Some political dimensions of blockchains

Reading time: 15 minutes

Translation by AB – January 1st, 2023

Registers

A blockchain is a virtually unalterable digital register (more commonly called a digital ledger¹).

A register is by definition a book in which one records the facts, the things one wants to remember. The facts and things that are recorded in a blockchain are digital sequences of bits that can be interpreted as data or computer codes. The “book” is written page by page, each page being numbered and dated. Once written, a page cannot (practically) be crossed out, modified or torn out. A page is called a “block”, and the blocks are linked together to form a blockchain.

All the registers we know (parish registers, civil status, ledgers, etc.) have the same three essential characteristics that define power relationships: they are held by an authority (the parish, the administration, the company, etc.), they are kept by authorized persons, and they have the force of “law” concerning the things and facts that are recorded in them. The blockchain can play this classical role, but the digital allows other variations that are other models of power relationship. Here we directly reach the essential point: a blockchain is always, implicitly or explicitly, a “political” instrument.

Libertarianism 2.0

Because the blockchain is a dematerialized digital register, the actors who record data on it and those whose activities depend on that data can orbit the blockchain without any intermediary other than its computer code. This “disintermediation” is often presented as the main feature of blockchain technology.

Not so long ago, the Internet itself was considered by its pioneers as an instrument of disintermediation and therefore of liberation of individuals from any kind of “guardianship”, especially by states. Let’s recall the words of the cyber-anarchist Rupert Barlow in his “Declaration of the Independence of Cyberspace” written in Davos in 1996 and which begins with these words²:

Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.

Gone are the parishes, the administrations, the states and all the tutelary organizations… For the first time a technology allowed libertarianism to envisage its “machine”, but it was without counting on the tendency of information technologies to shape powerful agglomerates. We can all see it today, Barlow’s libertarian utopia has gone out of fashion³:

The supposed “home of Mind” was run through by trolls and bots. People were railroaded into a few platforms of enormous power, fed into enormous surveillance machines, mined for attention, guided by algorithms, all while they contributed to the radical inequality of the broader society.

The blockchain claims to “do better”, in particular thanks to a massive use of cryptology, but this lesson of the history of techniques must be retained by its users: any technology ends up creating unexpected power relationships.

Catch-22

Yossarian: “You mean there’s a catch?”

“Sure there’s a catch,” Doc Daneeka replied. “Catch-22. Anyone who wants to get out of combat duty isn’t really crazy.”

Joseph Heller – 1961 – Catch-22⁴

Blockchains pose a very interesting bootstrapping problem related to the lack of regulators, a problem this Fox Business article calls the “Catch-22 of blockchain technology”⁵. In Joseph Heller’s satirical novel, where the world at war has gone mas, a crazy soldier is not required to take part in air missions. But Catch-22 prevents the use of this pretext. So, no one escapes the combat duty.

This logical catch can also compromise the bootstrapping of a blockchain, in which case Catch-22 can be written: “No company shall commit to a disruptive technology that cannot first demonstrate its deployment capacity”. But as there is no intermediary, the capacity of deployment can only be demonstrated by the effective achievement by these companies of full-scale tests. Blockchains therefore require a sufficiently broad initial adoption. If there were an intermediary administrator of the blockchain (which is the case of private and institutional blockchains, of which we will see an example later on), he would take care of it as if it were a classic product launch, but without such an actor, we must rely on the will of a community alone. The question of adoption then takes a political turn.

The case of bitcoin adoption

The bitcoin blockchain is the record of all transactions made with this cryptocurrency since its origin in 2009. Today (May 2021) it contains about 700,000 blocks, and each block contains several hundred to several thousand transactions. This blockchain is not controlled by any central bank, government, or authority. Therefore, we draw from the “Catch-22” lesson the question of the political basis for its initiation.

Satoshi Nakamoto, the author of the 2009 document describing the technical principles of bitcoin⁶, is still unknown to this day. His document is somewhat equivalent to the patent filed by Larry Page at the origin of the Google search engine: it is just a few pages long and is the foundation, at least symbolically, of a true digital epic. According to Nakamoto, the principle of trust on which electronic payments are based must be abandoned. Since there is no trust between the payer and the payee, a trusted third party, in this case a financial institution, is needed to guarantee the transactions. However:

Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions […]

To solve this problem, transactions must therefore be made irreversible, in which case trust is no longer necessary, nor are financial intermediaries. The proposed solution is a blockchain, a theoretically unalterable digital register to which blocks of transactions will be irreversibly added. The mechanism, using cryptology extensively, is well known and simply described in Nakamoto’s original paper; we will not insist further on this technical aspect.

What we want to observe is that the sequence of Nakamoto’s ideas leads to something other than the simple realization of “small casual transactions”. It leads to the establishment of a real currency, more precisely a “hard money” with characteristics similar to physical gold, against the inflationary “fiat money” politically driven by governments and their central banks. This is precisely how bitcoin got past its Catch-22: away from monetary considerations, the project became clearly political, and a group of “bitcoin advocates” extending far beyond the tech community was able to emerge. Professor David Golumbia, a critic of bitcoin and cryptocurrencies in general, recalled this some years ago (we underline)⁷:

[…] those grounding problems are to a lesser degree problems endemic to current technological infrastructure […] and to a greater degree ideological: the desire to bypass the (apparently lawful) credit card and PayPal ‘blockade’ of WikiLeaks, on the one hand (usually mentioned as the instigating event in the widespread use of Bitcoin), and the desire to bypass central and/or commercial banks for either the creation of money (as many of the more rabid advocates insist) or the provision of financial services (the main interest of Satoshi Nakamoto’s original Bitcoin paper), on the other.

Among the ideas supporting bitcoin, we find the libertarian and anti-state trend that has run through the history of WikiLeaks, or the conspiratorial anti-central bank rhetoric propagated by the American far right. You can’t start a blockchain with just technology…

The case of “smart contracts”

The initial idea of “smart contracts” comes from the computer scientist Nick Szabo who wrote it in 1997 in a short article still available online⁸. Szabo proposes to respond to the need to secure our relationships by formalizing them (in the mathematical sense of the term) and by incorporating these “relational codes” into any digitally controllable asset. Nick Szabo gives the example of a car that can be locked or unlocked by the owner or the creditor according to the payments of a loan concluded between the two parties. The smart contract is thus an unbreakable computer code that has the force of law and executes without intermediary the contractual terms agreed between the parties.

The Russian-Canadian computer scientist Vitalik Buterin gave substance to this principle with his Ethereum blockchain project described in a white paper published in 2013⁹. He observes that the Bitcoin system operates as a secure state-transition automaton (a transaction is a change of state) and could therefore in theory interpret something other than value transfers. However, it is too hardwired to this transfer mechanism and therefore too simple to be able to execute any kind of smart contract¹⁰. Ethereum goes precisely beyond the theoretical limits of blockchain and presents itself as an execution environment for smart contracts based on blockchain technology. How did Ethereum, which market capitalization is now (November 2022) worth $134 billion at the last Ether price, solve its Catch-22?

Crypto-anarchism

Ethereum can be presented as an attempt to revive an authentic cyberspace, a government of humans who freely determine their relationships and secure them through unalterable computer code. The imagination of blockchains and cryptocurrencies is populated by these “cypherpunk” figures who have pursued the ideal of a cyberspace freed from the “flawed” political systems that structure consensus: governments, trusted third parties… We think in particular of the computer scientist Hal Finney, who received the first bitcoin transaction from the mysterious Satoshi Nakamoto. The “Finney” has become the name of a subdivision of the Ether currency, as well as the “Szabo” and the “Wei”, the latter unit referring to the Chinese computer scientist Wei Dai who in 1998 created the “b-money” concept that inspired bitcoin¹¹.

The base of Ethereum (and other blockchains) is already wide and populated with “deities” and myths inspired by this crypto-anarchist ideal theorized by the American engineer Timothy C. May. In his 1988 manifesto¹², redistributed in 1992, he thus proclaimed that “Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions”. There will always be, despite the setbacks, a broad base to continue the “struggle” and contribute to libertarian peer to peer projects. The unwavering faith in a liberating technology, of which blockchain would be the latest avatar, is still extremely present, especially in the United States, and allows the bootstrapping of many blockchains. Ethereum has objectively benefited from this.

Code is Law

Every age has its potential regulator, its threat to liberty […] Ours is the age of cyberspace. It, too, has a regulator. This regulator, too, threatens liberty.

Lawrence Lessig – 2000 – Code is Law

In an article published in Harvard Magazine in 2000 entitled “Code is Law”¹³, the American jurist Lawrence Lessig already warned us of the dead ends to which this crypto-idealism leads. The trusted intermediary, whether a financial institution, a democratically elected government, or even controversial intermediaries such as Uber or Airbnb, is not ruled out at any political cost. The computer code determines new power relations and new powers that are far from leaving everyone “free and equal in rights”. For example, the power to determine the code itself is a technical power that escapes most of us. Or the power to “mine”, i.e., to add pages to the register, blocks to the blockchain, now escapes the abilities of most people. Thus, according to Lawrence Lessig:

[…] no thought is more dangerous to the future of liberty in cyberspace than this faith in freedom guaranteed by the code. For the code is not fixed. The architecture of cyberspace is not given. Unregulability is a function of code, but the code can change.

“Code is law” is the clear expression of the power that escapes most of us: that of determining the code that determines the “law” and therefore the new power relations. In other words: there is no technology that is intrinsically liberating.

Prefigurative politics

In a fascinating article published in 2020, three researchers present blockchain technology as “prefigurative politics by design”¹⁴. What does that mean? Let us recall in a few words that prefigurative politics is a mode of action consisting in confusing ends and means, in prefiguring already in the daily practice the society that one seeks to establish¹⁵. In many ways, the movement “Nuit Debout” born in France in 2016 has all the characteristics of a prefigurative politics that could be described as “blockchainist” with “crypto-communitarian” tendencies. The occupation of squares (named “temporary autonomous zones”), the debates or even the radical horizontality of the movement (even if it needed initiating figures like François Ruffin or Frédéric Lordon) are all means of action and at the same time practices prefiguring the societal ends to be reached. “Code is Law” is thus another way of saying “prefigurative politics by design”: the means (Code) and the political ends (Law) merge.

The technical ubiquity of blockchain allows for the prefiguration of various politics. These three researchers have thus analyzed the different possibilities and proposed an initial analysis in the form of two major types of “imaginaries” attached to blockchains. “Crypto-anarchism” on the one hand, which is subdivided into crypto-libertarianism (bitcoin…) and crypto-communitarianism (Ethereum…). “Crypto-institutionalism” on the other, which we have not yet mentioned but of which we will now propose a famous example. This latter imaginary does not evacuate governments and institutions but seeks to equip them in some way with more democratic and transparent tools.

e-Estonia (Law is Code)

It is possible to imagine a future in which nationality is determined not so much by where you live as by what you log on to¹⁶.

Estonia became independent in 1920; then its territory was occupied by the Soviet Union (and for a few years by Germany during the war) from 1939 until its new independence in 1991. Only half of the population only had a telephone line. Modernization was seen as a major issue of sovereignty and therefore access to technology for all as an essential foundation of modern Estonia. Today, we can speak of a true model of digital sovereignty guaranteed by an electronic “platform-state”. All essential services such as voting, education, justice, health, banks, etc. are digitally connected to a national data exchange platform called X-Road. The backbone for the security of the whole system is the KSI blockchain from the Estonian company Guardtime.

The KSI blockchain here is not a prefigurative politics component but a “political security” tool, an infrastructure that guarantees the non-falsification of a large national register. The trusted third party has not disappeared: it is the Estonian state itself and therefore, as with private blockchains in general, the Catch-22 bootstrapping issue does not exist.

Decentralizing Utopia

Only its services authorized by the Estonian State are entitled to add blocks to the blockchain, which eliminates a large part of the capacity and ecological brakes of crypto-anarchist blockchains without a trusted third party (Proof of work, Proof of stake…), which brings us to this astonishing observation: the technical cost of (theoretical) crypto-anarchism is exorbitant compared to that of crypto-institutionalism. What can we learn from this observation?

We do not totally control the effects of our technical achievements because there is a techno-determinism that can deviate from the intentions of design. In other words, as soon as we delegate to the technical system our societal gears, this system determines in its turn, because of its technological character, effects not desired by design. The prefigurative politics delegated to blockchain is no exception to the rule. We are still in the early stages of this technology, but we can already see that the decentralization/disintermediation that it prefigures by design is being condensed, as we noted above, into new agglomerations of centralization and power: the “power to code”, the “power to mine” (80% of bitcoins are mined in China), the “power to bootstrap” etc. The Internet itself, which was, as we noted above, a decentralizing utopia, has now passed into the hands of enormous digital powers and/or coercive political powers. There are still crumbs of this utopia, authentic spaces of creation and freedom, but they are never (for a long time) places of power or self-determination.

We can perhaps better characterize this techno-determinism with uncertain contours by the observation drawn above of the technical superiority of crypto-institutionalism over crypto-anarchism: the technological system “holds up” because it is in perpetual movement towards more efficiency. This efficiency is gained both intrinsically, by the technical progress of objects and their environments, and extrinsically, in this case by the correlative adjustment of places and instruments of power. Centralization remains more efficient than decentralized consensus “à la Nuit Debout” and therefore always ends up technically reproducing itself somewhere. Digital prefigurative politics must thus be wary of its own design (see also Tristan Harris and the Swamp of Digital Ethics) and examine what it actually decentralizes¹⁷:

No system is simply decentralized, full-stop. […] Blockchains, for instance, enable permissionless entry, data storage, and computing, but with a propensity to concentration with respect to interfaces, governance, and wealth.

In terms of wealth, for example, it is estimated today that only 1000 bitcoin addresses own about 35% of the bitcoins in circulation (i.e., $360 billion at the current price – November 2022), including 1.1 million bitcoins ($17 billion) from the “bootstrapping power” for the single and still unknown Satoshi Nakamoto¹⁸.

Crypto-anarchists who hate central institutions must face the facts and consider from the beginning those that will control the development of new concentrations contrary to their project. Let us remember, for example, that if the American federal government is considered by many as an anti-liberal body, it is nevertheless the only one able to enforce antitrust laws and thus protect (a little) authentic liberalism. The disintermediation utopia requires that we think at the same time by design the regulatory institutions that technology will sooner or later make necessary.

And then?

The political dimensions of blockchain are only sketched here, but this introduction should appeal to those who wonder whether to invest in cryptocurrencies, question the inevitability of smart contracts or more generally the possibility of this bright future for blockchain libertarianism.

The blockchain is, let’s not forget, a practically unalterable digital register, an endless chain of facts, things and instructions on which everyone agrees without anyone trusting each other. The radical inalterability of an ever-growing memory is reminiscent of the torments of Irineo Funes, the character by Jorge Luis Borges who remembers everything (“I alone have more memories than all men may have ever had since the world exists… My memory, sir, is like a rubbish heap.”). The slightest transaction, the slightest contractual event is thus added to the hundreds of gigabytes of facts already recorded, the tangle of which renders the trusted third party useless. We thus exchange a “political prefiguration” of liberation of the trusted third party for a submission to a literally inhuman register that in turn draws new powers.

Above all, blockchain is a global technology whose observation and explanation should always include political dimensions. We have identified at least two of them here. First, the emergence of a blockchain (“Catch-22”) is always the result of a coalition of actors around a “prefigurative” principle that must be elucidated, and even ethically revealed. Secondly, the activity that is organized around the blockchain draws a praxis that transforms social relations and determines new relations of power that were not present in the design. Indeed, the technological system stands by its own and unpredictable movement towards efficiency. The blockchain technology being born very inefficient and still to this day ecologically disastrous, its development and the effects of its praxis are still very uncertain.

1. ↑ The word “register” has a broader meaning than the word “ledger”, which is a “book in which the monetary transactions of a business are posted in the form of debits and credits”. We prefer here to use “register”, which is philosophically more appropriate; but technically “ledger” is more accurate.
2. ↑ John Perry Barlow – A Declaration of the Independence of Cyberspace
3. ↑ Alexis C. Madrigal – May 1st, 2019 – The End of Cyberspace
4. ↑ Wikipedia – Catch-22
5. ↑ Fox Business – February 28, 2018 – The Catch-22 of Blockchain Technology
6. ↑ Satoshi Nakamoto – Bitcoin: A Peer-to-Peer Electronic Cash System
7. ↑ David Golumbia / SSRN – April 7, 2015 – Bitcoin as Politics: Distributed Right-Wing Extremism (abstract)
8. ↑ Nick Szabo – 1997 – The Idea of Smart Contracts
9. ↑ Ethereum.org – 2013 (mise à jour 2021) –Ethereum Whitepaper
10. ↑ In particular, for specialists, it is not Turing-complete. Ethereum is Turing-complete and can therefore do what any computer program can do.
11. ↑ Wikipedia – Wei Dai – From which we get this quote from Nick Szabo about Satoshi Nakamoto: “Myself, Wei Dai, and Hal Finney were the only people I know of who liked the idea (or in Dai’s case his related idea) enough to pursue it to any significant extent until Nakamoto (assuming Nakamoto is not really Finney or Dai)”.
12. ↑ Tim May – 1992 – The Crypto Anarchist Manifesto
13. ↑ Harvard Magazine – 2000 – Code is Law
14. ↑ Syed Omer Husain, Alex Franklin, Dirk Roep – February 26, 2020 – The political imaginaries of blockchain projects: discerning the expressions of an emerging ecosystem
15. ↑ (in French) Yuri de Belder – January 1st, 2016 – Gramsci et la politique « préfigurative »
16. ↑ Nathan Heller / The New Yorker – December 11, 2017 – Estonia, The Digital Republic
17. ↑ Nathan Schneider / Hackernoon – September 11, 2019 – What to do once you admit that decentralizing everything never seems to work
18. ↑ UTB – Top 10 Richest Bitcoin Owners
21. ↑ Jorge Luis Borges – 1942 – Funes, el memorioso