Hubris and Concern: Could Distributed Ledger Technology Replace Modern States?

By Yunus Berndt

Hubris and Concern

Could Distributed Ledger Technology Replace Modern States?

• Language: English
• Publisher: Yunus Berndt
• Release date: Jun 30, 2021
• ISBN: 9783000684616

Book preview

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1 Introduction

What is Distributed Ledger Technology?

". . . we must think the crime against the possibility of politics, against man qua political animal, the crime of stopping to examine politics . . ." (Derrida, 1997, p. ix)

1.1 What is this all About?

What is Distributed Ledger Technology (DLT)? A reader, who has never heard of the term, who has only a rough idea of cryptocurrencies, who remembers to have read about Bitcoin and Blockchain, yet is unable to explain what it is, might reasonably ask. And even experts in the field might have different opinions on what it exactly is.

Viewed in this light, an appropriate answer could be: DLT is what a novice or an expert alike understands when dealing with DLT. Yet, that does not mean that there is a variety of perspectives that confronts us with a vast array of different but equal definitions. Instead, the definition, or rather the materialization of DLT, is dominated by actors that are more powerful than others. This might include, for instance, the authority, the power imbalance between the author and a lesser informed reader.

It is this idea, that neither DLT nor states are predetermined entities that simply are, but social and material realities that emerge from a continuous struggle of significations that strive to dominate others, that pervades this research. Rather than the being of DLT and states, the continuous becoming of entities as identities, norms or truths becomes the object of study.

In the light of contemporary debates in world politics on what is identical and what is different, what should be the norm and what should be deviation, what counts as the truth and what as fake, it seems all the more relevant to focus on the (re)production of identity, norm and truth, rather than attempting to establish a scholarly understanding that similarly claims to be true.

1.2 Why this Topic?

Among the wide range of discourses that could destabilize states, such as migration, cross-border identities or terrorism, the specific interest for DLT is a personal one. It arose during two internships in Slovenia from October 2017 to March 2018 in the course of my study program. The first was carried out in a startup accelerator, the second in a startup that invested in DLT.

While sifting piles of empirical material as an intern, I noticed an unsettling discrepancy. On the one hand, DLT was linked to the Fourth Industrial Revolution (World Economic Forum, 2018, p. 1) and hailed by an enthusiastic, optimistic, if not frenetic community of investors and computer engineers. On the other, there were suspecting economists (Krugman, 2018; Stiglitz, 2019, as cited in Davis, 2019), and a perplexed, seemingly indecisive or ignorant public. This discrepancy was complemented by a significant rift between a libertarian discourse on the one hand, and ongoing debates on how to regulate DLT, on the other. In 2011 for instance, Jerry Brito, prominent DLT lobbyist and policy advisor in Washington D. C., wrote that if it catches on, Bitcoin might pose a threat not just to governments (Brito, 2011, para. 19). And as if this warning became true, the Facebook co-founder Chris Hughes called emerging economies to ban a DLT application, a cryptocurrency called Libra, which is being developed by his former company, until governments gauged its implications for the control of monetary and economic policy (Davies, 2019, paras. 3-10). Here appears, from the perspective of political science, a tense relationship between DLT and states.

More precisely, when understanding the technology as a global articulation of production that facilitates circulation of capital and information, transborder ecosystems, . . . global governance, cosmopolitan citizenship and thus brings spatiotemporal compression on many dimensions, a scholar wonders what that means for a modern discourse in which the world [is] organized within and between sovereign states and the consequent division between a politics inside and mere relations outside (Walker, 1999, pp. xi-xii). For instance, the formation of a worldwide community of investors and computer engineers, fuelling a transborder collective identity, questions the modern claim that unitary communities live within sovereign states (Walker, 1999, p. xi). Hence, the doubts that DLT casts on modern discourse on states immediately locates the topic in my field of studies, i.e. international relations. They call to reformulate the assertion closing the previous paragraph, by saying: Here appears, from the perspective of international relations, a tense relationship between DLT and the modern discourse on states, which specifies the research question of this study.

1.3 …And no one Cares?

Until early 2016, when Scott (2016) compiled a database on academic research about Bitcoin, the overall number of publications was limited and could therefore be processed by a single person. The resulting, publicly available database indicates a predominant academic interest in Bitcoin from a technological, or more specifically, cryptographic perspective, as well as one from the vantage point of economics and finance. Indeed, when I first got in touch with Bitcoin more than a year ago, I got the same impression of these foci of attention. However, while research on Bitcoin, Blockchain and DLT from scholars of social science, political science and international relations was a manageable number by then, the interest has steadily grown in the meantime. I will therefore need to limit this literature review to a few accounts from these perspectives that I personally deem noteworthy. They are considered such because they provided crucial ideas to my study, and permit to highlight the differences and particularities of my theoretical ambition.

One of the first to put Bitcoin into a sociological, or more precisely, socio-economic perspective was Henrik Karlstrøm’s paper Do Libertarians Dream of Electric Coins? (2014). In essence, it discusses Bitcoin as an attempt to expand the purview of markets through destabilizing universally adopted state monopolies on the production and verification of currency (Karlstrøm, 2014, p. 3). To this end, Karlstrøm uses the framework of material embeddedness, paying attention to the machines, algorithms and other such market devices that make market operations [with Bitcoin] possible (2014, p. 3). He thereby extends the materiality beyond a simple listing of the techniques involved, to a larger social context, with rules that are mediated by social ties and institutions that are the result of historically contingent developments (Karlstrøm, 2014, pp. 3-4).

Concerning the material embeddedness, Karlstrøm posits that Bitcoin relies on the same architecture as the internet itself, i.e. the manufacture of computers, fiber-optic cables and all the other kinds of physically grounded machinery (Karlstrøm, 2014, p. 9). Moreover, Bitcoin builds upon a set of cryptographic innovations that makes [such] a technology . . . possible, and date back to the 1990s (Karlstrøm, 2014, pp. 8-9). He then moves on to market embeddedness, listing the social institutions of trust, enforcement, debt and deflation (Karlstrøm, 2014, pp. 9-11). Particularly, with regard to the hailing of Bitcoin as trustless system, the author notes that the virtual currency is not eliminating trust, but replacing one form of trust – that in other humans and their institutions – with another, based on the supposed infallibility of machine code (Karlstrøm, 2014, p. 10). Lastly, the vast social context is staked out, pointing at a worldwide community, uses of bitcoin for . . . trading in illegal goods, money laundering, misgivings [that] have to do with the technical security of the protocol, environmental concerns, the need for agreement to have an update in the commonly used Bitcoin protocol, theft and identifiability of users (Karlstrøm, 2014, pp. 11-12). Karlstrøm concludes, that Bitcoin might not eliminate the power of law enforcement, for there remain ways to reduce users’ anonymity. These are, for example, triangulation, surveillance of fiat on- and off-ramps, as well as of postal services in the case of drug purchases with Bitcoin (Karlstrøm, 2014, pp. 11-12). Hence, even an effort like Bitcoin, which in its most utopian incarnation promises to free money and the social ties that are associated with it from what is seen as the dysfunctional institutions of modern economies, cannot decouple itself from a whole host of material and institutional issues (Karlstrøm, 2014, p. 12).

The first merit of Henrik Karlstrøm’s study is to provide a comprehensive contextualization which goes beyond a one-sided characterization of Bitcoin. This broad picture cannot remain ignored in an approach, as the present one, that aims to draw the materialization of entities with their context. The second, more specific merit, is the rooting of the phenomenon in a libertarian discourse of free market anarchists in the ‘cypherpunk’ movement [that] have been publishing widely on the need for a securely private way to communicate away from the prying eyes of government (Karlstrøm, 2014, p. 7). This puzzle piece needs especially to be picked up – though from a different angle – in research that discusses challenges to the being of states.

However, one of the fundamental aspects that need to be criticised in Do Libertarians Dream of Electric Coins? lies in its theoretical underpinnings: Material conditions and social institutions are both taken to be constant, static and naturally. In particular, Bitcoin is embedded in something that already is. These institutions integrate and affect the phenomenon Bitcoin, but they themselves remain unchanged. By taking these institutions for granted, the study rules out the possibility of change. Crucially, adopting such an approach would imply the continuity of states a priori and therefore deliver an unsatisfactory response to our question of whether states can be replaced.

Brett Scott published on the plattform E-International Relations an article called Visions of a Techno-Leviathan: The Politics of the Bitcoin Blockchain (2014), discussing Bitcoin technology through the lens of a classic in political science: In Thomas Hobbes’ Leviathan, Scott notes, "self-regarding people realise that it is in their interests to exchange part of their freedom for security of self and property, and thereby enter into a contract with a Sovereign, a deified personage that sets out societal rules of engagement (2014, para. 40). While the modern expectation had been that governments take that role of the Sovereign, libertarian conservatives find fault with politicians who, being actual people, do not act like a detached contractual Sovereign should, but rather attempt to meddle, make things better, or steal" (2014, paras. 40-41).

In consequence, Scott suggests that hardcore conservatives embrace that trustless blockchains promise a "rule by algorithms, guaranteeing property rights and thus freedom, disassociated from the programmers who design them, . . . floating above human affairs, freed from any political interference (2014, paras. 39, 41). Two characteristics play into this embracing: Firstly, a dim view of human nature, a disdain for human imperfection, particularly the imperfection of those in power, but by implication the imperfection of everyone in society (Scott, 2014, paras. 28-29). This rules out effective governance based on mutualistic community foundations, i.e. flesh and blood governance, in favour of solutions that rely on a defensive individualism mediated via mathematical contractual law, i.e. DLT (Scott, 2014, para. 28). Secondly, with Blockchain technologies, rules being contracted to are a series of algorithms, . . . which can only be overridden with great difficulty. . . . [Thus] if you get locked into a contract on that system, there is no breaking out of it" (Scott, 2014, para. 42). That makes effectively an algorithmic property right possible. Taken together, this essentially outlines the technocratic vision of the techno-leviathan forwarded already by the article’s title.

To do justice to Brett Scott, it needs to be stressed that he does not adopt a realist perspective, supporting this technocratic vision. Rather, he regards it as an imminent dystopia (Scott, 2014, para. 25). It is a dystopian future because increased privacy and individualism, said to be immanent to blockchain technology, are not empowering but essentially an ideology of the already-empowered, not the vulnerable, exacerbating power disparities (Scott, 2014, para. 35). Moreover, immutable algorithmic contracts are not even desirable, as political liberation is as much about contesting contracts as it is about enforcing them (Scott, 2014, para. 44). The implication thereof is, for the author, that creative warm-blooded human communities should use technology to dilute the power of those systems that cause us to doubt trust relationships, rather than invoke technology to replace those people we have to trust (Scott, 2014, paras. 45, 46).

Albeit Scott’s article is more an essay than academic research – it keeps empirical substantiation to a minimum – it offers us a refreshing perspective. Particularly, Scott localizes Blockchain technologies in the political spectrum. Or conversely, he suggests how libertarian conservatism may disseminate them to create a Hobbesian world. The issue here is, that this one-sided characterisation of Blockchain fuels the impression of a deterministic outcome. It seems, one has no choice than to see it as a libertarian-conservative project. Moreover, network effects will eventually kick in, "that mean opting out becomes less of an option over time. . . . If you do not buy into it, you will be marginalised (Scott, 2014, para. 38). At that point, not only everyone will become enslaved to technology", but also, more specifically, to a technology that is completing the Hobbesian world as a libertarian, technocratic one (Scott, 2014, para. 38). This natural course of history is clearly a too simplistic projection. Even Scott eventually does not totally buy into it, calling, to the end of his article, for an alternative approach towards Blockchain technologies. Nevertheless, he leaves open if and how this alternative path has a chance of success, i.e. can prevent a techno-Leviathan. Thus, at the end of the day, his essay offers a glimpse of a world without states, yet only provides an oversimplified analysis of how we would get there.

Lastly, it seems necessary to discuss an opinion piece of Daniel O’Keeffe, for its title Distributed Ledger Technology to Replace the Nation-State (2018) sounds remarkably similar to the one of this study. The nation-state, in the light of that article, exists as a means of defense against other nation-states and to provide a series of services and amenities to its citizens (O’Keeffe, 2018, para. 2). Residents are said to become citizens, by abiding by a set of principles and values . . . that were typical of a specific time and place, by conforming to certain rules and standards within a nation-state and passing some criteria, usually with lots of paperwork (O’Keeffe, 2018, paras. 2-3, 5).

Yet this nation-state is, according to O’Keeffe, facing existential problems. Namely, it is dissolving since people are no longer bound to geographical locations, it failed to resolve (and in many cases exacerbated) the problem of unsafe user data in the hands of Google and social media giants and it is confronted by social disintegration in the USA along with the hyperinflation scenarios in Turkey and Venezuela (O’Keeffe, 2018, paras. 4, 13, 15). Moreover, continuation of defense became illegitimate with the decline in overly hostile relations between nation states and the unprecedented aggression of the USA and NATO (O’Keeffe, 2018, para. 9). In that light of existential crisis, what we are now witnessing is that, slowly and surely, all the services and benefits provided by the nation-state are being removed and replaced with distributed ledger alternatives. . . . DLT is rapidly providing all government services with a few obvious exceptions (O’Keeffe, 2018, paras. 10, 13). More than just a future scenario, the vast majority of government services are now available without having to be physically located in a particular country. The equivalent of government services is being provided organically by independent market entities providing distributed ledger services (O’Keeffe, 2018, para. 4). In short, the shift from nation-states to DLT is already happening (O’Keeffe, 2018, para. 11).

Specifically, O’Keeffe states that government services in the domains of education, finance and regulation are moving to DLT (O’Keeffe, 2018, paras. 6-8). For instance, in the cases of Turkey and Venezuela, dysfunctional currencies and laws compel citizens to migrate towards Bitcoin, regardless of the efforts of politicians to enforce capital controls and to turn to a new way of living without government intervention and without leaving their homes or countries (O’Keeffe, 2018, para. 11). As a result, the monetary system is being removed from government (O’Keeffe, 2018, para. 11). In other instances, it became possible to incorporate in Estonia with its e-Residency program; and new territories, i.e. floating islands, are underway based on a distributed ledger infrastructure (O’Keefe, 2018, paras. 12, 15).

With the result of the article being already clear with the header, an expectation of a balanced and critical view of the capacities of DLT would have been disillusioning. Thereby, neither the downsides and limitations of the presented ‘superior’ DLT solutions are examined, nor the implications of admitting that some functions such as policing remain irreplaceable, are discussed (O’Keeffe, 2018, para. 13). In addition to that, O’Keeffe’s work takes the historic determinism, which I had already construed in Brett Scott’s essay, to another level. According to the former, DLT is not only able to replace nation-states, but this replacement is already happening, and while it is a little premature to say that the nation-state is obsolete, sometime in the not so distant future, people will choose their state equivalent (O’Keeffe, 2018, paras. 11, 14, 16).

Lastly, and most importantly for the purposes of this study, O’Keeffe bases his assertion of the replacement of nation-states on the assumption that states are replaced when their functions are replaced. The problem of this assumption becomes clear when reading the cited e-Residency program in Estonia as a government-led implementation of DLT. Then, this program does not appear as an instance of Estonia (partly) replacing itself by delegating a government function to DLT, but to the contrary, as a government reinforcing its existence by integrating DLT. Similarly, pointing at Turkey and Venezuela where citizens prefer to use DLT services over the ones provided by the government might make the case for the (partial) replacement of Turkey and Venezuela, yet not for the replacement of states in general. To the contrary, they can be regarded as failed states, that are, in Richard Devetak’s words, empirical cases of states which deviate from the model by failing to display the recognizable signs [or functions] of sovereign statehood. In this failure, they help to reinforce the model, the proper, normal and exemplary state (2005, p. 179). In that regard, Turkey and Venezuela foster the being of states, even though and because they fail.

Hence, cases of DLT taking over functionalities do not tell us per se whether states are replaced. It is in that sense fruitless to base the following study on a lengthy