Blockchain technology can bring a financial disruption but it will be insignificant unless it goes hand in hand with social disruption. Society is tightly coupled with the world of finance and it is not possible to disrupt one without the other. Let’s have a look at what we can expect from cryptocurrencies.
There are a few serious problems in the world that can be addressed and at least partly fixed by blockchain technology. It will be difficult, slow, and it will definitely take a lot of time to see the results. Nevertheless, blockchain technology with the surrounding infrastructure has the potential to really help people and we believe that it is highly probable that we utilize the chance to improve our lives. Let’s have a look at a few real-world problems and elaborate on how the nascent blockchain technology can help.
Real-world problems and the root cause
If you ask ordinary people on the street around the world what are the biggest problem they face every day they will enumerate things like the following:
- Low government accountability for their work, low transparency, and corruption.
- Lack of economic opportunities and unemployment.
- Inequality of income.
- Unfair distribution of rewards for selling products and services.
This is not definitely the full list of problems we face but these problems are more or less present in all countries around the world. Let’s try to find the root cause of these problems. It will not be a surprise for you that the source of troubles can be found in the social sphere. The root cause is actually greed. Many decisions are driven by greed and it is a basic human attribute. We do not want to speculate here whether it is a good or bad attribute. We just want to analyze the results that we can see around us. Greed is behind the desire to grab more power. Greed is behind corruption that enables individuals to push through decisions that are financially beneficial only for a small group of people. Greed is behind the desire to grab more money than others despite the money is not deserved and minorities can suffer. We can see greed everywhere in all layers of the social structure. We can see greedy employers that are not willing to distribute the profit fairly to employees. We can see greedy merchants that do not hesitate to set a high margin if they can. We can see greedy corporations from developed countries that are able to misuse people and resources in developing countries. Greedy corporations are often so strong that they can collude with governments to monopolize whole industries to the detriment of consumers. What is probably the worst, we can see greedy government members that do not care about people and want to satisfy their needs in the first place.
We face a systemic problem that is problem that is inherent in the overall system rather than due to specific, individual, isolated factors. The current problems cannot be understood in isolation since they are interconnected and interdependent. There is a long development behind the current world problems. Due to this fact, we could find flaws in the laws and rules, in the acting of authorities, in decisions of politicians, leaders, bankers, employers, and in many other places. We have found the root cause but it does not mean that we can easily find and apply a solution. How to technologically fix greed? It is legal to strive for maximizing profit. It is legal to buy commodities cheaply and set a high margin when selling them. It is legal to outsource production to cheap countries. It is legal to have a big salary regardless of the salaries of others. It is legal to be elected and then not serve the people in their best possible interest. It is legal to be a bank and decide whom to lend money to. It is legal to set high taxes. It is kind of legal to behave greedily. You can think that it is not moral or acceptable but it is difficult to change it. Of course, some greedy individuals can be punished in many cases. For example, when someone steals money on the street or falsifies a signature, he or she can be caught and probably sentenced. It is true, that in some cases, greedy politicians, bankers, employers, and others can also be sentenced and punished. The issue here is, that in many cases not.
Can blockchain fix greed?
A disruptive change could alleviate the systemic problem. Systemic solutions change the fundamental way a system works by changing the very basic structure of the system. As we said, greed is a natural human attribute. It might seem difficult to fix greed in a technological way. Fortunately, we do not need to directly fix greed. We are not able to fix the root cause of the systemic problem since it is not possible to change basic human behavior. Fortunately, it does not matter. It is sufficient to change the structure of the system. It is possible since mankind tends toward the digitalization of society. The internet, with all protocols and services, that are built upon them, is more important every year. Communication, shopping, payments, entertainment, banking services, work, and many other things got digitized. Blockchain is nothing else than a distributed network. To be more precise, it is another network protocol. It can be perceived as a continuation of digitalization. However, there is an important difference between the current network infrastructure and blockchain protocols. Blockchain networks focus on decentralization. That is why they have the potential to disrupt the current digital world. Nowadays, society is coupled with the digital world. We do not see a tendency to decouple these worlds. The opposite is true. We tend to a higher level of digitalization. That is why digital infrastructure will be gradually more significant in the future and it will have a bigger impact on society. It also means that the social contract will be tightly coupled and interconnected to the digital world.
Let’s explain what we mean by the social contract. Social contract theory says that people live together in society in accordance with an agreement that establishes moral and political rules of behavior. It is generally believed that if people live according to a social contract then they can live morally and rationally by their own choices respecting the rights of others. The necessary prerequisite is that the social contract is accepted by the majority. The majority will naturally follow the social contract if it is moral, rational, and beneficial for them. The social contract is basically a set of rules and conditions that are either explicit or implicit. An example of an explicit social contract can be the laws that can be controlled and enforced by governments. The implicit social contract is an expected behavior based on morality, fairness, and common sense. In general, it does not matter whether the social contract is explicit or implicit. It provides a valuable framework that allows us to live in harmony.
It is possible to perceive blockchain as a systemic solution that allows us to redefine, control, and even execute the social contract. When something happens that is against common sense, morality, logic, or public benefit then it is a place where blockchain can help. If you agree that social contract has been breached in many places and society searches for a remedy then we have probably found a technological solution. Decentralization is the key attribute that prevents individuals from breaching the social contract. Rules that are defined in the source code of the blockchain protocol, together with smart contracts, can become a new set of social contract rules. The question is whether people will accept these new rules and start using them.
How blockchain can solve real-world problems?
It is necessary to trust the social contract. A blockchain is a trust machine. It is possible to trust technology and believe that it prevents individuals from breaching the social contract. Thus, blockchain technology can become an inevitable part of the social contract in the digital era. However, it will take some time to adopt it. The majority of current social contracts have evolved over many years. People have generally no reason to accept new social contracts when they are fine with the current ones. On the other hand, when people are not satisfied or need some major change then they will be definitely searching for alternatives. Blockchain networks can be perceived as a viable alternative.
What is a digital social contract that is embedded in blockchain? It is a contract between a team and the users of the blockchain project. The team has defined a set of rules and expects that the rules will be accepted by people. Thus, there is a social contract between the team and the users. The contract is in the source code of the protocol. The team remains responsible for maintaining the rules and for keeping the protocol running. People expect that the team will not change the rules unless the majority wishes so. People also expect that the economic model of the protocol is sustainable in the long run and the team is able to keep it running. In contrast to the current social contracts, digital social contracts are dependent on the existence of the networks. The projects with strong teams will be probably more trusted since people will consider them as more reliable. Projects with a governance model will also have a significant advantage over others. People must be sure that the team will not change rules as they wish and that the majority of users will be responsible and accountable for changes. In a decentralized environment, there are generally three groups of people regarding digital social contracts:
- People or users: This group is in the role of adopters of contracts and it can initiate the request to change or modify rules. This group can be considered as guardians of rules since nobody is technically able to change the rule.
- A team: A team maintains a source code of a protocol. The team makes small changes every day but major changes should be done only at the request of the majority of users or for some good reason. Mostly only a few developers have the right to create an official release version of the client.
- Block producers: Block producers are in many cases pool operators. They decide whether to update their nodes and adopt new release versions of clients. Thus, they can accept changes that have been made by the team. Pool operators are also guardians of rules with much higher power than people. So the quality of decentralization around block producers is the most critical one.
We have explained the distribution of power regarding the definition of digital social contracts. Now, it is time to have a look at a few projects and see whether they can solve real-world problems.
Let’s start with Bitcoin. The digital social contract is clear and generally known in the crypto community. It will be released with only 21,000,000 BTC coins. Halving will reduce rewards after adding 210,000 new blocks. Everybody can use Bitcoin without permission. Can the Bitcoin social contract solve something in the real world? Definitely yes. Bitcoin is a great store of value project. It is considered as a hedge against endless money printing. Who will appreciate it? Mostly rich people and investors who usually invest in gold believe that Bitcoin can become a better alternative to gold in the future. Not many people invest in gold in poor countries and even in western countries. It is great that nearly everybody can buy cryptocurrencies and it is easier than buying and storing gold. Thus, Bitcoin will be here for the case that economies will collapse. On the other hand, if it happened then transaction fees could reach a level that would prevent poor people from buying bitcoins. Again, Bitcoin is useful rather for richer people and investors. Can Bitcoin solve any real-world problem that we have listed above? It was low transparency, corruption, lack of economic opportunities, inequality of income, unfair distribution of rewards, and poverty. Currently, Bitcoin is not able to solve these problems mostly for low scalability and high volatility reasons. In the case that the price of bitcoins pumps significantly it would make a few people rich. The people that are mostly rather rich already. It would just help a few people from the early-adopter group. Even if the price of bitcoins would stabilize then it would not help people much. They could just change the current fiat currency for the alternative currency. The capped supply would definitely be an advantage but the gap between poor and rich people would still be a world problem as well as low transparency, corruption, and other problems.
We believe that blockchain has the potential to solve or at least diminish some of the real-world problems. Cardano can achieve it since the team has solved a bunch of really tough technical problems and it is going to continue with the development. One thing is pretty clear. There will be no real usage without resolved scalability. When a public protocol is not scalable then transaction fees can rise 10x or even 100x. Transaction fees must remain cheap within the first layer otherwise the whole solution is unusable for the majority of people. It is fine to transfer native coins to a highly scalable second layer solution but still, it is necessary to be able to transfer coins to the first layer and it must be cheap. The most important digital contract between the team and users is related to the maximum supply of coins. Only the first layer is able to guard it since it will always be the most secure layer. Second-layer solutions are scalable but generally less secure and decentralized. Resolved scalability itself still does not help much in solving real-world problems. It can just create a more available store of value and as we said, this does not help much to improve the lives of the majority of people on the planet.
To solve real problems, we need smart contracts and infrastructure enabling working with the physical world. The maximum supply of coins, and it does not matter whether we talk about Bitcoin or Cardano, is a global social contract. It is fine to have a global contract but the usage is limited regarding helping to solve local issues. In the majority of cases, local problems are related to breaking a social contract and it is breached by individuals. Thus, we need to search for a fix that would be suited for a given problem. It is necessary to define a new rule that would not be so easy to breach. This is exactly what blockchain together with smart contracts can do.
Low transparency and corruption go hand in hand. The government members can easily become subjects of corruption since it is easy to hide the results of their decisions. They are in charge of deciding about wealth that belongs to countries. When they are able to manipulate data in ledgers then they are able to do what they want to the detriment of people. A blockchain is a great tool for transparency. Imagine that collected taxes are transparently transferred to a single address and then redistributed to ministers. All transactions that ministers would do would be transparent. There is still a lot of room for corruption. Ministers could prefer to assign some deal to friends and ignore a better offer. It can still happen, but people would see how much has been spent on something and what is the result. Ministers would not be able to easily steal a part of the money from the publicly available address. We have simplified it a lot and the balance between privacy and transparency must be found. Still, we believe that development in this area will bring tools that will allow it.
Lack of economic opportunities can be also at least partly resolved by Cardano. There are a lot of talented people in Africa that could run their own business. However, they do not have enough money to begin with. The impossibility to borrow money prevents talented people to create a successful local business. These people often do not have an identity and common banks are not willing to lend them money. Having a global lending platform that would work with digital identity could help. Atala Prism is a project that works with digital identity and that will be connected with Cardano. Digital identity is a necessary prerequisite to take a loan. Economic opportunities are not only about the lending of money. It is also about connecting people and avoiding unnecessary middlemen that just take values without providing good services. For example, selling locally grown commodities directly to manufacturers of goods without middlemen is also a very useful service. Decentralized commodity exchanges can help a lot in poor countries. Having access to the global market is also a great opportunity that many people do not have. For example, for individuals in poor countries, it is expensive to invest in a property. When properties will be tokenized it will be possible to buy a small part of them. Thus, people in poor countries can easily participate in the global market.
Inequality of income is often a result of the unfair distribution of rewards for work and low transparency. Employees have to often accept conditions that can be considered unfair or more advantageous for employers than to employees. Blockchain can help here only if it allows employees to arrange alternative employment that will be fairer. With tokenization and digital identity, we can imagine that it will be possible to employ people remotely. It is, however, a rather distant future.
Cardano can empower individuals. Individuals who face hardship often rely on governments and expect that they will solve the problems. Cardano can give power back to the hands of individuals and groups. Cardano can be considered as an alternative that allows us to define new local rules, mediate connection with the whole world, and give people new global digital identities. What is a necessary prerequisite, though, is the ability and willingness of people to take over the responsibility for their lives.
The individual and the groups (citizens, nations, etc.) are two distinct entities. Individuals are obligated to resolve challenges facing them on their own, without the expectation of outside assistance. Individuals have the obligation to do the best they can with what they are given or currently have. However, it is possible only to a certain level. At some point, it is necessary to cooperate with outside groups or other individuals. For example, in the case of a citizen within a state, the state has an obligation to the citizen to fill in the shortfall between what individuals can be expected to do for themselves and the realities of available resources. What individuals and groups have in common? Both should be self-sufficient, honest, and hard-working. In this case, Cardano can help to define new digital social contracts. Social contracts are basically explicit or implicit agreements. Smart contracts technology enables us to define agreements in a digital form and let the decentralized network execute them. It means that the rules are not only defined but the network can ensure that the rules are not breached by individuals. It does not matter whether there will be a short-term agreement between two individuals, or long-term agreements for a group of people. Cardano can become a very powerful tool for people that need it. It can be defined within a community, a bank, a company, citizens as, what does it mean to own something, to agree with something, or even to do something.
Blockchain technology will succeed only if it resolves real-world problems. It will be a long way and the technology must mature to be able to reach the goal. It can be expected that different blockchain projects resolve different problems. We believe that Cardano will help all people that need it the most. At least, it is the ultimate goal of the project and the team will strive to deliver it.
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