Blockchain: The Quiet Revolution

Blockchain: The Quiet Revolution
Published on April 2, 2023

According to Wikipedia, a blockchain is "a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes." But what is "distributed"? And what are "cryptographic hashes"?!

Here, I provide a simple definition. A blockchain is just a decentralized, immutable database controlled by a self-enforcing protocol via a Sub-game Perfect Nash Equilibrium (SPNE) in a peer-to-peer network with high Byzantine fault tolerance on… I am not helping much, am I?

Let's try again. Think of a blockchain as a database that prevents deleting or updating any record. To make it effectively impossible, its protocol rewards many people (miners) to keep identical copies of the data at any time. It is only possible to insert (append) new data into this database according to its protocol. So, what is a protocol?

Here, for the sake of this article, I define a protocol as a set of rules that enforce itself. More precisely, a protocol induces an Equilibrium (SPNE) that makes it too costly for one participant to deviate from it as long as enough participants comply (Sadid et al., 2010).

For example, a language has words and grammar rules that are accepted and practiced by many people. To communicate better, it is in the best interest of each individual to comply with the grammatical rules that the majority follows. Other examples of protocols are HTTP and FTP, based on which computers talk to each other.

A constitution is a type of protocol that not only enforces itself but also can enforce other rules and contracts. Of course, we have law enforcement and judiciary officials to enforce contracts and laws. But to incentivize those officials to do their jobs, we need some other contracts, which should be enforced by other people. And the other people work based on other contracts, which again require enforcement. In the end, we need a contract that enforces itself (i.e. a protocol). We call it a constitution.

One important social contract that a constitution should enforce is a rule that limits the supply of a currency. Even if the currency is backed by some "reserve" of precious metals, it is still the constitutional institutions that should ultimately enforce such an artificial connection. Therefore, a currency's credibility usually reflects its corresponding constitution's efficacy. One can compare the United States and Japan to Venezuela and Argentina.

A blockchain protocol is simply a constitution in computer code or an e-constitution (Khaledi, 2018), but its jurisdiction is cyberspace instead of geographic territories. Each blockchain enforces some rules that limit the supply of its corresponding native (crypto)currency. This artificial scarcity gives the cryptocurrency value, like what gives the fiat currencies value (Armani, 2021).

Turing complete blockchains like Ethereum, Polygon, and Solana can enforce smart contracts (contracts in computer code) within their ecosystems. Smart contracts can form digital organizations and institutions. Decentralized Autonomous Organizations (DAOs) and Decentralized Autonomous Corporations (DACs) have their bylaws and operating agreements encoded in smart contracts and are rapidly growing in numbers. Perhaps, as driverless cars dominate streets, DACs (i.e., driverless companies) will dominate Wall Street.


Some people argue that blockchains can only enforce complete contracts because smart contracts must be complete. However, we can make particular smart contracts to judge and enforce incomplete contracts. For example, Kleros is a decentralized arbitration system that runs on the Ethereum Virtual Machine (Lesaege et al., 2019). Of course, it relies on human jurors to judge each case, but it is governed and enforced by a blockchain. There are also smart contracts that can hold elections, enforce due process, etc. (Kshetri & Voas, 2018; Wang et al., 2018; Pereira et al., 2023).

Some may contend that blockchains cannot enforce contracts outside cyberspace and, therefore, we still need traditional constitutions and brick-and-mortar institutions to enforce real-world contracts and property rights. But let's see how traditional institutions enforce contracts.

Police officers, attorneys, judges, and security agents do their jobs and enforce laws and contracts in the real world because they are simply getting paid to do so. More precisely, there are employment contracts and financial mechanisms that incentivize them to enforce other contracts, such as social contracts and property rights. Such employment contracts and financial mechanisms can also be implemented in DAOs on blockchains. A DAO, as a decentralized institution, can hire and incentivize human agents to enforce contracts and rules outside cyberspace, similar to what the traditional institutions do, except it would be much faster and more secure than the traditional institutions.

Blockchains are more efficient, more effective, and more reliable than existing governments. Even the most democratic governments have deficiencies that hinder the progression of societies, let alone the non-democratic ones. Therefore, I envision that eventually - perhaps in less than 40 years - blockchain protocols will replace traditional constitutions, and the world will be governed through blockchains, liberated from the artificial borders that separate nations.

Fortunately, the advances in communication technologies and social media have already led to the emergence of interconnected global communities with shared interests and values, thereby gradually moving towards the dissolution of national boundaries. However, to unite effectively and take action against shared challenges, such as global pandemics and climate change, there is a need for global governance. And that is what the blockchain technology will provide.

References

2010, W. H. Sadid & S. L. Ricker & S. Hashtrudi-Zad, "Nash equilibrium for communication protocols in decentralized discrete-event systems," Proceedings of the 2010 American Control Conference, Baltimore, MD, USA.

2018, Hamed Khaledi, "E-Constitutions: Conceptualization, Theory, Design Model and Experimental Evaluations," Ph.D. Dissertation at Michigan State University, ProQuest Dissertations Publishing, 10792537.

2018, Nir Kshetri & Jeffrey Voas, "Blockchain-Enabled E-Voting," IEEE Software, Vol. 35.

2018, Baocheng Wang & Jiawei Sun & Yunhua He & Dandan Pang & Ningxiao Lu, "Large-scale Election Based On Blockchain," Procedia Computer Science, Vol 129.

2019, Cl ́ement Lesaege & Federico Ast & William George, "Kleros," Short White Paper v1.0.7.

2021, Daniel Armani, "A Fundamentally Stable Coin," PaperScore

2023, Bruno M. B. Pereira & José Manuel Torres & Pedro Miguel Sobral & Rui Silva Moreira & Christophe Pinto de Almeida Soares & Ivo Pereira, "Blockchain-Based Electronic Voting: A Secure and Transparent Solution," Cryptography, 7(2).

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2023, Daniel Armani, "Blockchain: The Quiet Revolution," PaperScore.

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