A synopsis of the different consensus mechanisms found across human history, their limitations, and how Cryptocurrency can provide solutions to our world problems.

Communication

As humans, our incredible capacity to thrive is significantly linked to our capacity for intricate communication. Having the capacity to communicate effectively is the most useful tool in the human tool belt, particularly in adapting to obstacles. Over time, human groups with more advanced communication skills have been more successful at passing their advancements from generation to generation than those with more basic communications. Brain size and development in humans clearly underscores the evolutionary importance of these language and communication skills. This high-bandwidth for communication allows humans an unusual capacity for consensus building between two members, or within groups as a whole.

Many animals live in a group. Monkeys have tribes, Elephants have herds, wolves have packs. Like humans, these animal organizations rely on their ability to communicate with one another and would otherwise disintegrate into ‘lone rangers’. Coexistence among animals has had an important evolutionary advantage that did not exist for animals’ solitary functioning. Packs of animals serve a protective function for individuals within the group and allow for division of labor. However, this advantage limits the size of the group because animals lack the ability to communicate effectively on a large scale. A common characteristic of animal organizations is their instability as numbers increase. The maximum group size achieved by a species will be a function of its ability to communicate with itself. As the size of a group increases beyond its ability to communicate and maintain order, the group splits or individuals are banished, and the size returns to a more manageable level of complexity.

Religion, the State, and the Internet Marketplace

Humans are less limited in the size of their groups because of our increasing ability to communicate effectively on a wide scale. Empires have risen and fallen repeatedly, with each iteration getting larger, stronger, and richer than those in the past. Our communication skills allow for long term planning, strategizing, bonding, learning, and above all, the ability to find consensus. The ability to communicate by transferring data between parties has proven to be a remarkably useful tool. Moreover, on top of this foundation layer of data transfer, we have been able to create organizational systems that are passed down from generation to generation. Religion is one of the most profound examples of an organizational system that relies on our ability to transfer data. This type of organization allows people who have never met to assume a certain consensus with each other regarding the existence and nature of God.

Religion is a huge achievement in human activity Hall-of-Fame. However, late-stage religion has come with burdens as well as benefits and eventually a new method of self-organization was invented that sought to remedy those deficiencies. Democratic governance provided a new consensus mechanism to organize smaller organizational schemes into a single unit irrespective of religious belief. Democracy allowed people, spread over a large contiguous network, the ability to do things that no small group could. Law creation, law enforcement, payment of public servants, a system of taxation, welfare systems, and mass education have all been possible through the democratic control of money. The advent of democratic control over the bounds and limits of society has allowed a huge increase in the scale of consensus building that was possible. Democratic governments have added many new tools to the human tool belt that allows consensus to proliferate and be maintained. Elaborate court systems provide a mechanism for mediating disagreements between members of a country, and checks and balances allow for self-governance. The people of democratic society are collectively at the steering wheel of the state, using the wisdom of the crowd to steer the ship.

The 2016 U.S. Presidential election, Brexit, and the recent rise of nationalism across the world is apt to stem, at least in part, from breaching the upper limit of the power of democracies to provide consensus on such a large scale. Our ability to adapt quickly to change in the surrounding environment has played a part in rapid globalization. However, this rapid integration of different cultures occurring around the world appears to have created instability in areas with high heterogeneity. Having people from many different cultures trying to communicate effectively at scale has proven to be a formidable challenge.

Social media has not been helpful in dealing with this challenge. The algorithms behind Facebook and other social media platforms have created echo-chambers specific to “tribes” who share a set of beliefs. This has resulted in a loss of flexibility in communication between groups who do not share a common belief system. Since groups with divergent views often never meet, each party creates a construal of the others’ argument, and freely debates those arguments with their own perceptions of the opposing side’s biases. Communication between opposing viewpoints grinds to a halt and the result is often increased polarization.

The Marketplace

While democratic governments, religion, and other organizational forms have been working to scale up consensus, there has been a secondary, supplemental method of consensus that has slowly begun to dominate. Its progress has been built upon the same mechanisms allowing for effective communication between large groups. The tool that is rapidly becoming dominant is the exchange of value. Trade has always involved communication between parties as a mechanism for transferring value, resulting in a secondary system of consensus generation between larger and larger groups. Trade has often provided powerful incentives for peaceful human transactions because violence and war are expensive for most marketplace participants. We have seen the marketplace expand across the world, and allow vastly different cultures, languages, and belief systems to come to consensus for the purpose of trade.

In our earliest attempts at trade involving small groups, we bartered. Two tribes traded things between each other with items that had intrinsic value: weapons, food, furs. Spears were traded for deerskins, a certain number of chickens for a goat, and so on. Tribes that created the largest network of trade were able to obtain the best items. At some point, groups began to trade abstractions of value. Gold, silver, and other precious metals were mutually assumed to be valuable across the largest available marketplaces, and provided a system of consensus for humans to communicate value on a larger scale. This method of transference of value was more efficient because a centralized form of value allowed for any two types of value to be exchanged. That is, the substrate of gold or silver disconnected the two products from the need to be traded directly.

The establishment of a centralized form of value was a significant step forward for society. However, gold and metals are clunky and heavy making large purchases cumbersome. The demand for a more convenient method of value gave rise to the use of paper as an efficient medium. Trade was able to be done at an increased rate of transactions per unit time, with increased levels of efficiency. Large and small sums of money could be transferred with relatively equal efficiency, and it was easier to keep secure.

Enter the Internet and an explosion in the ability to transfer data across the world. Worldwide communication went from impossible to simple in a single generation. Moreover, the organically spreading network of marketplaces quickly found its way to lush new fields on the Internet. With this new marketplace, brand new companies were able to form, and with the insatiable appetite for data, these companies quickly became gargantuans. Thanks to the digitization of money, two parties can now transact with each other from opposite ends of the earth, and not actually trade any physical item. The exceedingly inexpensive cost of transactions on the Internet allows for millions of transactions every second. Not only can two humans transfer data between themselves in real time, but one human can make data accessible on the internet, and any number of individuals can subsequently receive this data at any point after it was created. Similarly, items of value can be made perpetually available for purchase on the Internet, allowing consensus to occur with fewer parameters dictated by time.

However, there are still factors hamstringing the Internet’s potential to transact. You cannot go to the local grocery store in the US with Thai Baht and expect to purchase goods, because you are using a different language of value-communication that is not readily translated. State institutions, rather than facilitating consensus around value, make it difficult for different populations to communicate. The history of the marketplace has proved to overcome language barriers in order to reach consensus, yet when there are two different marketplaces that use two different mediums of value exchange, consensus cannot be achieved. The marketplaces that have grown on the internet are fractured by the inability for the different currencies of the world from being able to exchanged.

Current financial systems also make it exceedingly slow and cumbersome to transfer value on the internet. Middlemen are able to take significant cuts of the transaction along the way, and the third-party risks involved create slow transaction times. These complex transactions with high fees reduce the capacity to transfer value over the internet, regardless of the internet’s bandwidth capacity. Because of the cumbersome infrastructure, a full range of transaction types is not possible. For instance, there is no way to ‘micro-transact’ through these mediums. Micro-transactions are the vast number of transactions that occur world wide. However, with current financial exchange mechanisms, they are filtered out because it is not worthwhile to transact a few dollars worldwide.

Value doesn’t like to be constrained. It’s an expanding state of information that constantly flows into the mediums best suited to communicate that value. Once value has found an improved medium, that medium begins to dominate, and the previous medium becomes obsolete. Where is gold? Sitting in vaults. Where is cash? Held stagnant in banks. Where is electronic cash? Moving at the speed of light all across the Earth at all moments in time. Even when people are transacting face-to-face, the transaction is most likely routed through the internet from one bank account to another. The internet is now the dominant medium of transferring value from one party to another.

Cryptocurrency allows improved consensus

Where is Cryptocurrency? Wherever there is Internet. The Internet is the host of the largest, most efficient marketplace on earth. No one needs permission to use cryptocurrencies since they are simply digitized data that is transacted on a protocol accessible to everyone. The barrier to entry is as low as it gets.

The issue of participation barriers is particularly important in the developing world. There are only a few banks per hundreds of thousands of people in Africa; marketplaces are therefore not able to extend their reach across a substantial population of the continent. However, Internet cafes and computer centers are the norm for even the smallest of villages in the developing world. Indeed, Internet is often orders of magnitude more available than clean water in these areas. If individuals have access to the Internet, they will be able to access their personal ‘bank’ and therefore the World Wide Marketplace as easily as anyone in a metropolitan area in the developed world.

In addition to the low barrier of participation, Cryptocurrency also has low transaction costs. In general, transaction fees are minimal or often free. Quick, cheap transactions create a new modality of exchange and global micro-transactions can now be as easy as local micro-transactions. We have not yet seen what products and services can grow out of international micro-transactions, as this ability has only recently been unlocked. Since the average transaction that someone makes is valued at just a few dollars, we can expect this new marketplace to grow quickly and robustly, as value flows into this new realm now accessible to it.

Why are cryptocurrency transactions so inexpensive and fast? The answer is simple; cryptocurrencies allow peer-to-peer transactions. While online fiat-currency transactions go through a number of middlemen in their transaction lifespan, cryptocurrency transactions go through only a decentralized network, where the fee size is the minimum amount needed for the upkeep of the network. There is no single middleman; the job is outsourced and divided among thousands of different micro-middlemen, who process transactions quickly and fairly. The end result is peer-to-peer instantaneous transactions, with no third-party risk and minimal fees. Furthermore, some cryptocurrency projects like Iota and Nano allow for a transactor to do their own validation process, which replaces the microfee with a small amount of computing power, creating a truly feeless transaction. Watching the development of feeless cryptocurrencies will certainly be an interesting story in the world of cryptocurrency.

Like the Internet, cryptocurrencies are not constrained by barriers of distance or culture. Cryptocurrencies do not know what country they are being used in and therefore treat all users equally. With cryptocurrency, the difficulty arriving at value consensus caused by different currencies is eliminated. All humans connected to the Internet have a common medium of exchange. It is the great unifier. With the advent of cryptocurrencies, the fragmented fiat marketplaces on the Internet now have the medium necessary to coalesce into a universally available, quick, efficient, and secure marketplace.

Throughout human history, we have seen trade provide motivation for peaceful exchange. Expanding empires with new laws of consensus and their insatiable desire for maximal control have caused rifts and strife as they expand. However, the turbulence caused by mixing cultures tends to be mitigated by the equilibrium necessary for intra-empire trade. Cryptocurrency allows the parameters of cross-cultural trade to be extended beyond the historical limitations created by language and communication barriers. Suddenly, a Brazilian and Israeli are able to transact as easily as two Wall Street brokers standing next to each other.

If trade is ubiquitous, maximum consensus can be achieved. The instability caused by rapid globalism has created a need for an expanded marketplace, and Cryptocurrency fills that void. This new marketplace is capable of spanning borders, identities, cultures, and value systems. It has the capacity to be the great unifier by bringing together individuals who might find consensus in no other arena outside this amazing marketplace.