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Why exterminating central power in blockchains is an illusion

Why exterminating central power in blockchains is an illusion

What CIOs should consider as they get swept up in the extraordinary hype around blockchain

At most, business models will face a shift in power to the next generation of digital central powers – from monolithic to more fragmented atomic central authorities

Fabio Chesini, Gartner

The attraction of public blockchain ecosystems lies in the promise of decentralisation and disintermediation — a sort of utopia where we can all conduct digital interactions without the involvement of corporations or government agencies. 

This vision has driven a spectacular amount of investment in this space, with initiatives including cryptocurrencies, initial coin offerings (ICOs) and decentralised computing platforms like Ethereum. 

The idea behind bitcoin — the first digital cryptocurrency — was to create an electronic payment system by using a cryptographic proof mechanism for building trust. In other words, it was designed to replace third parties, like financial institutions, in facilitating specific social interactions for exchanging value, with a new autonomous digital structure known as the Bitcoin blockchain.

Social interactions, however, are more complex than just value exchange. They’re far from being replaced by algorithms. It doesn't matter how much technology we use to enable unattended or automated digital connections, or how much we push the boundaries of decentralisation.

Despite overwhelming hype, public blockchains won't eliminate central authorities. Humans need selfish, controlled and regulated complex social interactions to fulfill their basic needs for survival. They’ll always want and need to be in the loop to control or have a sense of control over the power delegated to a third party. Public blockchains can’t perform this function.

 If we compare public blockchains to another autonomous digital structure, the internet certainly revolutionised communications and data exchange, and brought the idea of disintermediation. The reality is that new central powerhouses emerged to accrue even more power and control.

Gartner analyst Fabio Chesini
Gartner analyst Fabio Chesini

Humans will always want and need to be in the loop to control or have a sense of control over the power delegated to a third party

My viewpoint contradicts the conventional wisdom that centralised business models are under threat of extinction due to public blockchains. I believe this is an illusion and that, at most, business models will face a shift in power to the next generation of digital central powers – from monolithic to more fragmented atomic central authorities.

This is considered ‘Maverick’ research at Gartner. This means it’s not a peer-reviewed official research position, but rather an idea we think CIOs should consider as they get swept up in the extraordinary hype around blockchain.

The fragility of autonomous digital structures

A public blockchain has a complex mechanism, one that empowers different actors — including developers, miners, validators and users — by segregating and interconnecting their duties. These actors are the new central authorities, with their own selfish interests, working together for a common purpose.

When we use a public blockchain, we're entering into a trustless uncontrolled relationship. Once we begin a transaction, we rely on the autonomous digital structure (the public blockchain) behaving the way it should behave. We're abandoning control of the actions performed by the public blockchain. There are no legally binding laws governing rights and obligations that can be enforced by a central authority.

A public blockchain, in other words, replaces a regulated organisation with a trustless autonomous structure. The regulated organisation such as a bank, is governed by public laws for “value exchange” enforced by central authorities. The trustless structure is enforced by mathematics with a decentralised governance model, and it sends value from point A to point B with no human control.

The governance models of public blockchains are far from being perfectly decentralised. Complex social interactions for gaining consensus are a long way from being replaced by algorithms. There are novel ideas for managing these complex social interactions within autonomous structures, such as EOS Blockchain, Tezos or DFINITY, for example.

In the near future, we might be able to trade value and delegate many activities in the autonomous digital realm. But no matter how we use public blockchains, we’ll always need regulated social interactions enforced by laws to make people accountable for having a sense of control.

Both regulated and nonregulated interactions are at the cornerstone of social interactions and deeply interrelated with the fulfilment of selfish basic human needs. It’s a utopian dream to think there can be a society regulated only by trustless pseudoanarchic systems. In other words, abandoning our control of future actions is intimately linked — in ways that are sometimes not obvious to see — to our primitive selfish instinct behaviour for survival.

As a society, we’re certainly going to take advantage of public blockchains, just as we have the internet. They can be used as a new frictionless mechanism for value exchange, for notarisation such as events certification, or even for running specific trustless services such as decentralised exchanges. But in the end, we’ll always need to make sure we’re in control when conducting business.

Social interactions are complex and regulated by public laws. We’re far from replacing those laws with digital cryptographic algorithms. Central authorities are needed to enforce regulated interactions, and they won’t go away anytime soon.

Society has shown that it can live with the internet, despite all the controversies about its governance model. The same will prove to be true of public blockchains and cryptocurrencies.

Fabio Chesini is a senior director analyst at Gartner, advising financial institutions on transaction banking, including commercial cash management, payments, collections and information services, and blockchain.

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