Saturday, 29 November 2014
The technology and the appetite is now here to build a small, decentralised, flat and free world
Maybe we will look back and see this as one of history’s great coincidences: Henry Ford’s first Model T was manufactured in October 1908; exactly one-hundred years later Bitcoin was launched in October 2008. What’s the coincidence, you may ask.
The Model T paved the way for mass production which underpinned the creation of the vast, centralised and hierarchical corporations that came to dominate the advanced economies. It was an organisational structure which also encouraged politicians to take the same approach to the state with the establishment of large, centralised bureaucracies designed to deliver healthcare, education, social security and a wide range of other services.
Bitcoin is an early and very important embodiment of a counter-trend towards a smaller, decentralised and flatter world which may well be the defining feature of this century just as concentration of power and resource was the defining feature of the last.
The counter-trend emerges in a number of forms.
The conventional, twentieth century corporate structure, for example, has never been more troubled or under assault. The churn amongst the largest corporations is high with over a third of America’s top 100 businesses not even in existence back in 2000. CEOs are ousted by shareholders at an alarming rate. And the credibility of big business has dived amongst the general public in recent years.
By contrast small business is booming. Start-ups are all the rage amongst the young and ambitious. Ever increasing numbers of all ages are ditching conventional employment and turning to self-employment and running their own micro-business. There is widening interest in alternatives to the shareholder model as well as a growing recognition that the hierarchy and centralisation of corporations is becoming a positive drag on competitiveness.
The centralised state is equally threatened. The internet and mass media have made it impossible for all but the most authoritarian regimes to control the information to which their citizens are exposed and even the authoritarians are finding it increasingly hard. Conventional armies are defeated by smaller non-state forces more and more often. The remarkable rise in migration across the world has made it exceptionally difficult for governments to monitor and control their borders.
To remodel a well-known phrase: cometh the hour, cometh the technology. Fordist mass production was the perfect technology for an era in which corporations has already been amassing power and resources during the nineteenth century and it worked well with (and no doubt encouraged) a post-war world where people looked to big institutions including government to provide stability, security and material well-being.
In a very different world where creativity, freedom and self-expression are so highly prized and where the old big, centralised institutions of the last century are facing erosion, it could be that Bitcoin and its variations could be the technology of our hour.
The Blockchain Awakens
Like the Model T, it is the workings behind Bitcoin that are probably more important and transformatory than the product itself. It provides an intimation of the type of organisation that might replace the big, centralised, hierarchical body and, again like the Model T, it is truly radical.
Ford’s famous breakthrough was to pull the car’s chassis through a line of workers rather than have workers go to the chassis. With that simple insight, the assembly line was born and productivity was raised enormously. It allowed mass production and the mass market to explode during the twentieth century with very many other innovations ultimately contributing to the creation of the big corporation. Of course, the availability of cheap, mass produced automobiles also had a major impact but so did the availability of cheap, mass produced home appliances, power tools, heating and lighting systems and so on which were all made possible by ‘Fordist’ production techniques.
Bitcoin’s technological breakthrough is the blockchain. It is an approach to on-line transactions that allows the parties to that transaction to be sure that the terms of their transaction will be honoured without the need for third party co-ordination or regulation. So in Bitcoin’s terms, it means that when I pay you some bitcoins in return for a product you have made, you can be sure that I haven’t already spent those bitcoins elsewhere. The key is some clever coding that enshrines a model which incentivises numerous individuals and organisations to collate and publish every bitcoin transaction in a completely open and transparent way by paying them in bitcoin for their work.
It stands in contrast, for example, to conventional on-line transactions such as credit card or Paypal payments which require a large company to co-ordinate and regulate transactions and make sure people are not cheating the system. It also runs against traditional off-line cash systems which are controlled (in theory anyway) by central banks.
The promise of the blockchain is that it can be applied to a much wider variety of areas such as other financial transactions, employment contracts, business partnerships and even political and social activities. The ultimate outcome may be a world where more and more human activity is made possible by clever computer code and the blockchain approach of incentivising a wide network to spontaneously manage the system in totally transparent form.
Of course by the time we got to the middle of the twentieth century and the heyday of mass production, corporations had progressed well beyond the early experiments of Henry Ford but, just as with blockchain, the intimations of what was to come were already present in the Model T process.
Which raises the fascinating question: what would a blockchain world look like?
A Blockchain World
Fundamentally, it is a place where the third parties that manage and regulate what others do are either rendered increasingly unnecessary or find it much harder to exert their managerial and regulatory authority in a growing range of areas.
So the traditional corporate structure where investors, a board and a senior management team make the big decisions for a company might be challenged by an arrangement where groups of self-employed individuals with complementary skills and experience contract with each other to pursue a certain commercial project. The co-ordination, decision-making and operational matters usually handled by the corporate hierarchy would be managed by a combination of computer code and a diversity of individuals and organisations in return for material incentives such as an automatic share of profits. The trust required to ensure that all the contracted parties had the necessary skills and resources to fulfil their functions would be built into the very code and processes that facilitate the contracts just as conducting a transaction in bitcoin inherently provides the necessary guarantee of trustworthy payment.
Precisely the same principles could, in fact, be applied to any area of common endeavour removing the need, for example, for hobby clubs to have an organising committee, political campaigns to have a central leadership, public services to have government appointed managers or even for social networks and search engines to have an office full of co-ordinators.
It also opens up the possibility of the decline of the brand. Brands, of course, convey far more than trustworthiness but it is certainly central to any successful corporate identity. If the very process of contracting or paying for something on-line gives both parties the guarantee of good service and rapid payment then the need for a reliable brand is diminished even if it is not entirely negated. It opens up the intriguing possibility that small companies with no marketing budget might well be able to compete with the biggest corporations that have spent billions and decades building up a reputation for reliability.
Our politics could also conceivably change very radically. Might we one day be in a world of blockchain democracy where decision-making, legislation and the aggregation of citizens’ views currently carried out by political parties, politicians and government officials is managed (probably in a far less biased fashion) by a decentralised network transparently keeping track of millions of citizen deliberations and decisions on key questions and then making a final ruling in line with a process pre-ordained by the code?
Lumpy Change Ahead
All of this is rather mind-boggling and may seem far-fetched. It is worth keeping in mind that few observing the Model T chassis being pulled through a line of auto-workers on a trolley by a piece of rope could have imagined that such technology would ultimately lead to the world of big government, big business and material abundance that existed in the advanced capitalist economies by the 1950s. Nevertheless, increasing venture capital and development effort is now going into blockchain with an eye on a very different future.
However, new disruptive technologies are rarely adopted smoothly or predictably. Many powerful people and organisations have vested interests in doing things in the established conventional ways and will inevitably resist change. Mass production itself may have taken hold in the US but its adoption in Europe was far more troubled. While Japan ultimately took mass production and completely transformed the approach during the 1960s leaving the US and Europe trailing for many years. Blockchain and similar technologies are likely to go through exactly the same lumpy process.
Imagine, for example, the decades of campaigning that would be needed to transform our democratic structures in the ways suggested above.
In addition, our world rarely changes entirely. The outcome of new technologies allied to new cultures and aspirations is usually a hybrid one. The big corporation did not entirely usurp the small business, centralised government (even in the most totalitarian systems) could never completely eliminate spontaneity, unpredictability and idiosyncrasy.
Better to think about the twenty-first century as an era characterised by an irresistible but gradual emergence of a world then that is more rather than entirely built around blockchain type principles of decentralisation, self-management, plurality and the smaller scale.
And, of course, none of this even begins to touch on the legal, political and ethical challenges of a world where regulation of human activity by third parties becomes ever more difficult.
So the real question is not whether the blockchain world is coming but how much of our world should and could accord with such principles.
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