A Sledgehammer To The Economic Order

There was a moment in time when a friend at work showed me a webpage, the first I had ever seen. I remember it with great clarity; his name was Jay Cooper, we worked at Cinesite, a division of Kodak, and we were on the third floor of the Kodak building on Las Palmas Blvd. in Hollywood, sometime in early 1995. He was using an early browser called Mosaic, and the site was a personal page of someone in San Francisco. I watched in fascination as he clicked on a link and the screen jumped to another page.

In that instant, I vaguely understood what I was looking at, but I vastly underestimated the power of the browser and the HTTP protocol to change things I assumed were permanent. I didn’t realize that this software tool would destroy every newspaper in the world, upend the movie and television industry, and radically change dating norms, plus many other things. If information can be absorbed through the eyes or ears, the browser has delivered it anywhere at any time and those who provided no explicit value except through controlling information were bypassed.

What the browser did to information and content, the blockchain is doing to transactions. Anything where value is moved from one place to another can now be moved out of wherever it currently exists and onto a computer in such a way that cuts out all the people and institutions in between. That seems simple enough, but it’s actually revolutionary and at least as unpredictable in future application as the browser was in 1995.

Since Bitcoin is the most widely known application of blockchain it’s a good place to start to illustrate how profound this development is.

Currency of any kind is a way to transfer value so one doesn’t have to barter with actual goods. Barter is so wildly inefficient that you simply can’t have economic development without symbolic and transferable value markers. As things stand now, currencies around the world are issued and controlled by the nation/state is it exists with the associated borders, laws, and armies. So, dollars and euros and pesos and such are issued and the value in theory protected by national governments. Banks are charters by governments to hold that value, or one can hold it in the form of a physical marker, like cash.

If one wants to transfer value from one person or institution to another, then currencies are the way to do it. If I want to buy a house, for example, I give dollars to the person who owns the house; they get my dollars and I get their house and we’re all good!

We’re all good, but there was a whole phalanx of people who had to facilitate this transfer. First there was the government of the United States that issued the dollars that we used to mark the transfer of value. Then there was the bank that held my dollars and they had to send the accounting ledger entry to the bank of the owner of the house (which assumes I didn’t buy the house with stacks of paper currency). Then there were the realtors who kept track of all the details and made sure that the state and local government got paid (in dollars) the associated fees, and there probably was a bank that lent me the money (in dollars) if I didn’t already have them, and finally, there was the legal title of the property, registered in a county government book, that noted to all that I am now the owner of the property.

Using a currency like Bitcoin and using a ledgering system like a blockchain, this entire complex process is reduced to software; I move my Bitcoin to the owner and the owner moves the title to me. I get a set of keys and we’re done. A vast army of middlemen is gone and there is just a house plus a willing buyer and seller. This process could be done in seconds rather than weeks.

In the past, a vast army of reporters and editors and printing press operators had to go to work creating a newspaper which I had get in paper form, and only THEN did I get the information I wanted. That army has been reduced or eliminated and there are far fewer people between me and information, and the quantity of information available to me is virtually unlimited. What a blockchain does is push out all the middlemen in the transfer of value from one person to another, BUT with this key difference; the middlemen in value transfer are government and banks, and the value transfer includes much more than just the printed word or moving images. Now, it’s my money, my house, my car, and my transactional history.  Its also my identity, managed by me. It’s even things I might not consider to me my own, such as my media consumption patterns which currently, someone else like Facebook collects and claims to own and subsequently monetizes.

This is revolutionary and dangerous stuff. Issues of ownership, value transfer, and the rights and privileges of government and banks to arbitrate and manipulate value is about to become unstuck.

In the browser era, newspapers went down without a fight, and while they tried to get in on the internet information revolution, they largely failed because it turns out their core value was in controlling and packaging information in the way that suited their interest. They just didn’t add much value beyond controlling distribution and I’d argue that their refusal to admit that doomed them. Their editorial value in dictating what was credible and ‘true’ is lost now, assuming it was ever credible. 

Are banks run by smarter people that newspapers once were? Perhaps. Will national governments, from the US to China, allow the powerful levers of value transfer to be taken over by an uncontrolled global ledger? Perhaps not. Removing the value transfer monopoly is a hammer blow to existing orders in at least as powerful a way that the browser was a hammer blow to the world’s information monopoly.

But it’s possible and it’s coming and no one can stop it.

July 16, 2022 – Crypto has grown, but lately gone into what is being called the ‘Crypto Winter.’ Still many see it as a transformative technology and are sticking with it. March Andreessen weighs in here.