Note: If you don’t feel the need to talk about blockchain things with everyone you meet, this blog post is probably not for you. It wasn’t for me, either.
There are certain topics that seem to grip people enough to make them want to enter discussions with me. Some are benign, like why any particular programming paradigm is superior or inferior to another. Some are important enough to cause strife, like the “culture wars” or minority rights. I’m usually not very vocal about my personal opinions on any of these topics, though—or because—some of my positions might be considered extreme1. I try not to have opinions on everything, and follow the “strong positions, weakly held” rule.
A topic that keeps coming up is that of blockchain technologies and decentralized finance. For me, this topic is somewhat of a nemesis, because it occupies an annoying space in the continuum of mundane/important: the technological underpinnings of the idea are easily debatable, but their cultural significance has a deep political impact.
The discussions that I’ve encountered around this have been particularly unpleasant as well. I’m skeptical of the value of blockchain technologies in the larger financial context, but without any fixed talking points, I’ve often been painted as having the knee-jerk reaction of the traditional left against anything finance.
This blog post, then, is my attempt at explaining why I’m not on the hype train. And, to noone’s surprise, it won’t be very technical.
Blockchain, Anarchism, and Cthulhu
When people have discussions about the merit of the blockchain space, they often revolve around technology or fixing a broken system–finance–by democratizing it. But most of the time they stop short of going very deep into the issue, and I think the most interesting ideas, and the reasons for why I oppose it, lie in the fundamental societal assumptions surrounding its value proposition. Let me explain.
I would describe the act of democratizing finance by making the market a direct action, grass-roots system as a fundamentally anarcho-capitalist endeavour2. A lot of people probably shy away from using that term, because it is controversial, but I think it captures the essence like no other: you are moving away from statism, and you do so by appointing the famous “invisible hand of the market” as your god-like oracle.
This is where my first critique starts: if “the hand of the market” is a god, it is a Lovecraftian blind idiot god. It is not an intelligent creator, it knows not what it builds and destroys3.
Democratization is always a Promethean act. This sounds pretentious, but it gives us a good metaphor to follow: Prometheus took the fire from the gods to give it to man. What are you taking from the blind idiot god to give to us?
Another one of the axioms of my thinking is that a fundamentally broken system is not fixed by democratization. It needs to be done away with. To bestialize a German aphorism attributed to Thorsten Dirks: if you democratize a shitty system, you end up with a shitty democratic system.
Decentralized Finance, Smart Contracts, and the Byzantine Empire
We can go further than this, and examine Decentralized Finance on its value proposition of creating a better financial market. I want to be clear that I’m at this point not talking about your regular run-of-the-mill Coin market, which emulates the most mundane financial operation: commodity trading in a vacuum. People get excited by the amounts of money thrown around, yes, but it is important to keep in mind that exchanging a thing for another does not create wealth, it merely redistributes it. I don’t care if the transactions are verifiable if the market they operate in is, at its core, rotten.
Decentralized finance, then, becomes more interesting when we talk about such things as smart contracts and governance, and trying to do away with exchanges and all the cruft that we wanted to not have anymore in the first place. But it is also, currently, where it becomes the most absurd. The systems, both technical and organizational, that people come up with are either more or less obviously broken or become so byzantine so quickly (see, for instance, the structure of MakerDAO4) that we have come full circle: a new beast is born that can only be managed by the appointed few, not by the unwashed masses. Again, the market did not create, it merely redistributed.
You could call these system “meritocracies”, if you believed these existed. But then, aren’t the existing financial markets also meritocracies, ruled by those that understand finance and law, rather than tech and a little bit of finance? Maybe, maybe not. But to me, it doesn’t feel like an accident that Decentralized Finance proponents slowly learn all the little reasons for the rules and regulations that are in play in finance5. The Byzantine Empire has a bad reputation, but maybe that’s more due to ignorance than through any fault of its own.
The tune of tech’s hubris and its desire to reinvent everything from first principles without consulting domain experts is an old one, but I can only play the notes you put in front of me.
The mantra I do not wish to keep singing
I understand that this post might spark the urge to discuss with me. I’m too tired to spend my already mostly awful time on the internet discussing touchy topics with strangers, not that that has ever stopped anyone. If you do want to talk about topics like this one with me, maybe we should form a personal connection first.
Finally, I want to make something very clear: just because I do not wander off into the promised land doesn’t mean that I’m happy where we are at. The current system needs change, in more places than finance. But I don’t believe that any change is good, or that the only way is up.
1. This blog is my personal blog, yes, but it’s also linked to my professional identity. It’s difficult to speak freely about any particular issue when your livelihood is on the line.
2. One of the people I asked to review this blog post asked me whether I meant that to be a good or bad thing. I didn’t intend this to be a value judgement: the label is just a descriptor. It is useful to note that I’m not a proponent of anarcho-capitalism myself.
3. You will have to live with my colourful metaphors for a while. I promise they all lead somewhere. If the narrative of my imagery is offensive to you, I apologize. Feel free to rebutt in an equally off-kilter tone.
4. I’ve tried to verify that the MakerDAO modules work as claimed, but my ignorance of the ecosystem—why is there a magic value there? Why are the log events implemented in assembly?—made this impossible in the limited time I wanted to give it.
5. For a little taster of the things we manage to mess up with the new-fangled stuff that used to be solved problems and fun with finance in general, I recommend Matt Levine’s column “Money Stuff” on Bloomberg.