Connect with us

Money

The Financialization of Life

Published

on

A recent article about the BlockChain appeared on the Italian version of Vice’s Motherboard and raised a series of interesting conversations, and was soon followed up by another one.

In that article I was called to express a series of opinions about what was happening with BlockChains and cryptocurrencies, from the point of view of an organization such as the one I lead (HER, Human Ecosystems Relazioni), which deals with data, complex connections between sciences, technology, society, design and art, and the social, political, cultural and psychological implications of these connections and interactions.

In my job, everyday, I deal with multiple points of view which confront with these impacts brought on by data, blockchains and cryptocurrencies, with a wide variety of subjects from hyper-technical ones, to entrepreneurs and investors, to policymakers, up to the ones beyond suspicion, “ordinary” people who have to understand what an artwork which uses the blockchain does, or who deals with culture, museums, the city’s neighborhoods. People who — whether they like it or not — have to do with these technologies and practices. A large variety.

I have the maximum respect for the blockchain. It possibly is the technology which bears the highest potential for radical innovation and transformation today. With all its limits and problems.

My critique is not technical, but psychological.

It moves across the domain of perception and of comprehension of reality.

In this domain — the one of the psychic processes which are engaged and shared by people and their relations as they interpret the world to understand how to orient themselves and how to act in it — technologies like the Blockchain are a disaster.

Why?

On the one hand, they are a very powerful agent towards the transactionalization of life, that is of the fact that all the elements of our lives are progressively turning into transactions.

Which overlaps with the fact that they become “financialized”. Everything, including our relations and emotions, progressively becomes transactionalized/financialized, and the Blockchain represent an apex of this tendency. This is already becoming a problem for informality, for the possibility of transgression, for the normation and normalization of conflicts and, thus, in prospect, for our liberties and fundamental rights, and for our possibility to perceive them (because we are talking about psychological effects).

On the other hand, they move attention onto the algorithm, on the system, on the framework. Instead of supporting and maintaining the necessity and culture of establishing co-responsibility between human beings, these systems include “trust” in procedural ways. In ways which are technical. Thus, the necessity for trust (and, thus, on the responsibility to attribute trust, based on human relations) progressively disappears.

Therefore, together with it, society disappears. Society as actively and consciously built by people who freely decide if and when to trust each other, and who collectively agree to the modalities of this attribution.

What remains is only consumption of services and products. Safe, transparent and all. But mere transactionalized consumption. Society ends, and so does citizenship: we become citizen of nothing, of the network, of the algorithm.

These are not technical issues, but psychological ones, perceptive ones. And, thus, even more serious.

Technology is not neutral.

I can use a hammer to plant a nail or to smash it on your head, that’s true. But what is also true is that as soon as I have a hammer in my hand, everything starts looking like a nail.

This is the same for Blockchains. As soon as I start using them, as soon as I start imagining the world through them, everything starts looking as a transaction, as something which is “tokenizable”. And this is a disaster, in the ancient sense of the word (dis-aster, without stars for orientation).

Technology creates us just as much as we create technology.

We are starting to design systems which are, on the one hand, completely open and transparent. Which is a good thing from one point of view, and a problematic thing to do on the other. (unless the complete transparency of “The Circle” scenarios is something we feel comfortable with).

From another point of view, these systems are progressively being associated to identity systems, meaning that all the advantages and freedoms deriving from the fact that digital identity is anything but univocal and fixed are progressively being lost. Byebye anonymous, temporary, shared, multiple, plural, identities. Goodbye all the freedoms that come with them.

What derives are “citizenship” sytems (not “existence”, not “inhabitantship”) which are literally trustless, “without the need for trust”, in which trust is in the peer-to-peer network, in the automation, in the algorithm.

Institutions and other people disappear, replaced by an algorithm. Who knows where trust is at/in! It is everywhere, diffused, in the peer-to-peer network. Which means that it’s nowhere, and in nobody.

In a weird way it is like in call centers: they are not really useful for the client, and they completely serve the purpose minimizing bother for the companies, letting clients slipping into the “procedure” (which is synonym with algorithm), and avoiding them from obtaining real answers and effects, in their own terms outside of procedures.

These are all processes which separate people from each other, from institutions, organizations, companies, through the Procedure.

Citizens of everywhere. Citizens of nowhere and nothing.

From a philosophical and psychological point of view it corresponds to a powerful addition to a process which is already taking place on a large scale: the transactionalisation of life.

Everything is turning into a transaction: our relationships, emotions and expressions; our ways of producing, acquiring and transferring knowledge; communication; everything.

As soon as each of these things become the subject of a service, they become transactions: they become an atomic part of a procedure.

Because this is what a transaction is: an atom in a procedure, in an algorithm. This includes the fact that transactions are designed, according to a certain business, operational, strategic, marketing model.

This means that when our relationships, emotions, expressions, knowledge, communication and everything become transactions, they also become atoms of those business models whose forms, allowances, degrees of freedoms and liberty are established by those models.

With the Internet of Things these processes also arrive to the objects which fill our daily lives, to the elements of the environment and to the environment itself.

This means that we will be surrounded by transactions, within ourselves and in everything around us. It will become truly difficult to think of something that does not correspond to a transaction.

As said above: this will bring on issues for informality, the possibility for transgression and for our freedoms and rights.

Many of these these will simply disappear, as we lose capacity to conceive them outside of the “procedure”, of the transaction that embodies them. Whether it is purchase or an emotional expression, it will not make any difference.

Furthermore, speaking of transactionalization and its equivalent, financialization, the issue of access will also arise from the fact that there will be a limited amount of subjects who will have the resources to sustain the cost of the transactions which are needed to have rights and freedoms, or to pull themselves out of the procedures themselves. And of course there will be people who don’t have these resources.

These reflections have long been outside of the discussions which are going on about these new technologies. Hackers, activists, researchers, philosophers, antropologists are talking about the blockchain, as well as governments, organizations, companies and banks themselves. Yet none of these doubts are yet on agendas. There is a mono, singular narrative, which is interpreted for activism, business, governance, exploitation.

Investments, from above (with governments, financial institutions, investors) and below (with crowd based operations, evangelism, activism and also with the desire to exploit and to access funds and resources, to abandon the state of crisis) are happening.

And yet we must consider.

The Blockchain is the first tentative answer in years to the extremely centralized models which are de facto ruling us today, whether we talk about energy, environment, finance, welfare, governance.

The Blockchain is all about distribution of power.

And yet, this same distribution is its weak spot, if our objective is to collectively create a society with more freedoms, solidarity and opportunities for relation, emotion, communication and knowledge.

Because this distribution of power does not require conscience and desire, and the responsibility of these conscience and desire. Because these are in the algorithm, not in ourselves and in our relations.

It is not the algorithm serving us, and what we want. It is the algorithm turing us into itself, making us become like it.

What can we do?

The most important thing we can do is, probably, that we need to realize that these are not technological or technical issues.

Design only arrives up to a certain point. The design and production of services, products and instruments does not address a class of issues which are aesthetic, psychological and which deal with sensibility and imagination.

For example, in our practice we often talk about the Third Infoscape, which is originated from the concept of the Third Landscape.

As in the Third Landscape: where “technicians” see “weeds”, the Third Landscape sees opportunity, biodiversity, an open source media which is a reservoir for the future of the planet, which does not require energy to maintain, but produces energy, food, knowledge, relations.

As Marco Casagrande describes, the entire territory becomes a form of knowledge, with all its conflicts, dissonances and polyphonies. This is not a transactional (or transactionalizing) vision. It is a thing in which data and information are not laid out geometrically, formally, as in gardens, but more like the woods and wild nature, in which multiple forms of dimensions, boundaries, layers and interpretations co-exist by complex desire, relation and interaction, not by design.

It is a different kind of technology, a different kind of science, with a different imagination to support it.

The Third Infoscape, just as the Third Landscape, is not a matter of technology or technique. It is a question of sensibility, of imagination and of aesthetics.

The problem? It is current science and data. Which we are now using as something absolute and immutable. As a society, we are now using Science and Data like once we used Religion and Magic.

The Blockchain is one direct effect of this.

It is the procedure that “liberates” us from trust, from having to trust, from having to trust others. It compels you to trust, because it is the algorithm itself which embodies trust. And, by doing that, by forcing you to become like it, transforms all into a transaction.

To make trust exist, it transforms all into itself.

We need a change in sensibility and imagination, not disruptive services.

_____________________________________________

About the Author

This article was written by Salvatore Iaconesi, founder at Art is Open Source, Human Ecosystems and Nefula. Remixing the world through ubiquitous technologies.

Featured

Blockchain can Revolutionise Business

Published

on

It won’t, however, be the saviour it’s being touted to be from the perspective of marketers and businesspeople who don’t understand it. Its real value lies in its ability to decentralise trust, taking that trust away from (centralised) organisations (mainly businesses and people that act as trusted third parties) and putting that trust into open, transparent computing algorithms, code and the community. This has massively disruptive potential for several different industries that have historically relied heavily on centralised networks of trust, especially financial services.

To understand more precisely why the blockchain has disruptive potential, one needs to understand, firstly, what decentralised systems are in general, and, secondly, why the blockchain exists at all. This will also help in understanding why one should not blindly trust the hype around it.

Decentralisation

Take a look at the following three pictures to understand the high-level differences between centralised, decentralised and distributed systems. In the diagrams, black dots represent “client” or “peer” nodes in the network (such as your mobile phone or laptop, or perhaps an individual customer of a bank), and blue dots represent trusted “server” nodes (such as the servers belonging to Facebook, your bank, or your e-mail service).

Centralised System
Facebook, Google, banks, most modern businesses
Decentralised System
Bitcoin/Blockchain, E-mail, YaCy
Distributed System
BitTorrent

I purposefully represented the blockchain as a decentralised system as opposed to a distributed one because not all nodes in the network are full nodes holding the whole blockchain in its entirety. It is possible to make use of the blockchain without storing all historical transactions, but if you don’t store the entire transaction history, you’re implicitly trusting all of the other full nodes who do.

More on this below.

What is the Blockchain?

For the non-technical audience: the blockchain, in the way it’s used by Bitcoin, is simply a way of representing financial ledger transactions in a sequential way (the order of all users’ transactions is vitally important to the integrity of any transactional system). So why all the fuss? Watch the following video – it does a good job of explaining the real value and significance of Bitcoin and the blockchain, and how it works, at a very high level. After that, I’ll dig into some of the differences between traditional, centralised accounting practices, as compared to decentralised, blockchain-based accounting.

The real value of Bitcoin and crypto currency technology – The blockchain explained

Traditional accounting

When using traditional financial accounting software systems (e.g. Sage One), some of the underlying assumptions are that:

  1. You can trust the person (or system) capturing financial transactions that happen in the real world.
  2. You can trust your software to store them in the correct order.
  3. You can trust your people and software to only store a single instance of a particular transaction (no double-spending allowed).
  4. You can trust the people and software to not go back and tweak or modify those transactions’ details.

Companies implement strict, usually hierarchical, controls and governance around who can actually manipulate the data stored by their accounting software, and are audited regularly to ensure there’s no foul play. The servers storing the financial data are usually centralised, so that there’s a single source of truth that all connected clients can trust to give them accurate information.

So how would it work if we decentralised our trust in the financial transaction history?

Decentralised, blockchain-based accounting

There is no single source of truth in the blockchain, which was a novel invention by Satoshi Nakamoto in trying to solve the problem of ensuring that ledger transactions are correctly ordered and cryptographically verified in a decentralised system. Here, users do not trust each other, but rather put their trust into open, transparent, cryptographic algorithms and protocols, and the strength of the network.

Comparing decentralised accounting with the traditional accounting trust points mentioned earlier:

  1. You cannot trust anyone submitting a transaction to the network, but you can trust in the algorithms used by the network to check that your transaction is valid.
  2. You can trust the blockchain to store transactions in the correct sequence. Sometimes, it does happen that the blockchain gets forked due to a disagreement between the peers as to which block of transactions should be next in the sequence. This is automatically resolved by the network.
  3. You can trust the blockchain to ensure no double-spending.
  4. You can trust the cryptographic protocols in the network to ensure that nobody modifies historical transactions. This would result in corruption of the blockchain, and the peers would reject any such modifications.

Disruptive Potential

Now we get to the so what? part of the discussion: what, then, makes the blockchain so “disruptive”?

Goodbye banks?

Since it isn’t just your bank that keeps a copy of the ledger, and you can keep a copy of the ledger yourself too (where you and the rest of the community are held accountable to each other through cryptographic algorithms), why do you need a bank to facilitate transactions for you? Beyond getting credit from the bank, what more does the bank really do for you than act as a trusted third party between you and the other person with whom you’re doing business?

This sort of disruptive potential applies to absolutely any real-world situation where there’s a need for a trusted third party whose sole purpose is to facilitate and reliably track transactions. If it’s in the interest of a community to keep track of something in a trustworthy way, a decentralised blockchain can do just as well today as a trusted third party’s software systems.

Unfortunately, the blockchain is also a relatively new technology and is still being battle-tested by the community to ensure that it really is secure. Information security is far more than just cryptography, as per the following XKCD comic.

Applications outside of finance

Being a decentralised transaction tracking system, the kind of transaction that gets tracked by the blockchain is totally up to the developers building the application layer of software on top of this transaction tracking system. Bitcoin, by design, is a financial transaction tracking system built on top of the blockchain.

Several application areas for the blockchain outside of finance come to my mind:

  • Accommodation booking systems, especially Airbnb-style accommodation bookings.
  • Parcel tracking systems, especially where multiple different courier services are employed to deliver a parcel.
  • Government accountability systems, where the general public can reliably track whether their government is delivering on their promises (whether this be financially or otherwise).
  • Community-oriented agricultural produce tracking systems, which could allow transparent tracking and reporting of local agricultural produce for communities.

And there are potentially loads more.

Don’t trust the (irresponsible) marketers

Therefore, the blockchain is potentially disruptive. But it won’t necessarily benefit all businesses. Disruption might just mean that your business is the one being disrupted, meaning that it might just put you out of business. (If, of course, you’re in the business of acting as a trusted third party).

Who really benefits from the blockchain?

From what I can see, your business only really stands to benefit from the blockchain if you:

  1. rely heavily on one or more trusted third parties,
  2. provide a good/service to the broader community,
  3. would save time/money/etc. if your trusted third parties were decentralised and entrusted to the community, and
  4. the broader community comprises, at least partially, of people who are technologically savvy and invested enough in your good/service to want to be part of the community to whom your data is entrusted.

Don’t trust the banks’ “love” of blockchain

Apparently, many international banks are embracing the blockchain. I would personally be very skeptical of this sort of move on their part, because it is the very nature of the financial institution that currently stands to be disrupted by blockchain-like technologies.

For example, Bank of America is apparently “going big” on Bitcoin and the blockchain. By filing patents? All this does is provide them with ammo to potentially sue people who infringe those patents, potentially hindering efforts to decentralise the financial system. From my perspective, this is a purely self-preservation-oriented move on their part.

I also call bullshit on every bank who claims they’ll benefit by implementing a blockchain internally within the bank for tracking transactions. In computer programming, this is pretty much what we call a CQRS architectural model, and the banks should be using that kind of model anyways.

The whole point of the blockchain is to decentralise its storage and entrust the transaction validation and history to the community. What good is it if all of the nodes are behind the bank’s firewalls? How is that any different, from the perspective of a bank customer, to the situation as it is today, where the customer’s trust still effectively has to be centralised within the bank?

Conclusion

The blockchain is a technology aimed at decentralising trust. This has the potential to disrupt some industries that presently rely on trusted third parties. Those who stand to benefit the most are people who currently rely on trusted third parties, whereas those who stand to lose the most are those who are trusted third parties in facilitating transactions between other people.

Finally, don’t trust irresponsible marketers when they tell you that the blockchain is the solution to all your problems (it only solves a pretty niche sort of problem, actually), and for goodness’ sake don’t trust the banks when they say they’re in full support of the blockchain. These two groups of people are the most likely candidates to, inadvertently or on purpose, strangle it to death while nobody’s paying attention.

____________________________________________________________________

About the Author

This article was written by Thane Thomson, who is currently working for DStv Digital Media in research and development

Continue Reading

Money

Bitcoin is a Bubble – Here’s Why

Published

on

Humans are considered rational beings. Every once in a while greed and exuberance trumps rationale we end up with a Bubble. Bitcoin is a bubble and it will fall precipitously. Here’s why:

Some Economics

Value of any product is arrived at through a process that matches demand and supply. If there is a lot of demand for a product and few people offering it, the price go up. There is a greater perceived value for it since the supply is limited — Everyone who wants it, cannot have it. The vice versa is also true. But as with most things in life there are certain exceptions to this rule. High-end luxury products have an aspirational value and hence the higher the price the higher the demand tends to be. These are called Veblen goods. There are also Giffin goods where this effect is seen with inferior goods.

Either way, in all of these cases price is a consequence of consumption.

There is another case where prices can be made to rise artificially, through hoarding and creating artificial scarcity. The hoarder buys large quantity of a good and waits for the price to rise high enough before beginning to sell it slowly to the actual consumer at an elevated price.

Markets play an essential role is matching demand and supply, which results in price discovery. Markets are the price discovery platform that most of us depend on. We have markets for everything, stocks, currency, commodity, bonds, etc. Most of these trades take place through instruments that are representative of the same. Stock is a company is represented by shares — Stock here represents the assets of a company and the ownership is attributed through shares. There are similar trading instruments for everything that is traded.

The place where this trade is managed, which I referred to an a market earlier, is known as an Exchange. An exchange is where trades are executed and the instruments change hands between the buyer and the seller. The job of an exchange is to provide a framework, to regulate and enable the trade to take place.

Blockchain

Let us say you have a Rs. 10/- currency note. You take this note and buy tea from a tea stall. He in turn takes the note and pays for the fuel bill. He in turns takes the note and pays the school fees for his child. The note has been used for several transactions but we do not know where it originated from and how many hands it changed. If this note were an online token we could track it all the way through.

If there are a set number of tokens in circulation and each of the token can be tracked, there is no way that any fake token can be introduced without changing the total number of token in the system. Furthermore if an anomaly is found, it can be quickly tracked back to its origin.

A Blockchain is a chain of records which are called Blocks. Each block represents one transaction and hence the entire history of an single instrument can be tracked from beginning to the end. A blockchain is what makes it possible for us to track every token. Research on blockchain began in 1991 but the distributed blockchain, which is the basis of all modern blockchain was invented in 2008. The distributed blockchain kept the block of records on every computer that is a part of the system. This redundancy is the secret sauce that make blockchain a phenomenal technology.

This makes it near impossible to fake any transaction because that fake transaction. It is not enough to enter a fake transaction in your own block, the same transaction needs to exist in every copy that is part of the system. Each copy is protected by public key encryption on each user’s system (If you wish to know how encryption works). If any anomaly is found, it can be quickly localized and eliminated.

Bitcoin

Bitcoin is one of the implementations of blockchain as a currency. Bitcoin tokens can be mined by solving mathematical problems, but the total supply of bitcoin available is limited by the algorithm. The more bitcoins get mined, the harder it becomes to mine further. The mathematical problems are solved using the computer but the problems take longer and longer to solve as times goes on.

Now, once you have these Bitcoins, you need a way to transact, for which bitcoin wallets exist, where these coins get stored. The wallet is your copy of the blockchain.

Some people thought, “Hey! Why not trade bitcoin?” and they created Bitcoin exchanged. Just like a stock exchange, Bitcoin is bought and sold on Bitcoin exchanges. There are several across the world and they execute bitcoin sale and purchase.

Individuals and companies have been mining bitcoins since it was introduced. Today this mining has assumed industrial scale with more and more people getting interested and mining becoming harder and harder. There are entire server farms that are being committed to mining bitcoins and in all likelihood these are being hoarded for a future date when it would likely be sold.

Value of any product finally lies in its consumption

The value of anything is down to consumers finally adopting the product and using it. This is where demand invariably arrives out of. Whether it is businesses or individuals, utilisation is the key. Keeping something does not create value unless it is an antique. Bitcoin is definitely not an antique.

Consider confirmed Bitcoin transactions per day. At its lowermost it is about 130,000 and at its peak its at about 365,000. It averages out at about 275,000 per day. Let me just add some perspective. Visa processes about 24,000 transactions per second. So in about 12 seconds Visa does the entire days worth of transactions on Bitcoin!

Although this is not a straight comparison since Visa is a method of exchanging money while Bitcoin itself is a store of value. The market capitalisation of Visa as a company stands at USD 230 Billion while that of Bitcoin stands at USD about 70 Billion dollars. A third of the value of Visa? Comparing it with gold, which is a store of value unlike Visa which is a transaction mechanism akin to Blockchain; Comex which is a commodity exchange based out Chicago (one of many across the world) does about 289,000 gold contracts per day. The number across the world would probably be in the millions, not to mention the transactions that take place through stores, banks and other means.

There are about 16,500,000 Bitcoins available today. Out of this only about 640,000 is exchanged everyday.

Hoarders will dump

I think the value ascribed to bitcoin given its abysmally small circulation is purely due to the hoarding that many are engaging in. Most of the people just buy bitcoin for the purposes of speculation.

People buy bitcoin and then they keep it. Since nobody is selling (Would you, if you know what you have is doubling in value every 6 months?) — Prices rise. People hear prices are rising — They clamor to buy. Demand rises — Price rises. Some of the early hoarders keep releasing small amounts of it.

For price to rise, the demand has to be high; this demand should be powered by consumption and not hoarding.

My take on this is that the price rise of Bitcoin is speculative. It is powered by speculators who are willing to pay more and more in the hope that prices would keep rising. The limit on the supply is additionally helpful in driving the prices up and keeping them there.

Looking into the past

There are plenty of cautionary tales of bubbles but for me the one that most closely matches this is — The Tulip Mania. Tulips by themselves had no great value.

Tulip was a unique flower and was used for royal gifting. The prices of tulips shot up suddenly on speculative purchase of tulip futures. There were, many who made money during the upsurge. After a couple of years of frenzied buying, the demand for buying newer and newer contracts seemed absent. There was no inherent value in it. Panic set in and ultimately it suddenly collapsed in Feb 1637. Within 3 months all of the value was wiped out, because there was none to begin with!

The same is true of Bitcoin today. Its not like Bitcoin is the preferred currency for transaction or that people are switching to transacting through bitcoin at unforeseen pace. A crazy number of speculators are buying into it for the sake of speculation. There is no inherent value and one day in the not so distant future people will realise it.

________________________________________________________________
About the Author 
This submitted article was written by Vivek Srinivasan and represents his personal opinions not professional advice. 
Continue Reading

Trending