As an alternative to finance, this new system of digital transactions could contribute to our emergence from the crisis in capitalism.
The early 21st century has been dominated by disruptive shocks, i.e. improbable, irreversible and extreme events, of which Brexit is the latest example. The ever-increasing number of shocks sometimes combine to produce unexpected results. For example, the global crash at the end of 2008 following the bankruptcy of Lehman Brothers gave rise to the blockchain technology which could revolutionize not only capitalism but also public life. The invention of the blockchain is inextricably linked to that of the bitcoin. As a reaction to the global credit collapse, the bitcoin was created at a very low cost in 2008 as a secure electronic currency, free of any intervention by states, central banks or financial institutions. It is a machine that produces confidence by underwriting transactions between individuals without any central organ or external guarantor.
The blockchain enables huge quantities of information to be stored and transmitted in a transparent, secure and decentralized manner. It constitutes a vast digital register that identifies – exhaustively and anonymously – blocks of successive transactions. They are time-stamped, then validated and certified by participants in the chain – called miners – who compete with each other and are rewarded for their work. They guarantee that the data gathered is correct and not forged. Blockchains may be public – open to all – or private, reserved for members of a community. Risk is limited to each miner’s contribution to the chain.
The blockchain therefore provides a secure, efficient, fluld and speedy transaction system between peers. Security is guaranteed by the power of computer calculation made available by the community. Transactions are made fluid because of the disappearance of bottlenecks and of costs resulting from the suppresion of fees paid to trusted third parties, since the model provides internal regulation. It depends on three elements. Firstly, its cryptography, which protects both the exactness of the transactions and the anonymity of the parties concerned and which is derived from a combination of public and private codes; secondly, its cumulative computer power, which enables the successive stages of the chain to be verified; thirdly, the existence of a community large enough to avoid any manipulation, since no miner or group of miners must become a majority. The applications for blockchains are immense because they cover all forms of transactions: transfer of assets (whether currency, deeds, stocks or shares); record-keeping for objects, goods or votes; and, finally, contracts whose drafting, conclusion and putting into effect can be automated. In the long term, this technology could become a preferred tool for individuals who want to manage their digital identity, assets and commitments.
The development of blockchains goes way beyond the scope of the virtual bitcoin currency. Ethereum is proposing to underwrite intelligent contracts. Nine leading international banks have come together to create a private blockchain with R3 Cev. Circle is offering secure online payments by banker’s card in all currencies. Chain manages the transfer of digital assets. Ghana and Honduras have set up digital land registries. Everledger is a repertory of over a million diamonds, with the aim of certifying them and limiting the possibilities of fraud. AirBnB is looking into the possibility of direct contacts between property owners and tenants. Overall, investments in the many different projects using the blockchain will exceed 1.5 billion euros in 2016.
The blockchain is a marvellous illustration of how the technological revolution is gathering speed. The steam engine took a century to take root, the internal combustion engine and electricity took 50 years, personal organizers 20 years, the cellphone 10 years. The sharing economy that is specific to the blockchain is a telescoping of the collaborative economy of digital platforms today. This represents an upheaval for production and the concept of added value as well as for the very spirit and ethic of capitalism, because, with blockchains, wealth is the fruit of collaboration and not of competition between producers, who may also be consumers.
Like any major technological disruption, the challenges of the blockchain are as numerous as its promises. It is a technological challenge, given the exponential increase in the power of calculation and the costs involved in the development of chains. Quantum computers could be the solution, but they would also enable crytpographic codes to be broken. It is also an economic challenge, with the risk of speculative bubbles. It is a legal and fiscal challenge for a system that is outside any national laws. It is a challenge of governance because, since the chain is designed to be perfect, any problem would result in its collapse, for want of any external or human reinsurance. And it is a security challenge, for, with the gurantee of anonymity, this opens a new door for terrorists and criminal groups.
Blockchains may be virtual, but the problems are real. The bitcoin is rather like John Law’s East India Company – its value continues to soar whilst there are more and more scandals with the collapse of several Ponzi pyramids. Silk Road has become the Amazon of drugs. The leading decentralized investment fund, The Dao, has been the victim of hacking to the tune of 3.6 million ethers, the equivalent of 53 million dollars.
This serves to remind us that the blockchain, like the internet, is a technology that depends on how it is used; it can serve us but can also destroy us. It excites the same illusions as the Net, said to be neutral and at the service of freedom as long as it remains out of reach of politics and nations. The libertarian dream of individuals having complete control of their digital identity, their goods and their relationships, and of a digital social contract without any human intervention, is a dangerous pipe dream. Technology in itself is not beneficial; it can help but not take the place of human action, as has been shown in The Dao’s decision to create a committee of referee investors after being a victim of fraud. Furthermore, technological revolutions often increase supply without getting rid of previous procedures or means of production, as can be seen in the media. Above all, the digitalization of identities or of the social contract is inconceivable without political guaranteees, or else freedom is put at risk.
However, the blockchain is undoubtedly a fundamental innovation that has come as a reaction to the crisis of confidence in institutions and leaders since the 2008 crash. It can help in bringing a response to the turmoil and anger that prevail in democracies, notably among the middle classes. Systems that are trustworthy and verifiable by anyone at any given moment are one of the antidotes to the discredit suffered by states and by markets. Ironically, the blockchain, which emerged as an alternative to finance when we were undergoing the worst crash since 1929, could contribute to our emergence from the crisis in capitalism by restoring the confidence that is crucial to capitalism’s existence and which leaders and central bank have been trying in vain to restore for eight years.
(Column published in Le Point, 7th July 2016)