“And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? For the money faileth.” – Genesis 47:15, King James Version
For the money faileth. It’s quite a dire circumstance we’d have to find ourselves in before we can make claims such as our ‘money has failed’. Yet that’s exactly what the King James version of this Genesis quote implies (also going to make a post about how underrated Genesis, the band, is – but that comes later). The thing is, the meaning is totally different if you read a different translation of the Bible.
But when everyone had run out of money, the Egyptians came to Joseph and demanded, “Give us more grain! If you don’t, we’ll soon be dead, because our money’s all gone.” – Genesis 47:15, Contemporary English Version
Not only is that far easier to understand, but it changes the meaning entirely. It’s gone from a subtle critique of the failures of an ancient form of currency to plea for reprieve from poverty.
The reason I highlight this is because a lot of concepts surrounding a decentralised economy is simply about interpretation. How you view the markets, how you view government, and the nuanced interactions between the cogs that run the machine; they influence your viewpoint on decentralisation. This post is meant to underscore how being richer, and more technologically advanced, as a civilisation is making us more independent and individualistic. This, therefore, is allowing individuals to take control into their own hands, away from centralised entities, whomever they may be.
Put your thinking caps on.
Think about the most significant tech software to affect your life over the last 15 years. Think Facebook, Uber, Spotify or Netflix; chances are they’re a force of decentralisation. If you lived in a city with a very strong Taxi union, you are probably paying less with Uber now than you would be, had Uber not existed. Over and above that, you’re sold the convenience of an app only service – the time savings, the cost savings, the relatively hassle-free procedure in booking. But in essence Uber continues to provide the same service today that horse carriages did in 18th century London. Your Uber driver takes you from point A to point B, just like a galloping horse-carriage would.
The only thing Uber does really well that creates a differentiating experience from the horse-carriage guy, is that Uber helps you find a car wherever you are. You don’t have to walk to the street, stand there and hope a taxi is available and willing to go where you want. This bridges the supply and demand gap. If all the taxis find themselves in one part of the city, one of those taxis can come to your doorstep after a few minutes. The horse-carriage would never have known to pick you up, and the only way you could have started a trip is if you ran into him and his horse on the street. That’s ‘neigh’ impossible.
This is what decentralisation looks like in real life. By taking power away from all-powerful taxi unions and unbending local governments, which could apply laws willy-nilly, often to the detriment of its citizens, Uber managed to deliver it into the hands of its users. Now both drivers and customers have a higher level of choice in the interaction, and as result, a higher level of satisfaction.
Tech companies have been doing this since the 90s
PayPal emerged in 2001 as a result of a merger of two companies, both of which had only one goal – to send payments online. PayPal had the same goal. What if money was like email, instead of like a bearer cheque or money order? They built it and they did it, and as a result, transacting changed forever. Banking went global and rapidly digital. Banks were removed from the online layer entirely, and were instead relegated to being on and off ramps for PayPal’s digital ecosystem. But more importantly, users, merchants, shop-owners, large corporations, and even banks themselves, now had the opportunity to make peer to peer payments using just one single entity. This reduced the number of institutions you were required to put your trust in to transact. Instead of worrying about your bank and the receiver’s bank, now you just had to worry about PayPal. This bridged the gap between merchants and customers, who could now transact through only the internet.
Remember what a big deal record labels used to be in the 60s, 70s, 80s and 90s? It used to be every band’s dream to get signed by EMI or Warner Bros, release a few tracks, tour America, and retire in a cottage in the Isle of Wight. In fact, if a record like EMI didn’t sign your band, your chances of touring America was pretty much zero. But in the age of Soundcloud rappers and Jake Paul, that’s not true any more. Centralised institutions like these “Big 3” record labels don’t hold as much power because technology has bridged the gap between artist and listener – and there’s not much need for a middleman record label to act as a gatekeeper.
Facebook – the most influential decentraliser
Facebook isn’t exactly at the tip of your tongue when I ask what’s the most influential decentralising force in the last decade, but it might actually be up there.
I grew up watching terrible advertisements on TV, and there’s nothing I could do about it except go look at what’s in the fridge for the 10th time that day. I look at the fridge a lot less now, mostly because I watch less ads. I’ve watched almost zero TV ads in the last four or so years, and I thank Mark Zuckerberg. By creating the largest advertising marketplace in the world, Facebook has been able to wean attention away from traditional media outlets towards its platform.
Treat Facebook like a TV network.
As a Facebook user, your friends, groups and birthdays of that person you forgot existed are the content that you come to watch. Every once in a while Facebook slides in an ad (about 1 in 4 posts on your feed are sponsored). This is great for marketing folks like me, because instead of calling up TV networks and negotiating with billboard agencies over price per square footage, I can start a global Facebook ad campaign from my bedroom. This decentralising entity that bridges the gap between advertisers and eyeballs is now worth over half a trillion dollars. That sentence is riddled with irony, but it’s true.
Twitter, YouTube, Netflix, AirBnB – they’re all examples of companies that have taken power away from a powerful centralised entity, distributed that power across multiple systems, sometimes individuals, and created a more decentralised ecosystem where they act as the operator. If you think about every major tech company through this lens, you start to understand why so many of them are marketplaces that have insane valuations without physical assets. They’re not in the business of selling things – they’re in the business of controlling who sells things to whom.
Take a look at this handy table I created, which I call, with great flourish and imagination, the Decentralisation Table. It outlines some examples of tech companies that distributed power way from some centralised entity, and what value that ended up creating for the producers and consumers in that market.
The process that a tech company would use to be valued at billions of dollars, is to identify a market where there are a few centralised players (basically a monopoly), and provide a platform where smaller players can communicate with each other (effectively dissolving the monopoly).
But here’s what you’re probably thinking – most of these companies have ended up becoming monopolies themselves. Uber has repeatedly tormented local governments and municipalities with their business model, which edges upon the outer linings of the grey area in most jurisdictions. The size of Uber’s legal team scares even small governments, when their practises are challenged in court. In another scandal or two, Facebook will be hit with antitrust lawsuits similar to Microsoft in the 90s, and may or may not split as a result. Amazon is literally the largest company in the world. It’s hard to argue that any of these tech behemoths are forces of decentralisation when the majority of them have reduced competition in this space at the top level, instead of increasing it. Sure, earning a living as a YouTuber is possible thanks to YouTube. But YouTube is the only place it’s possible to be a YouTuber. The end result is the companies that put monopolistic companies out of business have effectively become monopolistic marketplaces themselves. Google, Facebook and Twitter effectively have a monopoly on speech and communication. Thanks to technology, the phone company has now become the newspaper.
That’s why the world is becoming increasingly decentralised.
The economic transformation brought about by the scale of big tech is unparalleled, but it comes with its own set of problems. Because the operator of any online marketplace (all those companies in the table above) can decide the rules of the market they operate in, we head back to square one. Instead of cigar-sporting EMI bigwigs deciding which new artist gets to make it big, it’s a Spotify algorithm that decides it.
Remember Bitcoin? It’s not a company.
There’s no single entity or organisation that owns Bitcoin. There’s no one that makes the rules, and no group that decides how it’ll work. Every Bitcoin transaction, every software update, and every rule change has to be decided and enforced through consensus in the network. By building this consensus, Bitcoin uses mathematics to enforce the rules that humans traditionally do in a company.
While most of the world was calling it ‘disruption’ or ‘innovation’, few called it ‘decentralisation’, because a decentralised paradigm didn’t really exist in the scope of technological progress before Bitcoin. Atleast, not in common parlance (which is the fringe circle of know-nothings that I’m in). I’ll get to Bitcoin in a bit.
You don’t have to believe in cryptocurrency to realise the trend that’s been moving technology forward for the last three decades. The forces of decentralisation have been trading technological efficiency for increased market freedom. Choices can now be made at micro-levels (of the individuals) instead of macro (a CEO’s vision). Instead of newspaper editors deciding what news you get to read, it’s you and your Facebook friends that do that. Same with YouTube or Netflix or Venmo. Centralised institutions are hugely efficient (because decision making and enforcement can be rapid), but there’s an obvious flip side.
If Jeff Bezos really doesn’t like you and decides you can’t use Amazon services, there’s nothing you can do about it. Eventually that’ll mean no drone deliveries, no cheap online shopping and probably being blacklisted from AWS servers that run the majority of the internet. You’ll have no recourse, and that’s understandable, since it’s how the market functions. You must have really pissed Jeff Bezos off! There’s no such scope in a decentralised network, because there’s no single entity who gets to make that decision. Of course, you can be kicked out of the system if you break some mathematically defined rules, and the enforcement itself is automatic through programming. This is what happens when people try to break rules on the Bitcoin blockchain; their transactions don’t count.
Similarly, in PayPal, a human ultimately decides what transaction is legitimate and what isn’t. Spotify gets the last say in deciding which music gets streamed on their platform. YouTube can arbitrarily ruin careers by demonetising videos to suit its advertisers’ preferences. This means that despite the force of decentralisation that technology is, there’s still some headway to be made before network participants are truly able to directly influence their own rules.
The future of technology – reaping the rewards of decentralised systems
The reason tech companies became so powerful is because they could effectively shift the focus of supply and demand and create a more balanced market equilibrium. If Google is able to connect advertisers with content consumers so effectively, what’s stopping them from taking a 30% cut of every advertisement made on their platform? After all, Google made $24 billion in 2017 through just its ads, more than the $23 billion Publicis Groupe made last year. By using technology and increasing the size of the market, everyone in this situation benefits – advertisers, content consumers and technologists. Except perhaps Publicis.
My bet, and this is really what this post is about, is that the push towards decentralisation will continue past a point where giant centralised companies can continue to provide enough individual power to its users.
If Google reduces its 30% cut to 0.1%, the company goes bankrupt. Hundreds of thousands of jobs are lost globally, countries like Ireland that rely on tax revenue are crippled, and public investors in stock markets face the consequences. That’s not good. If blockchain can eliminate the need of a company like Google to exist, by enforcing all the rules of advertising through self-verifiable algorithms, it reduces costs and boosts individual decision-making capacity. You get paid directly for ads consumed, and no one has to take a cut because no company is enforcing this, it’s all done algorithmically on a blockchain. This is similar to what Brave Browser is doing with the Basic Attention Token – an Ethereum powered cryptocurrency token that pays you when you encounter ads (instead of Google). I’d be willing to bet that most people would rather have cash in their pocket than a promise of user-privacy with related services. I don’t use Brave yet, but it’s an innovative start.
More than the blockchain
Decentralisation is more than just the blockchain though. In its current form, most of the blockchains and cryptocurrencies you’ll encounter are useless, but if you sort through the mess and try and identify the vision that thousands of smart people are working towards, you’ll be rewarded with some great insight. The next Uber or Netflix might not be built on the back on a centralised model, when it could just as easily use a self-enforcing decentralised system with a cryptocurrency incentive layer. And that’s where Bitcoin comes in; as long as it remains the fiat on & off-ramp into cryptocurrency, which is the incentive layer for public blockchains, it will remain an important part of the growth of the global economy. Until thy money faileth.
We went from letters to the fax machine to email to Facebook – and now we have to think of whether the next step in communication will be enforced by trustless public-facing algorithms or closed databases where CEOs testify to Congress that they totally don’t deserve to be sued for privacy and anti-trust violations.
Is decentralised technology going to contribute to Adam Smith’s invisible hand, or is it merely an icy spectral claw looming over our shoulders? Let’s find out. Meanwhile, learn about Bitcoin.