Why permissioned ledgers terrify me
Wednesday 24 February 2016
Banks and governments are going for blockchain in a big way - and I’m not sure that’s a world I want to see.
If you can’t beat them, join them. That’s one reason for the explosion of interest in blockchain technology amongst major banks and governments we have seen over the past few months. It seems like every week someone else - Goldman Sachs, UBS, the UK government, South Korea, China, the list goes on - announces plans to create their own digital currency or set up a new research initiative to look at the benefits.
And benefits there are many. Even bitcoin, the first cryptocurrency, offers fast, low-cost, cross-border transfers when compared to legacy fiat banking systems. Other protocols improve on the idea, and provide further services of diverse nature. Why ignore those benefits when the technology can be leveraged to enable the traditional financial system to do its job more efficiently?
Permissioned and unpermissioned
There’s a critical difference between these institutional blockchains, we’ll call them, and their decentralised predecessors. They are permissioned.
Permissioned blockchains will enable unprecedented control by limiting and tracking banking facilities
Permissioned blockchains (or distributed ledger technology, DLT, as it’s increasingly being called) are similar in architecture to their unpermissioned and libertarian cousins, but they include a control layer. In simple terms, this restricts who can run a node or make a transaction. It’s a natural progression because governments and banks want to stop things like fraud, money laundering, terrorist funding and so on. But it has very far-reaching consequences.
Permissioned ledgers point to a society that looks rather more totalitarian than I like. It’s a society where control over the population is routinely exerted by restricting access to money. This already happens, of course. But it will be a whole lot easier when the banking system is turbocharged by DLT, such that all transactions can be tracked and approved - or otherwise - in realtime.
I don’t think this is exaggeration or scaremongering. Here in the UK, refused asylum seekers who cannot return home for one reason or another are given an Azure card. This is a kind of pre-paid card loaded with £35.39 a week. This money can only be spent in certain shops, and there are restrictions on what the money can be used for. Aside from the stigma involved in presenting the card at checkouts, and the fact that staff don’t always know what to do with it, users may have to walk a long way to get to a participating store (you can’t spend it on travel, amongst other things).
No physical cash
Now imagine that the unprecedented control offered by permissioned DLT was applied to that system and others. Perhaps you’re unemployed and are collecting benefits - but you can only spend them in certain places, on certain things. Or you’re a migrant who is simply refused banking facilities altogether. Banking becomes, more so than it currently is, a tool by which governments and corporations track and control people - particularly vulnerable people. Unfortunately, the dialogue around permissioned blockchains is going hand-in-hand with another narrative around banning physical cash. Only criminals use large denomination notes like £50, $100, E500, goes the argument. Plus, abolish physical cash and you facilitate the imposition of sub-zero interest rates (keep physical cash and people will withdraw it and stick it under the mattress rather than pay fees on it).
If that doesn’t seem a likely reality to you, what about China - a country known for censorship, government intervention and controlling its population through restricted access to the internet and other information? China is actively researching issuing a digital version of its currency. Is there any doubt about how it would be used?
My view is that permissioned vs unpermissioned ledgers will be the battleground for blockchain technology over the next 5-10 years. DLT offers so many advantages that it will be implemented in our everyday lives. But just how that is done will have repercussions that could last decades. The good news is that unpermissioned blockchains have the headstart. We need to be sure we don’t squander it.
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