In Ambassador News

It’s only been around for a few hundred years and democracy has already bred distrust of its institutions and discontent with its processes all over the globe. Pew research data shows public trust in government in the U.S. has been steadily declining for more than fifty years. Polls in Europe show increased suspicion of the EU. Around the globe, trust in government among the general population has fallen to all-time lows, according to the Edelman Trust Barometer; Edelman called their 2015 results “an evaporation of trust across all institutions.”

The paradox becomes more evident with time: despite the fact that information has never been more accessible, the global population wealthier, or violence less prevalent in the 100,000 year history of modern man– something is clearly wrong with how we run things. Separatist movements are multiplying across the globe in the wealthiest and poorest countries. Angry malcontents are so numerous they are sending reality TV stars and fringe candidates hurtling toward high office just to do something to alleviate their angst.

And yet, the perpetually sinking ship of democratic governance hobbles along, bailing out the hull just enough to keep it afloat, simply for lack of a better alternative. Scholars seem to be at a loss to explain such widespread discontent when by most measures, the human condition has been only improving over the last century. We should consider then, that innovation may be the lifeblood of political culture, just as vital as it is in business, science, and the arts.

Democracy has been without new and inspiring ideas for the last fifty years. As conservative and progressive impulses have settled into an unquiet equilibrium, both grow increasingly discontent. The “Democracy” we all have been brought up to worship has become cliché, despite its great accomplishments. How is this possible?

Governments exist to protect the three natural rights, according to John Locke: Life, liberty and estate. But as economies grow more complex and interconnected, and populations put increasing demand on centralized bureaucracies to smooth out every sort of social ill, bureaucracies are inevitably seized up by their own inefficiency.

This inefficiency is a feature, however, not a bug. The state is functioning exactly as it was designed: its best asset (stability) is the flip side of its worst (inertia). It resists change in the worst and best of circumstances, and especially when competing political winds attempt in vain to sway it in one direction or the other. When the government inevitably fails to deliver on voter desires, there is no alternative but to live with it.

We should consider the possibility that governments have run up against the limits of their abilities to effectively satisfying the conflicting demands of their respective voting populations. This may be because government as a concept has reached the end of its rope as an innovator of solutions. New solutions are necessary to solve this problem, and only the blockchain technology is providing real possibilities.

At a minimum, government must provide a fair and transparent system for redressing grievances, managing resources and defending the rights of those who have invested in it. As modern democracies fail at their most basic tasks– alternatives are taking root.

The Historical Fallacy in Action

This brings us to a questionable academic paper by Marcella Atzori of the University of Nicosia on the plausibility of blockchain governance. In brief, Atzori claims that an abandonment of traditional nation states in favor of blockchain governance would reduce our civilization to a loosely connected network of rapacious mini-societies ruled by elite coder warlords that only worship wealth.

The argument is not well supported and most of her fawning over legacy government processes pitiable, but we should give credit where it’s due. Atzori has clearly taken the time to understand the technological issues surrounding Bitcoin and the promise of blockchain technology. She also deserves credit for not trying to scare the reader with the impenetrable language typical of academic writing. But her paper is not real academic work; it’s full of Bernie Sanders-esque proselytizing that too often sounds more like a stump speech than a fair and reasonable critique of the theories that underpin Bitnation or Bitcoin. Just the same, she brings up some common criticisms of Bitnation that deserve addressing.

At the center of her argument–like most arguments against both Bitcoin and blockchain governance– is the shameless deployment of the “historical fallacy.” Historians try to explain how things like governments and currencies arose primarily by examining qualities of the finished product, then inferring that the qualities they value most must have been necessary to its development and function. In this case, she claims politics is the only answer to mankind’s problems, and blockchain governance is unworkable simply because it is not political:

Nonetheless, why such a society is all but perfect? Simply because it is incomplete: it is still primitive or pre-political. Indeed, in this phase individuals are not citizens yet: in spite of the sophisticated technologies they may use to create contractual arrangements, they are still living in a state of nature, in which the law of might – or the laws of the market – prevails on common good. In this new-tribal scenario, frictions and conflicts will eventually rise between different networks and interest-bearers at local and global level, needing negotiation and compromise to reach a stable peace. If well-intentioned to avoid mutual abuse of power, groups may create a non-aggression pact to refrain from violence and seek peaceful solutions in case of conflict… This non-aggression pact can be gained through consensus and represents a formal move from the state of nature towards the establishing of civil society. And nonetheless, as Bobbio recalled, reaching consensus is not sufficient and it does not solve conflicts: indeed, the observation of this pact is not ensured in any way and it is not protected from external, opposing forces. As a result, society is still quite unstable, dispersed and agonistic [sic].

That last sentence easily describes the current state of affairs in virtually every nation state in the world, not least of all, the United States and most of Europe. We have clear evidence that democracy and the nation state model is insufficient in solving serious political disagreements, with enforcement inconsistent, unduly harsh against minorities, and subject to the whims of self-interested elites. State-based coercion has failed to live up to her standards.

But the most important question for blockchain advocates is not whether political coercion is necessary to maintain social order, but whether the right to govern must be 1) tied to certain geographical boundaries 2) exclusive to a single authority within those boundaries. There doesn’t seem to be any real principle governing how this works in today’s society that the blockchain technology cannot handle.

Traditionally, someone offering what we call “governance services” needed to meet certain conditions within the polity before their service can be considered reliable and legitimate:

  1. They must be able to ensure that services can be fairly distributed

  2. They must be able to ensure that services will be universally recognized

  3. They must be able to ensure that services will be worth the price

  4. They must ensure that there is a process for changing the rules and services as needed

At a glance, there doesn’t seem to be an inherent property that would keep a private sector organization from being able to offer governance services, and many services in the U.S. have been increasingly outsourced to private contractors since the 1980’s.

Perhaps the biggest challenge is universality. Governments can ensure through coercion that their services are universally recognized. The dollar’s value, for example, is enforced  by American guns, as is its legal system, identification system, etc. Without universal recognition of your marriage or birth certificate, so the convention goes, you have a mess when it comes to leveraging those documents to procure other resources.

But is monopolistic power really critical to universal acceptance? We know that the international system is still anarchic: when you travel abroad, a foreign country accepts your passport, a method of identification from an identity verification system they are not intimately familiar with and are not generally coerced into accepting. They trust it because they trust that the institution that has certified your identity has a rigorous identification process and a system by which your reputation can be discerned. So basic observation indicates that it is not coercive authority, but reliability and predictability that ensure official information can be trusted.

Governments have historically been the trusted verifier and issuer of identification and transaction information simply because they were the best positioned to offer those services to the public. When private companies do offer some identification or reputation service, such as a credit bureau, it is usually to a specific market for a specific reason. They don’t offer the broad range of services the government are able to with redistributed tax dollars. If a competitor is to offer such services, they must be permanently reliable: i.e., they can’t just go bankrupt and lose your birth certificate or marriage record. They have to be able to maintain accessibility to the records regardless of market volatility. They also must have a universally recognized and widely trusted process for determining your identity and they must be around as long as the document is guaranteed to be valid (in the case of licenses) or forever (in the case of birth records) to vouch for you.

The blockchain protocol may be the first technology that checks all of the boxes required of government identity, legal, notarial and reputation services. Once the information is online, it exists forever on the network. It has a rigorous verification process that is virtually impossible to crack once the network reaches a certain critical mass. It can record births, marriages, deaths, property ownership, business contracts and a variety of other records traditionally created and held by governments. The identities of individuals on the network can be established definitively through their unique “signatures”, and in turn, those individuals can sign and verify transactions (say, the attending physician at your birth, or the priest officiating your wedding). Instead of a government official acting as notary or other trusted third party verifier, the consensus of a blockchain’s “miners” or other verifiers takes on that role.

Blockchain Aspirations Overly “Deterministic?”

Atzori condemns blockchain advocates as “deterministic” in their enthusiasm for the transformative power of technology, while employing some deterministic logic of her own:

In the end, the natural need of security and the necessity to avoid fragmentation of social efforts lead [sic] individuals to establish a permanent point of control, a neutral Third Party to which [sic] delegate the responsibility of maintaining order, coordinate activities and resolve [sic] future conflicts in a legitimate way, through a pactum subjectionis (submission to organized coercion). That moment is crucial and marks the emergence of the idea of State, which can be deemed as a product of logical thought – as also Kant claimed – rather than an historical event.

Atzori claims that because the nation state exists, it must not be just one of many forms of potential human organization but the inevitable result of logic itself; as though no other way to protect human rights or organize human affairs could have ever been possible.

Most anarchists are familiar with counterarguments to this claim: the locally-administered anarchic systems that governed Iceland in the middle ages are one popularly attested counter-example. I won’t get into anarchist theory here, but there are theoretical possibilities with blockchain technology worth addressing.

Perhaps the greatest challenge of an anarchist society is creating legal systems that are broadly considered fair and reliable. In a sense, the world is already a web of competing legal and governance systems, just tied to geographic territories. But is there a value in creating a virtual governance system that is not tied to geographical boundaries? Is it even possible to offer such a thing without a monopoly on coercion?

According to attorney Pamela Morgan of,  one way to prove provenance while circumventing coercion may lie in the presence of the “timestamp” in the blockchain protocol. One of the reasons government has been expected to provide identification and property ownership services is it considered sufficiently impartial that it would not lie or cheat to favor one citizen’s interests over another with respect to provenance for land rights, for example. The timestamp removes the need for this level of trust in a person or organization. The transaction’s date and time cannot be tampered with, and thus can serve as the final arbiter in the event of a duplicated or fraudulent transaction, even across different blockchains.

The blockchain protocol also has some advantages over traditional government services, including very a high degree of transparency, low overhead/transaction costs, and a high degree of accessibility. The system is also highly stable with just enough flexibility to ensure systemic changes can be made if they are very necessary. Unlike a nation state government, it doesn’t require an army of bureaucrats to maintain. It cannot be bribed or blackmailed and it will never make you wait hours in line or slap you with arbitrary fees and fines in order to boost revenue. This makes it a great alternative to traditional services.

What if many blockchains exist simultaneously? Couldn’t there be conflicting information for the same identity? Yes. However, it won’t likely matter much. First of all, without a barrier to entry, any user can join any blockchain just by downloading freeware so he or she can check identities wherever they exist. Second, if there is conflicting reputational or transactional information, users will eventually even out the differences through regular activity across networks, with larger, more utilized networks, having higher value, predominating.

Think of blockchains as competing information marketplaces. Like with prices in exchanges in a competitive marketplace, the information that is freely available to all will tend to even out over time, making arbitrage more difficult. So the reputational arbitrage that scammers may attempt on various blockchains will get increasingly difficult as the system matures. Furthermore, layers of meta-systems will eventually be constructed on bitcoin and other blockchains that will enable users to more easily navigate information between them.

The net result is a competing set of reputational systems, with some overlap and redundancy that exists permanently in cyberspace, with identities verified by the users themselves. Universality through force will become superseded by universality through competition, and consensus is something that will be achieved by the “votes” of miners or other system custodians, rather than by political votes.

Atzori doesn’t seem to give much consideration to the possibilities inherent in providing competitive services or the virtue of experimentation. But that may be because her analysis was always supporting a foregone conclusion.

Sufficient Record Keeping Reliability?

Atzori notes:

Government records require high performance and a high degree of reliability, accessibility and predictability… Moreover, a formal and transparent process of legitimization must be strictly required when dealing with government services, in order to avoid the indiscriminate emergence of private powers over public affairs.

Blockchain record keeping passes all of these tests. The mechanism is different, and really, more efficient. Rather than records kept by petty bureaucrats hired by plutocrats who are themselves hired by a mostly ignorant and disinterested population, blockchain record keeping is reliable, easily accessed and exists for the life of the network. It is also far more transparent and requires at most a holon to code a smart contract into the blockchain, and a miner to confirm it in exchange for his flat fee. Unnecessary middle-men and public or private interests of any sort are excised from the process.

Blockchain governance takes the basic idea that humans are self-interested and employs it to improve the way we govern ourselves. Rather than a form of “hyper-capitalism” as Atzori describes, it is more accurately described as “hyper-Madisonian”– a system to constructively employ competitive self-interest in the service of peace and prosperity for all. This doesn’t mean it will guarantee prosperity for everyone–attempts to do so in the past have generally led to mass murder. It will however guarantee access to both the levers of power and ensure the potential to self-actualize is real for everyone. Which really, is all democracies do.

She goes on to completely abandon any pretense of impartiality in an impressive display of cognitive dissonance:

It is therefore clear that the State, as a guarantor of fundamental rights, is not an unwieldy third party that can be by-passed through a technological disintermediation process: the State is us, as a result of the first and biggest crowd-funded project ever existed in history, and it should not be defined in opposition to civil society.

Not once does she address the concerns of nation-state opponents: the disenfranchisement, oppression, abuse, and mass-murder–even in the Western nations that she lauds– that has accompanied the existence of governments throughout history are not even mentioned. The downside of nation state governance is very real history– her criticisms of blockchain governance are, at present, purely speculative.

Algorithmic Governance Too Impersonal?

One argument she posits against blockchain governance seems to be that algorithms are unfeeling mathematical formulae and cannot possibly guarantee human rights:

In particular, algorithms and binary codes are not meant for policy-making, since politics is an art that stems from the ethic sphere of human beings and it belongs to them exclusively, as creatures ‘endowed with reason and conscience’ (Art.1 of the Universal Declaration of Human Rights).

Computer scientists tend to overemphasize the efficiency of encryption and codes as

political tools, capable to [sic] verifying and aggregating individual decisions on large scale without intermediaries. But politics and governance, of course, are much more than aggregating votes, keeping databases in sync, or enforcing transactions through algorithms.

She provides no examples or proof of this claim, nor any reason why algorithms could not assist in the defense of human rights by protecting property rights in the developing world, improving transparency and reducing the influence of corrupt political actors. In this, a network of blockchain-based organizations working to better people’s lives are finding one of their first essential uses.

One of the primary problems in the developing world (as identified by Hernando de Soto) is the lack of incentive for governments to keep a careful record of property rights within their own borders. Bitnation and several other blockchain projects are currently working to remedy this using the Bitcoin and Ethereum blockchains. Experiments are underway and several legacy governments have bought into the idea. Should they succeed, the improvement to human rights around the world could be staggering.

But the bigger problem with her paper here comes down to granting governments undue credit for the state of global peace and prosperity, and the rapid decline of global poverty. She says:

Not only markets are proven to be incapable of creating social justice and redistribution – in spite of what techno-entrepreneurs may claim– but it is rather the subjugation of politics to “turbo-capitalism” and its financial dictates that bears most of the responsibility for the problems currently affecting our democracies – from long term unemployment, poverty, regulatory capture and erosion of social capital, to imperialist wars, diffused insecurity and fear (Luttwak, 1999; Ziegler, 2002). In fact, it is with the increasing atomization of social life, the extreme individualism and the restless rationalization of economic structures that corporate power reinforces and reproduces itself, to the detriment of individual and collective rights (Boggs, 2000; Marden, 2003).

“Turbo-capitalism?” Someone is “feeling the Bern.”

Government advocates claim governments exist to correct market failures– they seem to forget that historically, the opposite is true. Governments have historically made lousy guarantors of rights, while market economics have had an increasingly equalizing effect from the 15th century to the present. Modern societies have mitigated the homicidal tendencies of governments, but only over the last six decades or so, indicating that the outcomes she wants are hardly inherent, exclusive properties of traditional nation states. Markets, meanwhile, derided by Atzori, have created prosperity everywhere, even where governments remain oppressive, such as Singapore and China. That “unfeeling” technology she talks about has put capabilities in the hands of even the poorest in the world they never had before.

A Rule of Rapacious Programmer-Warlords?

Atzori claims that an elite will emerge that will exacerbate wealth and political inequality simply by being more tech savvy:

In virtue of their technical skills, code developers, miners, fintech professionals and technopreneurs would easily have a privileged position in society, becoming the new policy makers to detriment of a big mass of computer illiterate or low skilled individuals, reduced to mere passive recipients of services.

Oddly enough, she is hypothesizing that coders will fill the same role in the future that lawyers fill today: the authors and interpreters of the protocols we all live by. Lawyers, masters of the arcane, complex and obtuse rules we all live by, have dominated politics for hundreds of years. And yet democracies still function, primarily because individuals have always managed to hold elites accountable without sharing their expertise.

The major difference is coders will not be able to keep others from joining their clique like lawyers do with law school and the Bar. With no formal governing structure or barriers to entry, anyone can learn or coding and become an integral part of the feedback loop that governs a blockchain system. Information is porous–a single leak can destroy in a second any ruling-class opacity that took decades to build. If coders become a ruling class, they would be unlike any other in human history, without the exclusive control of the means of violence or formal structures that enable admission into their circles.

The presumption here, is that the entire globe will not govern through a single blockchain. Far in the future, many blockchains will likely compete to provide services that individuals will be able to choose from. Deriding the Bitcoin Foundation as some sort of oligarchy betrays ignorance of the nature of such a system. If you don’t like how Gavin Andresen is running things, you don’t have to overthrow him in a bloody coup– you will be able to join a different blockchain, leaving him strong incentives to make his services as competitive, flexible and transparent as possible. These sorts of options don’t exist in a modern democratic system, which forces you into submission to a ruling system that inherently and often violently disenfranchises minority opinions.

The existence of competing blockchains also allows for informational redundancy– you will be able to put your most vital records on more than one blockchain in the event of a “black swan” apocalypse that kills any single blockchain.

Collective Identity Necessary to Protect Rights?

She does make an interesting point here: the end of the nation state means the decline of “collective identity” and a return to “pre-political” social organization:

“The major problem of an [sic] hypothetical global society only run through organizational

patterns based on individualism – namely Decentralized Autonomous Organizations, free market rules, and “authority floating freely” – is that it would essentially lack legitimate mechanisms to regulate the convergence of the particular into the general, which is the traditional role of centralized political institutions. Breaking the collective identity building, citizens may not see themselves anymore as a part of a whole, because the general will has been replaced by a myriad of immediate acts of the individual will. This would entail a serious risk of regression of human communities into a pre-political condition, characterized by ‘Hobbesian deregulated landscapes and a retrieting [sic] State” (Marden 2003, p. 90). Individuals would not be citizens anymore, but mere service consumers and players, ‘independent interest-bearers … with no agreed-upon norms to regulate their interactions as free and equal beings’ (Urbinati 2006, p. 65); and society would be dominated by adversarial private interests…”

Her assumption here is that a massive national identity is necessary to protect human rights. The fetishization of “citizenship” and collective belonging is evident here, protected by the Historical Fallacy. It’s important to remember that a blockchain system would enable community enforcement of basic values and norms through consensus, much like a democratic government, but in a far more responsive and localized context.

At the most fundamental level, governments are just masses of people acting according to their strongest self-interest. They are only weakly incentivized to protect the rights of all, but wealthy, educated populations hold them accountable as a matter of routine. The ability to provide feedback in the form of reputation damage or if necessary bring a rights violator to trial would still exist in a blockchain-governed system.

Even better, in a competitive governance environment offenders wouldn’t be able to grant themselves exclusive legal privileges (such as qualified immunity for law enforcement, or “national security” secrecy for spy agencies) as government agents do, without enduring real repercussions and a possible flight from their services. Such a flight is not practical in the modern nation state system, leaving our hierarchical systems with weaker feedback mechanisms.

In short, the benevolence of governments don’t really protect rights– self-interest does. The stronger you can align individual self-interest with the defense of natural and civil rights, the better your system is going to function. This is one of the goals of blockchain governance.

How Could This All Really Work?

Atzori correctly notes that we are still working largely in the realm of theory:

In this regard, it is not clear, for example, how a fully distributed, blockchain-based society would regulate conflicts, mediate between opposite interests, or rectify social iniquities, other than through market adjustments, complex webs of smart contracts or other sophisticated, automated incentive mechanisms.

This is a fair point. It is not clear how all this will work, but we don’t have to figure all that out now. We must be free to experiment with the basic architecture. The details will emerge as a result of trial and error over the coming years, and a few early examples, such as Bitnation’s partnership with Estonia, are encouraging.

There is a palpable inevitability to all this. Even major publications like the New York Times and The Atlantic have hypothesized the obsolescence of the nation state. The United States National Intelligence Council envisioned that in just 15 years a “nonstate world” could exist in which “governments had given up on real reforms and had subcontracted many responsibilities to outside parties, which then set up enclaves operating under their own laws.” Nonstate systems will likely develop increasing leverage to compete with legacy nation states. The New York Times acknowledged the scenario describes “much of how global society already operates.” In general, the future will not be one of grand visions and master plans to control us all. It will be a complex web of smaller consensuses, with mediating holons to resolve disputes and confirm information and identity.

It would be great to see a better analysis from Atzori, and more critiques from the academic world are welcome. The idea of blockchain governance is not going away and whatever it may ultimately achieve in diminishing the less savory attributes of monopolistic governments can only benefit mankind.


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