We all enjoy modern technological advances, whether it’s the internet or our favorite cereal brand. But the way society is organized today has captured our individual productivity in the benefit of financial elites. If we had not surrendered our productivity, we could earn up to four times as much wealth as we do today. The solution is to break away from centralized hierarchies towards smart decentralization. And we still get to keep our modern benefits.
Background: Bitcoin’s Innovation
If you haven’t heard of Bitcoin yet, it’s magical internet money. But Bitcoin’s major innovation is not its board-game money, but a way to decentralize ownership of a financial ledger. The Bitcoin ledger, called the blockchain, has no owner, no central bank or other authority. The ledger is distributed across participants’ computers who run the Bitcoin software.
Shutting down one participant doesn’t harm the Bitcoin network. Anyone can send and receive Bitcoin without restrictions. While some thieves could steal Bitcoins, so far nobody has succeeded to seize control of the Bitcoin network itself. Compare Bitcoin to how your bank works. Banks maintain their customers’ accounts, while at the same time owning and controlling the ledger that records these accounts. This gives commercial banks the power to create money from nothing.
We Cannot Trust Banks
In fact, creating money from nothing is precisely how modern economies actually control the money supply. The role of central banks is limited to setting the rent percentage that banks have to pay on loans, thus only influencing money supply indirectly. When European Central Bank director Draghi announced to “print” a few trillion Euros, what he meant was to give commercial banks a license to make up more money—fairy dust.
However, the world banking system is based on legacy security principles developed back in the 1970s and 1980s, and therefore open to global-scale fraud. Two known scenarios recently lead to the theft of billions of dollars worth of currency:
- Bank account balances are just numbers in a database. Those numbers can be altered. Surplus funds can then be wired out of the bank without the bank ever noticing. A top security researcher at Kaspersky Labs Inc., Mr. Golovanov, explains, “We found that many banks only check the accounts every ten hours or so. So in the interim, you could change the numbers and transfer the money.”
- Banks can create money from nothing! This means that insiders can plot to rob a bank from within. Forget about Hollywood movies like The Insider. There’s no need to haul around bags of cash. Instead, when banks give out business loans or home mortgages, they create the money from nothing. Bank account holders can then withdraw that money. That’s exactly how in October 2014 a gang of criminals robbed Bulgaria’s KTB bank and stole over $2B USD, “due to what appears to be a Ponzi financing scheme aimed at draining the bank.”
You’ve probably heard of Peak Oil, the point where extracting a barrel of crude oil costs more than its market price. Peak Centralization is the point where world government and world banking converge into a single global organization—the World Government. The question is whether it will ever come to that because the forces of centralization are countered by forces of decentralization. This is the age-old struggle between power elites and free masses.
Going back in history for a moment, most of us believe that prehistoric man came up with money—clams, gems, rocks, salt or anything—to cope with the inefficiency of bartering. For example, if you bartered a bag of potatoes for a chicken, how much chicken could you get for just one potato? You’d have to kill the chicken, which was impractical. But in reality that never happened. Instead, prehistoric man bartered asynchronously, e.g. he would trade a potato on many different days and ultimately receive a whole chicken in return. We can’t scratch each others’ backs at the same time, there’s a delay.
The barter system works well for as long as you can remember who owes whom what. This system is inherently decentralized because every participant stores a personal copy of the financial ledger—the who-owes-whom memory—in their own minds. This memory was not perfect, but it works up to communities of around thirty or forty members. Beyond that point, the human mind could no longer cope remembering. We were forced to switch to accounting using rocks, ropes, sticks and later coins, gold, paper money, credit and debit cards, and Bitcoin.
(Peak Centralization actually occurred in the West during the past two centuries. In the year 1800, 90% of Western people were self-employed. Self-employment went down to 50% in 1900 and 10% in 2000 .)
The Invention of Financial Slavery
Ever since prehistoric bartering, the financial system moved away from a perfectly decentralized system towards a centralized global banking system. This solution helped mankind’s population to scale up to almost seven billion members, but there is a downside: we surrendered our lives to financial elites who took control of the who-owes-whom ledger. The reason is that centralized systems only work when we submit our trust to them.
Because we could no longer rely on our own memory, we were forced to accept the authority of bankers, accountants, notaries and others who specialized in this field. But absolute power comes with absolute corruption. For example, in the decades before letting go of the gold standard, banks would run a fractional reserve where they possessed only a small fraction of the gold they were supposed to, on the assumption that the people would not redeem all their gold at once. (For this reason, many governments criminalized publicly calling for a bank run.)
Once financial elites mastered the skill to control local, national and global financial ledgers, they effectively took control of the people’s productivity. In one way, the financial elites have the power to declare one business owner bankrupt while extending a loan to another ‘promising entrepreneur’. Bank managers can extend billion dollar loans to corporate friends while denying loans to honest middle-class families. Banks benefit themselves from corporate centralization and therefore have an incentive to disrupt middle-class competitors.
The End of Centralized Ownership
Since we can go no further than 100% centralization, the only other way we can go is decentralization. Using emerging technologies such as the Bitcoin blockchain we can reorganize society, governance, and finance. While prehistoric men and women were forced to remember who-owes-whom records themselves, Bitcoin’s technology solves this problem in a way that doesn’t require centralization: the Bitcoin blockchain is a decentralized ledger without an owner, yet it is much more secure than the current global banking system.
In this sense, the blockchain is a modern solution to a prehistoric problem. The applications of decentralized ledgers are limitless:
- Own your medical history. Imagine you go to a doctor and temporarily give them access to your medical history. They can add information to your record, but when you leave, you can retract access again. Nobody can ever access your medical history without your approval.
- Own your education, diplomae, and certifications. Today, centralized authorities such as universities and schools issue and validate your diploma records. Without a diploma, you may not even get a job. Imagine a social proof of your skills, issued and validated by regular people just like you.
- Own your national identity. The Edward Snowden case shows that governments can retract your passport at will, impairing your ability to travel the world—essentially reducing you to a prisoner of your government. With Bitcoin technology, We The People could issue a global passport, one that cannot be retracted by anyone, a sort of proof of existence.
- Own your productivity. We go to work in expensive office building apparently erected for someone else’s grandiosity (The Rockefeller Building, The Trump Tower). Why can’t we decide each day what tasks to work from, from friendly environments, even working for a different company each day while owning our productivity? In the future, companies will compete based on creativity and customer service, but not worker exploitation.
- Own your ideas and inventions. The Creative Commons copyright licenses are an example how to do things differently. The world’s patent system, which now benefits big corporations who have the funds to sue small-business, will be overturned, if not abolished completely. Smart patents, or Creative Patents, will accelerate collaborative innovation in the benefit of all mankind.
A World without War
What caught my attention about Bitcoin most was the story of Silk Road, a ‘black’ market where drug dealers could buy and sell anything but without having to meet in person. The anonymity of the internet protected drug dealers from getting stabbed, shot at or robbed. Online user ratings discriminated between ‘honest’ and ‘fraudulent’ drug dealers. That’s an unexpected benefit—because that means we can also organize ‘white’ markets to operate in this manner, e.g. without violence and corruption.
A decentralized world, one where people lend their productive lives to causes of their own choosing, one without central governments, banks or militaries, can be a world without crime, corruption and even without war. With the Bitcoin blockchain principles available to us, we now have an obligation to use them. Let’s build a world without centralized ownership of our lives.