aa r X i v : . [ c s . C Y ] A ug Karl Marx and the Blockchain
Devraj Basu , Murdoch J. Gabbay Strathclyde University, Scotland, UK Heriot-Watt University, Scotland, UK
Consider Blockchain.In 1991 it was just a research idea [5], which was commercialised as a digitaltimestamping service called
Surety in 1995. In 2008 a design for a cryptocur-rency called Bitcoin was introduced by Satoshi Nakamoto (an alias); it went livein January 2009.On 10 October 2010 Bitcoin traded at 10 cents / bitcoin. By 29 February2011 it was at 1 USD / Bitcoin. By 1 April 2013 it reached 100 USD / Bitcoin.Bitcoin scraped 1000 USD / Bitcoin at the end of 2013, fell back, but thenrallied and reached 19,783 USD / Bitcoin on 17 December 2017. Unsurprisinglythere came a crash — but Bitcoin was not wiped out and its reputation was notutterly destroyed: it survived and at time of writing, Bitcoin trades at around10,000 USD / bitcoin (for a trading volume of roughly ten million transactionsper month). That is a 100,000-fold increase in value in ten years.It’s not just as a store of value that Blockchain technology has shown re-silience; it has shown real influence. Innumerable elaborations on the underlyingideas have been spun off. Some are foolish; some are fraudulent; some are sen-sible. However, it is clear that at the time of writing the world is awash with asoup of cryptocurrency-related businesses, startups, research projects, and ini-tiatives. And more generally — since a cryptocurrency is just a special instanceof a distributed ledger — the cryptocurrency soup is just one well-known eddyin a cauldron of blockchain-based distributed ledger ideas.Our question is: why?This is not to ask just why blockchain has seen growth and resilience —though this is part of the question. Our question is: why has blockchain-basedtech in particular seen this interest?There is no shortage of plausible future tech: biotech, fintech (financial tech-nology), quantum tech, 3-D printing tech, battery tech, space tech, renewableenergy tech, machine learning tech . . . and so forth. It is unclear that blockchaintechnology will be more important for human progress, or offer a clearly betterROI, than (say) biotech, fintech, or machine learning. Indeed these are all expe-riencing their own booms — and deservedly so, because they have a pedigree ofdelivering concrete benefits and profits.What does blockchain have, that (for instance) machine learning does not? It’s still running. Devraj Basu, Murdoch J. Gabbay
A word on terminology:
We may use the terms blockchain and distributed ledgertechnology (DLT) interchangeably, but in fact they mean slightly different things: – a blockchain is a (usually distributed, usually cryptographically assured)chain of blocks (the technical term is Merkle tree ), whereas – a distributed ledger is a database that exists on (i.e. is distributed over)multiple locations (but not necessarily secured on an actual blockchain).So technically, the git version management system is a blockchain, and a RAID1 hard drive array is a distributed ledger. In practice, the terms blockchain andDLT are used to refer to a cryptographically secured block-structured distributedledger, usually with some element of peer-to-peer communication and consensus.If we write ‘blockchain’ or ‘DLT’, we mean one of them — along with a generalhint that DLT is intended in a slightly more general sense than blockchain. A cryptocurrency is then a currency whose ownership ledger is distributed on acryptographically secured blockchain. Blockchain has a history of error, fraud, and incompetence so outrageous thateven for the cynical reader it is worth recalling a selection of examples: – Bitomat kept its wallet on an ephemeral Amazon EC2 server. Being‘ephemeral’ meant that when the server restarted, it would restart withempty discs. They restarted the server. 17,000 BTC got wiped. – Bitcoinia was a 16-year old’s first serious PHP project. It quickly gothacked, and because the admin had reused their password on other securesites, this led to a wave of further hacks. 18,547 BTC lost. – – AllCrypt was run on a MySQL server that also ran WordPress. Thisis the security equivalent of building a bomb shelter with patio doors. It didnot end well. – Loanbase did the same thing. – Zerocoin had a basic error in its code; == (is equal to) instead of = (make equal to). Coins could be spent twice, and were. – QuadrigaCX founder Gerald Cotten died (or possibly absconded),leaving his laptop with 190 million USD in crypto assets locked under apassword that only he knew.
The list above, tragicomic as it is, cautions against dismissing the interest inblockchain tech as a mere mania. Yes it is a mania, and full of fools, but if thiswere only about manic foolishness then presumably — after ten years’ nonsense Thanks to [4, page 36] for collecting many of these examples.arl Marx and the Blockchain 3 like the above — the field would fall into disrepute and the fools would move onto the next thing. Instead, interest in DLT has only increased. After each disaster the investorspiled back in, with renewed determination. Blockchain projects have multipliedand the headline value of Bitcoin has failed to go down the drain.Yet we struggle to find use cases for DLT on a scale to justify such optimism.This is not to say that potential use cases are inconceivable or elusive: on thecontrary, plausible potential use cases abound. What is difficult, even today, isto find proven use cases.In fact there are only two cardinal successes so far, and both are cryptocur-rencies: Bitcoin, and Ethereum. In terms of demonstrated usefulness and func-tionality, Bitcoin and Ethereum are of interest only as stores of value. This is a circular and self-referential answer to the question of why DLT hasvalue: Bitcoin and Ether have value because everyone agrees they have value.While perhaps satisfactory for an investor, it does not address the fundamentalacademic question of why .At this point we should perhaps mention that we make no claim that DLTcannot create value, have applications, and demonstrate fundamental ROI be-yond Bitcoin and Ethereum as a store of value.But the intensity and persistence of the mania surrounding this technology,are striking: a technology with no use cases aside from itself, and with a ten-year history of abject failure, corruption, and people getting fleeced, refuses todie and instead stimulates continued interest and investment. Investors have not(all) moved on to the next fad. Researchers (including the authors) remain activein the sector. Businesses display patience and continued interest.Why?
To try and arrive at a fresh understanding of what is happening, we will considersome economic and political theory, and a little history. The honest and competent operator will find that it is technically very difficult todeliver blockchain safely and usefully to end users (so while carefully trying to do so,risks being shoved aside and crowded out by dishonest, incompetent ones). Thereare deep reasons for this, which we discuss in Subsections 8.1 and 8.2. Apologies to the cryptocurrencies we left out. At time of writing, Ether’s marketcapitalisation is a tenth that of Bitcoin and it is the largest of the so-called altcoins (crypto other than Bitcoin; Ripple is next, with a twentieth). We mention Ethereumin particular because of its widespread cultural influence, due to its adoption andits emphasis on smart contracts, which has sparked many projects and elaborations. . . . . . but smart contracts, while interesting (especially to a logician/programmer, suchas the second author) are not yet a proven functionality. They deserve their ownessay which we leave for future work. Devraj Basu, Murdoch J. Gabbay Karl Marx was an economist, political theorist, and socialist revolutionary. The first two aspects of his work interest us most here.In Marx’s seminal essay
Wage Labour and Capital ( Lohnarbeit und Kapital )of 1849 [6], Marx defined a factor of production as a unit in an economy [15]. Heidentified Labour and Capital as two major factors of production: – Labour is work: digging ditches, childcare, writing articles, teaching, consul-tancy, and so forth. – Capital is assets: buildings, tools, factories, dollars, bitcoin, rights (such ascopyright or land rights), and so forth.Marx observed that Labour and Capital are fundamentally in opposition: – Labour wants labour to be expensive and assets to be cheap. – Capital wants labour to be cheap and assets to be expensive.This is a simple but not trivial observation: that there is a chain to creatingvalue, and each party in the value chain has an incentive to maximise theirbenefit.For society to function, these imperatives must find an equilibrium: – Labour — meaning people who work — must be paid enough to invest inthemselves and their families.If this were not to happen then society would implode, because nobodywould have money to buy capital items, pay for services, and nurture thenext generation of educated and productive citizens. – Capital — meaning people who own stuff — must be paid enough thatowning and maintaining stuff is worthwhile.If this were not to happen then society would implode, because nobody wouldhave an incentive to take care of things, nor invest in the future to maintainand develop the tools, tangible and intangible, which humans need.Marx’s basic argument was that this equilibrium is unstable and unsustainable: – Competition would lead to increases in worker efficiency. – For an individual worker, greater efficiency is generally good — an internetconnection, for instance, helps these authors to efficiently research and teach.This is a good thing, which e.g. the authors’ students value, and the authors’university employers can monetise. – However, for the system as a functioning whole the effects need not neces-sarily be so positive: if we can obtain the same productive output from fewerworkers, then the value of work overall may drop, unless more work can beinvented. US lay readers please note: in Europe, ‘socialist’ is not an insult and may even be acompliment.arl Marx and the Blockchain 5
In Marx’s day, ‘work’ meant digging ditches (to put it crudely). But, the worldonly needs so many ditches. Therefore, if e.g. thanks to a mechanical diggerthe same number of ditches can be dug by 10% of the workforce, and supposealso that with new teaching technology universities can teach the same numberof students with 10% of the professors — then 90% of this workforce becomesredundant. This is not just in terms of a particular individual no longer having aspecific employment, but in terms of the systemic economic relevance of includingworking people in the system.They are not needed; and things that are not economically needed, haveno economic value. Even if we put on our callous capitalist hats and set asidethe inhumanity and social damage of the unemployment experience, this alsodestroys the value of capital itself: because, if the people are not needed, thenneither are the capital assets to maintain them as humans.Thus if the value of labour collapses, then so does the value of capital, andMarx’s analysis of the system as a whole, viewed as an economic machine inhab-ited by humans, is that it will increase in efficiency, shed labour, shed capital,implode, and collapse.In short: Marx’s observation was that the capitalist system, in and of itselfand even taken purely in terms of its own internal logic, is unstable and inherentlyself-contradictory.The historical record is unclear whether he was right. Capitalism has notcollapsed yet, but that does not mean it won’t. We certainly have no grounds tobe smug. We will argue that in a sense, the remarkable recent persistence of interestin DLT reflects an awareness of, and is a response to, the problems describedabove; but we are not yet ready to describe how. First, we must survey somerecent economic history.
A simple test to see where the balance of power lies between Labour and Capitalis to look at inflation: – If inflation is high, Labour is powerful and can command ever greater wages. – If inflation is low, Capital is powerful and can hold wages down.From a perspective of Marxian economics, inflation is quite a reliable indicatorof the balance of power between Labour and Capital. If this balance of power It would be unfair to fault Marx for failing to anticipate the digital economy. Moreon this in Section 8. . . . but not serving them; we have our callous capitalist hats on here, for the sake ofthis argument . . . At this point this article could suggest that a more socially conscious and humaneeconomic system might also be a more stable and sustainable one. This suggestionis reasonable and worth exploring (and has been explored by other authors [7]) —but not in this essay. We need to follow a different thread. Devraj Basu, Murdoch J. Gabbay shifts too far in one direction or another, central banks can try to manipulate theresulting inflation, or lack of it, by controlling the money supply. However, sincethe financial crisis of 2008, attempts to create inflation have been ineffective —which suggests that the traditional (monetarist) view of inflation may not be soapplicable to a world with globalised finance and supply chains [3]. With this test in mind, we will sketch the context of the current interest inblockchain tech, by looking at the broad sweep of inflation over the past eightyyears since the end of the Second World War. We will split this into three eras: – Era 1, 1945–1979: from the end of the Second World War to the elections ofMargaret Thatcher (1979-1990) and Ronald Regan (1981-1989). – Era 2, 1979–2008: from the Thatcher/Regan era and the corollary adminis-trations which followed, through to the 2008 financial crisis. – Era 3, 2008–today: the reality our teenage University students enter as work-ing adults.In 1945 both Labour and Capital were significantly depleted after the disastersof the first half of the 20th century. Social solidarity in their wake was high, andit was agreed that both Labour and Capital required investment.Capital was scarce, but Labour was in even greater demand because: – labour is required to produce capital, but capital is not required to producelabour, and – with depleted capital, labour was relatively unproductive and therefore moreof it was required.The 1950s and 1960s were good times to be at work, and because there was plentyof demand for labour to go around, workers could build capital and increaseefficiency and see this reflected in rising paycheques.And, it is not just about wages: society valued Labour and was willing tospeculatively invest in skills and education. For instance, the Servicemen’s Read-justment Act of 1944 (the G.I. Bill) was described as a reward for war service —which it was — but its deeper meaning was an investment in labour skills and ed-ucation (for example, free university education). Another influential example ofpost-war investment in Labour has been the UK’s Open University (1969), whichhas inspired open universities in many other countries, e.g. in Israel (1974) [13].Jumping ahead just for this paragraph from the US in 1944 to the UK in1998 (in the middle of our Era 2 above): university education, which until thenhad been free, became not-free as tuition fees were introduced. These weremodest at first but the precendent had been set and fees rose to a maximum of So that’s two things a capitalist’s money can’t buy: love, and inflation. This analysis is US/UK-centric, which is a simplification but a reasonable one, be-cause the dollar is the world’s currency and because thus far the main drivers ofblockchain technology have also been US/UK-centric. Raising children is necessarily labour-intensive, but not necessarily capital-intensive. . . . by a UK Labour government, we might add.arl Marx and the Blockchain 7 In the 1970s something changed: wages stopped rising. This was a decade ofstrikes; Marx would say that productivity gains had finally started to eat intothe value of Labour. Fewer workers were required, but they continued demandingthe wage increases of previous decades, but now, just as Marx predicted, Labourlacked its old leverage. Social unrest followed.Something had to give, and between 1979 and 1981 the balance of powerswung to Capital — which was terrified of inflation, this being one thing thatcan really eat into the value of a capital asset.An ideology was required to justify the falling value of work and workers,and this was promoted as individualism . Exaggerated symbols of independencedeveloped, such as Madonna’s
Material Girl and Aronold Schwartzenegger’sbody. These myths were of people who didn’t need anybody’s help and werestrong and rich and successful because of it; and they were held up as iconsof a new capitalism. But the actual effect was to break the power of Labour,since if everybody is in it for themselves, then they are not in it for one anotherand they can therefore collectively be exploited more, paid less, and/or fired —and, as per the ideology, it’s their own fault for not working hard enough, notbeing entrepreneurial enough, and not wanting it enough. The Thatcher-eraright-to-buy of council properties [8] was part of this too: making it possible for This is in England. Scotland has no tuition fees. To be clear, Thatcher and Regan were trying to solve real problems. Labour was worth less; the strikes could not continue; and something did need to be done.However, the human cost of the adjustments was lasting and non-negligible, andthis cost fell mostly on Labour instead of Capital. The way the ideology blamed itsvictims for their victimhood, was as elegant as it was cruel, and the repercussionsand costs of this injury and insult resonate to this day — and not only for Labour:once asset ownership was more important for income than the labour contributed,this devalued the caring professions like childminders, doctors, and nurses. Nowthe coronavirus pandemic (which flared up during the preparation of this article)has thrown a particularly graphic light on how professions that are economicallyirrelevant as measured by GDP, can become a matter of life and death, and howeven if we only care about GDP, failing to account for the value network in whichthat one economic measure is embedded can become self-defeating.In retrospect one could certainly try to devise exits from the 1970s situation whichin the long term might have been more equitable and economically beneficial.This concern is relevant today because we are now seeing elements of the strategyreplayed; e.g. with the so-called gig economy , and individualistic slogans such as bethe CEO of you . These are not necessarily all bad — a gig may be a welcome earner Devraj Basu, Murdoch J. Gabbay workers to take ownership of their homes turned them into holders of capital,and thus gave them a stake in the new system.Over the following thirty years to 2008, the value of capital shot up. Inretrospect we see that this postponed the problem but it did not solve it, andthe financial crash of 2008 was of a piece with the strikes of the 1970s: – In the 1970s the return on investment in Labour either flattened out orbecame self-defeating. In a rush to maintain returns the system becameunstable. With Labour weakened and discredited, political power shifted toCapital. – In the 2000s a similar process took place with Capital; the return on in-vestment in capital flattened out or became self-defeating, and in a rush tomaintain returns, the system became unstable — the precise mechanism wasthat Capital borrowed money and leveraged it, but the deeper driver herewas that Capital had run out of ways to earn real returns, and so it inventedimaginary ones.We now see the problem: where can the pendulum swing next?
When society is in difficulty, people can either be realistic and analytic abouttheir difficulties . . . or they can look to vivid fantasies of escape. These fantasiesare quite revealing: – Go back to the 50s and 60s!
White men were real Men, the world was ruledby Christians, and women and children and black people knew their place.Much of current US politics has retreated to this space. – Go back to the 70s!
Workers united to face down evil capitalists. Yes, itdidn’t come out so well for the workers then, but this time will be different.This current has not met with electoral success in either the US or theUK, though it may remain relevant as a pigeonhole into which to stereotypeproponents of a more socially conscious capitalism. – Go back to the 80s!
This is like going back to the 50s and 60s, but with moretech and funkier suits.Baby-boomers are particularly prone to this fantasy, because the 80s weregood to them, especially if they bought property. – Anarchy and authoritarianism are all jumbled up in a single item of politicalopportunism.This would be amusing, were it not for the election of so many outrageouslyunfit politicians in 2016-2018, along with an enabling retinue of crooks, fa-natics, and thieves, all anxious to carve up what is left of the pie before (theyfear) the music will finally stop. for e.g. an individual with some energy and free time — but we have seen in ourlifetime what the systemic consequences can be of promoting as a cool lifestyle choicea business model that is great for Capital and terrible for Labour, and can thereforenot claim ignorance this time around.arl Marx and the Blockchain 9 – Zoom to the future, usually with new tech — like in Star Trek!
But perhapswithout the aliens, or the warp drive, but the point is: tech will solve ourproblems. The dreams of blockchain lie here. Viewed in context as an escapist fantasy,they are not clearly more dangerous than the alternatives — and at least asa fantasy it is forward- rather than backward-looking, which matters.It is now important to appreciate that blockchain is not just any old techno-utopian escapist fantasy. It is also a concrete technology, with specific technicalqualities, which make certain promises, not all of which are unreasonable.Consider what Labour and Capital most fear: – Labour worries that resources will continue to be co-opted by Capital. Thisis valid since it has been a pattern for the past forty years — that is, wealthinequality has trended up [10,12]. Most recently the US leaned shamelesslyinto this with the Tax Cuts and Jobs Act (TCJA) of 2017, in which wealthyAmericans essentially agreed to cut taxes on the wealthy and thus allocatemore of the pie to themselves. – Capital worries that Labour, fed up with stagnant wages and aggravated byregressive taxation and lagging and biased social investment, may decide thegame is hopelessly rigged and rise up and confiscate assets — either throughprogressive taxes and political reform; or through theft and destruction. Or,perhaps a corrupt government will take advantage of social instability andloss of legitimacy to concentrate wealth in a new elite, as has happened inhistory before. These fears too are reasonable. – Both Labour and Capital, again with good reason, fear a currency collapsewhose real costs they may be unable to avoid, or inflict upon somebody else.Here, Bitcoin makes some relevant promises: in particular, it promises anonymityand independence from government. Thus: – Labour projects onto this an ideal of a libertarian currency that is accessibleto all, cannot be coopted, and (implicitly) promises financial independencefrom a corrupted and discredited elite. – Capital projects onto this an ideal of a stable and secure asset that cannotbe inflated away or confiscated by a vengeful mob come to grab their share. – Both Labour and Capital like the idea that Bitcoin cannot be inflated away.One Bitcoin will still be one Bitcoin tomorrow . . . whereas a dollar may beworth only fifty cents.
In fact, Bitcoin is not anonymous [1], patterns of Bitcoin ownership resemblethose of other capital assets [9], and Bitcoin is volatile, liable to theft, and difficultto transact in. Marx would have countered that tech is the problem. We return to this in Section 8.1. It is pseudonymous, which sounds like ‘anonymous’ but means something quite dif-ferent.0 Devraj Basu, Murdoch J. Gabbay
However fiat currencies share many of the same features: they can also benot anonymous, unevenly distributed, volatile, and liable to theft. Libertariansparticularly emphasise here institutional theft by inflation — it is unclear howrampant theft of cryptocurrencies by hackers is any better, but at least it’s notby a government . As Satoshi wrote:
The root problem with conventional currency is all the trust thats requiredto make it work. The central bank must be trusted not to debase thecurrency, but the history of fiat currencies is full of breaches of thattrust.
So in relative terms Bitcoin may not seem that bad, and in any case the utopian promise is there, even if the reality has not caught up just yet.And here is why cryptocurrencies have captured the collective imagination.It is not just that we live in uncertain times. There seems a sense in whichwe may be at the end of an economic arc, which started in 1945, inflected in1979, and has reached some endpoint since 2008, where increases in productivityof Labour and Capital have stalled or become counter-productive at the sametime .There seems nowhere to turn, the system is wobbling, and the key componentof trust in that system, is ebbing away.If so, then this is an arc which Marx predicted. The endpoint of his predictionwas a social collapse which may yet happen, and (so the fear) we may be trappedon this trajectory by an economic logic which we struggle to escape.Fantasies of escape to a golden age are obvious nonsense, and even their pro-ponents, wilfully blind as they may be, are aware of this at some level, whichaccounts for the stridency of much of current politics. Next to this, cryptocur-rencies promise a way out which is not obviously any more crazy than anythingelse, and this is why Bitcoin has bounced back from one disaster after another,and why research and investment continue to flow to blockchain tech, trying tomake it work.Yes, many of the other techs from Section 1 have proven capable of generatingROI within the current system — but as Marx argued, beyond a certain pointjust increasing the productivity of individual components in an economy doesnot necessarily make the economic system as a whole stable or more productive,so just delivering ROI does not in itself address the deeper worry.What no tech can currently promise is an escape from this contradiction,which Marx observed embedded in the system itself — no tech, that is, exceptfor blockchain. That promise, however tenuous, is specific to our time.The problem is, blockchain technology does not actually deliver. It is, fornow, mostly vapourware (cf. the discussion in Section 3).So in summary so far: we have argued that blockchain promises, but does notyet deliver, a modern technological fix to a specific social and economic problemwhich was predicted by Karl Marx back in 1849 and which, arguably, the worldeconomy has been stuck in for the decade since 2008. arl Marx and the Blockchain 11
We will argue next that since Marx’s time there have been two developmentswhich he could not have forseen and which may have modified the rules of thegame: – The rise of the digital economy, and specifically of intangible assets that canbe infinitely copied at near-zero cost, and which must therefore be protectedby copyright. – The rise of Data as a new factor of production.We will discuss the technology first.
For Marx, technology was as much a problem as a solution. As discussed, itincreases worker efficiency to the point that having workers becomes systemicallyunnecessary, so that capital becomes unnecessary, so that the economic systemimplodes.On the face of it the digital economy makes this worse than Marx couldhave imagined. Moving electrons around is extremely low cost; it is no harder tomake a million copies of a program than one. A small number of good program-mers can move many electrons, and one reason for the concentrations of wealthwhich we have seen is surely just down to social policy failing to distribute theexceptional productivity of computer programs.A concrete example gives a feel for the numbers that can be at play: in 2017Facebook bought WhatsApp for 19 billion USD. At the time, WhatsApp had55 employees. Some of this money was set against projected future earnings,but the fact remains that on a per-capita basis, the market judged that eachWhatsApp employee had created 350 million USD in current or future value.For this reason Capital loves the digital economy. Once you have copyrightcontrol of a program or film, or a patent, you have an economic perpetual motionmachine and need do little more than sit back and rake in the profits. Labouris effectively removed from the equation — aside from perhaps having to feedand clothe the families of no more than 55 programmers.Labour also loves the digital economy. It brings comfort and increased pro-ductivity — provided you have the necessary skills, of course. If not, you mayhave a problem. Microsoft, Apple, Amazon, and Alphabet were worth roughly 1 trillion USD each inJanuary 2020, and Alibaba, Facebook, and Tencent about half a trillion USD [14].That really is a lot of money. Copyright trolls practice the purest form of this business model, incurring just thefixed costs to acquire the patent and then enjoying very low marginal costs. Thisimpressively combines being a malevolent and parasitic modern piracy, with beingan elegant distillation of an essential truth of the digital economy. . . . and so may society. We still need waiters, nurses, teachers, and childminders. Theproblem is figuring how to pay them, which was part of Marx’s critique.2 Devraj Basu, Murdoch J. Gabbay ‘Technology’ however is a broad term, and blockchain tech has some quiteunusual features which may not be generally appreciated.Let us look at the core technology that had to be harnessed in order tostart off the revenue streams of some companies that are now worth hundredsof billions of USD: – Facebook is fundamentally based on a labelled graph.
Graph here is in themathematical sense of a connected object with nodes (dots) joined by edges(lines); a Facebook landing page, with icons of people on a map of the worldand connected by lines, sums it up.The mathematical notion of graph is a first-year undergraduate topic: it isnot hard. – The Google pagerank algorithm is, fundamentally, an advanced undergrad-uate project or perhaps early-stage PhD. – Amazon is ‘just’ a database, and MS-Dos, Windows, and MS Word are fairlysimple programs.This is not to say that Facebook, Google, Amazon, and Microsoft are basedon simple systems; on the contrary, scaling up from the initial product to theworldwide firms we know today is technically very complex.Nor is this to say that creating such companies was simple and easy. Far fromit; there were more failures than successes.Our point is that, if we assume the course is set, the winning formula found,and that whatever wisdom or luck that was required has been added to the mix— in other words, if we assume we have won this particular lottery — then thefundamental conceptual requirements of getting the tech started, were not great.Contrast this with for example ARM, Intel, and Airbus. The tech required tofabricate chips or aircraft is rocket-scientist level from the start; it requires spe-cialists with years of training, and specialist managers able to manage them andif things go wrong then people get very excited and have government inquiries. To put it another way: you can’t start a chip fabrication business in yourgarage, but you can start a trillion dollar software company — or at least, youcould ten or fifteen years ago (nowadays the incumbents would buy you up orcrowd you out, but that is a different debate).Blockchain in its infancy is more like Airbus than Amazon. To start a rev-enue stream based on DLT requires expertise, research, and special managementwhich simply has not yet been assembled in the sector. Consider that a com-pany wishing to generate a revenue stream from a cryptocurrency product mustcommit to solving mathematical problems that are: – fundamentally hard, – in a safety-critical context, – for consumer use. Yes, the Wright brothers worked out of a bicycle shop, but that was over a hundredyears ago and they were aiming for a prototype plane, not a socially transformativeglobal cryptocurrency. The two things are different.arl Marx and the Blockchain 13
It is ambitious, and may be impossible, to satisfy all three of these criteriasimultaneously in an initial product .Part of the difficulty is that this requires specialised programmers and math-ematicians to invent and implement a new body of mathematics, but also, itrequires processes and qualified managers who do not exist yet because the fieldhas not matured; potential regulatory changes to provide a legal framework intowhich users can escape if and when things go wrong (because they always do);and a programme of public education to educate a population who (as a generalbody) may still be storing their PaS5w0rds on post-it notes stuck to the monitor.
Based on the analysis above, we would like to offer a prediction, just for the sakeof argument.The killer apps and real impact of blockchain will not appear first as front-endconsumer applications. They will appear in backend applications, developedby large institutions (banks, or logistics companies, or large tech companies) forinternal use or for use with their institutional peers.These will be organisations with deep pockets and long experience of manag-ing extreme complexity, who can afford to engage (and if necessary to create) asmall army of highly-specialised programmers, lawyers, computer scientists, andmathematicians to develop a product that requires a PhD just to switch it onsafely.In other words: in spite of the success of Bitcoin we predict that blockchaintech will behave economically more like rocket science, and less like cash, andwill democratise only later, if at all.
On the face of it, Data is just an asset. By this view, owning data is like owningany other capital asset.However, Data has the potential to become a factor of production in its ownright; an actor on a level with or even ruling over Labour and Capital.What is the difference? In practice, we propose that the difference betweenan asset class and a factor of production is that the former only demands mainte-nance, whereas the latter tends to actively pull itself together into a self-servingentity: – Labour is people. People flow together because humans are social. – Capital is ownership of things. Things demand care to remain operational,increase in value, and not be stolen. This gives holders of capital as a groupan incentive to flow together to cooperate and protect their wealth. This is not to say that consumer applications will not exist; just that they will bemade for the sake of it and not actually be that important, except perhaps for publiceducation and diffusion of the ideas.4 Devraj Basu, Murdoch J. Gabbay – Data in its modern forms, looks like an asset for input e.g. to machine learn-ing and AI algorithms, but it is not just that: Data requires curation toharvest and clean it, infrastructure to process it, and it displays potent net-working effects; a database that is twice as large is (crudely put) four timesas useful. These properties give data a form; it tends to want to flow togetherinto a single entity, just like Labour and Capital do.It will be a social and regulatory question whether Data becomes a capital asset,or a factor of production on a par with Labour and Capital, and if the latter,whether it will be an equal, a subordinate, or the master of Labour and Capital.This is relevant to our Marxian analysis because it is one pertinent way inwhich the world which Marx was thinking in, differs substantively from the worldwhich we now inhabit. There may be a new actor in the drama, and how theycould influence the story is not yet understood. We leave a fuller analysis tofuture work.
If Marx were around today, we suspect he would have liked crypto, at least inprinciple. The promise of Bitcoin to allow Labour to mine coin and thus takecontrol of the means of production of what one might call cryptocapital , is arelevant and clearly Marxian dream — though sadly it is only a dream. By looking at the world as Marx did in 1849, we have obtained an analysis ofwhy blockchain tech has been so uniquely resilient in 2008-2020, and what it re-ally promises for the future: namely, an escape from Marx’s logical contradictionas outlined in Section 4.We can now turn to a natural corollary question: could Blockchain actuallysave us from the trap that Marx identified? Perhaps.In Blockchain’s favour, it does not generally destroy jobs, and it renewsincentives to invest in Labour, because designing, implementing, and managingthese systems is skilled work, in highly specific ways.Making blockchain-related technologies work implies significant investmentin logic and formal methods; tens and perhaps hundreds of thousands of highly-qualified programming and management jobs; the democratisation of high-level, The actions of the US Federal Reserve in the coronavirus pandemic have remindedus how the means of production of capital in the US (and thus in the world) areoperated to serve an oligarchic elite. It would not be prudent to stake one’s life andlivelihood on an expectation that Capital will share the pie, because it won’t. Mining Bitcoin has long ceased to be democratic; most is now mined in huge cen-tralised ‘Bitcoin farms’, or by distributed malware.For the record: Bitcoin is a proof-of-work system (proof-of-stake is inherentlydifferent). The industry is aware of this issue and attempts are being made to designcryptocurrencies that do not reward centralisation so much. (If the reader has triedto buy a graphics card in the past five years, that price spike you may have noticedwas due to crypto mining — and now graphics cards are used for AI. But we digress.) This is the second author’s professional specialisation.arl Marx and the Blockchain 15 high-assurance programming languages and the skills to use them; much workin communication and education; entire new areas of mathematical research,regulation, and legal specialisation; and arguably, the rise of a new breed ofhyper-technical companies employing programmers with skills that are currentlyexpected only of the highest-level graduates. In other words, Blockchain meansemployment, innovation, and investment in skills, and this will increase the valueof Labour.Importantly, Blockchain is at the same time creating capital, albeit of kindsnot seen before — including but not restricted to Bitcoin. This may relievesome of the tension between Labour and Capital which (by our analysis) has sodestabilised the world for the past ten years. It is worth pausing to compare and contrast the profile of blockchain tech withthat of machine learning / AI tech, which at first glance appears similar in that itis also very mathematical and computer-intensive. It too requires highly qualifiedlabour, though perhaps not as much of it. However: the underlying technologydoes not need to be democratised in quite the same way; its incentive is to resistrather than promote the creation of legal frameworks (which increase costs);and its raw input capital is Data (often from surveillance capitalism) whichis harvested , not built . In short: there is a possible incarnation of blockchaintech, if it is ever created, which will want a community of active and informedcitizens using and innovating with its products to create economic output whileprotected by well-considered legislative frameworks — whereas machine learningseems to want to harvest data from a herd of humanity which uses its productsvia controlled portals in de facto walled gardens, while operating in a legal voidexcept for those laws required to protect the incumbents’ datasets and IP. So, it may be that working towards even a fantasy of a blockchain-basedsolution to the stagnation since 2008, may in itself usefully help to escape it —regardless of whether it actually works for the purposes originally intended. Ata human and social level, that would be good enough. A remarkable confluence of technologies is necessary for blockchain to work,including: cryptography, computer science, mathematics, law, communicationsinfrastructure, and public education. To be useful this combination must diffuseand democratise, and it is impossible to predict the effects this will have — not Thanks to the reader who astutely pointed out that Marx might say here that thiscan only be temporary. No doubt, but a breathing space is still space to breath, andall other things being equal, a technology that promises to create both labour andcapital is better than one that does not. This is not to say that machine learning and AI are bad — just that it is not thecase that all tech is the same, just because it’s tech. Each technology has its owncharacter, and the gist of this article is an analysis of the specifics of Blockchain techthrough a lens of Marx’s theories. A related discussion of blockchain as a convening technology (in the music industry)is in [2] — meaning a technology which may or may not actually work on a technicallevel but which serves to “galvanize goodwill and to imagine a specific shared poten-tial future, together with implications that have value beyond any ultimate successof the technology around which they convene”.6 Devraj Basu, Murdoch J. Gabbay just on society, but on the technology as well. As blockchain spreads, it willevolve.To democratise and diffuse, this technology will require a broad coalition:from a pair of professors writing in Scotland to an Ethiopian coffee farmer; allparties will be trying to solve their own individual problems, and if the tech isto be truly useful it will need to assume different yet compatible forms, workingwithin sensible social and legal structures yet to be devised. This democratisationand diffusion is likely to change the tech beyond recognition, and what startedas a techno-utopian dream may transition to be the backend of a bank, and thengo elsewhere and assume forms that we would hardly recognise. One thing that seems likely — and of which we hope that Marx would approve— is that if we can make this happen, then it will require a lot of work, and alot of infrastructure. That would be Labour and Capital working together again— and that, in and of itself, would be cause for hope.
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