It is often said that blockchain is a disruptive technology that relies on decentralization. The ability to exclude third parties from the process of interaction between two participants is indeed revolutionizing the process. Let’s explore this innovation in more detail.
TLDR:
- Trust is the most important part of our society. Although we may not realize it, we are vitally dependent on it. Our trust can be abused by third parties.
- Blockchain is a foundational technology because it works with trust. Its potential impact on society can be likened to the internet. By definition, foundational technologies are those that can enable advances and applications in different problem areas.
- Blockchain can help solve problems wherever there is a trust issue and a third party can abuse its position. This is wherever the system will work better if more power, but also more responsibility, is put back into people’s hands.
- Many of our society’s problems stem from greed. Humans have a strongly encoded survival instinct. This compels them to gather the resources that will enable them to survive. Blockchain cannot fix greed. What can do, however, is to weaken the position of third parties.
- Cardano is built to enable to omit intermediaries in many different places. It allows people to interact directly and provides a possibility to agree on the rules of the interaction.
- Financial and social interaction tends to be about following agreements and rules. The complexity of agreements and rules increases as trust decreases. A smart contract is a kind of extension of the capabilities of a transactional network. They allow for greater granularity in terms of focusing on a particular problem among users. It is about the possibility to define rules between parties.
- Blockchain is useful in places where people do not trust each other and are not able to agree on a single third party that would write data.
- The rules of the first layers are about the internal setup of the economic model and ensure the functioning of the network. From our point of view, the rules concerning monetary policy and the transactional networks of the first layers seem insufficient to cause a major disruption in society.
- We need blockchain to make a fundamental change in society. Our trust in third parties is waning. Blockchain can ensure trust between all of us, including bigger third parties.
Everything is about trust
Trust is absolutely essential for the functioning of the world. Every single interaction between people requires trust. Interaction built on trust alone can sometimes fail, and therefore there are many repair mechanisms to resolve conflicts. Trust can be abused by one party for its own gain. It is in our society’s interest to maintain trust at a high level. Many financial and social interactions today are protected by law, with third parties overseeing compliance. People trust each other because they trust the authorities to resolve any conflict.
Authorities are able to prevent abuses of trust. This mechanism requires people to trust third parties. It is thus essential that authorities maintain their credibility. Loss of trust in authorities could lead to loss of trust among people. Without third parties that represent the trust authority of last resort, people would have to start resolving disputes themselves. This could disrupt the world order. New laws and new guardians of trust would probably arise.
The basic trust between people is not developing much and is still the same. People trust family and friends because they have found through experience that they keep their word. But people have to trust many other people, companies, institutions, and governments. We have to trust our employer to pay our wages, we have to trust an online shop to send us the goods we have paid for, we have to trust a bank not to take our money, we have to trust governments not to raise taxes unnecessarily, we have to trust laws and judges to protect our rights and property. Trust is a very complex subject today and there are many places where trust can be broken or may not work effectively.
Third-party trust issues are linked to abuse of power in many possible ways and low transparency, both in the performance of the service and in the case of audits. In addition, problems may relate to excessive complexity and therefore inefficiency. This can result in an inability to adapt to new conditions and a rapidly changing world. Time is money. Time is becoming a very expensive commodity and for wealthy people, time is often more valuable than money. If trust is broken, costs and time increase when people interact with each other, whatever the goal of the interaction. Conversely, time and costs decrease when trust is present. It is therefore important that the level of trust is as high as possible.
Blockchain technology brings innovation at the trust level. That is why we refer to it as a foundational technology and compare its potential impact on society to the Internet. Foundational technologies are by definition those that can enable progress and applications in a variety of problem domains. The Internet has done this, and it has manifested itself in some form in perhaps every human sector. Now the same is expected of blockchain technology. Or rather from public decentralized blockchain networks, not so much from private corporate solutions.
Decentralized blockchain networks can perform similar services as third parties. What is truly innovative is the ability to improve their operation and maintain a high level of trust. Decentralization allows the autonomous execution of rules. Processes can be completely transparent where needed, auditing can be easy and 100% reliable. The efficiency of processes can be increased. The systems can be completely fair to everyone equally and no one will be able to covertly abuse their position to own benefit. Let’s look at specific examples to understand how important trust is in people’s everyday lives.
Financial and social interaction tends to be about following agreements and rules. The complexity of agreements and rules increases as trust decreases. If you want a small loan from a good friend, you simply agree without a third party and without a contract. You rely on the friend not to risk a friendship for little gain. Trust has a high value. Trust takes a long time to build, but it can be lost quickly. Rebuilding trust takes a long time, and sometimes the restoration may not fully succeed.
In the real world, however, we need to interact with someone we are seeing for the first time in our lives. Therefore, mutual trust will not be high. Breach of trust can be tempting for one party. Especially if the parties do not know each other very well and there is no emotional involvement at stake. The interaction may be vital to one party and any breach of trust could result in unfortunate consequences. It is therefore essential to take into account possible breaches of trust. Borrowing to buy a house, start your own business, or for your children’s education is a case where we need to trust someone who can lend us money at a reasonable interest rate. The mutual agreement has a written form and many rules. To conclude such a loan takes time and is not free. Experienced attorneys must look at the agreement and if there is a dispute, both parties have confidence in their lawyers and the legal system in that jurisdiction.
Did you notice something? Being able to trust someone you don’t know well is only possible because you trust authorities or other third parties. Laws dictate what a contract between citizens should look like, how much interest is fair on a loan, how long working hours should be, or how to return poor quality goods bought from an online shop. If the trust between the two parties is not high, someone or something else must provide it for both. Each of the interacting parties knows the public explicit or implicit rules and also knows how any conflict will be resolved. Trust works because it is not socially or economically advantageous to break the rules.
Mutual trust is essentially about agreed or generally accepted rules and adherence to them. People have trust in centralized third parties for creating, oversight, and enforcement of rules. The revolution brought about by blockchain is about the possibility of decentralizing this activity that is absolutely crucial for people. At its very basic core, decentralization is about defining rules that are unbreakable, transparent, and the same for everyone. Decentralization can prevent abuses of trust in specific places. Obviously, people who abuse trust today will resist the development and adoption of this technology. The rules by which our society is governed today are complex, we have too many of them, and the whole process of creating and changing them requires a huge bureaucratic apparatus. Blockchain may offer a return to simplification, which paradoxically can also be a relatively complex process.
People generally value the trust they have earned and benefit socially and financially. Replacing centralized entities with decentralized networks will certainly not be an easy task and many people will naturally resist it. This fear is to some extent unnecessary and futile. Technology will make it possible to replace specific jobs, but new jobs are being created. It is necessary to look for the advantages that decentralization offers and think about appropriate uses. The loss of trust in third parties could have far worse social consequences than the adoption of blockchain.
What blockchain can really change?
We said that blockchain can disrupt many sectors. Who would have thought, for example, that Cardano would find its first application in the education sector in Ethiopia? The education sector is far from finance at first glance. However, the opposite is true. In a country where corruption is high and trust between government and citizens can be very low, it is advantageous to use technology to increase trust. There are cases where it does not make sense from a government position to put too much trust in centralized local entities. It is preferable to trust multiple independent entities that are directly involved in the process. Data from multiple sources can be used to build an overall picture of the situation. State financial support can then be allocated more accurately to where it is really needed.
It is good to ask a very fundamental question. What is the difference between a database and a blockchain? We will answer the question from the perspective of trust. In the case of a database, it is an arrangement where all participants trust one centralized entity. Alternatively, multiple centralized entities. One entity cannot be responsible for all business sectors, e.g. education, health, ecology, transport, etc. Therefore, there are multiple centralized entities. All data are held in databases. Users do not actually own them and have no control. Database administrators have control of data. There is an element of decentralization in this arrangement as the centralized entities are independent of each other. If trust is broken in the health sector, for example, it will not affect the transport sector. Each individual centralized center of power poses a potential risk of breaking trust. The administrator of the centralized server can do whatever she wants with the data without having to interact with the users.
A decentralized system like Cardano has no significant center of power. All participants have equal status. For example, there is no distinction between a civil servant and a citizen. The important thing is that individual participants decide on the change of data. Thus, a financial transaction is only sent if the owner of the funds confirms this through cryptography. The civil servant cannot fraudulently send the transaction instead of the owner or prevent it. The transaction record is never lost and cannot be altered. The network is used as a transport mechanism. Blockchain is a record of all transactions. In the case of using second layers, blockchain contains the final balances of all accounts. This is a fundamental difference compared to a conventional database. The individual users are the owners of the coins or their data and only they decide on the change. In many cases, only the participants can hold the data and the blockchain is only used as the necessary underlying infrastructure for cryptography.
It can be said that when using blockchain, all participants are equal. The power goes back into the hands of the participants. If the system has an imaginary center of power, such as a city hall, all interactions will be transparent (not necessarily public, but better auditable) and it will be significantly more difficult to abuse power. For example, if a citizen pays a compulsory tax, the official cannot conceal this fact in an attempt to steal the money. Similarly, a citizen cannot claim that he has paid the tax and the officials have registered it incorrectly.
Some people sometimes think that innovative blockchain technology makes it necessary to replace certain elements on a societal or financial level. For example, that Bitcoin was to replace monetary banks, which are essential components of all sovereign states. We do not think that it is absolutely necessary to replace something at all costs. Sometimes an improvement on a technological level or an alternative choice is enough. Today’s world is too complex to simply replace one part of a complex system and keep all the others. If we have a problem at the level of trust, it is a broader problem that involves multiple parts of the system. The solution may not be a complete replacement, but sensible and targeted improvements in specific places.
Incremental improvement is a much safer form of blockchain technology adoption than sudden disruption. We can observe this in the Ethiopian example. Cardano solves a specific problem that would not be easy to solve through a database. Why is it better to use blockchain? Because the system works with the digital identity of students and teachers. Attendance, exam results, and other things are entered into the system individually by all participants under their own identities. A regular database could certainly be used as a data repository, but here a different problem is being solved. We are solving the problem of the trustworthiness of data entry into the system. We don’t want centralized entities to manipulate the data to their advantage. It must be understood that the system will not prevent teachers from giving their students better grades in an effort to improve their achievement. However, the teachers are responsible for entering the data and a third party has no chance to influence the data in any way. Blockchain thus puts not only power back in people’s hands, but also direct responsibility for their actions. If students fail a college entrance exam, it will be possible to point out the inconsistency with grades from previous schools. From the government’s point of view, it is all about having credible and unbiased data from all individual participants.
So where can blockchain help solve problems? The answer is surprisingly simple. Wherever there is a trust issue and a third party can abuse its position. This is wherever the system will work better if more power, but also more responsibility, is put back into people’s hands. I am sure you can think of many examples yourself from your own environment. Every single country in the world is dealing with different problems. In the West, there is generally more trust between people and trust in authority, because there is a higher success rate in detecting crime and enforcing the law. There is also a higher level of communication between people and institutions. In developing countries, this can be significantly worse. This may also be because there is almost no digital infrastructure. Some countries will skip the centralized solutions we have in the West and everything can be built directly on the blockchain. So from the very beginning, trust will be built very differently on a technological level.
Blockchain technology can change absolutely everything if people want to. Blockchain can give people more freedom and sovereignty. It can prevent abuse of power in many places and make our society more transparent. There will always be centers of power in human society. There will be political parties, governments, central and commercial banks, multinational companies and institutions, local companies and businesses, etc. Decentralized technology has no chance of disrupting the social order that has been in place essentially since the beginning of our modern civilization. The goal of blockchain technology is not to disrupt everything around us, but to fundamentally improve it. The impact of specific changes on society is hard to estimate. Certain is this. If we start to change things at the level of trust, we as a society will have to redefine our attitude towards things like identity, money, ownership, privacy, decision-making power, etc.
Our biggest problem is greed
It’s always good to be able to name specific problems and then look for an acceptable solution to them. People are very good at finding and naming problems. However, their solutions are often stuck, which is a problem in itself. There are problems that most of society knows about, yet there is no common will to change. Many of our society’s problems stem from greed.
Humans have a strongly encoded survival instinct. This compels them to gather the resources that will enable them to survive. Often at the expense of others. In modern society, people seek a balance between their own wealth and that of others. We often observe a great deal of greed in those with a strong financial or social position. Powerful status goes hand in hand with the centralization of power. Almost all people on the planet are profit-oriented. Some less, some noticeably more. The problem tends to be especially with those entities that are powerful and can abuse their position. Greed at this level leads to the accumulation of great wealth. The accumulation of wealth is not in itself a problem, as long as it is not at the expense of others.
Can decentralization fix greed? It can’t. Technology has limited ways to prevent individuals from accumulating wealth and influencing their environment through their dominance. What decentralization can do is offer the possibility of Peer-to-Peer communication in social or financial interaction. If we leave unnecessary intermediaries out of the processes of interaction, we weaken their ability to abuse their position. Intermediaries profit disproportionately from fees or misuse of data about us.
Cardano is built precisely for the purpose of being able to omit intermediaries. Allowing people to interact directly and freeing them from dependence on intermediaries puts a lot of power in their hands. Greed cannot be fixed, but its possibilities can be blunted.
From the beginning, the goal of cryptocurrencies has been to be able to do without banks altogether. Banks get rich through our fees, and they can misuse our personal data to increase profits. If there was a globally available network that was faster, more reliable, and had lower fees, it would be beneficial for people to take advantage of it. Not only will they themselves save money, but they will also weaken the dominant position of the bank, which can charge exorbitant fees for cross-border transactions, account maintenance, credit card provision, loans, etc.
If people switch to other technologies, a bank that wants to survive will have to fundamentally change its business model. Lending, insurance, investment, and savings are areas that ordinary people are not very interested in and are happy to take advice on or pay for services. Banks may continue to exist in some form, but they may not hold our money and, ultimately, our data. If a bank lends to us, let the loan be made on a blockchain with predictable fees and the inability to change the contract during its lifetime. Let decentralized alternatives to traditional banks emerge that compete on price, reliability, or even anonymity and global accessibility.
Abuses of dominance can be seen almost everywhere around us. Technology has the potential to completely disrupt the established order, and it doesn’t have to be just blockchain. We see many examples throughout history where technology has punished excessive greed. BitTorrent, for example, began disrupting the music industry around 2001. Several major music labels had contracts with almost all the famous artists. These producers got rich by selling overpriced CDs and profited enormously. The middleman was rewarded, not the artists. All at the expense of the end-users. BitTorrent made it possible to share music between users for free, and other technologies made it easy to play on personal computers. In this music sharing, copyrights were infringed and many lawsuits were filed. Many services built on data sharing had to go out of business. However, something has changed. People were no longer willing to patronize the fortunes of the major labels, and the giants eventually fell. Today, music is streamed. People can consume as much music as they want and are willing to pay reasonably.
In the case of the music industry, it ended well. Is it possible to change the world of finance in a similar way? It is much more protected by national governments and multinational interests. The world of finance is very slow to accept innovation. Everything has sort of stopped with credit cards and internet banking. You could even say that the big IT giants are more eager to innovate than the banks themselves. The financial world is in for a major revolution in the next decade. There are several reasons for this. A loss of trust in traditional services, a reluctance to build financial infrastructure in developing countries, better existing solutions offering better terms, and hopes for a more comprehensive change in society. We believe that people will embrace the opportunity to use alternative financial protocols and that they will not be afraid of the potential changes that will inevitably impact governments as well.
Blockchain, not Bitcoin
There is still a lot of debate about whether all the problems can be solved by Bitcoin and its other layers, or whether other networks like Cardano will find a place. If blockchain and decentralized networks are truly groundbreaking inventions with the potential to turn the world upside down, it is naive to think that the technology will not continue to evolve. Banks will always have a lot of capital, so a significant portion of the population will go there for a loan. This will not change even if there is global bitcoinization. A bank could lend us bitcoin instead of fiat currencies and still charge unreasonable fees, change the terms of the contract, or misuse our personal data. Banks would continue to ignore the needs of developing countries and abuse their dominant position. From the perspective of the people, nothing would change. Why? Because the problem of trust has not been solved.
Forget bitcoinization, it won’t happen in our lifetimes anyway because of high volatility. Let’s think a little more realistically. What makes the most sense is peer-to-peer communication. Decentralization must be seen as a trust machine. Cardano is a network that allows participants to establish trusted communication with each other without an intermediary. Users own and dispose of all resources. In a way, the network is just a decentralized mechanism for transmitting and recording information.
The success of blockchain technology will be greater the higher the ability to omit third parties from the communication. There is competition at the level of price, speed, or reliability of service, but what brings real disruption is improvements at the level of trust. Trust has two levels. First, there is trust in the protocol itself, for example, that there will only be 45 billion ADA coins and never more. Users trust the team that modifies the protocol. Next, they trust all the people who run the full nodes, especially the pool operators. This also includes trust in the network that processes signed transactions. All transactions must be included in new blocks and values transferred as expected by the signers.
More important, however, is ensuring trust among the participants themselves. If Alice and Bob want to send each other some tokens, there must be no fraud. If Alice and Bob don’t know each other, they won’t even trust each other. Even more so if the transaction involves a larger amount of money. In the traditional world, fraud is handled by the legal system. But it often only works on a local level. If Alice were from China and Bob from Russia, a potential dispute might never be resolved because of the language barrier and the cost of the investigation.
Let’s take an example. Alice is from China and sells stocks of the Tencent company. Bob is an investor from Russia who wants to buy the stock for 10,000 ADA coins. The pair agree to exchange tokens via chat. Now a problem arises. Who should send the tokens first? Should Alice send the shares first or Bob send the ADA coins?
Blockchain will only be successful if it can establish trust between participants in these kinds of interactions. If we want to spend money, we always want to be sure that we will get the goods or services we have purchased. As we explained above, one solution is that we are protected by a third party in the form of state authority. If Russia and China agree to resolve conflicts that arise on blockchain technologies, and practice shows that this is indeed happening, one of the pair, Alice or Bob, can send the tokens first. If Alice sends shares first and Bob does not pay, Alice will contact the Chinese authorities for help.
This dispute may take a very long time to resolve. Moreover, the attitude of states towards blockchain technology may be lukewarm. Authorities may not be willing to resolve these disputes. Cardano is a global network and wants to be able to connect people around the world in a trustworthy way. Is there any other solution that can do without third parties?
Fortunately, it exists. It’s smart contracts. A smart contract is a kind of extension of the capabilities of a transactional network. They allow for greater granularity in terms of focusing on a particular problem among users. You can write a contract that serves as a temporary custody service. A smart contract can be a temporary token store and will only exchange tokens if Alice and Bob send the expected amount of tokens. This protects both Alice and Bob from fraud. If only one party sends tokens, the smart contract will return them to the sender after a defined time. There will be no exchange, but there will be no fraud either. It could be said that the smart contract was able to play the role of an intermediary, which would be difficult to find in practice. Moreover, this intermediary could be relatively expensive and inefficient compared to the smart contract.
A similar transaction would never happen on Bitcoin. Let’s think about why. Tokenized stocks were required for implementation. These stocks must exist on the blockchain and must be verifiable that they are really stocks of the company. To do this, the identity of the issuer of the stocks must be verified. Next, a smart contract must be written to exchange the tokens. Cardano is built for exactly this kind of financial interaction. Cardano allows tokenization, working with decentralized identity, and writing smart contracts.
If two parties are to lend each other some funds, they need very similar properties. They need a stable financial environment, ideally through stable coins. Next, use the identity of the borrower and lender, put something up as collateral, and write a smart contract. On top of that, the fees for deploying the contract and subsequent transactions should be cheap and predictable. It doesn’t make sense to borrow $1000, pay $50 in interest, and then pay maybe $60 in transaction fees on top of that.
We have no doubts about the success of Cardano, as it will allow much more diverse things to be implemented at the trust level than Bitcoin. Bitcoin transactions only work between users who know and trust each other. Any disputes must be resolved by the legal system and state authorities. If an authority needs to be engaged to resolve disputes, it makes no sense to seek to disrupt it. As we have shown in the example of cryptocurrency-for-stock exchanges, Cardano will enable the trusted execution of token exchanges in such a way that a third party will theoretically never be needed. Yet we do not think that this and other capabilities will cause the demise of state authorities. It makes sense to consider using blockchain technologies to ensure that there are fewer disputes and greater trust between participants.
Connecting digital technology and society
We could find more reasons why blockchain is not more adopted than the community would like at the moment. These include uncertainty around regulation, low technological readiness for mass adoption, low interoperability with current systems, low trust in new technologies. Adoption will take a long time, but at this point, we can be almost certain that it will happen.
For some of the above uses, regulations are necessary. Especially for the DeFi sector. Tokenization of stocks is easy to implement on Cardano at the moment, but regulatory uncertainty, in particular, prevents this. The same also applies to the possibility to enter into contracts on the blockchain. Participants would like to know if the law will help them in case of problems and what specifically is possible. Uncertainty hinders wider adoption as people, but especially large companies, will not risk unnecessary problems or even suspicion of breaking the law.
As soon as the regulations become clearer, it will be possible to start connecting decentralized networks with current solutions. It is easy to issue a decentralized identity on the blockchain, but it still requires cooperation with current authorities who can legally validate the identity. This is not a problem in developing countries, as people in the aforementioned Ethiopia have no identity. Within developed countries, this can be seen as extra work from the point of view of the authorities. Although adoption, or the promotion of a nascent technology, makes sense from the point of view of the people, the authorities may take a completely opposite view. Try to imagine the benefits when the whole world worked with one standard for people’s identity. Citizens from China would have a similar identity to citizens from Russia or the US. Everyone would know how to verify such an identity and how to work with it.
People are looking for ways to connect decentralized networks to physical or traditional centralized worlds. The NFT sector is essentially just one more such attempt alongside DeFI and ICO. NFT can be seen as an effort to connect art with the world of decentralization, which allows for unquestionable ownership of digital tokens, shared ownership, easy sale, or the implementation of new business models. At its core, it is again about changing the handling of trust or approaching Peer-to-Peer transactions. If physical art were tokenized and copyright guaranteed by law, the utilization would take on a whole new dimension. Let us not forget that pictures, music, films, magazines, games, advertising, even images are now mainly consumed digitally. In this light, NFT offers a huge potential that is waiting to be fulfilled. However, adoption must come from famous artists, and here again, regulations can help significantly.
From our point of view, there needs to be more integration and therefore adoption with decentralized systems. If we wanted to pay with cryptocurrencies and states considered it an illegal activity or were unwilling to address potential cryptocurrency fraud, mass adoption would never happen. Usage would be limited to only a few scenarios. Purely decentralized cryptocurrency payments would only work in a face-to-face scenario. Anonymous or semi-anonymous payments over the internet would be riskier. It may be difficult for the general public to build trust in decentralized systems if they are deemed unsafe or illegal by authorities. Once precise rules and laws are defined, decentralization will have the door open for mass adoption.
Is blockchain really needed?
If participants trust each other, do they need a blockchain? They don’t, because it doesn’t matter who writes the data into the database. What if there are multiple participants and they don’t trust each other? The option is that they all agree on a single third party to trust. This third party again only needs the database. Blockchain is best suited to an environment in which there are many participants who do not trust each other. Therefore, it is necessary to reach a majority consensus over each data entry. Participants need to look out for each other. The definition of decentralization states that all participants are equal to each other. While this is not the case in practice, there is an effort to get closer to this definition. In a decentralized system, participants can enter at any time and it must be assured that no one has any advantage from having dominance. Ideally, of course, there should not be a situation where someone is in a dominant position. The rules must still apply equally to all.
Let’s look at how today’s systems work. Decisions about a particular technology and system setup can only be made by those participants who are present at the beginning or those who own the system. Those arriving later must accept the initial state. This applies to the operation of both governments and large companies. The government apparatus is somehow set up at the beginning and then only slowly and clumsily changed. Fundamental things are difficult to change. This is how it has often worked for centuries. Big companies have an even easier position because they build the system to generate profit. All other interests can go by the wayside. Once a large company has a large enough network effect, it can abuse its position almost indefinitely. Many people are born into a world in which basic functioning is decided long ago and without them. It’s hard to change anything because the system is protected by a lot of inertia.
A system based on centralization is fundamentally different from one that honors the principles of decentralization. The difference is most evident in the definition of rules, the possibility of changing them, and the redistribution of resources. In a centralized state system, the rules can be bent and circumvented. Even if the system is democratic, compliance with the rules cannot rely upon 100%. As we have already said, companies just need to follow the law and do not need to behave democratically. In centralized systems, there are always entities that overly benefit from their position. In a state system, there are control bodies that try to prevent this. Look for nothing of the sort in companies.
Decentralized systems have basic rules hardwired into the source code, and participants can monitor compliance. These rules cannot be circumvented or abused. They can only be accepted and used. This can also apply to the reallocation of resources. At the base layer of the Cardano protocol, we are talking about native ADA coins that allow the system to be owned. For the system to survive, the protocol must collect fees, which it then redistributes. The fees collected and the new coins from the monetary expansion will be given to all current stakeholders. The rules for redistribution are fixed by the protocol and apply equally to all newcomers. Dominance can only come from excessive ownership of ADA coins. However, this does not change the fact that a majority holder of ADA coins can bend the laws of the protocol without the other participants noticing. Transparency and fairness will still be maintained.
The rules of the Cardano protocol and the distribution of power via ADA coins are about the internal setup of the economic model and ensure the functioning of the network. So do all other networks like Bitcoin, Ethereum, etc. The most important rule is always about monetary policy. Other rules are about the transmission network, i.e. block creation and transaction verification. Let us now ask ourselves the very key questions. Can these simple first-layer protocol rules change the way our society works? Can the concept of decentralization make its way into the centralized structures of states and companies? Is Cardano really the biggest innovation after the Internet?
Let’s take it one step at a time. From our point of view, the rules concerning monetary policy and the transactional networks of the first layers seem insufficient to cause a major disruption in society. Alternative transaction networks with their own coins have no chance of becoming a unit of account or a mass medium of exchange. Even if we allow for this possibility, it still does not solve our trust issues with centralized entities.
There will always be entities in our society that serve multiple people. It doesn’t matter if we’re talking about existing services or newly created alternatives. There will always be some public service entities and successful global companies in our society. If we stopped paying taxes, we would still have to find a way to fund the maintenance and construction of roads in the local areas. People will always be forced to trust third parties they do not know personally and may not fully trust.
Do you remember that blockchain fits the best into an environment where people don’t trust each other? It can also be used where multiple people need to trust a single entity. Third parties can have a dominant position in terms of decision-making power regarding the funds entrusted to them. What can change is higher transparency and thus a higher chance that decision-making power will not be misused.
If we limited ourselves to a transaction network, the third party would basically just publish their address where people would send funds. Once the third party had the funds, they could do whatever they wanted with them. In countries with high levels of corruption and an inability to punish fraudsters, this would work much like it does today. The change would be negligible. Trust can be abused. Remember when Alice and Bob wanted to exchange stocks and ADA coins? Smart contracts will allow us to build new alternative business models. The powers to dispose of the funds collected can be limited and it can even be ensured that the funds will be returned to the people if certain conditions are not met. Building a new highway can be designed like a loan. The builder borrows from the people and promises to pay the money back once the road is in use. A toll will be collected which will be used to pay off the debt. People may choose to sponsor the construction of the highway in return for getting a lifetime chance to use it for free. They will be given a token linked to their identity that will allow them to use the highway. The contract between the builder and the people can be complex, but smart contracts allow all possible scenarios to be treated.
The adoption of decentralized technologies will require changing mindsets and finding new ways for society to function. It may lead to a redefinition of the social contract between us and governments. Technology gives us opportunities for which it is useful to seek applications. The development of technology will never stop, so the number of opportunities for applications will grow. Decentralization will not stop at monetary policy and the transaction network. Smart contracts extend the possibilities of decentralization in the sense that they can adjust the rules as needed for a given purpose. This is a very powerful concept and in a way a game-changer. People can agree on the rules and then rely on the network to ensure that none of the participants change the rules. No one is able to stop a contract once deployed, or prevent participants from interacting with it. It does not matter whether the contract is between two participants or between citizens and the authority.
Decentralization definitely has the potential to disrupt the functioning of the current centralized entities. However, it is imperative to continue to develop these technologies and not be hampered by expensive and slow transactions. The second layers are an absolute necessity and we are still at the beginning. Additional functionality needs to be added to enable better connectivity with the physical world, existing systems, and ultimately with centralized entities.
Cardano may indeed be one of the biggest innovations after the Internet as it advances the concept of decentralization. There are more projects like this, of course, but Cardano goes about it through peer-reviewed research and developed through evidence-based methods. This is of course no guarantee that it is the best way, but the probability is relatively high. The projects do not compete with each other in terms of objectives. Technology is impartial. I wish we could see this at the community level.
Do we need blockchain? Yes, if we want to make a fundamental change in society. Our trust in third parties is waning and we all know we need change. We now have a technology that can ensure trust not only between two participants, but also between a group of participants, or between all of us. It is up to us how we make use of it.
Conclusion
The development of new technologies affects society. The advent of the Internet has been slow, but today it is quite dominant in communication between people. The analog age is over and we have long lived in the digital age. Decentralization can be seen as the next step that will allow even greater disruption at the level of money, property, the functioning of the state, and the search for a global consensus on issues affecting the whole planet. This is made possible by the fact that we have the opportunity to re-set the rules of how society works. This opportunity does not come often and we are fortunate to be able to be there. That’s a relatively big responsibility and it would be to the benefit of all of us to get it right.
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