Due to its remarkable technical features such as automation, transparency, auditability and cost-effectiveness, the blockchain may be seen as a ‘disruptive innovation’ because on one hand, as our research shows, blockchain could manage social interactions on large scale and cancel out traditional central authorities, and, on the other hand, blockchain could be leading to the general disempowerment of citizens and the rise of a stateless global society (Atzori, 2015). However, if properly managed, the decentralisation of government services through permissioned blockchain is possible, due to the improvements it brings to public administration functionality (Atzori, 2015). However, as shown by Atzori (2015), the decentralization of governance through open, distributed blockchains such as Bitcoin, shows serious risks and drawbacks that counteract the benefits. Its lack of restriction and deliberate elimination of government supervision, for instance, makes Bitcoin prone to hosting criminal activity (Jeong, 2013).
What is specific to Bitcoin is how the promise of empowering individuals is likely to remain unfulfilled, due to the dominant role of markets and the speculative verification systems of fully distributed blockchains (Atzori, 2015). Blockchain advocates point out that the civil society could protect its own interests and organise itself more effectively by replacing the functions of the state with blockchain-based services (Atzori, 2015). This statement is true as long as the blockchain is still regulated by state authorities and do not operate independently of any regulations. In the case of them operating independently, citizens risk to find themselves exposed to the problems of blockchain and, at the same time, trapped in a system where they are not actors deciding for themselves but have to accept decisions taken by an elite dominating the blockchain system. The conscientious application of principles and rights enshrined in law rather than the privatization of government services through blockchain (market driven decentralised platforms) is what truly empowers citizens, as pointed out by Atzori (2015), political analyst, academic researcher, and blockchain and digital currency specialist. In contrast, Farell (2016) responds to Aztori’s paper and points out that the state has become inefficient nowadays and is failing to fulfill the voter’s desires and demands because it has ran out of solutions for its citizen’s conflicting demands. Farell (2016) further states that the need of new solutions to citizens’ problems is fulfilled by blockchains. Thus, taking into consideration the points of both authors, in the situation where the conscientious application of principles and rights in the law still happens as part of the process of state institutions adopting blockchain technologies to become more effective, citizens are still protected while enjoying the benefits of technology providing increased efficiency for the society as a whole.
Even though networks built on blockchain are frequently associated with the use of the word ‘democratization’, such systems are profoundly anti-democratic as stated by Golumbia (2015), a digital studies academic. The example of Bitcoin shows how the inner governance of the system only appears to be democratized but, in fact, it is dominated by the interests of major actors in the system. Contrary to the widespread belief, Bitcoin is not truly decentralised as there is a limited number of entities that currently control the services, decision making, mining, and the incident resolution processes in Bitcoin (Gervais et al, 2014). Mining and block generation are largely centralised at the moment, even though originally Bitcoin was designed to be decentralised (Gervais et al, 2014). More than 50% of the computing power in Bitcoin is currently under the control of the top-three (centrally managed) mining pools and 6 major centralized mining pools manage more than 75% computing power in Bitcoin (Gervais et al, 2014). The pools acquiring more than 50% of computing power share in the network ‘can effectively control the confirmation of all transactions occurring in the system’; they can prevent the validation of transactions and also authorize a specific set of transactions, which leads to the problems posed by double-spending transactions (Gervais et al, 2014). Moreover, Bitcoin operations such as protocol updates and incident resolution, which are not designed to be decentralized, are in fact controlled by a small number of administrators whose influence is derived from their function within the system and is not dependent in any way on computing power (Gervais et al, 2014). Powerful entities in Bitcoin can also deflate the value of Bitcoins owned by certain addresses through alert messages sent to all Bitcoin users (Gervais et al, 2014). Even worse, developers can obstruct all interactions with a specific Bitcoin address without the user’s permission (Gervais et al, 2014). While in the real world almost every financial system is controlled by governments and banks, the Bitcoin world is ruled by IT developers and mining pools (Gervais et al, 2014). Thus, those actors dominating the Bitcoin system do not have the interests of citizens as one of their priorities and seem to only create an illusion of a rupture from the state as we know it and an illusion of a system in which power is divided among its users.
Blockchain-based governance cannot be a stand-alone political theory but rather an organisational theory with significant technical and managerial advantages for markets, private services, and communities (Atzori, 2015). However, there is a paradox created by the fact that stakeholders now involved in blockchain governance play the classical role of the third party, even though the blockchain was originally created to eliminate the need of a third party in transactions (Atzori, 2015). While governance based on blockchain does not fall into the category of political theories, the supposedly stateless currency of Bitcoin is far from apolitical in nature (Jeong, 2013). Bitcoin’s retreat from the state and its occasional outright opposition to the state, is itself political (Jeong, 2013). In fact, Bitcoin is an ‘anarchical constitutional project’ (Jeong, 2013). The common belief is that networks built on blockchain technologies are technically decentralised, but on the surface they appear to be structured around promises that appeal to and reinforce specific political ideologies (Golumbia, 2015). The Bitcoin system is built on ideologies that serve the neoliberal agenda; those ideologies follow Hayek’s ideas who argues that markets, not formal political structures, are the only valid means to wield power and to gain knowledge along with the belief that ‘the good will win out’ if competitive market structures are imposed over parts of society (Golumbia, 2015). As Golumbia (2015) points out, the status of the rich and powerful will not change to poor and powerless simply because some people start to operate alternate exchange economies. Thus, according to Golumbia’s arguments, the Bitcoin system could be consudered another form of capitalism which is part of the neoliberalism agenda.
Bitcoin failed at being decentralised or anonymous and its hyperdeflationary design features have made Bitcoin a currency dependent on outside, more stable currencies (Jeong, 2013). Bitcoin is too volatile to be used as a store of value and this is one of its main drawbacks that do not make it reliable for future use. Absolutely unregulated markets imply extreme boom and bust cycles (Golumbia, 2015). Bitcoin’s functioning is prone to the same pattern of behaviour and as long as Bitcoin will still massively fluctuate in value its functionality as a currency is reduced. However, if Bitcoin is regulated enough so that it becomes stable store of value, it might be fit as a global system of payments (Golumbia, 2015). Currently implemented initiatives use blockchain, and not Bitcoin, for managing bank transactions. There is an emerging paradigm shift from Bitcoin to blockchains, advocates of this shift arguing that ‘the blockchain can make governments better at what they do’(OConnell, 2016). At the moment the blockchain technology is being regulated and used by banks such as Emirates NBD (in the United Arab Emirates), as stated by a Gulf News staff report (2016), and ICICI Bank (in India) as pointed out by Express Computer India (2016), as a new system for managing their transactions.
The BitNation project (www.bitnation.co), one of the major players in the field of “stateless society”, is an empirical example showing how blockchains can provide a way out of the system. This project offers governance 2.0 services through decentralized, and voluntary blockchain-based governance applications which provide secure ID systems, dispute resolutions, marriages and divorces, land registries, education, insurance, security, mutual insurance, and diplomacy (van Eyk, 2014). Individuals are able to create their own BitNation as the project provides a toolbox for Do-It-Yourself (DIY) governance (van Eyk, 2014).Further more, other useful implementations of the blockchain system aimed at improving the functioning of the state and the way politics is done consists of blockchain being used in voting systems.
The extent to which countries might adopt the use of Bitcoin or not depends on certain conditions within each country. The preference for Bitcoin is likely to be higher in countries with complementary goods (e.g. greater levels of technology and access to the internet) but also where the official currency is weak due to inflationary practices by the central bank and where there are large informal markets that could benefit from the use of Bitcoin (Hendrickson et al, 2015). However, these types of governments may also prefer to maintain the dominance of their official currencies by preventing the propagation of bitcoin and countries with high levels of market interventions might be more effective at counteracting the use of Bitcoin (Hendrickson et al, 2015).
According to Macdonald et al (2016), the ideal mode of usage of blockchain is when it is decoupled from its link to Bitcoin because the economic value and disruptive potential of blockchain does not depend on the prospect of Bitcoin. Blockchain can be seen as a form of highly transparent, resilient and efficient distributed public ledger and can conceptually be placed alongside markets, as an open platform technology that performs a general service of decentralization (Macdonald et al, 2016).
In conclusion, we have seen an intense debate in the scientific literature, as well as in the press and on the web, that questions the efficacy of Bitcoin as an implementation of blockchain. While Bitcoin is said to perpetuate existing inequalities, reproducing traditional capitalistic relations, blockchain is praised as a positive innovation that can be used to improve some of the existing functions of the state, without replacing the state completely. While some authors seem to be very optimistic about the implementations of blockchain for a so-called "stateless society", others underline the necessity for a state authority regulating the implementation of blockchain for a smoother governance. However, this goes against the initial starting point at the foundation of blockchain, which is decentralisation. There is thus a controversy in this field, between a necessity to protect users from the potential centralization of the system, and a desire to keep the initial ideal of a decentralized form of organization.
CREDITS:
Anastasia Cojocaru
SOURCES:
Atzori, M. (2015). Blockchain Technology and Decentralized Governance: Is the State Still Necessary?. Retrieved from https://ssrn.com/abstract=2709713
Farell, J. (2016, 16 March). Response to Marcella Atzori: Can The Blockchain Provide Governance?. Ambassador News. Retrieved from https://bitnation.co/blog/response-marcella-atzori-can-blockchain-provide-governance/
Gervais, A., Karame, G. O., Capkun, V., and Kapkun, V. (2014). Is Bitcoin a Decentralized Currency?. IEEE Security & Privacy, 12 (6), 1-11. doi: 10.1109/MSP.2014.49
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