McElroy on the Importance of Decentralization: "Give Power Back to the Individual"

The Satoshi Revolution: A Revolution of Rising Expectations.

Section 3 : Decentralization

Chapter 7: The Political Dynamic of Decentralization

Decentralization (Chapter 7, Part 1)

A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.

–Satoshi Nakamoto

(Note: This article consciously side-steps the question of how decentralized various cryptocurrencies, such as bitcoin and ether, truly are. It assumes as a given that crypto is a paradise of decentralization compared to the central banking system.)

In 2009, Satoshi Nakamoto offered the first digital, decentralized currency that was based on algorithms rather than trust. The decentralization is key. No one person controls the operation of bitcoin; everyone can participate on an equal peer-to-peer basis. The system uses a distributed network of nodes to verify transactions that are publicly visible in an open ledger. It was something new under the sun.

The “non-trust-based system” that Satoshi described has obvious advantages. For one, people do not get screwed over by unscrupulous third parties, such as lawyers, former spouses, or banks. But the advantages of decentralization are less obvious. Centralization can be a purely practical matter, and it can be a good strategy. A business, for example, may be more efficient and profitable if decision making is controlled by one person. There is nothing intrinsically wrong with centralization. Except….

In the political sense. Centralization is disastrous to freedom because it strips choice from individuals and converts personal rights into decisions made by committees. Another term for centralized control is “social engineering.”

Through most of history, society has been viewed as the result of someone’s design. The design may be ascribed to God, a monarch, or a group of people called government. Society as a construct is taken for granted.

In his three-volume work Law, Legislation and Liberty (1973), economist and social theorist Friedrich A. Hayek referred to this position as “constructivist rationalism.” He argued vigorously against it. In a 1974 Nobel Memorial Lecture, entitled “The Pretence of Knowledge“, Hayek expressed a key objection: namely, no committee could predict the evolving needs of the interacting masses of human beings.

“The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson in humility which should guard him against becoming an accomplice in men’s fatal striving to control society–a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

Decentralization means the diffusion of power away from a central authority, down to its constituent units. Politically speaking, this usually means passing control from a national unit down to a local one. Instead of Congress or Parliament issuing law, a state or provincial government does so. Or a local council decides what a resident may or may not do with his own property, wealth and body. Local councils may be preferable to more remote authorities because they are susceptible to local influence; that is, the voice of individual constituents who live next door are far more influential than anonymous ballots that are cast in the millions.

But, even at the local level, the essential element of decentralization is lost. The essential element is not a committee or a collective decision. It is the individual. The individual is not only the basic building block of society but also the only source of rights, the only source who can say “yes” or “no” over their own lives. The logical and moral landing point for decentralization is every human being who is responsible for making peaceful choices for themselves.

In his magnum opus Human Action, the Austrian economist Ludwig von Mises described the principle of Methodological Individualism: “First we must realize that all actions are performed by individuals… If we scrutinize the meaning of the various actions performed by individuals we must necessarily learn everything about the actions of the collective whole. A social collective has no existence or reality outside of the individual members’ actions. For example, the individuals who comprised a family interacted with each other within a specific context and sum of those individual interactions was what constituted the abstraction ‘family'”.

Mises used this approach in analyzing that most complex of collective wholes–the state. Everything the state did or was could be reduced to individual actions. Mises explained, “The hangman, not the state, executes a criminal. It is the meaning of those concerned that discerns in the hangman’s action an action of the state.” Individuals who look at the hangman see the state in action only because they have created an abstraction known as ‘the state’ to provide a context for what is an individual’s action.

And yet, if only individuals act, how can collective institutions such as ‘the state’ or any co-operative venture be established within society? Easily. Consider how language evolved through human action but not through human design: this is the concept of ‘spontaneous order.’ One of Mises’ earliest works, Nation, State and Economy (1919), analyzed how complex social phenomena–such as language–were the unintended consequences of individual interactions. No committee or central authority decided to invent human speech and publish a dictionary, let alone to design a specific language like English. Individuals began communicating in order to get what they wanted from each other.

This is decentralization at work. Another classic example is how a path is forged through a forest. Twenty people each decide to take the shortest route from A to B. In doing so, each one contributes to the creation of a crude path that benefits everyone else who uses it afterward. The path becomes less crude as more people use it. They do not walk from A to B as public good; it is in their own self-interest. Yet forging the path benefits everyone else who walks it thereafter. The path is decentralization in action.

The decentralization offered by Satoshi goes farther. It does not envision individual actions that happenstantially benefit the whole. Or, rather, it envisions a decentralization that becomes an integral part of a community in which everything is transparent.

Part of the Satoshi revolution is that it turns the freedom strategy of decentralization on its head. Traditionally, decentralization has given individuals freedom by allowing them to secede from society. That is, people withdraw from the political system by refusing to pay taxes, by declining to provide personal information to the government or by otherwise saying “no.” In the ’80s, this strategy was called Browning-out because many practitioners followed the privacy and freedom recommendations of Harry Browne’s best-selling book How I Found Freedom in an Unfree World: A Handbook for Personal Freedom. Chapter 7, entitled “The Government Traps,” states, “But who is ‘society’ if not the same people who are already expressing their needs and preferences in the marketplace? If they aren’t willing to pay for the service in the free market…, who can say they’re willing to pay for it through government?…. All government actions depend upon one-sided transactions, in which an individual is forced to choose between paying for what he doesn’t want and going to jail.” Those who Browned-out from the Government Trap decentralized the power in their lives down to the personal level where the only authority over their own choices was themselves.

Satoshi’s approach to decentralization offers the solution. Like Hayek, he opposed the centralization of power, which is the theft of power from individuals. Social engineering destroys society, rather than creates it. Both Hayek and Mises witnessed the devastation of classical liberalism that resulted from two world wars, but most particularly by World War I. They watched as the promise of nineteenth century classical liberalism was confiscated by the centralizing machine of statism.

Enough. Cryptocurrency says “enough.” Give power back to the individual. And decentralization is where it all begins.

[To be continued next week.]

Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters

Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.