- BCE at right the time and right place?
- 7+ billion homo-sapience (us); will our social fabric hold good?
- Seeds of the economy – when our ancestors learned to bitch!
- Beginning of economy – agriculture
- First ever demonization – Trust!
- Second demonization – muscle power
- Every new wave of money creation disrupts the social order
- Enter knowledge demonetization & 3rd wave of wealth creation
- Blockchain Economy and surreal feeling possibilities
- We weren’t even ready yet for BCE, but already being swept off the feet again – Quantum Computing
7+ billion homo-sapience (us); will our social fabric hold good?
We, humans, have emerged as the dominant species on earth. At any point in recent history, our numbers hadn’t crossed 2 billion, but in the last 100 years, we have crossed 7 billion. Moreover, we got hold of droughts and diseases which otherwise used to cull us up to 30% – 40% in some worst pandemics.
While this is good news, the sheer numbers bring up uncomfortable notions, are our economic and social frameworks set for a change? Both longevity and increased wealth might mean drastically different economic and social enabling frameworks? This is where BCE appears to arrive at the right time and right place.
My initiation with BCE started with that nasty FOMO (fear of missing out) when Bitcoin soared and then the vicarious pleasure of seeing it crash because I had not invested! But then curiosity got better of me. The initial week went through clueless crawling through the web to really see what’s this all brouhaha about Bitcoin tumble is. Slowly some of the arguments about impeding economy shake-up by Distributed Ledger Technology (DLT) predictions started making sense. The theoretical ground seems to be solid. At the same time, I was significantly influenced by “Sapiens: A Brief History of Humankind” by Yuval Noah Harari, a very compelling version of our evolution. Even though on a totally separate plane, these two are very related.
In short, our social structures are our agreements to live as social species and share wealth. Wealth is nothing but the economic value of our productivity. As we make resources of this productivity cheaper and more widely accessible at low cost, we create new waves of wealth creation, each several orders higher than the previous wave, building on previous frameworks. The mechanics handling these waves and ensuring sharing of wealth also evolve; their frictional costs are our social structures, cultural norms, sense of right and wrong. This social fabric gets disrupted and woven in new kaleidoscopic colors every time a new wealth wave appears.
To understand the significance of BCE and the changes that it can bring, we need to go back to our evolution. So here is my attempt to comprehend the pieces of this jigsaw made up of history, economy, and technology.
Seeds of the economy – when our ancestors learned to bitch!
Way back at the beginning of human time, our ancestors stood up on two legs about 2 million years ago, and by about 150,000 years ago, our own “Homo-Sapiens’ people had arrived. Early humans were a small part of the food chain; new species were about to start their way to the top of the pyramid.
When our ancestors learned to stand; alone they were very vulnerable to attack from behind. But when you got somebody to watch your back, this weakness becomes a significant advantage. Jointly, you could take on much larger and more efficient species than you. That is, in a way, the very beginning of sharing resources and seeds of the economy! But then, early hunter groups were localized; communication took us only so far. We are not the only species with excellent communications and collated efforts; look at bees, really complex. We languished at that pack of hunters’ state for a long, long time. Our dear Mother Nature continued experimenting with us; we had many cousin species like homo-Neanderthals, homo-solenesis, homo-floresiensis, etc. Also, we were no different than other distant cousins, chimpanzees, baboons, etc.
But then, from about 70,000 years ago, most likely an accidental mutation in one of the trials in that wonderful kaleidoscopic experimental lab of Mother Nature, our homo-sapiens brains got rewired to create a cognitive possibility, we learned “bitching”. Bitching about others those not around the two communicating. A bee can more efficiently tell about food but not bitch about other bees! This really started to explode our cognitive capabilities.
But then, from about 70,000 years ago, most likely an accidental mutation in one of the trials in that wonderful kaleidoscopic experimental lab of Mother Nature, our homo-sapiens brains got rewired to create a cognitive possibility, we learned “bitching”. Bitching about those not around the two communicating. A bee can more efficiently tell about food but not bitch about other bees! This really started to explode our cognitive capabilities.
Beginning of economy – agriculture
From 70,000 years to 12,000 years, we worked on our new-found cognitive capabilities, annihilated all our cousins on the way, and then found Agriculture. Agriculture made us congregate into permanent settlements and triggered the domestication of other species. This called for creating a trust-based society, which needed more than just bitching. The maximum size group based on mutual trust was still around 150, (Incidentally, the optimal number of “working” connections for you in Facebook or LinkedIn is also about 150! we have yet spent only so little time since we evolved in the grand scale of evolution). We needed a more cohesive enabler than just a two-way communication. Enter myths!
This ability to talk about others was a great enabler. We could talk about someone not present and make inferences. Myths created fertile ground for social structure experiments; the very first successful one was the idea of God! Fear of God helped, and knowing others too have similar inferences helped us trust each other collectively, without having direct interaction. Now we could trust other humans via God and societal norms. This led to Kings, held to be vested with absolute powers by the Gods, and Priests, who were mediators to God. Make no mistake; it was who needed them!
First ever demonetization – Trust!
This kind of demonetized trust. By demonetization, I mean reducing the price of something. Now establishing trust over a more extensive scale became feasible, which wasn’t possible on costly mutual interaction designs. This expanded trust system enabled agriculture to become the first wave of value creation. Someone won’t come and loot your all-year-year-long efforts because there is fear of God or want of perceptions being fair, first working trust-exchange mechanism. You had to pay a share of your harvest to either a priest or a King. Meanwhile, we also had found money to handle the value created.
But every mechanism has an inherent cost. No free lunch! This trust mechanism created small fiefdoms, large empires, and the first level of differentiation. An early wealthy class, King and his coteries, and in parallel priests; emerged. Why did these classes prosper? This was the frictional cost of trust; some could benefit from this mechanism based on the need for trust from the masses.
Second demonetization – muscle power
This experiment continued for about 8 to 10 thousand years until the 1800s, covering all the early medieval periods. We had found prophets and Christ and were almost at the top of the food chain. And the economy seemed to be at its peak. When we thought we had understood God and creation et al., enter the second wave of wealth creation, way bigger than the earlier one. And this was created by us, first break away from nature, designed by us and for us alone. We had found machines!!
Now this demonetized muscle power. Until now, our efficiency was localized, chunky in terms of living beings, animals, enslaved people, with sharing/trading systems crude and elementary. With machines, power got de-linked from physical bodies, but significantly it also became better trade-able. We effectively demonetized labor! Now large-scale sharing of resources became possible, pooling resources to make damns, factories, and other large-scale mass consumption constructs.
Every new wave of money creation disrupts the social order
Industrialization created massive wealth and a wealthy new class, blue-collar or middle-class — the middle class with new-found spending power. As a result, value exchange between individuals rose many times. But this also increased need for trust massively. Both the trade mechanism and the social systems had to adapt to this enormous value. So we invented new market makers (banks, exchanges, and insurers).
But our social constructs, Kingdoms and Religion models; were inefficient at handling this as they couldn’t provide the cheaper way of managing this trust need. So we began experimenting with alternative governing structures. Most of our revolutions and renaissance can be traced to this need for addressing the new social middle-class needs. Absolute power in chosen few was not acceptable to the newly wealthy and aware class. We then created Corporates! These corporates effectively wrestled control from kings and priests, working at a much lower cost to provide trust and earn way more because of higher volumes!
Enter knowledge demonetization & the 3rd wave of wealth creation
We as species can be pretty smug! At the beginning of 1990, we again thought we had peaked, renaissance, revolution, Newton, man on the moon, cold war, petro-dollar et al., thought we had touched limits of our capabilities. Then most of us were caught unawares; even larger, another wave of wealth creation happened. Internet. Now this demonetized knowledge!!
The Internet changed the shape of knowledge sharing by demonetizing it. It not only ended knowledge hegemony but significantly reduced the cost of trust. Suddenly, value exchange was possible at a much lower price; instant transactions and better information were freely available. This lowered cost unleashed a big wave of value creation and concocted new market makers to exchange values. The service sector became the primary driver for the GDP of the rising east; the Chinese takeover of manufacturing and hordes of new generation Indian software engineers created wealth for the new middle class. How do we make them partners with a say in the economy?
For now, this new-found wealth is still shackled in pre-Internet era market makers and colonial government structure. Look at the reported incomes of the financial market makers, banks, exchanges, insurers, et al. to get a feeling of the drag cost of these trust enablers. This cost makes financial services costly and unaffordable to the poor. Only one in five humans has real bank access to transfer value where he wants.
This is very much like a repeat of cycles of wealth creation waves; the economy has transformed ahead of social enablers, economies are so closely connected now. But our governments are still stuck in physical borders. Our notions of right or wrong, jurisprudence, wealth sharing concepts are still from the cold-war era. Corporates that so efficiently puppet the Governments are still led by the baby-boomers notion of growth, power, and control.
Blockchain Economy and surreal feeling possibilities
That’s where BCE is getting into the picture. The underlying concepts, Distributed Ledger Tech, encryption, and digital money aren’t new, but BCE has mixed them into a very potent change-driver. This combination enables centralized trust without needing banks, governments, and cops to enforce contracts. I can trust you totally, absolutely without ever knowing you, in total anonymity. And the transactions are embedded Blockchain, forever, immutable, with better longevity than those hordes of tribes of Gods we created as trust keepers.
Think of this as a low-cost trust enabler that’s going to make armies, governments, and all those fat paycheck bankers redundant. They sure must be threatened like those hordes of Kings and Queens, Lords, not to mention churches and priests, in the late 18th century.
The Sarcastic comment forever embedded by Satoshi Nakamoto in the genesis block of Bitcoin is like forewarning to these existing power brokers whom we enTRUST our finances. (“Chancellor on brink of second bailout for banks“).
The role of trust in the economy, how it drives the economy, and how the resulting frictional cost drives our social governance enablers, need to be examined more closely. Then the DLT/BCE framework starts making rational sense. Subject for part 2 of this blog!
We weren’t even ready yet for BCE, but already being swept off the feet again – the Quantum Computing
Before leaving, something to ponder. Computing power seems to be enabling this internet economy. But, come to think of it, we haven’t invented anything commercially significant after Newton’s physical laws. Our chips seem to hit physical boundaries as we no more can fit more circuits into boards.
What if we break from our physical laws? What about quantum laws operating at the micro scales that we can’t even see and perceive? What if we make a jump from binary computing into multi-state computing?
A teaser, Intel has created a 49 cubit already. Quantum computing has a threatening impact on BCE/DLT already!!!
I currently work full-time at Swiss Re, Bengaluru. The blogs and articles on this website www.balajos.com are the personal posts of myself, Balachandra Joshi, and only contain my personal views, thoughts, and opinions. It is not endorsed by Swiss Re (or any of my formal employers), nor does it constitute any official communication of Swiss Re.