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Decentralization, GAFAM and banks

Pierre Noizat
Pierre Noizat

Full time Bitcoin entrepreneur since 2010, coder, Internet of Value evangelist. CEO and co-founder of Paymium and Blockchain.io.

Like architecture in urban planning, the architecture of digital networks reflects a vision of society. Centralized, these networks lead to the ultra-dominant positions of GAFAM and banks. Decentralized, like the Bitcoin network, they allow to build counter-powers. Monetary pluralism as a prerequisite for political pluralism must be based on a virtuous triptych: digital sovereignty, competition of currencies and decentralization of networks. This is why the current debates on social or environmental public policies are futile if we do not resist the centralization of the digital world, and in particular the sinew of war: money.

Ian Clarke (Freenet, 1999) on the left and Bram Cohen (BitTorrent, 2002),
pioneers of peer-to-peer networks.

Already in 2011, a study by the Swiss Federal Institute of Technology Zurich pointed out that the economy is more networked than ever before and that the winners are those who control the crossroads. According to this study, 147 multinationals control around 40% of the turnover of more than 40,000 companies operating on five continents. Of these 147 companies, 110 are banks. This centralization is only increasing.

As far as banks are concerned, and contrary to GAFAM, their dominant position is not the result of innovation or a performing service, but the consequence of a monetary monopoly, the ultimate stage of regulatory capture by an oligarchy: each individual, each company is now forced to use their service without any margin for negotiation, in a totally unbalanced distribution of power.

This ideology of globalism (the opposite of localism) vassalizes non-financial economic actors who, because they do not obtain loans in the same proportions as financiers, receive only a small fraction of the total money creation.

The same fiat money serves a local craft (the bakery) completely downstream of monetary creation and a capital-intensive industry (real estate) whith easy access to bank loans, at the source of monetary creation.

The inflation of this single currency affects real estate prices well before and much more strongly than the price of the baguette sold by the baker.

By what process of local democracy do we decide to finance one real estate project rather than another? None, apart from a vague public utility survey, totally biased, in the best of cases. The banker will have the last word. He will moreover propose better loan conditions to the real estate developer than to the baker, invoking "risk".

The capital created by debt and not by prior savings, favors crony capitalism to the detriment of the capitalism of progress, the rent-seekers to the detriment of risk-takers and innovators. Time is speeding up, but only for those who benefit from monetary creation. The others are lagging behind in terms of access to capital and therefore income.

Every service sector, every artisanal ecosystem could, since the invention of Bitcoin, function with its own decentralized currency in order to benefit from a monetary "short circuit", free from the parasitic intermediation of usurers. This short circuit does not aim to eliminate trusted third parties but to put them in competition with other options, the first of which is to transact without them.

The decentralization of money thus corrects two inevitable consequences of centralization:

• The privilege of money creation sets up an oligarchy that will gradually divert it to its own profit to the detriment of the general interest.
• The money-creation oligarchs achieve the monopoly of a single currency through regulatory capture.

But the two structural advantages of decentralization go beyond the simple correction of the defects of a centralized system :

Resilience: the disappearance of one or more servers has practically no effect on a sufficiently decentralized system. In this respect, for the last ten years, Bitcoin has had an availability rate (24/7/365) far superior to any other IT infrastructure in the financial services industry.

Censorship-Resistance: without gatekeepers, no one can rule over the Bitcoin network or prevent anyone from accessing it. Intermediaries therefore remain an option but cannot impose themselves as a necessary conduit. The benefits of optionality are transferred from the intermediaries to the users.

The struggle for secularism has allowed the separation of church and state in order to prevent the law of a God from taking precedence over that of the Republic. The same struggle awaits us to separate the currency from the State and prevent the banks from making the law. The monetary decentralization enabled by Bitcoin therefore corresponds to a monetary secularism resulting in competing currencies, none of which is recognized by the State as superior or preferable to the others. Just as the State does not recognize any religion and must only ensure freedom of conscience (including atheistic conscience), its normative role concerning means of payment must not lead to a de facto or de jure monopoly of the benefit of a single currency.

The decentralization of industrial production and agriculture implies being less efficient globally to be more resilient, sovereign and sustainable locally. Former consumers, who have become actors in the now rational economy, will have to rediscover an epicurean frugality to free themselves from the productivist dictatorship of the rent-seekers.

Why is Bitcoin the most decentralized currency?

Decentralization is a relative value that falls within a spectrum starting from Bitcoin, the most decentralized, to the centralized monopoly of fiat money. There is therefore no binary answer to the question of whether a currency is decentralized: it is rather a question of measuring how decentralized it is and what advantages it has over another.

Bitcoin's "Proof of work" principle ensures that no single entity can sustainably take control of the network. Any dominant position of one miner can be challenged by another miner investing sufficient material and electrical resources. The mining activity, which is highly relocatable, benefits from permanent geographical and jurisdictional arbitration: miners have a strong incentive to seek the cheapest electricity and the most lenient jurisdiction, even if it means often relocating their facilities.

The cheapest electricity is essentially found in the surplus of hydroelectric production. Bitcoin thus promotes the development of hydroelectric infrastructure. Jurisdictions that would like to prohibit mining would give up this financing mechanism without being able to prevent mining from developing elsewhere.

The Dresden Power Plant in New York State uses its instantaneous surplus production to mine bitcoins.
© 2020 Greenidge Generation, LLC

Only one network based on Proof of Work can exist in the long term, because competing PoW networks split the energy expenditure. This dispersal results in a lower overall security level than could be achieved at constant expenditure on the Bitcoin network.

Alternatives to the Proof of Work (Proof of Stake, etc.) are aimed at creating less decentralized forms of currency to fill the space between Bitcoin and traditional fiat currencies. It is possible that the ultimate form of these alternatives will converge to stablecoins.

If the ECB claims to be studying the possibility of tokenizing the Euro in the form of a stablecoin, the undeniable utility of an elastic index (stablecoin) is to ensure relative price stability in the short term. The liquidity of Bitcoin, exchangeable 24/7 in fiat currency, worldwide and in the "moment of reason" of a transaction, payments can be made via the Bitcoin network, but buyers will always prefer a readable and stable price display.

An elastic index (e.g. 1 in 2020 and 1.01 or 0.99 in 2021) does not need to be called a "currency" at all: all that is needed is a consensus or governed algorithm that scans the value of a basket of goods and services. The definition of the contours of the basket is of course political. The INSEE price index in France, shamelessly biased in order to feed the banks' propaganda, is a counter-example, not to be followed.

Once the buyer and seller agree on a price expressed in the index of their choice, they are free to use the payment network of their choice, notably the Bitcoin network base layer (processing capacity limited by the size of the blocks) or its 2nd layer "Lightning network" (theoretically unlimited capacity). Nothing prevents the State from printing more bank notes. Gresham's law does state that bad money drives out good money. Buyers prefer to get rid of their euros rather than of their gold or bitcoins. Merchants, on the other hand, face regulatory obstacles to the adoption of alternative means of payment such as Bitcoin.

As Yuval Noah Harari so aptly wrote in Homo Deus, "We must learn history not to predict the future but to free ourselves from the past and be able to imagine other destinies.” The myth of the single currency as the cement of a common destiny is still based on the undivided domination of the banks and the GAFAMs, so that the mastery of this destiny eludes us. The decentralization of networks frightens them precisely because it draws the contours of a true common destiny, freely chosen and sovereignly controlled.

To go further:

Shoshana Zuboff, The Age of Surveillance Capitalism, 2019

Jaron Lanier, Who owns the future, 2012

Interview with Philippe Sandt on August 7, 2020, Kitchen philosophy

“Univers Bitcoin” Podcast, #16

About the author

Pierre Noizat, French bitcoin and blockchain pioneer, is the CEO & co-founder of Paymium and Blockchain.io exchanges. He is also a speaker and the author of several books on the subject, including “Bitcoin, an instruction manual” published in January 2015, and the blog e-ducat.fr dedicated to decentralized digital currencies.

This article was originally published on September 19, 2020 on e-ducat.fr under the Creative Commons Attribution - Share Alike 2.0 France license.

Pierre Noizat
Pierre Noizat

Full time Bitcoin entrepreneur since 2010, coder, Internet of Value evangelist. CEO and co-founder of Paymium and Blockchain.io.

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