On The Coevolution Of Blockchain And Political Economy by Matthew Prewitt and Jeffrey Lee-Yaw

Blockchain circles buzz with debate about the technology’s relationship to political economy. Does blockchain technology inherently lean toward one political vision or another? Will its success entail, or depend upon, the advancement of some particular conception of the individual and the community? Is blockchain technology in tension with conservative and centrist politics?

Such debates are to be expected because political questions inhere to any project that facilitates social and economic interactions between many individuals. While blockchain technology may be agnostic to politics in the abstract, it becomes a politically consequential piece of infrastructure once it is used to instantiate certain incentive mechanisms (granting that the degree to which a project is “centrally planned” varies greatly with the degree of attempted optimization).

But the politics of blockchain need not map cleanly onto the “isms” of the past. Indeed, blockchain is exciting precisely because it offers the possibility of experimenting with new models of decentralized decision-making and economic coordination. These new models do not need to fit into traditional political camps like libertarianism or socialism: more interestingly, they might resist such categorization. Moreover, it should go without saying that blockchain technology’s political consequences will be unattractive insofar as its builders employ unsound, unjust, or haphazard political-economic thinking.

And just as blockchain’s most promising possibilities require sound political-economic thinking, innovative political-economic thinkers also have much to gain from the possibilities of blockchain. In this respect, we see a symbiosis between the RadicalxChange and blockchain movements.

RadicalxChange Can Help Blockchain Fulfill Its Promise

But overall, blockchain technologists and RadicalxChange are not working at odds. Simply put, blockchain technology will not meaningfully succeed if it has the “side-effect” of generating intense wealth concentrations for early movers. Indeed, blockchain’s most important value proposition — decentralization of power — is not necessarily desirable unless it entails a distribution of power that promotes societal welfare more so than centralized authorities.

Unsurprisingly, many blockchain technologists have recognized the problem. In order to deliver on their promise to society, blockchains must facilitate genuinely free and fair market-based relations. But systems that enrich early movers with outsize network rents are not free or fair. Nor are they sustainable. They ultimately descend either into (a) unstable speculative frenzies or (b) stubbornly unjust, feudalistic power relations. In either case, they reward well-capitalized or well-informed actors at the expense of productive participants in the network. In the long run, everyone prefers to opt out of such systems.

In spite of (or perhaps because of) these issues, blockchain technology casts a useful spotlight on the importance of institutional design — in a way that our inherited institutions do not. For example, the unfairness and inefficiency of inherited institutions like private property and conventional elections appears to us through the veil of tradition. We therefore accept their unhappy consequences as more or less natural, wishfully hoping that authorities will mitigate problems like monopoly and minority oppression.

By contrast, it is impossible to believe that the economics of cryptocurrencies or other blockchain applications reflect “natural” market processes. Rather, their characteristics obviously flow from design decisions. Designers of decentralized organizations, for example, have a nearly infinite array of initial design decisions, such as whether their decision mechanisms formalize the power of capital or individuals, whether they do so linearly or quadratically, and whether their participants are identified or anonymous. These decisions affect all of the political, social, and economic dynamics of the systems, such as whether they reward labor, whether they tend towards equality, and whether they are attractive to new entrants. It is also significant, of course, that no central regulator can swoop in to address market distortions that emerge in blockchain ecosystems. Thus, blockchain technology depends critically on sound mechanism design, and it is here that the RadicalxChange approach has much to offer.

Blockchains Can Help RadicalxChange Fulfill Its Promise

First, blockchain technology enables the creation of ideal “safe spaces” for experimentation with RadicalxChange-inspired mechanisms. For example, COST, quadratic voting, and data compensation systems are difficult to apply at scale without major private initiatives or legal reforms. And certain applications, especially via legal reform, may well be imprudent without a more robust empirical understanding. Blockchain projects, ranging from Liberal Radicalism based crowdfunding to Harberger taxed asset ecosystems and QV-mediated DAOs, are actively building the kinds of virtual spaces in which RadicalxChange mechanisms might achieve greater refinement and start to effect broader social change.

Second, RadicalxChange has already gained immeasurably from the passionate members of blockchain community who are either volunteering for RadicalxChange Foundation, starting independent local chapters, or simply working on their own iterations of the ideas. This human exchange will continue to be vitally important.

Third, and most speculatively, blockchain technology might actually facilitate some of RadicalxChange’s key ideas. For example, even if it were possible to implement COST through legal reform, the redistribution of COST revenues by a central authority would undermine an important part of the attractiveness of the mechanism. In a blockchain ecosystem, however, such payments might circumvent and therefore avoid inappropriately empowering a central authority. Thus, blockchain might play an important role in either constraining abuse potential or unlocking novel forms of unmediated collective activity.

Continued Coevolution Of Blockchain Technology And RadicalxChange

But to say neither movement offers a utopia does not preclude the possibility that they have emancipatory potential. Members of these two overlapping communities share an unwillingness to believe that humanity has already contemplated all possible modes of social coordination, and a belief that through earnest experimentation, credible solutions to real social problems are within reach.

For the next stage in the evolution of the blockchain ecosystem, RadicalxChange and related ideas in mechanism design just might play the most fundamental role. Blockchain presupposes political economy, whether codified within protocol layers, or inherent to decision-making and consensus mechanisms. The next wave of successful blockchain innovation will not seek solutions removed from first principles in governance, but will instead design for the most just and enduring manifestations of such principles. Relatedly, as RadicalxChange continues its mission of studying, educating, and encouraging the use of market mechanisms to reduce inequality, build widely-shared prosperity, heal global political divides and build a richer and more cooperative social life, blockchain technology will serve as a vital infrastructure for many projects that the movement catalyzes.

Although RadicalxChange convenes communities beyond blockchain technologists — from artists, to activists, academics, and other types of thinkers and builders — the two movements are intimately connected. We expect to see amazing things at the intersection of RadicalxChange and blockchain in 2019 and beyond.

PUBLISHED: JAN 7, 2019

Professor do Departamento de Economia da Universidade Federal da Bahia.