Cryptocurrency and Blockchain – Solution to the Problems of Today’s World?

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In his books Sapiens and Homo Deus, Yuval Noah Harari dedicated a passage to the potentially functioning social systems from the recent past. Before World War II, three such systems were on the horizon – liberal capitalism, leftist Bolshevism and right-wing Nazism. After World War II, mankind rejected right-wing Nazism, followed by Bolshevism in 1968, and, as proposed by Harari, more and more people are rejecting liberal capitalism and do not take it as a possibility in today’s globalized world.

Slovenská verzia článku

The necessary upgrade of liberal democracy

Distrust in the existing social system is a problem that has been vocally communicated in the recent years not only by the historians and analysts, but also in the online discussion forums, and even in the Facebook posts of our friends.

The causes for the unclear vision of the future orchestrated by liberal capitalism are many. In the US, according to Timothy Snyder and his work The Road to Unfreedom, the scissors of income inequality between the middle class and the upper ten thousand are opened by globalization. The rich are becoming richer at the expense of the middle and low class. For this very reason, the Trump’s electoral slogan Let’s Make America Great Again was so successful. His supporters still remember the America of the 1940’s and 1970’s when the gap between the richest and the rest was smaller.

Moreover, life in a society in which a typical member of the middle class – a graduate teacher – cannot afford a housing in some areas (e.g. San Francisco) is simply frustrating. Snyder also mentions the addiction of a huge portion of the US population to antidepressants as a problem that is out of control and contributes to negative sentiment.

In our context, on the other hand, one can feel a certain nostalgia resulting from the loss of certainties that were just about the only positive and powerful aspect of the regime in former Czechoslovakia until 1989. Artificial – but full and mandatory employment, equitable distribution of wealth in society, and the declared interest of the ruling regime in the working class. These were the characteristics many people miss these days. Combined with the uncertainty stemming from the capitalist nature of the economy and the degree of responsibility that freedom brings, many people feel cheated by the system. And this environment is ideal for extremes such as a fascist party in Parliament.

The Russian threat

The confusion of people in liberal democracies is abused by Russia, which is a chapter unto itself in modern history. After the collapse of the Soviet Union, Putin came to power as an ex-KGB operative and turned Russia into a kleptocracy in the hands of a select few oligarchs. He quickly realized that the social arrangement he built has no chance to compete with the growing standards of living in Western democracies. He portrayed the Western society as an enemy and began to systematically and deliberately corrode the weaknesses of liberal democracy. The hybrid warfare, which he unleashed, significantly contributed to Trump’s victory in the US presidential elections and to the departure of Britain from the European Union.

When people ponder about how to avoid this predicament, they cannot resist thinking about one of the basic human traits that has been with us ever since the first caveman bludgeoned his fellow caveman because of a roasted thigh.

A fight for resources

Be it the simple pecuniary crimes, corruption – ranging from trivial bribery in health care to Putin’s corrupt dictatorial regime, or the crimes associated with drugs, they always revolve around someone acquiring the resources in an illegitimate way at the expense of others. An easily verifiable consensus on whether a particular financial transaction is legitimate or not would eradicate 90% of people’s problems. This level of transparency and justification of the individual steps, for example in financing the presidential campaigns, has been proven effective thanks to transparent accounts. The question is whether such financial transparency can be implicitly encoded into the very core of human society.

Open database of financial flows and assets in society

What would happen if there existed a relatively freely accessible database containing all the financial flows and ownership statuses in society? Cash money would cease to exist. Anyone could check anyone else to see how he/she came to his/her property. Not a pleasant thought at first sight. Why should my neighbor peruse my income and snoop on me? However, it is necessary to understand the impact of such an eventuality in the long run and in the broader global society. Not all cash flows have to be visible to everybody, but every member of society – depending on his/her public status – would oversee a certain amount of other people. The very act of control would also be recorded in the system. The very knowledge that every financial transaction in society is recorded together with the consideration or counter-performance would be a huge memento: it would eradicate most monkey business because everything would be recorded in the database and it is only a matter of time until someone stumbles upon such transactions.

For example, how would Fico (Slovak prime minister) „raise the money with his own head“ when the transfer would be recorded in the system for him to even work with the money in the first place? How would Putin finance his oligarchs if his assets and financial flows were inspected by journalists? How would anyone steal anything if the property were clearly and unequivocally listed in one’s registry of assets? And it could only enter someone else’s registry of assets through a registered transaction against the consideration? How would the drug dealers operate if all receipts of value were recorded and traceable? How could, for example, someone make stories about people being paid by Soros if all the suspected financial flows were transparent?

The consequences of such a system would be unimaginable. Everyone would know about everything. Transparency would cause a revolution in every aspect of economic life of the people. The people would suddenly know the purchasing and selling prices of corporations, which would result in price reductions. This would hugely promote competition. If an economic sector exhibits above-average profitability, which has not been exploited yet, it is immediately invaded by competition. Any economic discrimination would be a thing of the past. The society would be finally established on a stable foundation, which would definitively eliminate substantial shocks in the future – based on the truth itself.

Hasn’t mankind finally matured enough in the 21st century to rid itself of the shackles in the struggle for material goods? Has the time come to finally establish one global currency – accepted by all and all around the world? Is this the right time for the society to implement an ultimately transparent source of truth anyone can use at any time?

The problems associated with fake news, corruption, dictatorships, tax evasion, gray economy. Everything would be critically impacted because all would ultimately depend on analyzing the database, and it would be clear who plays for whom and what the true nature of things is. The detection of terrorism would be a breeze: it would be enough to look at the network of flows leading to the detection of terrorists, and the entire network would be immediately exposed. Such activity would become impossible.

The existence of a database of financial flows would turn macroeconomics as a pseudoscience into serious science, relying on every single penny that rolls in the economy. Filing a tax return would be a matter of two clicks in an application.

Implementation – blockchain in action

The implementation of this system is far from impossible thanks to the advent of the blockchain technology and its verification in Bitcoin. The blockchain technology is a decentralized database that exists independently in several places and the entries in it are irreversible – because the entries at Time B mathematically depend on those at Time A. In principle, blockchain was designed to be indestructible, incontrollable and unchangeable. This property perfectly fits the whole concept.

It is obvious that in order to fully materialize the benefits of the whole system, it would have to encompass the vast majority of economic life. To begin with, it would be enough to develop the system technologically together with the relevant cryptocurrency. It would be enough to convince a number of politically committed people to enter the system – and to declare: I am a clean and completely transparent person whose cash flows are controlled by many, and I’m helping to improve the society by participating in the system. The politicians who would make their lives transparent like this would have a bulletproof argument about the impeccability of their past and future behavior. If someone wanted to beat the system, the information would be forever stored in its records and it would disqualify the person from any future political activities.

The system – snowballing more and more people and financial flows in society – would slowly become a global phenomenon. The higher the number of economic flows in the system, the broader its effects: it would be all to clear that it meets the expectations.

The cost of basic functionality would be in the hundreds of thousands of euros, and the initial investment would return very quickly after the implementation of the cryptocurrency. The system would be initially paid by the participating people, and the collected funds would be used to finance the interchangeability of the cryptocurrency to fiat currencies, which would build the initial confidence in the currency.

It is time for mankind to break away from the preoccupation with the illegitimate battle for assets – breaking away from the conspiracy theories that are either proved through the financial flows or forever forgotten in history. Breaking away from the corrupt people who put entire countries in danger and threaten the global stability. A step that prevents petty corruption in our everyday lives and the corruption of dictators with the same mechanisms.

It is time to change the rules in society. It can be done in an evolutionary way by successive steps and gradual introduction of transparency into the economic life of each one of us. The necessary tools are at hand. All it takes is to kick it off.

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