We’ve largely focused on how crypto-currencies have developed and the benefits and challenges they pose to society. But these new forms of money and ways of organizing commercial activity are not landing in a static, dormant society, as if human beings were just waiting to be woken by a new monetary idea. Society itself is changing, rapidly. Digital technology and online computing are at the center of this change, shifting how we form communities, social relationships, and business ties as every aspect of our lives becomes increasingly subject to the power of computing and network connections. Other factors are at work, too—the demographic shifts of an aging West, the unprecedented growth of a middle class in developing nations, the rise of terrorism in place of international conflict as the biggest security concern of our time, and the legacy of the 2008 financial crisis with its damage to people’s confidence in the traditional financial system. All of these create both opportunities and challenges for cryptocurrencies as they seek to impose some arguably even bigger changes on the societies to which they are being marketed.
In this confusing period there’s no shortage of people who claim to have figured it all out. Countless Article have appeared about the digital age and what it means, about the “end of work,” or the impact of debt left over from the financial crisis. This Article fits right into that genre. But it’s important to recognize that the linear thinking that has people recognizing one trend or another can often prevent them from recognizing a simultaneous contradictory trend. Below, we’ll explore some of these contradictions and look at what they mean for how societies grapple with the introduction of disruptive technologies such as cryptocurrency. We examine the tension it creates and the demands that the tensions be resolved through compromise and negotiation—typically through the intervention of government.
One of the biggest of these contradictions occurs along the continuum described in the previous chapter: that of decentralization versus centralization. Conflicting forces at either end of it are evident not only within the realm of cryptocurrencies but across society.
It can seem we live in an age of uber-centralization. The concentration of power and control that contributed to the financial meltdown of 2008, most importantly in the form of overly powerful too-big-to-fail banks, has by many measures only got more intense since that crisis. Although new regulations sought to curtail banks’ power, the solution preferred by policymakers to the economic and financial maelstrom was to double down on the old system of concentrated power. Central banks became even more important, pumping trillions of dollars’ worth of fiat currency into the global economy via their age-old partners, the banks. This may have staved off disaster by preventing all-out collapse in the financial system, but it played into the hands of big institutions and those who run them and left the little guy behind. Big public companies were able to borrow cheaply via the corporate bond market in this era of zero interest rates and so grew even bigger, as it created incentives for corporate mergers. However, small- and medium-size businesses found that their main source of finance—commercial banks—had become much tighter with credit, constraining their ability to grow and hire. Meanwhile, underlying demand continued to sag, which meant that the bigger companies also had no incentive to invest in new hires, not when they could exploit lower financial costs to maintain profit margins and turn to outsourcing and robots to take the place of local workers.
This big-is-better solution favored the few and held back the many. While the wealth of hedge fund managers and other elites surged thanks to the relentless stock market gains after the financial crisis subsided in 2009, the incomes of most households in Western societies stagnated, creating the widest wealth gap since the Great Depression. It’s a story of big banks, big companies, and big homes for the 1 percent, with close to nothing left for the rest. That’s one of the features of our twenty-first-century economy, and it speaks to a trend of centralization, not decentralization.
Yet, at the same time, signs of decentralization are clear, mostly on account of new technologies that have given people both the tools and the motivation to extract themselves from dependence on those big, centralized institutions. For example, take energy. The modern utility, with its power plants and transmission lines, has a state-mandated license to operate; it is subject to state controls on pricing; it is a private enterprise that serves a public need. But it’s increasingly possible for homeowners to configure their properties with enough solar- and wind-power capacity to significantly reduce reliance on utilities or take themselves off the grid entirely. As former U.S. vice president Al Gore put it in an essay published by Rolling Stone in the summer of 2014, “We are witnessing the beginning of a massive shift to a new energy-distribution model—from the ‘central station’ utility-grid model that goes back to the 1880s to a ‘widely distributed’ model with rooftop solar cells, on-site and grid battery storage, and microgrids.”
Beyond energy, many other industries are experiencing shifts toward decentralized models that bypass middlemen gatekeepers: tourist accommodation without hotels, driver-owned taxi services without central dispatch services, e-marketplaces for neighborly tool rentals that take business away from hardware stores. This is happening even without the use of cryptocurrencies or blockchains. People have figured out that if they have idle assets, they can lend them to people who need them, while those people have in turn equally realized that they don’t need to go through expensive central distribution points to find those assets. This new system is called several things: the sharing economy, the mesh economy, the collaborative economy. Got some extra computing power sitting on your desktop? Share it with those who need it. Got a car sitting idle in your driveway? Share that. Got a big idea? Share it online and raise the money online to fund it. Business symbols of this era so far include the personal-apartment rental site Airing, the crowd funding site Kick starter, the peer-to-peer lending network Lending Club, and the taxi services controlled by individual car owners Uber and Lyft.
In some respects these new business models are extensions of a process that began far earlier with the advent of the Internet. While no self-respecting bitcoiner would ever describe Google or Facebook as decentralized institutions, not with their corporate-controlled servers and vast databases of customers’ personal information, these giant Internet firms of our day got there by encouraging peer-to-peer and middleman-free activities. GoogleAds allowed small businesses to bypass big media organizations and to market more directly to prospective customers; Facebook allowed people to organically form groups, communities, and associations that weren’t tied down by geography or social and national structures; Twitter meant people could design their own news feeds.
The importance of decentralization goes beyond the emergence of new business models or even that people are finding ways to save a few bucks here or make a few there. By unleashing this DIY approach to commerce, changes in technology and culture are leading to new methods of interacting, both socially and economically. Profit and nonprofit organizations alike are now eschewing vertical hierarchies in favor of more horizontal, democratic lines of command. (For a visual representation of how this plays out, compare the open-planned office layouts in the contemporaneous TV show Silicon Valley with the closed offices of the sixties-era Mad Men.) Much like the open-source-software development teams that look after bitcoin and countless other computing projects, communities are being formed—mostly online—with no titular head and no central hub. They are held together by the commonly recognized convention that the consensus of the crowd trumps everything else.
Is a clash building between these two movements, the corporate world’s concentration of wealth and power, and Silicon Valley’s re-empowerment of the individual? Perhaps these trends can continue to coexist if the decentralizing movement remains limited to areas of the economy that don’t bleed into the larger sectors that Big Business dominates. But that’s not what the proponents of this technology foresee—especially those in the cryptocurrency sector. They believe that decentralization is just getting started and that the centralized economic and political establishments—even governments and nation-states, those ultimate centralized loci of power—will be disrupted by it. If so, cryptocurrencies and blockchain technology could ride that wave triumphantly. A phrase from Mastercoin’s David Johnston that some in the cryptocurrency community call Johnston’s law could come true: “Everything that can be decentralized will be decentralized.”
This especially optimistic view of cryptocurrency technology’s potential runs up against the many obstacles that it faces. But if we set aside cryptocurrencies for a moment, it’s hard not to believe that the decentralizing trend has momentum. When we stand that up against the entrenchment of Wall Street’s and Washington’s concentrated power in the postcrisis period, these twin trends start to look less like parallel movements and more like two trains on a collision course. We may well be on the verge of a profound societal upheaval, perhaps the most significant since the sixteenth century, when, in the second half of the Renaissance, banking and the nation-state established themselves as the central forces of power around which the world’s monetary and economic systems would revolve.
When faced with these kinds of disruptive challenges from new technology and new ways of organizing society, businesses and institutions that occupy the center—those that represent the economic and political establishment—have three choices. One is to just ignore the new idea, to dismiss the new idea and carry on as normal. A second is to fight it, perhaps through political lobbying, or by using advertising campaigns or smear campaigns to destroy the nascent threat through negative associations in the public eye. A third is to try to adapt to it, to incorporate, co-opt, or otherwise work with the new technology or concept.
Silicon Valley innovators will frequently warn against the perils of the first approach, but history suggests it’s often not a bad idea to let a new technology fall victim to its own hype.
Contributed by: <Business name withheld in the interest of readers>