The Advent of People Centered Blockchains

The Advent of People Centered Blockchains

X
minute read time
Noah Thorp
Noah Thorp
Founder, CEO
Noah Thorp
Published:
June 15, 2017
Last Updated:
August 16, 2022

In the same way that internet protocols allowed us to democratize media production, blockchain protocols allow us to democratize financial networks. After a few years of operation Bitcoin, Ripple, Ethereum, and hundreds of other blockchain based cryptocurrencies have a collective market cap equivalent to billions of dollars. These protocols use cryptography to assure that transactions are processed correctly so the network can reach consensus about which transactions are valid.

Meanwhile at the application layer, social capitalist organizations like Stellar are leading the way in using blockchains for increasing financial trust in transactions for the underbanked and low cost cross border money transfers. However, Satoshi’s vision of decentralization has been regularly challenged by server farm operators that control network consensus, banks that wish to control access, tax authorities who want a share of capital gains, and regulators who wish to eliminate black market trafficking. As these forces attempt to put blockchains under more centralized control, alternative efforts like Ethereum seek to promote a decentralized autonomous society of personal sovereignty through a Bitcoin like protocol with a decentralized legal contract layer.

The Promise of Decentralization

In the same way that internet protocols allowed us to democratize media production, blockchain protocols allow us to democratize financial networks. They enable ordinary citizens to create currency without central banks and securely verify financial transactions for each other without trusted third party institutions. They also allow us to transform legal agreements into auditable algorithms.

After a few years of operation Bitcoin, Ripple, Ethereum, and hundreds of other blockchain based cryptocurrencies have a collective market cap equivalent to billions of dollars. But who benefits and how can we use blockchains to progress people centered values?

(BUT FIRST, WHAT IS A BLOCKCHAIN?)

Blockchains like Bitcoin, Ethereum, Ripple, Hyperledger, and Stellar are open source distributed databases. They have protocols for network operators to send and confirm transactions. These protocols use cryptography to assure that transactions are processed correctly so the network can reach consensus about which transactions are valid.

At their simplest, blockchains track the transfer of tokens in a collectively administered ledger of accounts. Cryptocurrency tokens can represent payment for processing transactions or be backed by assets like gold, smart grid energy, car titles, or stock. But this is just the beginning. Some blockchains, like Ethereum, can also implement the rules of legal contracts in software code called smart contracts. This code can securely automate voting protocols, escrow, insurance and legal agreements.

There are several variants of blockchain systems that each have strong socio-political ramifications. Some of the most important spectrums of variation are transparency, who can issue transactions, and the immutability of past transactions.

For example, Zcash optimizes for personal sovereignty through unregulated access to completely encrypted transactions with zero transparency. On the other end of the spectrum, Hyperledger verifies the legal identities of account owners and has the power to block access to transacting. Permissioned systems like Hyperledger are more favorable to banks who need to comply with anti-money laundering regulations.

So Who is Benefitting?

Cryptocurrency has earned network operators (called “miners”) hundreds of millions of dollars in “magic internet money” during the Bitcoin, Ripple, and Ethereum gold rushes. These gold rushes built a new financial network without funding from the financial industry by printing money and giving it value through algorithmic scarcity. Once mined these tokens have been traded on exchanges like Kraken and Poloniex by a new breed of cryptocurrency traders. Banks and FinTech startups are vying to be the third wave of beneficiaries in the new rise of permissioned blockchains.

Meanwhile at the application layer, social capitalist organizations like Stellar are leading the way in using blockchains for increasing financial trust in transactions for the underbanked and low cost cross border money transfers. The potential for supply chain transparency is also being explored by companies like Everledger which uses the blockchain to thwart diamond insurance fraud. Also, despite Bitcoin’s crypto-anarchist cypherpunk origins, transparent permissioned blockchains are a regulators dream; they are now proving valuable to the growing industry referred to as RegTech.

But What of the Promise of Decentralization?

In the wake of the financial crisis of 2008, Bitcoin’s creator Satoshi Nakamoto released a whitepaper specifying: “a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”. This decentralized system has inspired people to paths of economic resilience and opportunity in a time of global financial crisis.

However, Satoshi’s vision of decentralization has been regularly challenged by server farm operators that control network consensus, banks that wish to control access, tax authorities who want a share of capital gains, and regulators who wish to eliminate black market trafficking. As these forces attempt to put blockchains under more centralized control, alternative efforts like Ethereum seek to promote a decentralized autonomous society of personal sovereignty through a Bitcoin like protocol with a decentralized legal contract layer. Ethereum now has more network nodes than Bitcoin and over 150,000 meetup members world wide. In the winter of 2016, Microsoft began hosting Ethereum in their Azure cloud hosting.

One of the biggest debates in the community concerns interpretation of contracts by network operators versus code as law. This debate was brought to the forefront in early 2016 when a “bug” in the code for a smart contract allowed the funneling of approximately $50 million dollars of the Ethereum cryptocurrency into a hacker’s account. The operators of peer to peer nodes responded by changing the interpretation of the code rather than abiding by the interpretation of code as law. The implications of the code as law debate are far reaching for both Ethereum and other blockchains.

How Can We Progress People Centered Blockchains?

As we have seen, Blockchains are at the heart of some of the most polarized conversations of our time. Blockchains or related decentralized financial technology are sure to have implications on our future. Blockchain implementation details force us to reconcile transparency versus privacy, human versus machine decision making, universal access versus encrypted money laundering, and government regulation versus personal sovereignty.It is the the relations between peers, degree of transparency, and the accessibility of operating networks that is currently for us to decide. As law becomes integrated with code we have unprecedented opportunity to write code that empowers a broad spectrum of people rather than disempowering them. Let’s not waste the opportunity.

About the author: Noah Thorp is the Founder of CoMakery & Upside. His interest in crypto-equity was sparked during his role as VP of Engineering at SharesPost and Nasdaq Private Market. He lives near Berkeley with his wife and two tea pots.

This article does not constitute investment and/or legal advice, and is strictly for education purposes only. Upside is not an SEC registered investment advisor, practicing legal entity or any other type of licensed body that can legally provide investment and legal advice. Upside is not responsible for any errors or omissions in this article, due to the changing nature of laws, rules and regulations or otherwise, or for results obtained from use of the information it contains.

The Ledger
More from the Upside Ledger
Nine Examples of Security Tokens in Web3
Nine Examples of Security Tokens in Web3
Security Tokens are cementing their place in the financial industry as a programmable vehicle for investment in any asset that already has value, like real estate, a car, or corporate stock.
The Complete Guide To Governance Tokens
The Complete Guide To Governance Tokens
Uniquely, compared with other types of tokens, Governance Tokens may actually take many forms. There are security tokens, utility tokens, and LP staking tokens, that each perform a governance function.
Everything You Need to Know About Liquidity Provider Tokens
Everything You Need to Know About Liquidity Provider Tokens
Liquidity Provider Tokens, or LP Tokens for short are a reward mechanism to help facilitate transactions between other different types of currencies. To understand Liquidity Provider Tokens better, it is helpful to...
The Complete Guide to Security Tokens vs. Utility Tokens
The Complete Guide to Security Tokens vs. Utility Tokens
Organizations from all types of markets and communities are looking to tokens as a way to deploy new types of businesses and projects.