Trust is Good, Control is Better
A Little Bit of Money
Thought Experiments on Cross-Border Payments - Of Couriers, Bankers, and Bitcoiners
Series 16: Trust is Good, Control is Better
The Blockchain represents digitized trust
Delegating responsibility to machines is a core principle of cryptocurrency. Nota bene, the fundamental intention is noble. The blockchain represents trust – digitized trust. This idea raises the question of whether blockchain technology is powerful enough to transform the current financial system – is it? Manipulation and threats to the integrity of markets are controversial topics anywhere you go. Some regulators call for systems to protect investors; others care more about unscrupulous market makers and helping them to make a killing off the financially illiterate.
Trust without human error
So what? Clearly, the current financial framework works halfway through. Technically, it is ill-equipped to serve the needs of the digital society in the 21st century. Especially, in payments traditional financial services are hardly automated and largely depended on human actors. As such the system relies on contrasts in our natural conduct - trust and mistrust. Human error and corruption are inherent factors. Ultimately, financial decisions are made at someone’s discretion. Moral decisions are personal choices – regardless of the tools used. However, could machines really do a better job, even if they lack the emotions necessary to encourage ethical behavior? Could cryptocurrency-controlled systems save the global financial system from its next collapse? I doubt it, but in this sense, digital currency helps to reduce the power of inhuman financial schemes run by ignorant bankers.
Translating the feeling of trust into hard coded trust
Bitcoin technology emulates an emotion. It is the emotion of trust that is hard coded in the blockchain. Each transaction alludes to a social context like making a deal. Digital trust builds on social interactions characterized by one party’s willingness to rely on the actions of another. The blockchain removes uncertainty; hence, it eliminates the risk of failure or harm due to the unpredictability of human responses. The machine becomes the middleman, and all of a sudden the saying “Trust is good; control is better” starts to make sense in a contemporary context. Notably, it is a quote from Vladimir Lenin describing his management maxim.
Was Marx right?
So let me make a digression into political philosophy. Marx’s critiques of capitalism might have some merits. Before you start a shit-storm, and call me a communist, I`d like to state in my defense that I don’t glorify totalitarian regimes, and I don’t preach communism. No, my fellow “brothers in arms” I am not saying “Bitcoiners of the world, unite!". I´d rather say that I do believe in an eco-social market economy as it relates to neo liberalism: markets require some rules so they work for all. That’s not communism; it’s common sense.
Trusting the digital community
In this regard, Bitcoin technology offers a new approach as it provides market access for all and offers a whole new level of transparency compared to the legacy systems of the existing banking world. Users can trust the digital community when putting funds on the blockchain without getting caught up by the limitations of old-school capitalistic institutions like fiat-driven banks. Marx claimed that capitalism would keep workers poor. He noticed pure capitalism bringing down wages, and financial profits, whereby the rich transfer value rather than creating it. This analysis still holds true for today`s financial system. Crypto-currency challenges this order on a digital level. That is why bitcoin represents financial technology having the potential to improve global wealth distribution.
The Pope as an entirely unexpected ally
Remarkably enough, the discrepancy between the financial markets and the real economy is intangible today. Finance is a multiple thereof (Reader, please drop me a line if you know the true numbers or have any quotable comparison available). Pope Francis found fault with greedy markets when visiting the United States, and American pundits accused him of promoting Marxism. This reaction reveals little faith in good judgment and strong belief in a system that is built on trusting banks. At least since the financial crisis of 2008, we all know that you cannot trust banks blindly. Most importantly, one cannot trust their systems. Because of that we need new ones.
Civil disobedience on virtual rails
Some Bitcoiners argue that civil disobedience is required to change the financial system. They claim that its rules violate fundamental rights and they regard ordinary bankers as ruthless gangsters. Whatever way you look at it, it seems that the inhabitants of these two worlds, bankers and Bitcoiners, know little about one another. I believe that the situation is not black and white. The financial economy is a maddeningly complex structure that prompts questions. It is the Fintech-peoples job to give new answers and offer solutions, as the required changes to the underlying structure of how we conduct financial transactions need to be negotiated. Hitting the panic button without first considering ways to fix the current system is not solutions oriented. Regrettably, stonewalling and ignorance are common in today's society. Financial organizations, governments, and Bitcoiners are no different in this respect.
To be continued. Further Reading:
- M. Bauch. (September 10, 2006). “The Global Electronic Stock Market.” Investopedia, http://www.investopedia.com/articles/06/globalelectronicmarket.asp
- R. Grinberg. “Today Techies, Tomorrow the World?” In Milken Institute Review, pages 22-31, First Quarter 2012.
- H. Binswanger. (December 12, 2013). « Top Ten Reasons Why Rush Limbaugh Is Right: The Pope’s Statement IS Marxist. » Forbes.