This is the second in a multi-part series (part 1 here) on what I predict will be one of the most important technological trends of 2015, the decentralization revolution. By creating a way for the transfer of value to be performed over a trustless distributed network Bitcoin has already changed the world but Bitcoin is only the tip of the decentralization iceberg.

———————–

What is power?

Physics gives us a simple definition of power as a measure of the rate of doing work. For example, when you turn on your microwave a certain amount of energy is being transferred directly into the molecules of that delicious pizza pocket. The rate at which energy can be transferred into the food would be the measure of power for your microwave, usually around 1000-1500 Watts (or 1-1.5 kilowatts). Power can similarly be measured for anything: where your microwave produces about 1kW of power, an average American vehicle delivers up to ~150kW of power, an industrial wind turbine generates ~1000-5000 kW (or 1-5 megawatts), and a nuclear power plant delivers ~1-5 million kW (or 1-5 gigawatts).

This definition of power seems different from our more general use of the term when we talk about how powerful an individual or organization is. This kind of interpersonal power refers to the ability of an entity (such as an idea, a person, or an organization) to wield influence over people and affect the political or economic course of events. Perhaps though, these two definitions of power are not so far apart as they might seem, just as the power of an electrical plant is defined by how much work can be done using its energy output we can define interpersonal power (and by extension social, economic and political power) as the influence that an entity can have on how people expend their energy in the world.

The power an idea has over me is defined by how strong an influence that idea has in my thinking and thus how I act and expend energy in the world. For instance, I have a very strong belief and experience that two solid objects will exert force on eachother, thus I could predict that a moving baseball bat is really going to hurt if it hits me and I will move to avoid it.

Deep-seeded ideas like object-object interaction can be arrived at through direct observation of the world, but direct interaction is not the only route for ideas into the human brain. Many of our ideas about the world are instead downloaded into the brain as ideas transferred from people we trust. Trust allows us to outsource our cognitive analysis of the world, and thus understand much more than can be learned through direct interaction.

Trust is how we make predictions in a world that is too big and complicated for one person to understand.

We can place in trust in anything: people, ideas, institutions etc. It is where we invest this trust that determines how we will behave in the world. From the time we are born, we must trust the ability of others to provide for us and teach us about the world before we even learn to trust our own senses. This essential role of trust also continues on into adulthood; I absolutely cannot know for sure that my food which was grown by a farmer I will never meet is going to be safe to eat, but I have to trust in the natural, economic and political structures that deliver food to my plate.

It is not an idea which is easily articulated, but I think answer is clear: Trust is a necessary underpinning of the interpersonal power we have over each other.

Trust is power.

It is by gathering together our disparate threads of trust we have been able to build the societal level power structures of civilization that we see today. Through our collected trust, centralized institutions and the ideas that underpin them have amassed great power to influence how people live their lives. In the past, trust has been concentrated into many religious and governmental organizations, but today I think the dominant institution of trust is economic.

We put trust in a great many things today. Governments, laws, police, religious institutions, corporations, doctors, but these pale in comparison to our collective trust in money. No matter where your go money can make things happen, and people have a great deal of trust in that fact. More than we trust in governments or religions, we have a global trust in the power of the dollar (in whatever form) to influence the actions of people. Religious or political fundamentalists can still create a problem once and a while, but ultimately their power is still measured in dollars and cents. Any organization without means to raise funds to support their operations has little hope of accomplishing much of anything in the world today.

Collectively we believe that a dollar has value, and in turn we as individuals put our trust in that collective value. The collective trust in the dollar is so powerful that the dollar itself has actually become the dominant metric of power. The dollar is a stand-in for trust which we lean on to establish productive relationships with untrusted individuals. If you want to make me produce food for you, then you can pay me money in order to influence me to do so with relatively little trust outside of that financial arrangement.

Money is distilled trust.

The problem with the fiat dollar is that it is only as good as the institutional foundation on which it is based. Currencies are only as good as the trust in the institutions that support them, a fact that is obviously on display in the market dynamics of the foreign currency exchange.

Cryptocurrencies offer us an alternative means for establishing trust between each other, and their advantages are manyfold. Instead of being based on a fallible and corruptible system of governments and central banks, cryptocurrencies have clear rules on how value is injected into the network, how it can be transferred, and in some cases how it can be destroyed. Cryptocurrencies offer mathematical predictability.

Cryptocurrencies are also much more resistant to corruption due to a flat network topology. That is to day, that like the checks and balances that limit the power of any one individual in a government, crytocurrency networks decentralize their trust very evenly over the network.

These advantages of cryptocurrency are going to become increasingly clear as normal collapses in fiat currencies around the world, something that happens with regularity and is in no way out of the ordinary, will naturally lead people to seek alternate stores of wealth. Whether it is the Russian Ruble, the Argentinian Peso, or some other fiat currency, complex currency systems based on human control are simply too unpredictable and too corruptible to compete with the mathematical simplicity of cryptocurrency. Perhaps it will not be Bitcoin that ultimately gains marketshare as the easiest and most commonly used cryptocurrency, but some form of cryptocurrency is here to stay.

In a world where trust is power, the simplest and most reliable system to establish trust between individuals is destined to win. If fiat currency is distilled trust, then crytocurrencies are a much stronger brew.

———————————

The beauty of crytocurrency goes far beyond simply holding and transferring value. Because they exist on electronic networks, decentralized technologies will allow us to program trust into our world in a way which has not been possible before. Through things like smart contracts we can use decentralized tech to build mathematically defined structures as simple as an agreement to sell goods, to something as complicated as a government. In my next post I will discuss the exciting possibility of cryptogovernance and its potential to reinvigorate inefficient institutions.