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Can you have decentralised exchange without centralised control?

I often have these debates with the bitcoin community about whether you can really have money without government.  Let’s not call it money without government even, let’s just focus upon the question of whether you can have value exchanges that are unregulated.

The main protagonists for bitcoin continually tell me this is the reality.  They then hate it when I tell them it’s a fallacy, and that bitcoin will become regulated as a value transfer mechanism in the same way as anything else, over time.

They call me a statist – someone who believes you have to ask the government if it’s ok before you do anything – and that I don’t believe in their dream of free agents operating a free market economy on a globalised basis through the net.  And they’re right.  I don’t believe their dream.

I like their dream, and I would love to be on the side of the dream, but I just don’t believe their dream.  The reason I don’t believe their dream is that nothing can operate without control. 

I guess they would argue that the Bitcoin community will create natural free market controls over time, in the same way as eBay accounts and Trip Advisor reviewers regulate and control their free market systems; but:

(a)    These are not free market systems;

(b)   They are not the same as large-scale monetary movement systems; and

(c)    Their regulatory systems do not work.

I say this as someone who see eBay and Trip Advisor as American internet sites, rather than a free market system; that they deal with small bean movement of commentary and goods and services, rather than multi-billion dollar trades; and who knows how to buck the eBay and Trip Advisor review process to ensure they are skewed in your favour (yes, this can be done).

Equally, there was a recurrence of this debate last week, where one reviewer – a free market advocate – hated my whole introduction of bitcoin, then engaged along with others in a debate with me about the whole thing. The discussion took place with Tone, who hated my introduction to the session.  I thought my introduction was pretty good actually (click and watch the whole thing below of fast forward to 2h50m (yes that’s 2 hours and 50 minutes) to listen to my introduction at the Council of Foreign Relations / Foreign Affairs Magazine discussions of cryptocurrencies:

I should say upfront that if bitcoin could succeed in a being a globally unregulated economy, outside government control, I have no issue with that at all.  But what will naturally happen, over time, is that there will be a control. 

After all, money was invested as a government control mechanism and, if you take away that control mechanism, what are you left with?  Anarchy.

You can see this control mechanism operate in primary mammal structures, where alpha males with the most testosterone rule the clan; and you can see this control mechanism reflected in all art and entertainment.

I liken it to the movie Metropolis, where the masses are ruled by an evil ruler who has all the wealth and happiness in utopia, whilst they mine in hellish conditions underground as mass workers under government/dictatorial rule.

It’s all about the centralisation of wealth and power, and a decentralised system would try to destroy that yet, as illustrated by Metropolis and all its successors, our innate nature is to centralised control and power.

Metropolis shows this, as do films like Snowpiercer, In Time, The Hunger Games and more.  All of these films are based upon centralised wealth, power and control, such that the masses are subject to being forced to work in order to gain enough earnings to cover their basic needs.  The bitcoiners  see these films as fuelled by hate and greed, but then our world is fuelled by hate (ISIS) and greed (bankers' bonuses).  Hate and greed are two of the basic human deadly sins.

In other words, it is in our nature that the powerful centralised control and exploit the weak. It’s almost biblical and I was particularly illuminated to this idea when watching the film Apocalypto after a holiday in South America last year.  The film portrays the Mayan culture of the 13th century, and a land grab made by the most aggressive of the Mayan clans to own their area of land.

Today, we see this in Russia and the Ukraine, ISIS and Syria and more.  It’s all about power and control. Sometimes in the name of Allah and sometimes in the name of wealth.

So, returning to the dreamy utopia of bitcoin in an unregulated world, I’m afraid I’ve never seen this work in the land of reality.  I remain to be convinced, and you may think I’m some curmudgeonly old man – or even a statist – but I come from the world of the 99% versus the 1%.

Can that world ever change?  I remain to be convinced (please feel free to convince me).

Meantime, more on bitcoin tomorrow and further references that support the debate above here:

 

 UPDATE 11:00 16TH FEBRUARY

I've realised that the reason this debate is raging is that it is a philosophical rather than a technical discussion.  The bitcoin community quite rightly point out that the technology allows for decentralised exchange without centralised control.

A great paper on this was linked to me by Simon de la Rouviere in response to this blog.  The link is to a post by Brett Scott on the politics of bitcoin.  It is a fantastic article and really talks to the hub of the bitcoin dream a world free of political interests messing up the free agent society.

A key paragraph in the article, for me, is this one:

Within the Bitcoin system, a set of powerful central intermediaries (the cartel of commercial banks, connected together via the central bank, underwritten by government), gets replaced with a more diffuse network intermediary, apparently controlled by no-one in particular.

This generally appeals to people who wish to devolve power away from banks by introducing more diversity into the monetary system. Those with a left-wing anarchist bent, who perceive the state and banking sector as representing the same elite interests, may recognise in it the potential for collective direct democratic governance of currency. It has really appealed, though, to conservative libertarians who perceive it as a commodity-like currency, free from the evils of the central bank and regulation.

That's the discussion in a nutshell of the opportunity.  But 'controlled by no-one in particular' is where I take exception, as trust is built only when you have control.  It's in human nature, which is why I bring in films such as Metropolis and Apocalypto.  Money was invented as a human control mechanism by those who were in power (priests).  It's a basic part of society.

So the question is more philosophical than technical.  Technically, we can have a decentralised value system of exchange without control.  Philosophically, I don't see it happening as someone will control it, whether we like it or not.

 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Chris, thanks for sharing your thoughts on how Bitcoin can exist along with Government compliance.
    What do you think if the Bitcoin is crowd-sourcing project for testing blockchain technology which will be used by Governments for minting money in near future?
    Literally issuing USD on blockchain and eliminating physical cash which is quite outdated due to lack of control – printed money flow is uncontrolled and as we see USD banknotes are used to buy oil from ISIS controlled oil-fields (http://www.theguardian.com/world/2014/nov/19/-sp-islamic-state-oil-empire-iraq-isis ).
    Federal Reserve has recently published paper on this topic (https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf ), and it seems like blockchain is described there although in indirect speech.
    From Government perspective blockchain gives great opportunity for transactions monitoring and taxation – money laundering becomes really complicated in this matter. Technically switching monetary system on blockchain is possible – every issued banknote has its own hash aka ‘serial number’ which can be used on blockchain.
    Blockchain as a protocol looks to me like TCP/IP in 1970s – it was crowd-sourced too but on smaller scale and among Universities only. 50 years after requirements for bigger scale protocol like blockchain have increased and simply more man-hours are needed for making it real.

    Best regards,
    Constantine