“Anarchy is what the world makes of it” – Alexander Wendt
“Chaos is a ladder” – Petyr ‘Littlefinger’ Baelish
The Big Question
As we turn the page on a somber 2018 there will be many articles discussing the state of crypto and distilling the key questions and concerns for 2019. For instance, we will continue to wonder when blockchains will have the throughput to handle multiple applications at scale, and developers and enthusiasts will keep debating the best use cases for crypto and which “blockchain is best”.
However, another key question that must be addressed is: At a structural level, will all of the various participants in the space find a workable model of collaboration and interaction to support development and growth in the future? Or, on the other hand, will the space devolve into a series of contentious arguments, debates, and conflicts. After all, there is no arbiter or last resort in crypto, and just like global politics, the space is anarchic. Fortunately, anarchy does not have to be a four-letter word, but it cannot be disregarded either.
When asked about how collaboration in the space will look in the long term, many respond with truisms and platitudes such as “we are all on the same team” and “a rising tide lifts all boats”. Enthusiasts also point to “open sourcing” code as a way of signaling intent to “be a team player” and focus on the “greater good”. These talking points are further buttressed by efforts at collaboration among major players in the space, such as Hyperledger and the Enterprise Ethereum Alliance partnering together.
Turning the Page on the Crypto ‘Era of Good Feelings’
This atmosphere of collaboration is admirable, and for the time being it has been sufficient. There was enough “blue ocean” for everyone, and companies that raised money via ICOs amassed war chests that seemingly provided them with runway for years. It seemed as if the “Crypto Roaring 20’s” would never end.
This largesse is probably no better epitomized than with what that transpired at ConsenSys, who thanks to founder Joe Lubin’s goodwill reached up to 1,200 employees and incubated 50+ projects, despite almost none being financially independent. However, Joe recently announced that ConsenSys is going to be cutting up to 13% of its workforce and will rededicate himself and ConsenSys to being financially responsible. Put another way, ConsenSys’ and its various spokes are going to be treated like real companies set off into the wild.
The same could be said for everyone else in space.
This means that players in the crypto space will start bumping into each other and there will be a fight for survival among firms with limited runway. As evidenced by the acrimony that transpired following the initial “Blocksize debate”, the recent Bitcoin Cash fork, and the ASIC-resistance movements, the world can be cold and unforgiving. It should be – it is anarchic.
Using Modern International Relations Theory to Create a Structural Theory for Blockchain
Does this mean that crypto is ultimately doomed to chaos? No, but finding a more robust answer to this question depends on how one sees the world. Fortunately, modern international relations theory offers a useful framework to make such determinations.
There are three main schools of thought:
Realists see the world in Hobbesian zero-sum terms where it is in a state of perpetual conflict. Under realism what is good for one entity is bad for another, and there is no middle ground. There are opportunities for collaboration (i.e. alliances like NATO), but this type of cooperation is often short-lived and has a very acute focus. A particular strain of realism that has come to prominence in recent years is known as “offensive realism”, which was theorized by University of Chicago Professor John Mearsheimer in his book The Tragedy of Great Power Politics. Mearsheimer argues that in an anarchic world with no hierarchy states and actors will continually seek opportunities to gain power over their rivals because they must rely solely on themselves for security. This is admittedly a pessimistic outlook.
On the other hand, liberal institutionalists (not to be confused with liberal/progressive parties in domestic politics), do not see the world in the same zero-sum terms. They reject the theory of great power politics and instead focus on seeking opportunities for international collaboration that provide mutual benefits. A key mechanism utilized to implement their world view are institutions, such as the UN or EU. Liberals also strongly believe that economic co-dependence reduces the propensity for conflict, as does the spread of common ideals such as democracy. There is even a theory that democracies, especially mature ones, do not go to war with each other because each government is tempered by its respective constituents, known as the “Democratic Peace Theory”.
The final noteworthy school of thought is constructivism. Constructivism differs from both realism and liberalism in the sense that leading thinkers in the space believe that all international relations are the results of created social constructs and there is no inherent need for zero-sum great power politics or liberal institutionalists that seek to create transnational institutions in an effort to rein in innate desires for power consolidation. Constructivists, such as Alexander Wendt, feel that “that the structures of human association are determined primarily by shared ideas rather than material forces, and that the identities and interests of purposive actors are constructed by these shared ideas rather than given by nature“.
So, is there a dominant theory? If so, what does that mean for crypto? Unfortunately, as one might expect there is no single discipline of study that has proven to be above reproach. For instance, while the strategy of containment employed by the US against the USSR during the Cold War is deeply rooted in realism and largely credited maintaining a tense peace during the second half of the 20th century, it is not without criticisms. For instance, it cannot explain the “Democratic Peace Theory” or that many countries in the early 1990’s and even today (current President Donald Trump notwithstanding) do not feel the need to protect themselves against the US despite it being the dominant superpower for the last 25 years.
Institutionalists point to successes such as the fact that no major countries in Europe have gone to war with each other since 1945 as a result of European integration, something that truly would have been inconceivable 100 years prior, but their theories fail to hold up when one considers the number of conflicts that the UN (the closest thing we have to a world government) fails to prevent. Additionally, there are too many instances to count when democracies go to war with each other. Finally, economic interdependence does not necessarily prevent conflict or a rising of tensions. The European economy in the 20th century was heavily integrated, and today US/Chinese tensions are not being tempered by their close economic ties.
So, where do we go from here? Is crypto ultimately doomed to conflict and a devolution into a zero-sum game? Not necessarily, but at the same time taking actions such as building massive consortiums and partnering indiscriminately to align economic interests will not necessarily ensure a stable or prosperous future. We should not approach the space with rose-colored glasses and expect a smooth transition into a decentralized utopia.
Looking ahead, it is unlikely that there will be one dominant player or platform in the space. If there was the more likely scenario is that the entire industry will collapse given the concerns about 51% attacks or the fact if there was one major platform it would likely be unwieldy. What is more likely to transpire is that there will be a period of consolidation and choosing of sides in the space as use cases and models become more defined. This will happen because companies and advocates will face pressure to “go to market”, scale up, and demonstrate value the value of blockchain technology.
There will also continue to be battles among competing chains and platforms, as hashing power and network security is truly a zero-sum proposition. As evidence one only needs to look at the scale up in mining power on each side that coincided with the recent Bitcoin Cash hard fork. These will continue to be acrimonious, much of which will be played out in public display.
However, crypto does have one significant advantage that the geopolitical system does not – a shared sense of identity and purpose. This gives us reason for optimism. While advocates may differ on certain specifics of this ideology, there is a common belief that the space needs to be decentralized and that we all succeed or fail together. With this mindset, there is enough space for a constellation of multiple differentiated blockchains and protocols, provided that they each have a clear and dedicated purpose. The space will also have a higher likelihood of success if and when these differing platforms reach a level of maturity and scale that they truly are self-sustaining. At that point it would be largely impractical to directly attack each other’s chains, and they will settle into a more traditional competitive landscape based on economic terms.
So, there is a lot of reason for hope, but the transition to crypto maturity will not be without conflict. Fortunately, this is natural and not insurmountable.