Blockchains are Cargo Cults
[This article was originally published on 7 September 2016]
During World War II numerous indigenous people of the islands of the Pacific Ocean, who previously had no contact with other civilizations, suddenly witnessed history’s most devastating and hitherto technologically advanced war being fought right on their door steps.
Japanese and Allied Forces arrived with heavy machinery and plenty of supplies to set up bases all around the Pacific Ocean, some close to people who had little to no interaction with modern technology before.
Where soldiers maintained friendly relations with the locals, the supplies and technology they brought made their way into villages. Machinery, radios, electric light, and spectacles were passed around, and the people witnessed ceremonies like flag-raising, parades, and flare-guided airplane landings.
To the locals, these events were indistinguishable from magic, and the people attempted to explain them alongside the existing social, cultural, and religious experiences they held. A common belief was that the soldiers had a special relationship with the ancient gods of the islanders, and the gods were rewarding them with gifts from heaven.
As the war ended and soldiers left their former bases, local people, still unknowing of the processes behind their recent experiences, began to imitate the behavior of soldiers in an attempt to keep the supplies coming.
They carved headphones and radio from wood, continued the flag-raising ceremonies and parades and lit up former air strips in an attempt to recreate the special relationship with the gods that the soldiers had. Cargo cults were born.
Bitcoin Poses a Threat
Bitcoin not only allows individuals to freely exchange value over the internet at low cost, without intermediaries charging fees or imposing censorship.
This allows for radically free commerce across borders, challenging more industries through increased competition than just financial institutions.
More importantly, Bitcoin makes it impossible for banks or governments to print money, a significant source of their income and political power.
Bitcoins cannot easily be seized by law enforcement, and with enhanced financial privacy enforcing taxation laws becomes more difficult.
Blockchains Emerge
In an attempt to dismiss the threat posed by Bitcoin and hopefully retain the upper hand, at least in conversations, the buzzword ‘Blockchain’ was born. The narrative is that Bitcoin can be safely ignored while its technology can be co-opted to enhance the existing financial system. Blockchains make banks stronger, increase profits and make it easier for governments to collect taxes and monitor its citizens. Initially, the phenomenon of taking inspiration from Bitcoin’s functionality to build a better banking infrastructure was referred to as ‘Bitcoin 2.0’, with Ripple Labs being one of its early champions, in 2012.
The code underlying Bitcoin was supposed to spell the end of traditional finance; instead, big banks plan to leverage it to streamline operations and costs, while improving services and products for clients. — Morgan Stanley, 2016
By 2015, this term had morphed into ‘Block Chain 2.0’, and later, simply ‘Blockchain Technology’. The New York Times and the Economist gave the topic, and the term, a broad audience in the late summer of 2015, and the terminology was settled.
Bitcoin in this new narrative was the premature rebellious infant that could be used to buy drugs and pay ransoms, and Blockchain was the more mature cousin who’s time has come, as evident by the cover stories from established news publications, partnerships with accounting firms, central banks, and governments. One such organization, the UK Office for Science, even dares to spot what lies behind blockchain: Distributed Ledger Technology.
Blockchains Are Not Very Interesting
Having stripped from Bitcoin the capability to be run by anyone and controlled by no one, blockchains have absolutely no potential to be transformative in any meaningful sense. This explains their popularity with those in power, but it does not explain what they are, how they function, and why you would use one. They might not even qualify as being blockchains in the technical sense, as explained in the 2008 paper released by Satoshi Nakamoto (hence the need for the term Distributed Ledger Technology).
When in the history of governance, banking, and journalism have we dedicated so much of our attention and efforts to a database? When has the world of finance and technology ever obsessed over the technicalities of wire transfers?
The answer is that blockchains are a form of cargo cults. They are a result of failing to understand, or refusing to recognize, the technological and social relationships of a cryptocurrency like Bitcoin, coupled with the fear and rejection of being ‘colonized’ by a group of people whose culture and values appear foreign.
Technological Relationships of Bitcoin
While Bitcoin is evidently full of cryptography, all of the technology utilized in the protocol was available long before the term blockchain was born.
Consensus
The real innovation of Bitcoin lies entirely in its consensus algorithm. A decentralized, open, and politically transformative blockchain needs proof-of-work (or maybe proof-of-stake) as its consensus protocol and this protocol demands a chain of blocks.
A centralized, permissionless, and politically neutral blockchain has no consensus protocol. It either does not seek consensus at all (because it’s only used to share data) or uses a preset authority to come to a consensus. Either way, it does not demand a chain of blocks.
Vendors
Another misunderstanding stems from the way in which traditional financial institutions view technology. Technology is often something that is bought ‘off the shelf’ from large vendors, while in the cryptocurrency world, technology is something that is to be adopted. Blockchain technology is supposed to be ready to take off the shelf and plugged in seamlessly, ideally with no disruption or effect on the existing business.
In their attempt to recreate Bitcoin, banks turned to the same actors they have always turned to, big technology vendors. Companies like Microsoft and IBM may not have any actual blockchain solutions available, but when faced with customers willing to spend, they will happily point them to existing products, such as IBM Bluemix, or Microsoft Azure. Blockchain as a service makes absolutely no sense, but turning customers away is not a viable business model.
Social Relationships of Bitcoin
Bitcoin also introduces a complicated and unexplored power dynamic. In Bitcoin, miners, users, developers, and businesses have no formal agreements with each other and are not protected by the rule of law.
Trust in People, not Math
The very core of the fabric around traditional money is that money has an issuer. This can be a bank, a mint, or a government; but the value of money is only worth as much as the institution behind it.
The fact that Satoshi Nakamoto’s ‘real’ identity remains a mystery is not of interest or importance to someone well familiar with how a cryptocurrency functions, but it is deeply troubling for those who are used to putting their trust into humans and not code. This also explains the relative popularity of the smart contracts platform (and undoubtedly a blockchain) Ethereum, whose founder Vitalik Buterin is known and easily approachable.
Blockchain is a Convenient Terminology
The confusion about the two very different kinds of blockchains exists because both sides of the argument are more than happy to continue to uphold the term. Blockchain allows companies dealing in the delicate space of cryptocurrencies to appease the very institutions they threaten, while a technology company embracing blockchain stays more relevant than if they were to simply admit they are building another shared database.
Creating a shared ledger for a financial system is not something that we would trust a small a newly founded startup to do, while with Blockchain, anything seems possible.
Scam Artists Prey on the Uninformed
Many leaders of cargo cults have been accused by their more informed peers of running scams. It is impossible to know if a spiritual leader genuinely believes in their preaching, or whether they use the gullibility of the population to enrich themselves. A similar theme exists in the Blockchain world, where many ideas are not fit for a blockchain and can more efficiently run on standard databases.
Cargo Cults Always Disappear Eventually
Humans are generally smart beings. They might pick up some false correlations, like seeing people wave flares around, or seeing cargo drop from the sky, but they also realize quickly when they are not able to replicate an experiment.
As such, most cargo cults disappeared not too many years after the departure of soldiers. Technology might appear like magic at first, but it is rarely entirely beyond the comprehension of an average intelligent being, and unless we do find some application for blockchain technology (one that exceeds that of a simple label) soon, the term will be forgotten.
We will be left with technology that has proven itself in a free market, a hostile information security landscape, and a confusing jungle of political powers and regulation.
If the technology behind Bitcoin can deliver its promises, it will do so in a transformative, disruptive, and egalitarian way, where anybody can use and develop on top of it. It will not happen on top of closed, controlled systems developed by and for the existing big players.
