The possible anatomy of coming climate change trials

As I write these lines, we have an ever clearer understanding that 1) humanity is hurtling towards a disaster of unimaginable proportions, and 2) the responsibility for this entirely foreseeable disaster rests to a very large extent on a very small group of people, mostly businessmen and political leaders, who over the last three decades have done their utmost to confound all attempts to actually solve the problem. This has been done in the name of profit and financial gain, as the required actions would’ve hurt the bottom line of some of the world’s most powerful corporations. Despite ample evidence that the present course of action may well lead to millions if not billions of deaths and permanent diminution of the Earth’s capacity to sustain human civilisation, even now full 90 percent of the world’s 200 largest corporations, for instance, are actively spending money to forestall any corrective measures.

I’m convinced that sooner or later we will see an international tribunal that will seek to punish the most responsible parties, provided they are still alive. This will be a messy affair that will cause all sorts of legal issues, and probably unfairly punish mostly the younger persons instead of those who hold the most responsibility. But be it as it may, it is inconceivable that aiding and abetting the widespread destruction of the Earth’s life support systems – ecocide – can go entirely unpunished, even if the acts such as lobbying against emission reductions or failing to act are not crimes today.

As a thought experiment, I shall present below some snippets that illustrate how the Prosecution’s case against perpetrators of ecocide might possibly be argued in the future.

 


 

Regarding the ex post facto problem of accusing persons retroactively of acts that were not crimes at the time, only the most incorrigible legalists can pretend to be shocked by the conclusion that perpetrators of a planetary ecocide act at peril of being punished for their perpetration, even if no tribunal has ever previously decided that acts that materially contribute to a planetary ecocide are crimes. And, in any event, the ex post facto question is rendered much easier by the fact of treaty violation. Someone who violates a treaty, such as the Paris climate pact, must act at peril of being punished by the offended party’s employing self-help.[1]

And what about the argument that these crimes had been committed in the pursuit for greater good for all, in the name of economic growth? It appeared to me that such issues should be ruled irrelevant, on the familiar legal principle that a destitute man who steals groceries is a thief even though his purpose is to feed his starving children.[2]

It is important that the trial not become an inquiry into the causes of runaway greenhouse gas emissions. It cannot be established that economic ideology was the sole cause of the global catastrophe, and there should be no effort to do this. Nor, I believe, should there be any effort or time spent on apportioning out responsibility for causing the ecocide among the many nations and individuals concerned. The question of causation is important and will be discussed for many years, but it has no place in this trial, which must rather stick rigorously to the doctrine that materially contributing to global ecocide is illegal, whatever may be the factors that caused the defendants to do so. Contributing causes may be pleaded by the defendants before the bar of history, but not before the tribunal.[3]

…of course proof of criminality dependent entirely on finding evidence that the “economic defendants” had sufficient knowledge of the probable results of inaction, and shared sufficient responsibility for influencing policies towards inaction, that they might properly be convicted.[4]

“The wrongs which we seek to condemn and punish have been so calculated, so malignant, and so devastating, that civilization cannot tolerate their being ignored, because it cannot survive their being repeated.” [5]

“Leaders of the world deliberately set out to make ecocide an international crime” and carried out that intention “in numerous treaties, in governmental pronouncements, and in the declarations in the period preceding the present day.” He mentioned the numerous intergovernmental treaties of climate change mitigation, the 1992 Rio Earth Summit, the Kyoto Protocol of 1997, the 2007 Bali action plan, the Copenhagen and Cancun Agreements, and the Paris agreement of 2015, stressing the frequency of global participation in such agreements and declarations. Shawcross thus laid the basis for his conclusion that “International law had already … constituted ecocide a criminal act.” Accordingly, there was “no substantial retroactivity – i.e. no element of ex post facto – in enforcing the Charter’s condemnation of crimes against the environment.” [6]

Now, needless to say, it is not the Prosecution’s position that it is a crime to be a managing executive or pursue profit. The profession is an honorable one and can be honorably practiced. But it is too clear for argument that those who commit crimes cannot plead as a defense that they committed them in pursuit of profit. It is not in the nature of things and it is not the Prosecution’s contention that every member of this group was a wicked man or that they were all equally culpable. But we will show that this group … wanted to aggrandize our common environment at the expense of the vast majority of world’s peoples. [7]

…I took up the ecocide charges. Proof of company’s leadership’s complicity in these crimes required us to show that the members of the group knew that lobbying efforts were likely to prevent emission reductions, and that they willingly joined in the execution of those plans. [8]

…I spoke at some length in an effort to clarify these matters, saying in part: I want to make clear again the nature of the accusations against this group. They are not accused merely for doing the usual things that a manager is expected to do, such as making plans and decisions. … It is an innocent and respectable business to be a locksmith; but it is nonetheless a crime if the locksmith turns his talents to picking the locks of neighbors and looting their homes. And that is the nature of the charge against the defendants.[9]

The managerial defendants will perhaps argue that they are pure technicians. This amounts to saying that managers are a race apart from and different from the ordinary run of human beings – people above and beyond the moral and legal requirements that apply to others, incapable of exercising moral judgement on their own behalf.[10]

The prosecution here believe that the profession of management is a distinguished profession. We believe that the practice of that profession calls for the highest degree of integrity and moral wisdom no less than for technical skill. We believe that, in consulting and planning with the leaders of other fields of national activity, the business leaders must act in accordance with international law and the dictates of the public conscience. Otherwise the economic resources of the nation will be used, not in accordance with the laws of modern society, but in accordance with the law of the jungle.[11]

…In the trial of an individual member, Jackson declared, their lack of knowledge of the enterprise’s criminality “might possibly be a factor in extenuation,” but “the test would not be what the person actually knew, but what, as a person of common understanding they should have known.” On this basis, the defendant in a later trial would have to give very particular reasons to explain why they, as a reasonable person, did not also know.[12]

Jackson’s position: “the Prosecution’s test is constructive knowledge. That is, ought a reasonable person in the position of a member to have known of these crimes.” [13]

NOTES

The snippets presented here are very slightly modified excerpts from the book The Anatomy of Nuremberg Trials: A Personal Memoir., written by Telford Taylor, an U.S. counsel for prosecution in the trials. The sections in italics are my modifications from the original; otherwise the excerpts, taken from the sections dealing with the prosecution’s case, are nearly verbatim, with some condensation and changing of the personal pronouns to more modern form. The following citations refer to locations in the Kindle Edition.

It is not my intention to argue that those who aid and abet ecocide are equal to Nazi war criminals, nor that their guilt is at a similar level to those who deliberately murdered millions. However, the coming ecocide may well cause billions of deaths, and I would be extremely surprised if no one is ever punished for complicity – provided that the defendants are still alive when the notion of international trials moves from thought experiments such as this towards actual policy proposals. Personally, if I were working in a fossil fuel company in any decision-making role, I would resign as soon as possible and probably not pursue any options for extending my lifespan or preserving my body in the hopes that future generations might revive it, as the generations come may have very little reason to be grateful to us.

[1]: Location 1151

[2]: Location 1161

[3]: Location 1164

[4]: Location 1785

[5]: From Justice Jackson’s opening argument, quoted in Location 3683

[6]: Location 4195

[7]: Location 5424

[8]: Location 5442

[9]: Location 5478

[10]: Location 5486

[11]: Location 5492

[12]: Location 6138

[13]: Location 6172

 

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Bitcoin is not a good fit for renewable energy. Here’s why.

Recent research suggests that Bitcoin network is using an appreciable fraction – 0.1% – of the world’s total electricity use and is projected to use up to 0.5%, or about what all the solar panels in the world produce, by the year’s end. These troubling developments have been met by claims that Bitcoin is actually a good thing, since increased demand promotes investments in new renewable energy technologies and in any case Bitcoin miners would “soon” convert to low-carbon, renewable energy anyway.

These claims belie a lack of understanding of how energy systems actually work, and why the fundamental economics of Bitcoin mining make it, in fact, one of the least renewables-compatible industrial processes on the planet today. In reality, in most jurisdictions Bitcoin mining most likely promotes increased and continuing use of coal. In the following, I try to explain as briefly as possible why this is so.

Let’s start by examining the economics of Bitcoin mining. As is well understood by everyone with more than a passing interest in Bitcoin, mining these days is the domain of specialized ASIC mining rigs. These mining rigs are relatively expensive investments that have no other profitable use, except as very expensive electric heating elements. As a result, a miner will try his utmost to make the most of the investment in the time available, meaning that the goal is to keep mining rigs in operation 24 hours per day, seven days a week, until they become obsolete.

All this consumes considerable quantities of electricity, so the miner has significant incentives to locate where this 24/7 electricity supply is available as cheaply as possible. We see the results in the concentration of miners in China, where coal power stations and lax environmental rules provide plentiful cheap electricity.

Now, in theory the miners could provide their power, or at least some of it, from renewable energy sources like wind power or solar photovoltaics (PVs). Proponents of this theory note the fall in the price of renewables and the fact that in many situations, the cost of electrical energy produced by these generators – usually expressed as Levelized Cost Of Electricity or LCOE – is already lower than the LCOE of fossil fuel fired plants.

However, the problem with this theory is that these promising renewable energy sources produce only intermittent, or variable, power. For reasons that ought to be obvious, both types of renewable energy are available only when weather conditions are favorable. Typically, the availability of variable sources is expressed as “capacity factor”, meaning what is the actual energy output relative to “nameplate” capacity. For wind power, typical capacity factors range from 25-30% for land-based wind to little more than 45% for the largest offshore wind farms in particularly suitable locations; for solar PV, capacity factors tend to fall between 8 to 15 percent.

What this means in practice is that variable renewable sources are and will always remain a poor fit for industrial processes where maximizing returns to the investment requires steady 24/7 operation. This problem has been understood and acknowledged by most existing industries, and even smelters are these days redesigning their technologies to better cope with variable production of electricity. For example, Swedish steelmaker SSAB is experimenting with hydrogen reduction techniques, where a major component of the steel plant would be a hydrogen storage tank that is filled when excess power is available and withdrawn for the process when it is not. (Additional benefit: no need for coal in the process, saving CO2 emissions in that way as well.) Bitcoin mining, however, cannot adapt easily, because there is no method for “saving” any energy-intensive component of the produce for less energy intensive processing in periods of low production.

It needs to be stressed at this point that the LCOE figures, which are the most commonly cited figures for the cost of renewable electricity, by definition do not account for this problem. LCOE simply means what it costs to produce an unit of electricity by a given source: whether or not that unit of electricity is produced when it is actually needed is a question LCOE figures cannot answer.

Of course, these problems can be mitigated to some extent by various solutions and combinations of solutions. One solution would be to construct large interconnector networks so that renewable generators somewhere would always produce at least some power. This helps to some extent, but it is not a panacea, and increases costs significantly: in effect, the total cost is the cost of all the generators required plus the cost of interconnectors. In energy researchers’ jargon, this is known as “overbuild” and various studies suggest a 24/7 energy system would require overbuild of something between 2 to 5 times of nominal capacity – in other words, at 2 to 5 times the nominal LCOE cost of electricity from a single renewable energy generator. Furthermore, there are significant political problems involved: local opposition to transmission lines is already a bottleneck to renewable energy increases in Germany, and constructing a grid that would markedly help Europe with solar PV’s inherent tendency to produce only during daytime would require installing the demand’s worth of solar panels along every longitude between Moscow and the Canary Islands.

For these reasons, energy researchers don’t see grid expansion as more than a partial solution to the problem. Energy storage methods, ranging from pumped hydro stations to synthetic gas to vast battery banks, are another partial solution. Again, these solutions entail additional costs that are not captured in the LCOE figures, and again, for various technical and economic reasons, these are nevertheless unlikely to amount for anything else than a partial solution at best as well. A basic problem here is that fossil fuel sources, which are the baseline against which all other solutions have to compete, are at the same time a source and a very convenient store of energy: a lump of coal stores energy very effectively until such a time as it is needed.

This leaves the third option: demand flexibility. If energy demand were to flex according to production, the problems with low-carbon production not quite matching the demand would diminish significantly. Therefore, literally every energy scenario produced during the last two decades concludes that switching the world’s energy supply from easily controllable (or “dispatchable”) fossil fuel supplies to energy sources whose drawbacks don’t include a probable collapse of human civilization requires a combination of vast interconnector networks, energy storage, and demand flexibility – and that the latter is extremely important. Google any energy report you want, and you will see that it stresses the essential importance of increasing demand flexibility. This means, simply, that we should shun processes that cannot be or are not easily throttled in response to variable supply.

Which brings us back to Bitcoin. Unless a way is devised to cheaply “store” hash rates achieved during periods of peak electricity production, Bitcoin mining will continue to require steady, inflexible 24/7 supplies of power. Theoretically, Bitcoin miners could certainly invest in battery banks or other energy storage methods to produce such energy services: in practice, this would very greatly increase the cost of electricity used.

For the foreseeable future, the cheapest source of steady 24/7 electricity supply will be coal or gas, except in few locations that are blessed with extremely abundant hydropower reserves. Bitcoin mining creates a stable, predictable demand coal power stations in particular love: throttling coal power up or down is generally difficult, and in fact one of the main reasons why renewables sometimes can shut down coal power plants is because coal plants have problems coping with flexibility demands. The more there is Bitcoin mining, the less need there is for coal plants to close, the more revenues they can collect, and the more political clout they have. In fact, there have already been news of shuttered coal plants being opened to power Bitcoin mining.

So for the foreseeable future at least, Bitcoin mining will promote and extend coal use in most places, most certainly in China. More inflexible demand is not great for renewables, and in general, inflexible uses should be shunned, not promoted these days.

Bitcoin enthusiasts might have a better case if they claimed that Bitcoin mining promotes the use of nuclear power, whose characteristics match more closely those of coal plants. However, I at least haven’t seen such a case made yet, and somehow I doubt the people who claim to be decentralizing everything are that enthusiastic about large, centralized power plants.

PS. Before anyone asks: yes, hydro and geothermal power plants could produce steady 24/7 power. However, 1) building more hydro plants in particular is very problematic, 2) geothermal electricity is competitive only in places where there is significant volcanic activity, 3) there are many other industrial processes where flexibility is difficult to increase, and dispatchable low-carbon power sources like hydro would be more gainfully employed either there or in smoothing out variable production.

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Practical policies for transition towards post-capitalist, post-scarcity society

One question I get asked a lot is that post-capitalism and post-scarcity sound like good ideas in theory, but how do we get from here to there in practice?

In other words: What are the actual, concrete political projects we should be advancing?

This is a good question and I don’t have as many good answers as I’d like to have. While I’m working on it, I’ll outline others’ suggestions for practical policies that could, in the long run if not in the short, make a difference.

This is a living document and I’ll append more examples as I find and get around to typing them. Please, feel more than free to leave suggestions!

Mason’s transition to a post-capitalist society

First off are Paul Mason’s five principles of transition from his worthy book, Postcapitalism: A guide to our future (Mason, 2015). The book includes a discussion of potential large-scale postcapitalist project called “Project Zero” (for zero-carbon energy system, the production of machines, products and services with zero marginal costs, and the reduction of necessary labor time as close as possible to zero).

Five principles

In Mason’s opinion, this transition needs to involve five principles (pp. 266–269:

  1. Understanding the limitations of human willpower in the face of a complex and fragile system. The solution to this problem, which hobbled the previous revolutionaries, is to test all proposals at small scale and model their macro-economic impact virtually many times before attempting them on a large scale.
  2. Ecological sustainability: transition and its technologies need to be designed to be sustainable.
  3. The transition is not just about economics; it needs to be a human transition. New networked economies create new kinds of people with new kinds of insecurities and new priorities. Any project cannot be simply about economic and social justice (important though they are), but needs to be a democratic one where people will see their lives improve meaningfully.
  4. Attack the problem from all angles. Meaningful action is not limited to a certain place or at certain levels; grassroots activism is just as important as high-level negotiations, particularly so because we need new kinds of regulation and governance to manage a zero marginal cost society. Solutions should be looked for through a mixture of small-scale experiment, proven models that can be scaled up, and top-down action by states.
  5. Maximize the power of information. Use social technologies, the internet of things, and whatever you can. The goal is to decentralize economic control; Internet could be the perfect tool for that.

Top-level goals (or “victory conditions”)

A list by Mason, not in any order of importance! (pp. 269–270)

A Precaution: WHENEVER POSSIBLE, TEST EVERY PROPOSAL VIRTUALLY WITH SIMULATION TOOLS BEFORE IMPLEMENTATION.

  1. Rapidly reduce carbon emissions so that the world has warmed by only two degrees Celcius by 2050, prevent an energy crisis and mitigate the chaos caused by climate events.
  2. Stabilize the finance system between now and 2050 by socialising it, so that ageing populations, climate change and the debt overhang do not combine to detonate a new boom-and-bust cycle and destroy the world economy.
  3. Deliver high levels of material prosperity and wellbeing to the majority of people, primarily by prioritizing information-rich technologies towards solving major social challenges, such as ill health, welfare dependency, sexual exploitation and poor education.
  4. Gear technology towards the reduction of necessary work to promote the rapid transition towards an automated economy. Eventually, work becomes voluntary, basic commodities and public services are free, and economic management becomes primarily an issue of energy and resources, not capital and labor.

References

Mason, P. (2015). Post-Capitalism: A Guide to our Future. London: Allen Lane.

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Post-scarcity: a research review (in progress!)

I’ve been slowly going through research literature on post-scarcity and so-called scarcity, abundance and sufficiency (SAS) school of thought.

TL;DR version: post-scarcity economy, where the economic problem of production has for all intents and purposes been solved and all the basic needs are met for all the people, seems to be a much more feasible proposition than many people believe. However, it will require development of new institutions to govern the new commons and political action to end the inequalities that threaten the world.

My presentation at the Finnish Political Science Association’s 2018 conference, 8.3.18:

(click here to go to Google Slides; feel free to comment!)

Paper will follow once I get it to some sort of shape.

 

 

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Pragmatic, inclusive energy discussion works

Here’s one data point for the debate about communicating nuclear power: The approval rating of nuclear power in Finland has risen by a whopping seven percentage points in a year. In Pyhäjoki, where the Russian Rosatom is building its highly-contested reactor, the approval of nuclear power hovers around 75 percent despite all the media attention given to the very real problems with the project and the way it was handled.

At the same time, the Finnish Ecomodernist Society has been more and more active in calm, measured discussion about energy and climate issues and the positives of including nuclear power as one energy option among others. While it would be an overstatement to say that the work of Finnish ecomodernists is responsible for this increase in public approval, at the very least it shows that thoughtful, balanced approach does not prevent the increase in popularity of a contentious energy source.

For some years now, I’ve firmly believed that all maximalist energy plans are mistakes on both practical and political levels. While plans and ideas that call for 100% renewable or 100% nuclear energy to decarbonise the world may be physically possible, I don’t think they represent the most reliable, nor the fastest, nor the cheapest ways to required near-total decarbonisation. Furthermore, I don’t believe we can know with any certainty the details of the energy system of the 2050s; therefore, arguing that one route or the other is clearly superior seems to me a case of hubris.

Instead, I believe that we ought to encourage all approaches that have the potential to reduce emissions to the atmosphere, or draw down greenhouse gases that are already there. I also believe that at this juncture, we don’t have the luxury of opposing any major low-carbon energy projects, unless for very good and fairly specific reasons.

We need to remain critical of energy technologies and, in particular, energy projects. There are no unproblematic technologies, and despite the obvious need for vast amounts of low-carbon energy, no technology or project should go unchallenged. But there is a fine line between being a critic, and coming off as an arrogant, obsessed devotee. Coming off as a latter – even if one is technically speaking correct – is a surefire way of alienating people who might actually be otherwise open to a discussion. Being obnoxiously certain of the superiority of one’s chosen solutions is just another way of being a jerk. (Note that I don’t claim to be innocent here, but I do try to make amends.)

And since we also need a lot higher public approval for all low-carbon energy and climate mitigation projects, we all ought to focus on promoting what we like instead of bashing what we don’t like. By all means, be critical – just don’t overdo it. The Finnish example shows, in my mind, that thoughtful discussion goes a lot farther a lot faster than bashing the opposition.

(As an aside, we’ve benefited from having a previous example. Back in 1993, the Finnish Parliament voted for a permit for the fifth nuclear reactor in Finland. The permit was denied, and latter post mortems noted that a major (though not the only) reason was the smug, alienating approached used by the promoters of the fifth nuclear reactor. They came off as arrogant, technocratic know-it-alls who disparaged every other idea and solution, called the opposition unscientific and irrational, and managed to alienate even some dyed-in-the-wool nuclear supporters. In contrast, the 2003 decision was lobbied very differently, with an approach that envisioned nuclear power as one solution among others and was by far more courteous to the critics. Since I read those post-mortems, I’ve done my best to cultivate similar approach in my advocacy.)

Thanks to Rauli Partanen for the idea for this post, and particularly for his hard work in energy advocacy. You should follow Rauli in Twitter, @kaikenhuippu, and check out our book, Climate Gamble.

Posted in Ecomodernism, Energy, Nuclear energy & weapons | Tagged , , , , | 6 Comments

Why I believe we ought to build a spacefaring civilisation

The successful launch of the Falcon Heavy is a milestone, and it has raised again the important question: should we humans try to create a spacefaring civilisation, even if we could?
 
This is a philosophical question, and answers to it are ultimately subjective. However, for those who are interested in such matters, I solved it to my own satisfaction quite some time ago. My conclusion, which obviously is a subjective one, is that we ought to at least try.
 
For all we know, we are the only tool-making, potentially spacefaring intelligence in the galactic neighborhood, possibly in our galaxy (there is a recent Bayesian estimate that suggests this might have as high as 40 percent probability) and maybe even in the visible universe, though I doubt that. Furthermore, as far as we know, complex life does not exist anywhere except on Earth.
 
Furthermore, we know for certain that cosmic disasters that are capable of wiping all complex life and possibly all life on Earth are a mathematical certainty. It’s not if they happen; it’s when they happen, and what can be done to prevent or mitigate them.
 
Normally, most people would agree that letting even one species go extinct if we could prevent it is an environmental wrongdoing, possibly even a crime.
 
What sort of crime it would be to let all life on Earth go extinct, if we had the opportunity to save at least some of it? To me, this would be a monstrous crime indeed. Even if the nearby stars teem with life, all life is unique and letting Earthlife go extinct from our neglect would be akin to letting an ecosystem on Earth die off. And if life is rare, then letting Earthlife go extinct could even mean the death of life itself.
 
This is the largest single reason why I don’t see environmental protection here on Earth and a vigorous space program as separate choices, but as complementary approaches to ensuring the longevity of life, experience and memory. The universe may not need curious creatures that are in awe of its wonders, but I still think this is a better place because such critters exist.
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My professional opinion as a blockchain researcher: I don’t see the point (yet)

I’ve spent the last 15 months researching the implications and possibilities of blockchains and related “distributed trust technologies” from a business and societal point of view. Sadly, I have to say that I don’t quite get the hype, as much as I’d love to believe in a technological revolution that democratises the world economy.

(NOTE: I’ve edited this text a bit to be clear that I’m talking about public blockchains. Private blockchains are a different matter, and they will have applications in e.g. automating many transactions. That said, the effects are hardly revolutionary, at least in the short term.)

As it stands, public blockchain is very much a kludgy solution looking for non-existent problem, namely lack of trusted intermediaries in finance and accounting.

Unfortunately for this central value proposition of blockchain, there is no lack of trusted enough intermediaries in the financial/accounting sector.

Very few people outside so-called crypto-anarchist community are opposed to trusted intermediaries as a matter of principle, and outside this (admittedly vocal) minority and those who for their own personal reasons want to believe in this scheme, I seriously doubt there is going to be a huge market of people who are willing to pay a premium (in time, effort or actual valuables) just for the sake of avoiding one sort of intermediary, only to trust the transactions to a code that may or may not be transparently accounted for.

For who among us can honestly say “yes, I am capable of reviewing the code behind blockchain applications I’m using and I have personally done so to make sure I’m not being scammed?”

How can the people who are now willing to trust their savings to blockchain technologies  be sure that the code and its underlying governance structures (that is, how it is being developed and modified) are in any way better than at least nominally democratically governed systems – with at least some possibility for recourse if things go sour – they want to replace?

To me, it all seems another gold craze, stoked not only by the usual crowd of techno-babblers keen on latching on the latest buzzword, but also by certified wingnuts from the long-discredited hyper-libertarian Austrian school of economics, kept buoyant by half-baked comparisons to “unreliable” “paper money” (which is nevertheless very effectively backed by the government’s universal tendency to require said paper money for taxes, not to mention the inconvenient fact that if societal trust erodes sufficiently for paper money to lose its value, it’s highly unlikely an arbitrary string of ones and zeros in an arbitrary hard disk somewhere would fare much better), spotty comparisons of current economic system to few exceptions where hyperinflation was allowed to run rampant, and perhaps most of all, by simple wishes that the persons currently propping up the belief in blockchains will not be the last ones who are blinded by the latest buzzword and get-rich-quick scheme.

Please do not get me wrong. I believe that in the long run, crypto-enabled distributed trust technologies could possibly have significant role in enabling micropayments and microinvestments, effectively by reducing transaction costs related to distribution and bookkeeping. There may also be some very interesting applications in governance and organisation of human work, and these initiatives ought to be followed more closely. Furthermore, private, permissioned blockchains are already quite useful for e.g. automating transactions.

However, the crypto-enthusiastic community loudly ignores that 1) there are absolutely no reasons the current banking system couldn’t reduce its own transaction costs enough to compete very effectively in these lucrative sectors, and 2) the bog standard public blockchain with its Proof of Work scheme (e.g. how Bitcoin burns electricity) is certainly not going to cut transaction costs enough, as throughput rates are simply not even within two orders of magnitude from what is needed. Case in point: a Bitcoin developer conference just announced it won’t be accepting Bitcoin as a means of payment, because it’s too slow and the transaction fees are too high. 

So we will inevitably end up with some variation of Proof of Stake protocol – where we will simply have to trust some users more than others – just because Proof of Work, where we don’t have to know or trust other users, is absolutely ridiculous waste of resources and will always have trouble scaling up.

See, for example, how Directed Acyclic Graph (DAG) “tangles” are proposed to work. And once we go down that route, it will become increasingly hard to avoid asking the question: since distributed computing in this sort of record-keeping is always going to be less efficient than centralised computing, what are the precise reasons we should not go the whole route and designate certain nodes as … trusted intermediaries?

So we’ll end up with what is basically a buzzword-enhanced database solution with some redundancy and consensus algorithms built in. These are not new, PAXOS consensus algorithms debuted in 1989 – and there are Reasons why they haven’t been used very much. Namely, performance, and the fact that there is no pressing problem these would solve.

Crypto applications will certainly be useful for verification of various things (again, these are not exactly new ideas) and I could foresee a micropayment and alternative finance systems that could well take off, provided the backbone is something else than blockchain as it is. (My money at the moment would be on DAGs, as both Bitcoin and Ethereum still seem to have grave problems scaling up – but it’s even more likely that someone will come up with something better than current DAGs.) This could develop into a microinvestment vehicle of some sort, and unlocking the investment potential of the world’s poor could well make some people very, very wealthy indeed.

However, there are also Reasons why such “penny stocks” have been regulated everywhere for decades if not centuries: they have always been fantastic vehicles for scamming the credulous. Cryptography is not some magic free lunch that totally changes the rules in investing and finance.

Feel free to call me a luddite or whatever. It’s just that I’ve been studying the possibilities of blockchains for business for over a year now, and while it is certainly possible that I simply lack the imagination (or chutzpah) necessary for bold proclamations, I just don’t see the possibilities the marketers seem to see.’

My advice to all those who are interested in blockchain systems is this: think very carefully whether the problem you are interested in solving will truly be easier to solve, or can be solved better, by distributing the database to the users of the database. If the answer is yes, and if you can also remain fairly confident that the solution will not infringe on privacy or financial regulation, and if you have money to spare, then by all means go ahead and experiment with blockchain technologies – though keep in mind that at this stage, everything is so rudimentary that systems will have to be built from scratch (not a good idea, usually) and that technologies can change abruptly. At this moment, there are already some fairly well established private blockchains, though.

Interesting things are more likely to appear in the smart contracts field, and technologies like blockchain are almost certainly going to be used both to enhance existing systems and to develop new kinds of services that are still hard to envision in detail. Some interesting developments that may point a direction to the future include automating some aspects of insurance markets, such as automating claims processing in more straightforward cases (e.g. when a flight is cancelled and customers need to be refunded) or even selling of insurances automatically based on mutually shared financial data. However, these technologies are still very much immature, and while early adopters could potentially benefit, the risks are also significant.

Very good reads on the topic are becoming more numerous than it is possible to keep track of, but here are some of the best ones I’ve come across lately.

Preston Byrne: The Problem with Calling Bitcoin a “Ponzi Scheme” (“This is no pyramid scheme – our model is the trapezoid!”)

Preston Byrne: The bear case for crypto, part I (the other parts are good too)

Webb Reports: Bitcoin: The world’s first decentralized Ponzi scheme

Someone wants to create “legally binding agreements” for consensual sex, and store them in … blockchain, because of course they would. 

One company found its valuation quadruple simply by adding “blockchain” to its name. No bubbles here, nossiree!

Governments are finally beginning to do something, and it doesn’t bode well for the prices of cryptocurrencies

Posted in Innovation, Notes in process | Tagged , , | 21 Comments