Decentralization and the Future World Order – Part III: Welcome to Bitville

This is the long delayed third in a multi-part series (part 1, part 2) on what I predict is one of the most important ongoing technological trends, the decentralization revolution. By creating a way for the transfer of value to be performed over a trustless distributed network Bitcoin has already changed the world but Bitcoin is only the tip of the decentralization iceberg.

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What would it mean if you could truly trust a government to do what it says it will do? And I don’t mean the kind of soft-trust that we put in governments today, where we trust that the checks and balances that are supposed to keep governments honest (or at least mostly honest), I mean what if you could trust your government like you trust an (open source) operating system? What if you could trust a government like you trust math?

In my last two posts I described how decentralized cryptographic networks are creating a new gold-standard in the establishment of trust (1), and how it is trust that defines the flow of power in human societies (2), now I want to elaborate on what it might look like if and when we apply the principles of decentralized crytography to governance.

What would it look like if the key institutions of society, everything from schools to corporations and even national governments, were built on decentralized cryptographic systems? Well to find out, lets try envision what a cryptography might have to offer for a small to medium sized community. What follows is a fictional account of how embracing decentralized crytographic technology could revolutionize our expectations of government transparency and efficiency.

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Welcome to BitVille

When one enters BitVille they might be forgiven for thinking that this town is just like any other. It is clean, but not necessarily cleaner than any other town, and the people are happy, but not necessarily happier than those in any other town. The economy is doing well, but not a lot better than any other town in the area. BitVille is pretty much indistinguishable from any other well run town, but it is well run. Over the last several years, BitVille has embraced decentralized cryptographic technology similar to Bitcoin, and according to those behind the transition they are a model for how local governments of the future will operate.

“The most important thing is that we have regained the trust of the citizens of BitVille,” says Clara Barnes the city manager who has overseen the implementation of much of the cryptographic technology in BitVille.

“Having proud citizens who feel invested in the success of their town is absolutely the most important factor in the success or failure of a town. Everything else falls apart if people don’t feel they can trust their governments. In BitVille we know exactly what a loss of trust looks like. The city was losing millions in bogus contract competitions and inefficient bureaucracies, the schools and roads were falling apart, crime was going up, there was garbage on the streets, and people had lost faith in their city.”

A few years ago, BitVille was collecting and spending 15% more tax money per capita than cities of comparable size, yet their infrastructure was falling apart. When Barnes took over the job of city manager, she was tasked with figuring out a way to both cut down on city spending and increase the service standards for city services, a seemingly impossible task. But Barnes had a secret weapon: a background in cryptocurrency.

“So we issued a cryptocurrency” Barnes said, letting the statement hang in the air for a minute.

Barnes went on, “we started small. We issued a the CityBits cryptocurrency, pegged at 1:1 with proven USD city funds on the Ethereum ecosystem. CityBits are exchanged through a single webportal to buy or sell them using other cryptocurrencies or electronic cash transfers. At this point we are also working with local banks and businesses to allow people to use CityBits around town, but its been a relatively slow uptake for this.”

“Is it a currency or a tool then?” I ask

“There are also some tricky legal questions about whether a city can actually issue a floating currency of its own, so we envision CityBits really as more of an administrative tool than a true cryptocurrency.  It is a secure means of managing city funds in a transparent and efficient manner.”

“How did you get started with this system?”

“The pilot project used CityBits for executive payroll at city hall. Most of us set up automatic exchanges for the bulk of our CityBits to be converted to cash transfers, so the system is pretty invisible to us now. It worked seamlessly almost from day one, and it was love at first sight for our payroll office.

We have since expanded CityBits to function as the backbone for all payroll at city hall, and we didn’t stop there. Over 80% of procurement for the city is also administered through CityBits. Vendors are required to accept payment in the form of CityBits, which again can be exchanged for cash through our Webportal any time.

Earlier this year, we launched CityBits contracting platform. We are now able to host the entire bidding process, contracting, and implementation, of city projects on the CityBits blockchain. It still has some bugs to work out, but when fully implemented, we will require all contractors to accept payments exclusively in the form of CityBits.”

“So the results have been mostly positive?” I asked.

Barnes answered with a gleam in her eye, “the change has been dramatic. Human resources, payroll, accounting, and managers in every department are thrilled with the new system. Simple web interfaces make it extremely easy for managers to authorize transfers, and track where funds are going in real time, and in the future. The citizens get to see almost in real time how city hall money is being spent, and is planned to be spent. Money in, money out, its all very transparent and very clear, and most importantly it inspires the trust of the taxpayers.”

“What are your long term plans for CityBits?”

“In the medium term I would like to see transactions from citizens, such as paying parking tickets, done through the CityBits system. This would make it much easier for citizens to see exactly where the money goes when they pay money into the city. The feeling that money sent into City Hall is simply going into a bottomless pit is a real problem which I feel CityBits can address

Also, it would be great to start to integrate some more smart contracting into the system. For instance, with snow plow contracts we could set up an automatic payout based on the snowfall for that particular year.

In the very long term, I think the sky is the limit for CityBits. We could eventually tie everything from official power structures, budgetary approval, citizen oversight, and voting into the system. For instance, the power of the mayor to approve budgets might be built into a CityBits charter which matheamtically limits their ability to approve spending to 4 years. This would be a mathematical limit to political power. CityBits could help create a system which fundamentally enfranchises citizens with control over government which citizens have a right to.

CityBits can help to create the kind of 21st century City government that the citizens deserve.”

That gleam was back in Barnes’ eyes.

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The story of CityBits is the story of cryptocurrencies. The real magic is their scalability, a cryptocurrency like CityBits could start as a simple means to administer employee payroll that could one day grow up to define the legal charter of an entire city. Equal parts incremental improvement and revolutionary breakthrough, both an arcane administrative tool and a radical new mechanism of transaction, like other technological breakthrough that have preceded them, cryptocurrencies will become what we dream them to be.

If you liked this post, you might also like Cryptocontracts will turn law into a programming language.

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The Danger of Darwinian Overdose: Why Evolutionary Innovation Requires Surplus

In this age of eternal economic recovery, I seem to hear a lot about how important the idea of austerity is. We must be reserved, we must make hard decisions, and we must be selective. Somehow if we cut deep enough, we will come through with an efficient machine, ready to power us into the next golden age of innovation and economic plenty.

This belief that only through maximizing selective economic pressure can we maximize economic growth reaches its harshest heights when it filters down to the level of individual workers. Plenty of people seem to genuinely believe that if we just let the people starve a bit more, if we take away what few social benefits they have, then they’ll really have the hunger needed to drive them to find a job and push the economy onwards and upwards.

The view that maximizing selective pressure makes for the best economic evolution is often justified through comparisons to the law of natural evolution. But, this belief that the strongest organisms evolve when competition is at its most cut-throat stems from an incomplete view of the nature of evolution.

Evolution is not some cold algorithm seeking to maximize efficiency of resource utilization through mutation and survival of the fittest. Biological adaptation is a flourishing of possibility that requires not only resource-limited selection but also needs ecological surplus. Speciation is maximized in a supportive an ecosystem that provides both plentiful resources and competition. Species must have the chance to mutate and create new forms. Species that have no established niche in which to prosper have no chance of adapting to new environments through evolutionary innovation.

Natural selection is the product of both competition and surplus! It is in thriving, healthy, ecosystems, (think of the rain forests of the world) where nature best explores the boundaries of possibility. Indeed, the great explosions of biological differentiation always come as great surpluses of new resources are discovered and capitalized on by innovative species.This is what occurred in the rapid phases of colonization of the land by insects, then by dinosaurs, and eventually mammals.

Nature can even be downright wasteful at times. Sexual display characteristics like antlers or the peacock tail are perfect examples of the kind of beautiful adaptations that prove nature is not some utilitarian algorithm seeking to maximize efficiency. We humans also have ecological surplus to thank for some of our best traits. Female human breasts are actually the direct equivalent of the peacock’s tail, providing no real utilitarian benefit yet remaining on display throughout the woman’s life, unlike primates where breasts enlarge to produce milk only when needed.. The results are energetically wasteful yet undeniably alluring and beautiful.

Humans also have another energetically costly lump of fat that is thought to have evolved as a consequence of ecological surplus. New theories suggest that humans were able to evolve such ridiculously large brains (per body size) only after we discovered a readily available source of protein-rich food in the form of fish found in coastal regions. Fascinatingly, it has also been suggested that this period of semi-aquatic existence may have also lead to the loss of fur in our ancestors (see the Aquatic Ape Hypothesis).

The view that evolution is strictly about species living on the edge of survival and competing for a limited pool of resources is a dangerous oversimplification. The fact is that the evolution of all of the wonderful forms of life around us is as much a product of surplus as is it of selection.

Nature innovates best when it has space to do so; we should seek to apply the same thinking to economics.

I deeply believe that economic innovation lives by the same rules as natural selection. Yes, we must have selective pressure of the market to allow the best and brightest to flourish, but we must also need to create a supportive environment of surplus where people to experiment with new ideas, whether in the sphere of business, culture, education, philosophy, or any other discipline that has been so vital to our economic advancement.

The politics of neo-Darwinism say that we maximize innovation by maximizing the pressure on workers to innovate means to create value for the economy. But isn’t it already clear that this is not the case? How could we have innovation without having the time to educate ourselves or the capital to empower our business ideas? It is no wonder that innovations have always come predominantly from the middle and upper classes where they are afforded the economic breathing room to experiment with new ideas.

We need surplus in our lives in order to power the mutational process of economic innovation.

Now, I should be clear that I do not think it would be wise to turn our backs on the market altogether. Just as nature needs a balance of selective pressure and resource surplus in order to maximize evolutionary innovation, I believe that if we can find the better balance between selection and surplus, then we will be better able to power economic innovation.

In pursuit of this balance, I have come to believe that it is time that governments of the world take hold of the idea of a basic income to power the next great wave of invention that will push our economies forward. Basic income means basic freedom for all men, and it is this basic freedom to turn away from dead-end jobs and wasted lives that people need to power their innovation. Yes, jobs must continue to exist, but it is no longer economically efficient to force people into unsatisfying work simply to meet their basic needs.

Economic Darwinists have it backwards. Whereas they argue that a strong society can only come from a strong economy, I think that a strong and free society will necessarily lead to a strong economy. 

If we seek to first build a better society, then we will have a better economy.

Did Oil Save the Whales? What Whales Should Teach Us About the Future of Energy

What if oil tanker trucks had legs? Imagine millions of great lumbering beasts with bellies of black gold, gathered in roving herds on an endless frontier. An inexhaustible supply of crude oil just walking across the grasslands waiting for those with the courage and expertise to go out and take it. Each animal worth tens of thousands of dollars, the beasts are chased down by brave men with fortunes in their dreams. Teams of charging horses raise clouds of dust as hollering men lean from speeding wagons to fire bullets and spears into the fleeing giants. A frontier town becomes a boom town; the new epicenter of an energy economy based on the capture, processing, delivery, sale, and resale of beast oil. Steam trains deliver the black stuff to consumers in the old world and new, always clamoring for more of the stuff, for heating, lighting, and industrial applications.

Believe it or not as little as 160 years ago, the world was living through this exact bio-steam-punk existence. Only instead the oil-filled beasts were found not on the frontier, but in the endless oceans. Sophisticated wooden ships sailed waters from the arctic to antarctic, and from Brazil to Africa in search of whales and the oil in their bellies. Places like New Bedford, Massachusetts, became the hub of an energy economy which delivered the oil all over the world. Next time you go to flip on a light switch, take a moment to appreciate that just a century and a half ago, people all over the world were using the rendered fat of giant ocean-dwelling mammals in order to light their homes!

Whale oil was used in staggering quantities, mostly for use in illumination, but also other industrial applications such as soap production were common. Whale oil was so popular, by the mid 1850’s tens of thousands of whales were being slaughtered for whale oil each year. Whale oil was a booming industry, but it was also becoming more and more difficult to find enough whales, as those waters near the east coast of the United States had rapidly become depleted. The price of whale oil was on the rise, hitting a high of between $1.30 and $2.50 a gallon (the equivalent of ~$37 to $71/gallon in 2015 dollars).

It was around this time that a Canadian chemist by the name of Abraham Gresener had identified a means to derive liquid kerosene from coal, oil or bitumin. Kerosene burned more cleanly and was much cheaper than whale oil, at ~60cents/gallon. The superior quality and price of kerosene as an illuminant marked the beginning of the age of oil power and a steady decline in the whale oil industry.

Thus, oil saved the whales… or so the story goes.

But of course, it’s not so simple.

This article from PBS Newshour lays out some of the interesting complexity surrounding the transition from whale oil to kerosene for lighting homes and businesses in the mid 19th century. In addition to kerosene and whale oil, another popular fuel for illumination called camphene was made up from a mixture of alcohol (distilled as normal) and turpentine (a pine tree extract).

By all accounts, camphene was by far the leading lamp fuel.
In 1862, a tax of $2.00 a gallon was imposed on beverage alcohol and camphene was forced off the market. Since the Pennsylvania oil fields were in the process of opening, the whales really had nothing to do with the emergence of the kerosene industry.

Thus, it seems that by imposing an inordinately high tax on drinking alcohol, the US government inadvertently forced a real competitor for kerosene off the market. Additionally, the US civil war put a strain on both the whale oil industry, as ships were diverted to military use, and the turpentine industry, as much of the southern pine forests were cut off from market, allowing the emerging Pennsylvania petroleum industry to flourish.

While this serves as an interesting side story about the involvement of external factors in technological turnover, the real problem with the “oil saved the whales” story is that the whale hunting industry didn’t die until long after kerosene was already replaced by the electric light bulb as the illuminant of choice. In fact, the peak of whale hunting for many species didn’t happen until the 1960’s (ref)! That’s right, the whale hunting industry was very much alive and well as little as 50 years ago.

While the price of whale oil never again hit the kinds of peaks that were seen in the 1850’s, the technology of oil powered ships allowed for increasingly economical extraction of whale products throughout the 20th century. Whales were a cheap source of high-quality animal fat, meat and bones, and the further ships went, the more whales they found and as long as they could turn a profit by harvesting whales, they would. While running out of whales might have eventually stopped the whale hunting, it was actually an international backlash against the hunt, and eventual international regulation which put a stop to the industrial scale extraction of whales. We decided that we didn’t want to or need to hunt whales any more, and so we put a stop to it (for the most part).

The story of whale oil is as complex and nuanced as any story of technological turnover and societal progress. The story of technological change is never a neat and tidy process because things just never happen in a vacuum. Seemingly innocuous or irrelevant factors like a new tax on drink beverages, or the outbreak of civil war can end up having huge consequences on what technologies are adopted and what direction we move as a society. Still I think it puts a powerful point on the story that in the end it was a ground level moral shift and international regulation that really put a stop to whale hunting.

Given the opportunity and education, we can collectively make the right choice.