Applying Crypto Decentralization to the Physical World: Government

6 minute read

Posted by: Evan Faggart July 16, 2014

In the last few years, the development of cryptography and peer-to-peer technology has created many grand potentialities concerning the overhaul of foundational institutions of society. Already, in its very early stages, the decentralization brought about by the development and improvement of these two technologies has challenged the coercive power of governments, as far as freedom of choice is concerned.

For several decades, the world’s governments have been waging a fierce and often bloody war against the consumption of drugs that these governments deem unhealthy or immoral. Central authorities have used their legislative powers to legally regulate what is and is not moral to consume, what is and is not healthy to consume. After enacting legislation they then began to use their powers of coercion and their monopoly on violence—in the form of national, state or provincial, and local law enforcement agencies—to forcefully prevent anyone from obtaining these substances. As a result, black markets have emerged and have flourished, despite government attempts to destroy them.

Decentralization technology has brought these black markets into the 21st century. With the creation of the Tor Network, or DarkNet, drug entrepreneurs gained a way of setting up online drug markets that made it much harder for law enforcement agencies to track down and dismantle. The most famous of these DarkNet markets is/was Silk Road. It operated for years without being detected by governmental authorities. The peer-to-peer nature of the DarkNet constructed a veil of shadow between the governments and the individuals who deliberately defied their mandates by buying and consuming drugs that the governments have sworn to eradicate. P2P technology and cryptography made it extremely difficult for law enforcement to not only locate Silk Road, but track down its users. It took until late 2013 for the United States Federal Bureau of Investigation to fully accomplish this feat and take down the entire Silk Road operation. But, although they managed to take down Silk Road, a myriad of other DarkNet markets sprung up from Silk Road’s ashes.

However, the P2P nature of the DarkNet is not the shining feature of these drug markets. The use of Bitcoin in these elicit exchanges truly frustrated the attempts of law enforcement to catch these drug entrepreneurs and consumers. Bitcoin is the true hero in this story because, while the Tor Network is P2P, the websites on the network are totally centralized. Once they are actually found on the DarkNet, it is only a matter of time before authorities can find the administrators and shut them down. But Bitcoin adds an extra layer of security to DarkNet market users. It is a completely decentralized, pseudonymous monetary system that, if used correctly, makes it impossible for law enforcement to trace monetary transactions back to the end users of the product being traded. With decentralized currency, the only flaw in this system is the centralized nature of the drug markets, which is being solved by completely P2P goods markets, such as OpenBazaar.

The implications of Bitcoin’s decentralized nature extend far beyond making it more difficult for cops to catch drug dealers and users, however. Bitcoin can alter the way governments work on a fundamental level; additionally, P2P technology can change the definition of a government even further.

We all know of the monopoly governments have on the control of money. Their central banks have the sole authority to create money from thin air and pump it into the economy. With this power, central banks have created devastating business cycles and have enriched a select few at the expense of the population at large. Governments will likely never willingly give up this power that they wield over the issuance of money. For the control of a nation’s currency is a government’s ultimate source of power. With it they can fund massive welfare states to keep citizens complacent, they can fund their war machines so that they are able to wage endless wars over land and natural resources, and they can militarize local police agencies so that they are able to ruthlessly stamp out any substantial political dissent.

Bitcoin has the potential to directly challenge this oppressive power over money, however. Having a decentralized monetary system that works as well as Bitcoin, even in its very imperfect stage, creates the possibility of kicking the legs out from under the governments’ monetary monopolies. As Bitcoin becomes more developed and the core protocol is modified to fix flaws in the system, that possibility could become a stark reality. Not only would the wide adoption of Bitcoin remove the power of the world’s governments to endlessly print money, but Bitcoin’s pseudonymous nature can make it impossible to track down an individual for taxation. Yes, if its full potential is ever realized, Bitcoin could overthrow the government system of compulsory taxation. With no ability to create money from thin air and no revenue stream from taxes, the governments of the world would go completely broke. Unless, that is, people fund the governments voluntarily. However, relying on voluntary contributions would mean that the governments would actually have to provide valuable services that satisfy market demand. Therefore, in this Bitcoin fueled world, governments would become nothing more than private companies on a free market competing for profit. If people disliked the services one particular government—or now it should be called a business—they could lend their patronage to another company or firm and put the unsatisfactory one out of business. No longer would governments be this massive, publicly funded engine of corruption and violence.

But that story is old news, every Bitcoin enthusiast knows of this potentiality. Now, as if the revolutionary possibilities for Bitcoin weren’t enough, P2P technology is being used to create an entirely decentralized world.

Ethereum is a new crypto-currency—if it could even be called that, the possibilities surrounding it make it so much more than a monetary system—that operates off of what are known as “smart contracts.” Ethereum differs from most crypto 2.0 systems in that its smart contracts are not predefined, they are only limited by what the users of the system can imagine. The obvious possibilities for Ethereum are things like financial contracts for software development, the production of goods and services, and anything else that goes on in the traditional business world today. However, there is no reason why Ethereum cannot be used to create “smart” social contracts, the basic frameworks of societies.

Imagine if this system were integrated with Bitcoin and made into an even more complex system of smart contracts and decentralized verification. Gavin Andresen has already imagined such a thing, and he’s called it “Bit-thereum.” This system would use several, randomly selected “Oracles” to verify contracts or adjudicate disputes, while a reputation tracking system would monitor the quality of the Oracles; if one has a bad reputation, individuals could simply refuse to interact with them. Just think about the implications this has for governance! Decentralized currency could make governments more trustworthy because it subjects them to competition, but decentralization on this level would make entire societies completely trustless and peer-to-peer.

If the possibilities of technologies like Bitcoin, Ethereum, and Bit-thereum are ever fully realized, government as we know it would cease to exist. People would no longer be able to use the violent power of government to force people to live a certain way. Morality would no longer be instituted at gunpoint and the freedom of individuals to choose what to put into their bodies would not even be a question. People would live and work together only if it were mutually beneficial, and a system of private courts and dispute resolution organizations could be constructed in an entirely decentralized and trustless way. Without governments and central banks around to manipulate the money supply so that capital is redirected to unprofitable—but desired by special interests—enterprises, the free market would be able to take its course and exponentially increase the standard of living for the entire world. Obviously, this system would have its flaws, it would not usher in some utopian society. However, it would make our world much freer and more voluntary than it is in its current state.

Updated: 2014-07-16