Bitcoin is great: But it won’t fix our monkey brains

Text | Andrea Castillo. Original title: Bitcoin Is Great, But It Won't Fix Our Monkey Brains. 2014.6. 10

Bitcoin is now widely recognized as a thing, and a particularly exciting one at that. The once-popular skepticism's sake attitude quickly lost its click value in favor of this gripping Stephensonian saga written in real time. Be careful not to overdo it. I've done this myself. I'm sure I still do in some way. There are many trees and the forest is still taking shape. These trees are attractive. This brings new problems.

Vision gets more attention than game plan. We know that at least we want to be “decentralized.” Despite the growing pains, the old ways just aren't working. We are reminded from birth that power corrupts. The worst come to power, and fewer find out later. People are not angels, but there are still too many of them running the world. No, our artificial angelic despotism must go.

We say we long for the opposite: a way for those at the top to stop trusting human judgment. Or, as the Daily Telegraph put it yesterday, an "anarchic future in which any form of centralization dies". Imperial obsolescence or technological Leviathan, depending on your ideological leanings. Creatively destroying the human garbage storehouse we have inherited and replacing it with an empty one. Well, more like a largely unbreakable cryptographic constitution that ensures the neutrality of the institution. On this basis, a (monotonous) cosmic constellation will emerge. Good things should follow, in whatever form they take.

In its most basic form, this crypto-institutional utopianism belies a tantalizing but incomplete understanding of human social institutions and the potential of Bitcoin .

Let’s start with the simplest thing: human nature.

Crypto-institutional utopianism is based in part on a hopeful sense of belonging and a strange moral universalism for followers of their respective Minecraft game plots trees and miss the human social forest. It doesn't take into account that institutions may be largely endogenous to humans, nor that some humans may prefer their "non-inclusive" institutions, thank you very much. Nor does it take into account that Alice and Bob are secretly influenced by heuristic thinking, impulsiveness, and tribal connections. Like it or not, we are also driven by “irrational” drives—religious, family, national—that impede our consistent utility models and frustrate our ability to “optimize” "Result plan. Bitcoin provides us with tools, but these tools do not immediately transform secular humans into the economic beings best able to navigate them. Our monkey brains are here to stay, at least for the foreseeable future.

Thus, we shouldn’t be surprised when Bitcoin-based institutions emerge that suffer from the same flaws as outdated models. For example, consumers don’t even bat an eyelid when handing over their private keys to a third party. This is not the fault of the native token. Why should they refuse? Bitcoin’s top promoters see expansion as an end in itself, and the sprawling coalition is eager to do so. (Call it what you will. At least Tim May is forthright.) Inspired amateurs can't help but harbor a sane distaste for abstract concepts. Believe in math? Yes, that's right. They were attracted to the familiar format, so Xapo gave them debit cards. We have truly achieved trustless exchange worthy of the name. “Bitcoin” is decentralized, “Bitcoin” is private, “Bitcoin” is secure…oh, but Circle is my #brand. The moral of this is that if you're going to market an anti-value commercial product on a large scale, you should expect a lot of nihilistic consumption.

By "anti-value", I mean a value defined by the absence of perceived disadvantages. For example, freedom is the absence of tyranny. Equality is the absence of hierarchy. Liberals and egalitarians can often only expand "liberty" or "equality" by weakening their opposing forces. If revolutionary democracy can eradicate tyranny or hierarchy, there will be no binding virtues left to guide "free" communities. Only a weak vigilance against nothingness can make people blind and self-defeating - which means that soon more sexy people will rush in to comfortably fill the void. Countervalues ​​are quite useful to rationalist reformers seeking to undermine their opposites, but they do not themselves provide substantive moral content. They are empty, fragile shells within which humans encase their narratives, neuroses, and loyalties. (For these reasons, they tend to be counterproductive.)

In the case of Bitcoin, crypto establishment utopians have promoted the technology as an "anti-trust" ” to market as a way to escape or repel dependence on other humans. For example, the first sentence of a recent "App Token" white paper is: "The requirement for trust is unacceptable." Although this is not enough to cognitively break away from the cold efficiency of those fantastic DACs , but it’s a promising start. Sources of social friction that previously required trust and reasonable control can now be subverted. In the future world, all you need is a screen, a utility function, a handful of Bitcoins, and a Rube Goldberg multi-signature transaction, and baby, you're ready for price discovery. What more could an atomized freak ask for?

The problem here is not the diagnosis I endorse, nor the solutions I propose, because these solutions are appropriate and effective, and they can be to reverse the growing democratic malaise that stifles human creativity. Bitcoin provides us with an important way away from forced trust in unaccountable monopolies. However, trust in the transaction itself should not be, and indeed cannot be, the object of our anger if we are to participate in it in a helpful way. Distributed ledgers eliminate trust in money changers, but humans still seek trust, Bitcoin is still money, and money is still trust. In a post-Bitcoin world, trust will be more important than ever.

The case of distributed markets illustrates how objective characteristics can be anchored into normative ideas. Last month, Ümlauteer colleagues Jerry Brito, Houman Shadab, and I released a draft review of our forthcoming working paper on regulatory threats to existing and developing Bitcoin-based financial products and platforms, It’s called “Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, and Gambling.” We describe the different ways in which artisans and entrepreneurs are applying Bitcoin to advanced financial activities, and then describe how they might run afoul of U.S. regulations, or whether they could be “regulated.”

As a peer-to-peer medium of exchange, Bitcoin allows us to move funds without relying on a third-party bookkeeper. Unfortunately, Bitcoin currently does not provide an adequate information space or price discovery platform. In other words, Bitcoin provides an ideal mechanism for transferring money, but it’s impossible to instantly find the deal you want or negotiate the terms in this vast digital cave where no one knows you’re a dog. Centralized exchanges fill market gaps to varying degrees, but they also create “choking points” that regulators can target and shut down. Project teams raced to create a platform that offered the option for permissionless, anonymous, peer-to-peer transactions (and avoided the possibility of pesky federal government intervention). It is said that distributed reputation systems and information platforms can be designed and combined to provide these functions for Bitcoin, although not in the most convenient way.

This has a very direct impact on the Impossible Triangle, but I don’t think the distributed market model will dominate the Bitcoin economy. For obvious reasons, during the transition period, distributed markets will be an attractive option for individuals operating in black and gray markets. However, for most ostensibly professional investments, the benefits of near-anonymity in discovery and negotiation—even with the aid of a given reputation system—are not as great as leveraging the tacit knowledge of trusted partners to weigh in on potential deals. The gains from a partner's credibility pale in comparison.

In fact, this is the model that many early Bitcoin adopters and professional traders have adopted through IRC channels over the years. Every day, traders use channels like #bitcoin-assets to exchange information, chat, develop relationships, and keep an eye on the MPEx market. Here, ability and reputation are currencies themselves.

The trust network reputation system is a social coordination mechanism. To join WoT, individuals must authenticate to the channel bot using a personal Bitcoin address or GPG identity. From that point on, everyone had to dive in and follow the channel's daily logs and related blogosphere, lest they lose face and reputation before they even started. Over time, individuals strive to demonstrate their value and reciprocate the favor of others, thereby increasing trusted connections and potential trading opportunities. Advocates of the system praise it for lowering search costs because unknown traders are vetted by trusted allies, reducing the chance of scams or ignorant trading.

What I'm trying to say is that this "big picture" view of the world of #bitcoin-assets isn't enough to convey its many nuances. For now, the basic introduction is instructive, an example of a community applying Bitcoin’s revolutionary tools in a way that takes advantage of our humanity. IRC Bitcoin investors sacrifice the marginal benefits of pure “decentralization” for the tacit assurance of personal knowledge and community reputation management. While the scale of this pattern is currently unclear, it provides a good indicator of future trends.

Political imperialism locks in our choices, and political stagnation closes the door to reform. Bitcoin gives us an alternative to the forced trust of monopolies, but it can never eliminate the need for trustworthy human connections. Bitcoin also doesn’t protect us from pesky brain bugs blurring our perception of reality. Trying to replace our natural instincts with technology is a completely counterintuitive prospect. The early days of path dependence appear to be trending toward reviving the status quo, so distributed approaches currently appear to be a viable alternative. However, future Bitcoin fortunes will tend to advertise proven capabilities by earning trust. Just think of it as an upgrade.