiat
currencies like some enthusiasts believe because Bitcoin does not come with
its own Bitcoin-police-force and Bitcoin-law-courts.

The distributed block chain may eventually prove useful for other
recordkeeping such as real estate property transactions (e.g. no need to pay
$300 fee for title searches in the future), or maybe buy/sell internet domain
names (e.g. don't need Verisign as middleman to buy dot com domains). Those
scenarios are more realistic than Bitcoin/Ethereum replacing government
approved fiat currencies. DLTs may still transform the economy -- but not in
the ways people expect.

There's definitely some interesting applications of distributed consensus
ledger but the idea of bypassing government money is overhyping its potential.

[1]
[https://news.ycombinator.com/item?id=11934120](https://news.ycombinator.com/item?id=11934120)

~~~
rlpb
> Bitcoin does not come with its own Bitcoin-police-force and Bitcoin-law-
> courts

My government will enforce a contract even if it is denominated in some
foreign currency, will it not? Currency used is independent of jurisdiction.

They may award _damages_ in legal tender, rather than in Bitcoin, but I have
to pay taxes in legal tender anyway, so there will always be a market to
convert back.

Right now they might be confused by Bitcoin enough that they won't effectively
be able to assess damages, but that's not necessarily a permanent state of
affairs.

~~~
rhino369
Sure. But having to convert to pay taxes and debts is huge pain point for
trying to conduct all your business in a foreign currency. It also adds
transaction costs.

If you are a business, why would you ever try to run on bitcoin alone? There
would have to be a huge advantage. And we see that in many small cottage
industries where that is an advantage, like buying drugs online or illegal
gambling.

But without the need for pseudo-anonymity why would anyone ever use it? Why
would your grocery store use bitcoin over dollars? They wouldn't.

So crypto will probably be a currency in the long run, but it won't overthrow
regular fiat.

Plus, if there was a huge benefit to crypto, the Fed could just do a crypto
dollar and peg it to the real dollar.

~~~
someSven
> But without the need for pseudo-anonymity why would anyone ever use it? Why
> would your grocery store use bitcoin over dollars?

Because the want the money from people which have bitcoins? Because creditcard
fees are to high? (just forget about the BTC fees or the nearly fictional
double spending problem) Another reason could be that the owner has Bitcoins
and wants to support them. There might be more reasons.

------
jcoffland
There are plenty of examples where one party or a collation of parties set up
the rules for a decentralized system that then goes on to operate successfully
with little to no further enforcement. Email or TCP/IP are examples of such
decentralized systems.

The fact that someone must make the rules and future actors may attempt to
change those rules are problems but they do not invalidate the idea of
decentralized systems.

I believe the author is reacting to his colleges misunderstanding of crypto
technologies. He has bought in to their argument that what cryptocurrency
needs to solve it's current problems is centralized control or governance.
This, of course leads to the logical conclusion that if you must have
centralized control then why use a blockchain at all.

The fallacy is in accepting that after the initial rules are set, that you
_must_ continue to have governance to solve the inevitable disagreements. On
the contrary, continued governance is the _problem_ faced by cryptocurrencies
and other blockchain technologies. Their stability depends on adherence to the
original agreement. Any change to that agreement is an existential threat.

It would however be a mistake to think that this problem completely
invalidates such decentralized systems. They can and do continue to provide
utility even in the face of attempts at continued governance. It's not about
these systems working for eternity. It's about them working for long enough
for life to happen.

~~~
jasode
_> Email or TCP/IP are examples of such decentralized systems._

I'm not sure about those analogies. SMTP email and TCPIP require DNS to route
packets. DNS root authority is centralized. (Yes, DNS for performance purposes
is _implemented_ across distributed computers worldwide but ultimate authority
still traces back to the root servers.)

Even without DNS lookup, the numerical IP addresses are assigned by a central
authority.

(Yes, if we're only talking about playing with protocols instead of actual
global connectivity, one could run private SMTP on an isolated network with no
central authority but that's not the analogy we're interested in.)

Maybe your analogies and my disagreement with them is a perfect illustration
of what the author is talking about: _centralized governance is still there
even if we don 't notice it._

~~~
runeks
It's not about eliminating centralization, it's about minimizing the fragility
it causes in key areas. We minimize it by locating bottlenecks and finding
solutions in these areas, not throwing our hands in the air unless we have
100% decentralization (assuming we even want that).

Sensible proponents of Bitcoin shouldn't argue that centralization is "wrong",
but that monetary centralization creates perverse incentives, and that Bitcoin
is a potential solution to this.

------
wildbunny
He misses the point that the developers do not control bitcoin; the miners
control bitcoin. The developers suggest improvements which will only be
adopted if the miners support those improvements.

The miner's interests are purely profit based, so they will not adopt changes
which reduce their chance of profit.

~~~
jwildeboer
Thank you for pointing out that the users of bitcoin (and other
cryptocurrencies) have effectively no say in the design of the system they
have to trust. This will ultimately limit the very trust needed to keep it
alive IMHO.

~~~
chii
> users of bitcoin (and other cryptocurrencies) have effectively no say in the
> design of the system they have to trust.

how is that any different to the existing currency system like credit cards
and banking?

And users _do_ have a say in bitcoins. Namely, they can vote with their wallet
(literally and figuratively).

~~~
dragonwriter
> how is that any different to the existing currency system

Fiat currency is governed by central banks, which are arms of government, and
are accountable to the public in the same way as the issuing government.
Obviously, the degree of accountability varies from government to government.

~~~
arethuza
Except for the Eurozone where the ECB doesn't appear to really act as an arm
of anyone's government.

~~~
ceejayoz
Brexit demonstrates an available route to expressing disapproval of the ECB's
actions.

~~~
arethuza
The UK wasn't in the Eurozone - and I've been reading Yanis Varoufakis's books
about his time as the finance minister of Greece and I've been fairly shocked
at how fundamentally _undemocratic_ (not to say unreasonable) a lot of EU
institutions and the likes of the IMF are.

And I say that as someone who voted Remain in the Brexit referendum (note that
Varoufakis actually campaigned on the Remain side in the UK).

~~~
ceejayoz
The Eurozone nations have EU exits available to them, too.

------
cayblood
One aspect of his argument that seems insufficiently explored is an apparent
assumption that governance is primarily a binary state, either present or
absent.

It's important to recognize that different approaches to governance have
different levels of effectiveness and efficiency, and one of the most
important aspects of blockchain is how it presents the first real improvement
on the present state of the art in governance, or the first real competition
to our current forms of government. It can help consensus to be achieved more
quickly and efficiently and can make corrupt government more difficult. There
are further improvements to blockchains being made to make amendable
blockchains where changes to blockchain protocols and contracts can be tested
in sandbox environments, essentially systems in which laws and contracts can
be tested to see if they produce the desired results before implementing them.
The Tezos blockchain is the most notable emerging example of this.

All of these improvements present much more powerful tools for aiding just
governance than our forebears had when they created the constitutional
democracies that presently govern the world. Governance is not some Platonic
binary that is either absent or present, but it is an ideal towards which
we're always striving and taking pragmatic steps to implement. Blockchains
afford us new tools with which to achieve better governance. They are not an
end in themselves or a replacement for traditional governance so much as a
means to implement it more efficiently.

~~~
gjem97
And furthermore that DTLs are a tool for enforcing corporate governance. It's
a way of imposing it on organizations that otherwise would not exist.

------
jeffnappi
DLTs are inefficient by design. The energy consumption is unsustainable with
the technology as it stands. For example Bitcoin consumed an estimated 40
million KWh in the past 24 hours - _137KWh per transaction_. Enough to power
~1.3M American homes. Many of the alt-coins are even worse.

Source: [http://digiconomist.net/bitcoin-energy-
consumption](http://digiconomist.net/bitcoin-energy-consumption)

~~~
hdhzy
I wonder what's the energy consumption of an average credit card transaction
(including keeping the infrastructure, charge backs etc.)...

~~~
runeks
The more important point is that VISA is broken by design. Every day hackers
steal credit card info and leech millions from the system, which is included
in the fee you pay. The only reason it keeps working is because hackers aren't
sufficiently sophisticated yet.

The solution, of course, is to store a private key on a hardware device, not
have the private key be 16+3 decimal digits and an expiration date.

~~~
bo1024
I agree with you, but this is in principle a separate issue. We would like to
aim for a system that has both the security of Bitcoin AND the "efficiency"
of, in this example, VISA.

~~~
runeks
That would be great, but what if such a system doesn't exist? Pointing out
inefficiencies in Bitcoin isn't very useful when no alternative exists to
reach the same level of decentralization.

------
abrkn
Here are some things you can do in Bitcoin today:

\- Send any amount of money anywhere in the world. Fee is around $1 \- Be your
own bank. Your money cannot be frozen or seized \- Use a service such as
put.io or VPN without giving up your identity (pseudonymouysly) \- Exchange
Bitcoin for cash when traveling in countries such Thailand more cheaply than
ATMs \- Buy controlled substances, for medicinal or recreational use \- Store
any amount of money in your head, on a usb stick, or on paper. If price
movements worry you, just hedge, a service offered by several companies \- Bet
on sports regardless of your geographic location

Sounds transformative to me.

------
qznc
I don't understand why "competition" should not work? Switching currencies is
easier than switching citizenship. There are plenty of alternative
cryptocurrencies with different rules. User can switch to different ones (and
Ethereum is quite a challenger at the moment).

The network effects are great, because otherwise everything would explode into
a million different currencies.

~~~
KirinDave
Currencies need to have systems in place that work to make them stable and
preserve value, otherwise they're just tools for transactions.

This might be a better state of affairs if currencies are backed by something
exchangeable (e.g., joules of carbon neutral energy, etc...). We don't have
many currencies like that in the world, as I understand it. Most are
essentially contracts between governments that may or may not end in violence.

~~~
throwaway29292
SolarCoin is one such effort.

------
redm
I was having a similar conversation with a colleague given about 3-rd party
enforcement. The news that a Jaxx wallet user had $400,000 in Bitcoin stolen
just came out. [1] Who do you turn to reverse that? There's no one really. I'm
not sure DLT's are mature enough for serious global investment yet.

[https://www.cryptocoinsnews.com/users-report-
losing-400000-d...](https://www.cryptocoinsnews.com/users-report-
losing-400000-due-to-jaxx-wallet-vulnerability/)

------
delegate
Interestingly, the way things are right now, when it comes to governance model
on a global scale, the Big Bad Banks are _more decentralized_ than Bitcoin or
any other crypto currency.

Even if it weren't so, I still don't get why total decentralization is an
absolute good thing.

Nature seems to be a symbiosis between centralized and decentralized systems -
at every level; extremes (too much or too little centralization) will lead to
isolation/extinction or explosion/implosion - think biological systems or
stars in galaxies.

I disagree with my crypto anarchist friends who believe that changing the
money system will change society (eg. society is a function of money) and I
tend to think that the relationship is more symbiotic - society has to change
in order for the money to take other roles.

Even so, given human nature, it is not clear if a totally decentralized
monetary system is a good thing for society as a whole.

People trust 'authorities' more than they trust math written by a bunch of
'core' devs and that's because the former can easily apply brute force and
coerce the latter. Yes, we're still primates and the bigger/stronger argument
is still valid.

So I don't think Bitcoin will dramatically change society, but some form of
symbiosis between the current banking system and the crypto currencies will
emerge eventually - and then we can talk about centralization at a whole
different level. Either way, there's no escaping it.

------
drcode
What this article is missing is the word "decouple". Cryptocurrencies decouple
the many roles that are involved in maintaining and using a currency. It
doesn't "solve" governance issues, it breaks them into smaller issues that can
be (and should be) tackled in isolation.

Anyone who doesn't see this and argues "we should just go back to the way we
were doing things before" is missing the point.

------
crb002
The economic benefit of mostly automating governance is huge. Large financial
institutions push so much through COBOL/DB2 on mainframes. The cost of updates
to the contracts is horrid and mostly manual taking months if not years. The
biggest loser is IBM and it's largest z/OS clients.

------
quinndupont
_If_ there's a new argument to be had here (I'm doubtful, it sounds like a re-
hashing of governance issues that have played out over the last year), it's
this claim:

 _" This rule-making is what we refer to as governance."_

This conception of governance is the premise for the conclusion, what
Lehdonvirta calls a "paradox":

"And this leads me to my final point, a provocation: once you address the
problem of governance, you no longer need blockchain; you can just as well use
conventional technology that assumes a trusted central party to enforce the
rules, because you’re already trusting somebody (or some organization/process)
to make the rules. I call this blockchain’s ‘governance paradox’: _once you
master it, you no longer need it_."

My own analysis draws on a more expansive definition (from Introna; Saurwein
et al.): [http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-
Al...](http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-Algorithmic-
Governance.pdf)

This expansiveness is necessary, as Lehdonvirta recognizes. Contracts are not
just enforcement, they also encapsulate the processes of making ("rule-
making"), or better, _negotiating_ contracts.

So, are we authorized to go from a rule-making notion of governance to the
conclusion that once this is addressed blockchain technologies will be
redundant? Lehdonvirta doesn't give us any analysis of this move, but I don't
think so. Rather, we need to _recognize_ the contested forms, which are the
_essence_ of governance, and then create a socio-technical structure around
them. Consider: double-entry bookkeeping is just as much a technology for
governance as blockchain technology (and, of course, they share a historical
lineage). Does double-entry bookkeeping go away because we "address the
problem"? Hardly. Rather, we need to recognize the ways that it has developed,
and by whom, and for what use. Just like blockchain technologies.

------
empath75
I agree with this in as much as I don't think cryptocurrencies are ever going
to replace 'fiat' currency. That doesn't mean that they don't provide economic
value or are worthless, however.

~~~
sowbug
The article didn't discuss that issue.

~~~
jasode
It does if you take USA's "governance of Fed Reserve Notes" and EU "governance
of Euro" as examples of the author's "governance of technology" or "governance
paradox".

~~~
empath75
Yeah, I was specifically referring to the crypto ideologues who have a
fundamental distrust of fiat currency and think that bitcoin somehow solves
governance problems. The eth hard fork to protect the investments of
developers and early adopters should have disabused people of that notion.

------
zilchers
This article pretty well sums up my overarching opinion that, at this point,
bitcoin is the only actual killer app for blockchain. I'm always looking for
the next kill app, but haven't seen it yet. With bitcoin, the idea of no
governance or centralization is very much a feature, not a bug. When you get
to other blockchain solutions (like stocks or real estate), blockchain just
becomes a code word for immutable, public history, which is doable with many
different technical means (not just a blockchain).

~~~
RexetBlell
I think it makes a lot of sense to build a DNS system using contacts. Names
can be auctioned off and given automatically to the highest bidder. It is also
possible to set up a contract where you could trustlessly sell names. "Send
$200 to an address and you will get the name". This solves the prisoners
dilemma that is mentioned in the video at least for your dns addresses. There
is an auction like this in progress already, and you can participate now if
you like [http://ens.domains](http://ens.domains)

~~~
zilchers
Ya, that's not a bad point, I guess really any completely virtual item that
distributes on a first come, first serve basis could work. That's sort of a
generalization of bitcoin itself (if you think of the proof of work is a first
come claim on the new bitcoins).

~~~
RexetBlell
You could do even more interesting things than that trustlessly. For example
say, you own a valuable domain. You could borrow money and use the domain as
collateral. If you do pay back, or stop making monthly payments the domain is
automatically and trustlessly transferred to the lender. Or it can be put up
for a trustless public auction with the proceeds going to lender to repay the
loan and the rest to you, the ex-owner of the domain who failed to pay back
his loan.

The cool thing is that it's possible to build all of this today and people are
working on it right now.

------
yoz-y
I always thought of bitcoin as a commodity, not a currency. It seems to solve
the same problems and follow the same rules. E.g.: a commodity (such as gold)
can not be created, but it is an important feature for a currency. Without
inflation it will never be a good choice for currency anyways because it will
always be a more interesting to hold on it rather than use it.

~~~
blfr
If bitcoin achieved (a big if) wide adoption, it would be like keeping all
your money in an index fund whenever you're not actively spending it. Its
value would follow the growing economy.

~~~
altcognito
Except deflation instead of inflation. Instead of sticky wages you'll be
pressured to drop your hourly rates. Borrowing money would _increase_ the cost
of the loan, depending on the rate of value increase, you're looking at
negative interest rates. Everything about deflation makes zero sense.

~~~
PKop
You've identified who suffers and who benefits from the reversing of value
positions caused by deflation vs inflation.

But you haven't explained why its "worse"? So borrowers are disadvantaged
compared to lenders (savers).

And wage earners are in a better position relative to wage payers.. ? That's
what I take away from your statement.

But, one's ability to buy things seems to be improved...

Should we want an inflationary economy more college-tuition, healthcare-cost-
like... or computing & software-like? Continually falling prices for all
things computing related have done wonders for that industry no?

Would consumers be better or worse off having to spend less on food clothing
housing energy? Would they have more or less disposable income with flat or
falling prices?

Ok now assume increases in those costs... better or worse off? More or less
disposable income?

~~~
ffwd
> But, one's ability to buy things seems to be improved...

It's only improved if there is a lot of investment and new / more products
coming out. deflationary currency promotes holding on to your money so that it
goes up in value, but if everyone does that there will be less products /
services and the value of the currency will ultimately go down. If currency
has some inflation, then it's used as a transaction currency so that you want
goods rather than currency, so the product becomes the important thing. If you
have too much inflation however you get way too much money for the amount of
products, so you want stable inflation.

~~~
PKop
Won't interest rates be low if everyone is saving?

Won't there be more investible cash because a lower percentage of one's wages
is devoted to commodities, and essentials? As well, there is less of an
incentive to stockpile or "get ahead" of future price increases.

So.. more left over to invest?

Does expectation of future flat or lower prices give you confidence to plan a
vacation, invest extra money, etc.. or would you prefer to worry about food,
gas, and other prices going up in the future? (along with your sticky wages
making your real wage go down)

In fact, I 100% agree that savings and investment are key to future growth,
technology and the whole enchilada. Which is why I don't support stealth tax
of inflation, or of governments debasing the currency and stealing wealth from
citizens.

------
everybodyknows
Takeaway conclusion is existence of a sort of upper bound on the economic
potential of blockchains:

>Perhaps blockchain technologies can still deliver better technical
performance, like better availability and data integrity

The supporting argument is so tight that it never even invokes the repeated
failures of Bitcoin at the exchange/storage level: Mt Gox, wallets et al.

------
sharemywin
A while back I wondered if networks like facebook, electrical grids should
have more direct user decision making.

[https://news.ycombinator.com/item?id=14293114](https://news.ycombinator.com/item?id=14293114)

I think eventually networks need to figure out distributed decision making.

~~~
jpereira
Here's[0] an interesting take on a possible way forward to achieve that, very
much inline with the recent ICO trend.

In general I think the token design space is an extremely interesting one, and
seeing how different models lead to different social structures and outcomes
will be extremely interesting.

Of course this is not new (currently reading Debt: the first 5000 years), its
just radically easier than before, to design, deploy, and use. As a result
we'll see an explosion of variety, diversity, and competition, which'll be
fascinating to see.

Already the differences in ICO mechanisms are extremely interesting, though
they have a long way to go.

[0] [https://blog.bigchaindb.com/tokenize-the-
enterprise-23d51baf...](https://blog.bigchaindb.com/tokenize-the-
enterprise-23d51bafb536)

~~~
sharemywin
I doubt facebook does it you need tokens to buy out existing shares or
something. To not get sued. Also, tokens get traded and accumulate.

There needs to be some way to manage competing interests fairly(whatever that
means) and efficiently.

------
coverband
This is an excellent analysis: insightful and to the point. I'd love to read a
counter-analysis that can objectively argue against what I see as the central
point here: "Blockchains still need good governance, but once you have good
governance in place, you don't need a blockchain."

~~~
mariano54
Here's a thought: I don't think it's black or white, governance solved or not
solved. I think it's varying degrees of decentralization in governance.

Try to come up with a system that has more decentralized governance than
Bitcoin.

The core developers in bitcoin don't have all the power. Coinbase doesn't have
all the Power. Each user doesn't have all the power. Miners either (if they
abuse their power, POW function can be changed)

So basically while bitcoin governance is not perfectly decentralized, its much
better than anything else.

You can try to come up with a system where people vote. But the votes have to
be collected and analyzed somewhere, centrally. So you still have central
governance.

So yes, while 100% solving governance would make bitcoin useless, bitcoin can
improve governance (compared to federal Reserve, for example), while providing
a lot of value from this decentralization.

------
jankotek
Blockchain already transformed economy; it brought fast international payments
with small fees.

~~~
rb808
One of the reasons there are fees for international payments is to comply with
the legal requirements set up by governments to monitor and control such
transactions.

The cost of transferring FX wholesale is near zero. If a bitcoin based
processor implements the controls, the costs will be the same as a regular
payment provider.

So bitcoin can only become cheaper than tradition payments if you bypass the
legally required controls.

~~~
qqg3
While you're not wrong, the fees for international payments vary wildly
depending on how you do it, which service or bank you use, how much you
transfer etc. Which makes it hard to sell the "its about governance" line for
justifying those fees.

------
ninjakeyboard
The article ignores incentives - that the effort in trying to find a new block
may be better than the double spend. You'd have to buy a big ticket item, and
get really lucky as well so you have a fairly small window to catch up and get
head. So bitcoin works partly because the incentives to be an honest member
outweigh the potential benefit of attack vs the cost and risk of simply not
winning in the window within which you can double spend.

I'd consider some of the other uses of block chain such as permission-based
approaches, and the other applications like luxury goods in supply chain to
prevent counterfeit goods from entering.

------
leitasat
Well, there are some improvements over existing systems (e.g. fiat money):

1\. Less costs to switch to a competitor comparing to banks and states which
leads to 2\. The governance body and all influential members are really in
need of public approval of their actions since that is exactly what makes a
coin worthy. If they change protocol in a drastic way, the price will
immediately plummet leaving them in tatters 3\. Same mechanism prevents
conflicts within the community

In general I would like to see more about the role of law in economics and
possible tech implementations of it (meta-protocols?)

~~~
KirinDave
If we're talking about "mass" adoption, which suggests consumer-level
adoption?

Point #1 is exactly not what you want. It means your currency can lose value
almost instantly. Fiat currencies can do this, but only rarely actually do.

------
erikpukinskis
The most disruptive thing cryptocurrencies will do is undermine the legal
distinctions between currencies, commodities, and stocks. There's no real
difference between any of them, but they are treated legally quite
differently. Cryptocurrencies will flood the gaps in between these categories
with so many examples that it will DoS the legal system with questions it
can't answer, social adoption will outstrip courtroom resolution, and there
will have to be a post-hoc reckoning with a new legal framework.

------
Rabei
Because bottom line, the only thing it improves is that there is no longer
need to move the money around in armored cars, and that is not high impact in
the bottomline of the economy

You lose the following: 1 - Ability control monetary policy 2 - Reduction in
theft via cost in effort (same thing as with e-voting and rigging elections)

Because of that you have seen that blockchain stuff works on countries where 1
is badly handled. everywhere else nobody really cares except for the hype.

~~~
rubber_duck
It's also convenient for purchasing illegal stuff instead of having to go
trough stuff like western union (if you think BTC fees are huge I have a
surprise for you). Surprisingly acquiring bitcoin was the hardest part of
acquiring controlled substances (coinbase transaction failed twice with my
credit card and had a tedious registration process requiring photo, scan of
ID, etc. etc. - ended up buying from localbitcoin using bank transfer but it
felt risky and the markup was considerable) - the rest was as simple as using
a online shop and it shipping to home address - even got free shipping for a
bigger order :)

~~~
Rabei
You are right of course, i would argue though that that use case is a
deterrent of mainstream adoption rather than an incentive.

Edit: proper english.

------
wyc
I think that the core value crypocurrencies and blockchains provide is a
distributed system of trust. I also think that we people in developed nations
have been spoiled by our trustworthy institutions, relatively speaking. I
don't know too many people in US/UK/AUS/JP hesitant to put money away in the
consumer banks, take out mortgages, or file disputes in the state courts.
Those systems work well enough, with acceptable speeds for most use cases.

While crypto technologies are improving, they have some glaring drawbacks:

\- The recent BTC confirmation time (transaction processing duration) was in
days[1].

\- The consumer loses significant protections because transactions are final.

\- On a broader note, no centralized controls or responsible entities means no
one to point fingers at when something goes wrong.

\- There are very steep learning curves for all participating parties.

These are all being worked on through technology improvements and new
blockchains, but they're still issues that prevent blockchains from displacing
existing systems. I think they could one day change everything in an
Innovator's Dilemma fashion, but not anytime soon (5-20 years). There is
already staunch opposition to using clearly superior technologies due to
cultural factors, for example:

\- Americans won't use chip readers partly because the magnetic strip was
already widespread[2].

\- Developed nations don't use mobile chat operating systems such as WeChat
partly because they already had laptops[3].

So in the case of blockchains, not only is there an overwhelming opposing
cultural force, but also they happen to make inroads in sensitive industries
such as finance/contracts, and the technology is not superior on many levels.
This would make adoption very difficult.

Where it will work

However, some people don't have such great institutions. Look at how
successful BTC has been in turmoil-ridden South American nations such as
Venezuela and Argentina[3]. The inflation is out of control, and consumers
don't trust any of the banks or institutions. In this environment, the
blockchain is leaps and bounds better than anything else that these consumers
have access to, so it's immensely valuable. You'd be willing to wait several
days for transaction clearance. You wouldn't care that the transfer is final.
You'll do whatever awkward dance it takes to operate and secure a Bitcoin
wallet. There's no better alternative, and financial asset security is
important.

I think characteristics of an ideal market for blockchain technology today
could be:

\- Very low trust among participants.

\- No trusted central authority.

\- Expensive, long, or nonexistent arbitration cycles.

\- High transaction costs.

Its most compelling value is the provision of trust where there is none. An
example where this might work well is in the specification and mediation of
international contracts for small businesses. There is currently little
accountability after getting burned in an international transaction with a
small entity, as a small entity. If there were a standard trusted registry of
company reputation, transaction histories, and contracts, then it could go a
long way to building systems of trust that enable more fluid trade afar.

[1] [https://blockchain.info/charts/avg-confirmation-
time?timespa...](https://blockchain.info/charts/avg-confirmation-
time?timespan=30days&showDataPoints=true&start=2017-06-02)

[2] [http://www.digitalcheck.com/emv-will-usa-be-
ready/](http://www.digitalcheck.com/emv-will-usa-be-ready/)

[3] [https://techcrunch.com/2016/06/01/it-might-be-time-to-
stop-l...](https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-looking-
for-the-wechat-of-the-west/)

[4] [https://reason.com/archives/2016/11/28/the-secret-
dangerous-...](https://reason.com/archives/2016/11/28/the-secret-dangerous-
world-of)

~~~
davidgerard
The "Look at the popularity of Bitcoin in [country]" argument always turns out
to be made-up rubbish.

I did actually try tracking the Venezuela hype to its source. You have linked
the Reason article as a reference, but if you actually read the thing, its
title is "The Secret, Dangerous World of Venezuelan Bitcoin Mining: How
cryptocurrency is turning socialism against itself" and the article itself is
an unhinged libertarian polemic fiercely advocating Bitcoin as a way to avert
the SPECTRE of SOCIALISM and REGULATION. One of their interviewees had been
arrested for stealing electricity to mine bitcoins, which the author describes
as a "government crackdown" on "freedom" because "bitcoin mining is arguably
the best possible use of electricity in Venezuela".

A story in The Guardian in the wake of the Reason story appears to be where
the rest of the press picked it up. It spoke of some Venezuelans relying on
Bitcoin for "basic necessities" \- and was based on interviews with a Bitcoin
exchange owner, one of his employees and two of his customers. The author had
previously written similar stories of Argentina and bitcoin.
[https://www.theguardian.com/technology/2016/dec/16/venezuela...](https://www.theguardian.com/technology/2016/dec/16/venezuela-
bitcoin-economy-digital-currency-bolivars)

These two questionably-founded stories were echoed and elaborated upon by the
rest of the press, including - amongst _many_ others - the Washington Post
claiming that Bitcoin mining is "big business" in Venezuela (which it in no
way is), the New York Times claiming that Bitcoin has "gained prominence"
_because_ of Venezuela, and BBC News repeating claims from a Bitcoin
boosterism blog - all of this being factoids repeated in a media game of
telephone.

The Venezuelan volume on LocalBitcoins at the time was on the order of 300-400
BTC/week, which isn't nothing, but is negligible in the context of a whole
country, and tracked fairly closely with LocalBitcoins usage in other
countries.

 _tl;dr_ no, Venezuela isn't a thing either.

~~~
wyc
Thank you for your research into this! I found it difficult to locate good
sources too, and that fact is worthy of more disclaimer than I gave. I think
you're right in giving any claimed causality in new territory a good hard
knock.

The rate of usage growth could give more insights than just current volumes:

[https://coin.dance/volume/localbitcoins/VEF](https://coin.dance/volume/localbitcoins/VEF)

It could indeed be just a blip, but would you agree that there exist
reasonable incentives for usage of DLTs in unstable economies?

~~~
davidgerard
> It could indeed be just a blip, but would you agree that there exist
> reasonable incentives for usage of DLTs in unstable economies?

tl;dr no. Cryptocurrencies (we're not talking about the general euphemism
"DLT", your question is about cryptocurrencies and specifically Bitcoin) don't
solve any of the problems people have in that situation. When _every story_
about "Bitcoin in [troubled country]" has turned out to be made-up rubbish,
this leads me to consider all such claims wishful thinking on the part of
holders.

------
thechut
Interesting points about enforcement.

But I think the real barrier to adoption is that most people don't mind using
centralized systems. If their Visa card works when they swipe it, they don't
think beyond that. If it's easier for the end user when systems are
centralized, breaking people out of this mindset will be very difficult.

~~~
Nursie
I'm fairly pro privacy, but where it comes to currency, I don't see the
benefit.

I certainly don't see the benefit of burning the amount of energy the average
bitcoin transaction is now responsible for, when (as you say) I have Visa.

And with Visa I can charge-back if I get ripped off. Bitcoin is, AFAICT an
actively worse proposition for me.

------
randomThoughts9
There are currencies with governance built in: PIVX and DASH are the two main
exampled I know of.

Basically the nodes that have a stake in the system are allowed to vote on the
direction the project is going.

My personal impression is that currently this model is still very rudimentary,
but in the future I could still an almost autonomous system taking off.

------
isubkhankulov
the article is spot on when it comes to Distributed Ledger Technology (DLT)
but misses the point of Bitcoin. Many in the community cite the lack of
governance as a strength of Bitcoin. It's resilience is a virture because it
becomes difficult to corrupt, unlike centralized governance of traditional
payment methods.

~~~
dragonwriter
> Many in the community cite the lack of governance as a strength of Bitcoin.

Bitcoin has opaque governance; it does not have a _lack_ of governance.

> It's resilience is a virture because it becomes difficult to corrupt

It is not at all difficult to corrupt. (Arguably, since it's fundamentally
based on “them what have they gold, make the rules”, it's foundationally
corrupt and takes nothing _additional_ to corrupt. But, in any case, all it
takes to corrupt it is will and money.)

~~~
isubkhankulov
opaque? have you seen the bitcoin dev mailing list? or the github issue list?

------
spectrum1234
I agree with the article yet the article fails to address a large benefit of
DLTs, reducing transaction/3rd party fees. A ~2% reduction in costs is still
enormous at scale.

Another benefit that is overlooked is adaptation. Once mature, creativity and
innovation will happen faster with DLTs.

------
yanivleven
I do not believe that a deregulated system can catch to massive economic scale
because there is a trust involved with currency.

The minute a currency is distributed with no regulation it can be monopolized
and its price shifted up and down by the power of the monopoly.

------
pessimizer
How did blockchains start to pick up the same grammatical quirk that
"chiropractic" has? The blockchain, a blockchain, blockchains, blockchain
technology, fine. "so many people are so excited about blockchain today"?
Bizarre.

------
joeyspn
Bitcoin and the rest of cryptos need an IETF-style organism issuing standards
and guidelines... that could solve many of the governance problems, including
forking dramas (SegWit, DAO, etc)

------
kbuchanan
I pose this as a question as much as a statement: Bitcoin does not have to
_solve_ the governance problem. It need merely _perform some functions better_
than a fiat currency.

Consider economists' Taylor Rule. It represents an effort to impost
constraints on a bureaucratic institution and how _people_ manage the dollar.
Cool, we pass a law called the Taylor Rule. Now just don't enforce it. People
who want stuff are hard to constrain.

In other words, the Bitcoin community doesn't have to be uncompromising and
immutable, like its technology, for the currency to succeed—it just has to do
_better_ than its alternative (even in narrow applications).

Thoughts?

------
DrNuke
Black and grey uses, the financial sector is pretty happy with this tool and
cyber-criminals too, I suppose.

------
dnautics
this is a really great article, because it highlight a very important
dialectic that many blockchain enthusiasts, developers, entrepreneurs, and
speculators don't acknoweldge. I would however, suggest that the issue of
governance is not an "all-or-nothing" choice. Probably some of the blockchain
technologies that try to do things like "link to a central bank", will suffer
from a difficulty in establishing product differentiation from traditional
currencies and transaction schemes; but the blockchain technologies that live
on the more distant side of the spectrum (providing an, if imperfect,
implementation of distributed trust) like the original bitcoin, will survive.

------
pravinva
So the worry is that you need govt courts and police to enforce rules? That's
not a great argument. The number of private police today is far greater than
govt employed ones. Most international trade disputes are settled by private
arbitration and not the govt courts. What's the real worry?

~~~
tdb7893
The problem is that at the point where there is a trusted party to arbitrate
disputes why do you need a blockchain? It seems ironic that it seems like we
need some trusted governance over a system that is literally built upon the
idea of distributed trust.

