According to some philosophers of innovation, each technology embodies moral values based on its properties and the intentions of its designers. The goal of these thinkers is to decide whether an ethical assessment can be made as to whether a technology is intrinsically good or bad. Can it be said that an AK-47 is an immoral object? A sponge? A fuel? A moral judgment could justify a regulatory position, but where does the morality of an object lie? In the purpose of its creators? In the potential applications that it hosts? In the use that each individual gives it?
The debate becomes pertinent at a time when one of the most controversial technological innovations in recent years, cryptocurrencies, is going through a period of crisis. As admired as they are demonized, crypto currencies are suffering a drastic loss of value, dragged down by the general economic crisis due to the volatility of the digital market. For many, the trance of cryptocurrencies was a matter of time and justice.
The invisible hand of the market sometimes punishes the most greedy, and crypto followers (or addicts) were earning a corrective. “ Bitcoin is Evil ”, warned Paul Krugman in a famous column in The New York Times , and the current crisis seems to prove him right. For naysayers , the time to wave the “I told you so” flag has come . They always doubted that cryptocurrencies had any interest beyond speculation, and now they enjoy watching the crypto-bros who crowed about their financial superiority sitting behind the wheel of a Lamborghini shut up.
But, for the fathers of technology, cryptocurrencies were not this. The inventors of blockchain (chain of blocks), and its first users, devised a system designed to decentralize economic relations and eliminate human subjectivity as much as possible. The initial goal was to get rid of organizations and institutions, primarily governments and banks , that had amassed disproportionate amounts of power over the economy from individuals. They ended up engineering a financial system that, from its design, prevents arbitrary human intervention. A more solid, independent, transparent and fair system, where Google’s original mantra “ Don’t be evil ” gave way to “ Can’t be evil ”.
Decentralization is the great contribution of technology that has allowed the rise of cryptocurrencies. If the purpose of its creators prevails, the financial crisis will pass and cryptocurrencies will survive to continue questioning and redesigning the relationships between individuals and institutions. The redistribution of power is called to be its great contribution , beginning with financial power.
The main innovation of Satoshi Nakamoto, the anonymous creator of Bitcoin, was to solve the dilemma of double spending in digital transactions . Any sending of information through the Internet generates copies indefinitely. For example, a photo sent by mail to a relative becomes four different files along the way: the one on the source hard drive, the one in the sender’s sent box, the one in the receiver’s inbox and the one in his folder. of downloads. If instead of a family photo we were talking about a mobile payment, 10 euros would have become 40 euros, and the fundamental condition of the existence of money, its scarcity, would have been blown up.
Before blockchains, the only solution that existed to avoid digital double spending was intermediaries : banks, generally, that guarantee that when someone pays with their card in a restaurant, 12 euros are subtracted from their balance and added to the restaurant bill. But the Bitcoin blockchain solved this age-old computing dilemma by replacing the middleman with a decentralized network of supervisors who keep all participants’ accounts up to date without having to answer to a central authority.
These supervisors are the famous miners: people who proactively lend themselves to fulfilling the function of processing and validating user transactions on their computers in exchange for a reward in the form of bitcoins. If the computers of tens of thousands of people around the world have unanimously approved and noted that my 12 euros from the menu of the day is now in the restaurant bill, then we will all agree that this money has changed hands. This is how digital scarcity is born.
The invention of decentralized money fired the imagination of a next generation of engineers, who gave the technology a twist. Bitcoin had found a way to put tens of thousands of people who don’t know or don’t want to know each other to work in a disciplined and coordinated way. But this network of collaborators had been given a single task: to circulate bitcoin. Could a distributed network of computers be given other uses? The answer is yes , and Ethereum set out to shape it with the invention of the programmable blockchain .
If Bitcoin was Bizum, an application with which to pass money between users, Ethereum was Android: a complete and open operating system on which anyone could develop and distribute other applications. Those applications could be alternative payment applications to Bizum, or not.
Ethereum and all the blockchains that have replicated its model are distributed and decentralized computing networks. In the same way that when we click on Google Maps and start a route, we are connecting to Google servers and asking it to process our search and return the information to us on the screen, when we use an application that runs on Ethereum we are communicating with a protocol that is installed and running on thousands of computers distributed around the world, but without an organization that orchestrates everything behind it. In fact, if 10 or 100 of those computers were suddenly disconnected from the network, everything would still work.
The processing capacity of a blockchain leaves a lot to be desired, and the fact that there is no organization that cares about serving customers and improving service is a bummer. Nobody would want a decentralized Google Maps because it would be clunky and expensive . For years, the prophets of blockchain were dedicated to proposing all kinds of crazy decentralized applications that destroyed the credibility of the technology in the eyes of many people.
CHALLENGING CENTRALIZED FINANCES
But the financial use case continued to progress, slowly and neatly. Hundreds of alternatives to this decentralized Bizum were created and layers and layers of new functionalities were added to it: in addition to payments, it began to process loans, exchanges between different cryptocurrencies, tokenization of assets… In 2018, a group of developers who chatted in a Telegram group came up with the name DeFi. It came from Decentralized Finance ( Decentralized Finance in English) and sounded similar to “defy”, which means “challenge”, just what these developers wanted to do with banking.White and bottled. DeFi continued to grow and attract larger and larger (sometimes obscene) amounts of capital. Until in recent weeks he has had to face his greatest stress test.
The summer of 2020 was dubbed “ DeFi summer ” by crypto users. The decentralized finance platforms, which had been born and matured in the previous two years, went from 1,000 million dollars to 10,000 million TVL, or Total Value Locked , the metric that indicates how much capital circulates through the protocols (not to be confused with companies) that offer this new batch of financial services. A year and a little later, at the end of 2021, the figure exceeded 220,000 million dollars, and bitcoin and ethereum were trading at all-time highs.
By the broadest definition, from the very first transaction made with bitcoin, every exchange over the blockchain would fit the definition of “decentralized finance.” But, by the time the term became popular in that summer of 2020, it had acquired new nuances and meanings. According to the research company Messari, the conditions that a protocol must meet to be properly considered DeFi are the following:
- It must have a financial use , such as lending, trading, or creating derivatives.
- It must be open source and free access . Users can freely operate and developers can expand the original functionalities of a protocol.
- It is pseudonymous : which means that it is not necessary for a user to reveal his identity to carry out operations.
- Must be non-custodial – DeFi platforms do not hold the assets being handled. The responsibility for safekeeping rests with the user.
- It must have decentralized governance mechanisms . The mechanisms exist -or a credible roadmap for it- by which the decision-making power will be distributed and will not fall to a single entity.
In other words, decentralized finance is financial services offered by software that does not belong to anyone in particular, that is totally transparent, does not sleep, does not understand borders, does not ask questions and does not make mistakes.
The ecosystem is still tremendously immature. Critics who claim that crypto is still missing a layer of real economics have a point. But those who say it’s pure smoke are flat wrong . A person with the time and desire to dive into the ecosystem could get paid in cryptocurrency for work done online , go to a decentralized exchange to exchange it for a stablecoin with a stable value attached to the dollar, and send the money to a friend on the other end. of the planet so that it can be used to pay for gasoline.
This entire process could occur without the participation of any bank or the supervision of any regulator, and only in the last step would a traditional company intervene. All the rest are operations in which the user interacts with computer protocols that operate autonomously from a blockchain . There are no intermediaries, all movements are transparent, commissions are predictable and clear , and transactions are immediate.
There will always be parts of banking life where it is necessary to have a human in front of you. Not everyone wants to take responsibility for the custody of their funds , nor is it for the job of dealing only with software that does not answer questions. But there are many financial operations in which the banking machinery and its backpack of inefficiencies and vices create more problems than solutions.
THE TEST OF MATURITY
Since the month of May, to the pressures derived from the world economic crisis, crypto has added its own plot twist. The Terra blockchain collapsed, leaving a hole estimated to be over $40 billion. A month later, two giants, Celsius and Three Arrows Capital, partly hurt by the fall of Terra, began a journey towards bankruptcy in which they have dragged down the more than 20,000 million dollars of third-party capital they managed.
These three earthquakes have triggered a spiral of stress and bankruptcies that continue to make headlines to this day . The widespread price and liquidity crisis, compounded by crypto’s own sins, revealed some of the industry’s worst flaws: the new financial system had become hyper-speculative and self-referential. An ouroboros of greed that fed on its own smoke. But, for those who want to see them, there are arguments in favor of decentralized finance behind the events.
The companies most affected by the situation are traditional players with centralized and opaque decision processes. They are governed by people who make unilateral decisions and who, on this occasion, have been proven wrong. Decentralized finance is software: confusing centralized companies with decentralized protocols is like confusing Excel with an accountant. This is not to say that DeFi has been immune to problems during the crisis, but the truth is that it has not failed: it has continued to function at all times and has behaved transparently and predictably. As a system for transmitting assets with economic value, decentralized finance has more than passed the stress test, continuing to consistently serve extractive speculators and long-term investors alike.
Other vectors of innovation, such as digital art or collecting, facilitated by the appearance of NFTs, or the new forms of quasi-business organization that are DAOs, have also followed their normal course. Its liquidity has been affected, as has also happened to all the companies in the S&P500, but its value proposition remains.
Speculation has been the most well-known use case for cryptocurrency over the years . And there is no denying that it has done the industry a favor, by bringing huge amounts of attention and capital to the sector, often seduced by siren songs and fraudulent techniques to deceive investors and users. But crypto was not that.
Crypto is a decentralized digital value transmission system. The lever that new fraudsters have used to earn dirty money, but also the origin of a new 100% digital economy, more transparent and efficient . That’s why regulators are having so much trouble pinpointing the culprits. Hence, philosophers will not easily resolve their doubts about the morality of technology by looking at blockchain .