SciAm on Blockchains and What Comes After

in #blockchain8 years ago (edited)

Scientific American has a special feature this issue on “The Future of Money.” Like most of their stuff, it is clear and well-written.  Unfortunately, it’s also behind their standard paywall, which is annoying if you’re not a subscriber. Fortunately, lots of public libraries in the US subscribe to SciAm, so that should make it a bit easier to find.  I’ll summarize and make some comments.  

[image by Borja Bonaque]

“Breaking the Bank” by Alexander Lipton and 'Sandy' Pentland

Both of these guys are from MIT, where the Media Lab has a whole suite of future-economy projects they call the Digital Currency Initiative.  Undoubtedly I will do future articles digging into some of these.

This particular SciAm article diagrams what they call the money creation circuit, in which banks loan out money that they have borrowed from you, the depositor.  Companies borrow money to pay your salary, which you then deposit.  According to them, part of the reason for financial instability is the complexity of this circuit, involving trillions of transactions.  Better record-keeping could help with this.

“Rather than using historical averages to esimate what might happen in an economic system, it is finally becoming possible to completely simulate every individual trade and transaction and analyze all possible outcomes. The prospect of this feat is shaking up the functionality and ideology of global finance, and its implications could make economic security much better – or much worse.”   

The other problems include governments who make selfish money policy decisions, like devaluing their own currency, negative interest rates, and possibly getting rid of cash.  This idea that blockchain is a tool that could be either decentralizing OR centralizing, depending on how it is implemented, is something we'll return to.

These MIT guys are working on an asset-backed digital currency they call TradeCoin.  An asset-backed currency is one that, like your mortgage, is based on a physical asset (your house), which they hope would stabilize the economy.  They are not fans of the speculation that a purely electronic currency like BitCoin encourages (or corporate or government bonds, for that matter).

“A digital Tradecoin built on a distributed ledger can allow alliances of small nations, businesses, commercial traders, credit unions or even farmers to put together enough assets to back a large, liquid currency that would potentially be as trustworthy and at least as efficient as the national currencies used by the World Bank and the International Monetary Fund. This would give the alliance members some protection from the selfish policies of the big players. … Indeed, this is exactly how the Bank of England got started in 1694: as an alliance of merchants.” 

The second article "A Guide to the World BitCoin Created," is another fairly short history of the field, with graphs and timelines.  Probably not as interesting to the Steemit crowd, but useful for novices like me.

The third I found really interesting.  The author, Natalie Smolenski, seems like someone who would fit right in on Steemit.  Her website has a number of articles and talks from various economic meetings.

The Evolution of Trust in a Digital Economy

NS is a cultural anthropologist by training, and it shows in the broad way she approaches the subject of economics, which I like.  My own columns (linked below) draw on my biological background to expand the definition of economics in a similar way.  Here's how she starts:

“To expand across the earth, feed growing populations, wage wars, build empires and engage in knowledge exchange, people have used trust technologies that evolved out of one another in a more or less overlapping sequence: 
  • kinship and gift giving 
  • division of labor 
  • account keeping (the origin of credit and debt) (which I addressed here
  • hierarchy (which I also coincidentally wrote about here)
  • currency 
  • universalizing religions (which I wrote about here)
  • and most recently, banking.”  

I just wish she had explicitly said that capitalism is a religion.

For most of the article, she returns to the theme that no technology is automatically or magically good or bad.  It depends on how we as humans use them, to build trustworthy communities, or to cheat people.  People thought the Internet was inherently decentralized, that everyone would learn HTML and build their own webpages, until these big companies like Facebook and Google came along to make it easy and to monetize our data -- including by selling it to the NSA.

“The average person cannot use any blockchain directly, in the same way that the Internet cannot be used directly. Rather the individual uses applications that make use of the underlying blockchain in one way or another. The application layer is where where untold confusion and often outright bad faith can reign …    

She goes on to describe various examples of insecure wallets and other applications that have allowed the theft of money that naive people were promised would be absolutely secure.

This is the crux of blockchain's catch-22: the public won't use blockchains wihout user-friendly applications. But user-friendly applications often achieve that ease through centralization, which replicates the conditions of control that blockchains sought to circumvent.”   

Like the other MIT authors, she has a pet project called Blockcerts, an application for non-monetary but important records like academic credentials, professional certifications, workforce development, and civic records.

[image link]

This idea goes somewhat beyond Mozilla's Open Badges, because the issuer of the credential isn't solely responsible for maintaining the integrity of the records.  The portable image file generally refers back to a page on the issuer's server, which is a single point of vulnerability.  Imagine the transcript office at your college burning down, for instance, or the difficulty that doctors trained in other countries have when the come to the US.

According to the author, and probably most of Steemit would agree, this is bigger than just finance.

“Creating digital identities whose existence is independent from governments and corporations is the next grand challenge that blockchains both pose and could help solve.”  

Check out the original articles at SciAm's website.  They are well worth your time.

REFERENCES

https://www.scientificamerican.com/article/the-future-of-money/

https://en.wikipedia.org/wiki/Global_surveillance_disclosures_(2013–present)



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Tradecoin sounds promising and the goal is nobler than bitcoin's when it launched.

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