Brett Scott
On money systems and their enforcement, taxation, the internet of things, the future of technology, and the balance between centralised and decentralised systems.
Transcript:
Jason: I am here with Brett Scott at the Internet of Agreements conference. You are the author of The Heretic’s Guide to Global Finance, and you have a huge, broad-ranging perspective on the global financial industry and maybe how blockchain is going to start changing that. Let’s start by maybe talking a little bit about your background, the topics you’re written about and how you got interested in finance.
Brett: Sure. I’ve worked in the financial sector, in the world of over-the-counter derivatives, which is like high finance, like investment banking. Then I wrote a book on the financial sector, which was The Heretic’s Guide to Global Finance, and then I worked with lots of activist groups and financial reform communities, looking at how you would change the financial system or run campaigns on the financial system. Then also looking at money systems, in particular the dynamics of money systems, alternative money systems, of which Bitcoin is one, it’s definitely not the only one… Also increasing the intersection of digital technology with finance. I don’t necessarily have a uniformly positive view on that – I’m quite critical of technology.
Jason: Interesting. What is your view on it?
Brett: On digital finance?
Jason: Well, you said Bitcoin and some of the other ones. You’re a little bit critical?
Brett: I’m glad that Bitcoin exists, I use Bitcoin, I can see the background it has come out of and the critique, but I tend to find the Bitcoin community often has quite a shallow understanding of financial systems, this idea that you could just have this static token that moves around and somehow that’s going to disrupt the financial sector… The financial sector is far more multifaceted and far more powerful than the Bitcoin community often gives it credit for. But the basic impulse behind Bitcoin is very profound, the idea that you could essentially pass tokens between yourself without relying upon a central party, that’s historically a very important breakthrough obviously, which is now being applied to other areas with blockchain technology more generally.
Jason: Where is the blockchain community underestimating the financial system and where are the blind spots?
Brett: One immediate observation which is not that hard to point out is that the financial industry itself is pouring lots of money into blockchain technology, because you can use the same underlying technology in closed settings, it doesn’t have to be open systems. All the private blockchain stuff is essentially just efficiency plays for existing corporations. Corporations like to improve their efficiency, and if they can do that with a… Because they already collectively run systems between themselves. For example, in the financial industry the payment system and the clearing systems, all these things are collectively run by the banks, and if they can find a new way to do that, then they’ll do that – these are pragmatic organisations, they will just use whatever is available if it works. So that’s one sign that this technology is actually being appropriated a lot.
But even in the open versions, the open versions of the technology cannot right now replicate what the financial institutions do. Bitcoin is a payment system, it’s a way, in essence, to move tokens between people. The banking sector does far more than that; the banking sector dominates the credit systems of society, essentially it dominates the issuance of money itself, and in being able to do that it has extraordinary amounts of creative power as it were. There’s a broader problem here about education around money systems and financial systems, and the original Bitcoin community… I don’t want to simplify it, but in general there’s quite a poor understanding of how banking systems work and a poor understanding of money systems, particularly this idea that money is some kind of commodity that banks move around… That comes out of economics 101 textbooks and it’s completely flawed.
Jason: What would a better understanding be?
Brett: A better understanding is that your money systems are essentially credit systems, your money is created from credit, at both the state level and at the bank level. You have your layers of a monetary system, your base layer being your state system, where literally states can spend money into existence. The second layer of that is the banking sector, where essentially banks can do the same, issue promises, and the money that you have is essentially just privately issued bank promises. This gets technical if you really want to get into it, but this is how the systems works.
Then the payment system is kind of the top layer of that, where you can move the bank IOUs between people. Bitcoin worked out a way to move tokens between people, but it’s very unsure what the tokens actually are. In our traditional money system you know what tokens are, they have explicit redeemability. This is a more general problem with blockchain technology, that it’s profound and cool to be able to say issue tokens, but that’s like me issuing a blank piece of paper, you know: cool, so you have an object that you move around, but what is the object? That’s often the big question that’s going on right now, with the debates around the legal characterisation of these tokens…
For example, ICOs right now: what are these objects that they’re issuing? Are they shares? Are they utility tokens? Are they some kind of hybrid? Nobody seems to quite want to define them, because there’s legal implications what they define them as. Whereas in the financial sector, you can critique it as much as you want, but they’ve got very strict and clear legal definitions of what these instruments they issue are and there’s no ambiguity, like this is a share certificate or share token we’re issuing that entitles you to this and this and this, this is the legal jurisdiction I’m working under and this is what’s going to happen. You can code and do whatever you want there, the system is actually extremely… For all the critique, it has a long history behind how it came to be that way. I think sometimes the blockchain community is still learning that.
Jason: Do you think that it is more likely that blockchain technology will simply be absorbed by the existing system than it is that for instance all these new tokens and the new blockchain technologies will create their own system?
Brett: I think both might happen. One thing I like about Bitcoin is that it did open up a much wider conversation about money and open up a sense of creativity. The intellectual in me would say that unfortunately it reinforced a bunch of mythology about finance rather than clearing it up.
Jason: Say more about that – that’s really interesting.
Brett: In particular, Bitcoin is like this very strange insistence on money as some kind of thing or object or commodity that somehow contains value… Even in all the language around it, they say value transfer systems, as if somehow these objects contain value, like this thing here contains water inside it and I can pass you water…
Jason: Right, that there’s some type of actual inherent value.
Brett: This is like… I come from an anthropology background, any serious study of money systems knows that the story is just total crap. I’m being a bit rhetorical there, but this is… But it’s still extremely prevalent in mainstream economics, it’s extremely prevalent in many forms of mainstream thinking. If you want to really try and get into the subtleties of money systems, you really have to move away from the idea of money being an object that stores value and it gets pushed around between people, but the Bitcoin community very much reinforces that. Whereas other alternative currency systems that existed prior to Bitcoin and had gone on for hundreds of years very explicitly acknowledge that money is essentially a form of social contract/accounting system for recording obligations between people.
Jason: But certainly the distributed ledger can be used in that way also, to record credits or smart contracts.
Brett: Sure, sure – I would actually like to see it done more explicitly. Bitcoin very clearly is a ledger system, which is weird then, the fact that the naming of Bitcoin is coined and all the visual imagery around it, you see all these physical objects, and yet it’s very obviously a digital recording system and digital imprints. These are not actual objects at all; it’s an information recording system that masquerades as being some kind of commodity, which is psychologically very interesting. If anything, Bitcoin is very obviously a ledger system, but one of the problems is the objects that get created or get recorded in the system don’t have any explicit redeemability. If you were using Bitcoin a few years ago, nobody knew what the tokens really did, it’s like, “Oh, I can move them between each other…” If you really want to get serious about money systems, they essentially have to be claims upon other people, these tokens – that’s what a real money system is.
Jason: Okay, and then that would have to be enforceable, which is not necessarily the case with Bitcoin.
Brett: There’s various ways you can enforce money systems, you don’t have to have a state. A small-scale money system you can run purely on stuff like trust and shame, like if you do not abide by the agreement, you’ll be shunned from the community or things like that. Of course in modern money systems you’ve got… the taxation system is a big part of how the money system works, you have the bank debt system and then it’s underpinned by gigantic network effects as well. So there’s a lot of stuff that’s going into these systems, and I think Bitcoin has only just scratched the surface. If you really want to hype it up and actually make it useable, you’ve got to add in way more sophistication into these systems.
Jason: This is really fascinating, because certainly what I’m seeing with ICOs is this rush for everyone to say, “Okay, what can we stick on a blockchain, what function of value exchange can we then put on a blockchain and then spin up an ICO around it?” You’re saying, “Look, it’s not as simple as value transfer. We’re looking at this incredibly complex system of interlocking systems,” you’re talking about enforceability and all of this stuff. It seems like, from your perspective, maybe blockchain has a ways to go.
Brett: Yeah, sure. Also, bear in mind you say “value transfer”. Blockchain is like a coordination and management and information recording technology. The value is the real stuff on the ground, real humans, real farmland and real… This is the reality of an economy. You can have a layer that hovers over that, which is contracting and information management between that, and lot of the original blockchain systems were literally just hovering above that. A lot of the attempts now with say smart contracts is how do you fuse the digital representations of things that have value into the actual world? All the connection between IoT and these contracts, if you really want to make digital representations of something, have them actually convey value in the real world, they have to be fused into that, either through a legal system, like a judge has to be able to say, “I can see that this claim is recorded on that particular ledger and therefore that thing is yours,” else you have to have it in a proper smart contract system where the thing is unusable, unless you interact with the digital system.
Jason: I see, so that would be where the Internet of Things comes in.
Brett: Sure, sure. I don’t necessarily like that idea, of an automated world where you’re having to gain access to everything through whatever, but that’s how you would have to do it. I think there’s a lot of this confusion: the real value in economies is literally people’s bodies and actual resources, that’s value. How you then choose to contract and assign ownership to that and transfer the ownership rights and transfer claims around that, that’s the financial contractual layer, and that’s what blockchain tends to be operating on, and sometimes it works and sometimes it doesn’t. Or sometimes it’s a glorified way of doing exactly the same thing we’re already doing.
Jason: Right. But maybe a little bit more efficiently, which really excites people.
Brett: Yeah, maybe more efficiently, which is what any company does. Then you’ve got to ask yourself what does disruption mean? Does disruption mean doing the same thing slightly more efficiently, you disrupt the existing incumbents by being slightly more efficient than them? Which is what a lot of people say. “I can move my title deeds of my house faster now!” Great, cool, as if that was a massive problem before. “It’s this huge issue I have, because I’ve got to move my house…” you’re lucky that you have a house… Versus stuff which is actually disruptive, which might be… Leave it to your imagination, what really breaks systems and does stuff like that. A lot of the stuff in blockchain tech I find a bit dull; cool, you figured out a more efficient way of doing something – well done, cool.
Jason: Okay. With all of this said, how do you think that blockchain is actually going to change people’s lives on the ground, let’s say in the next 5-10 years?
Brett: There’s an interesting value judgement in that question you asked me, there’s an assumption that it will. I don’t necessarily assume it will. I’m not saying it wouldn’t, but going in with that attitude of how will this thing change people’s lives… It’s not guaranteed that it will change people’s lives, I think you’ve got to be critical about that. It’s only if you are critical about that that you will actually start to see where it really will do things.
Jason: And what is your answer to that?
Brett: I don’t have a clear answer to that. I’m excited about the kinds of visions spun by… that this could be a technology that enables collaborative, peer-to-peer, cooperative forms of organisation without relying on the traditional structures we’ve used. For example, I find the platform cooperatives movement, which is saying how could we collectively run Uber without having a company in the middle? I find that interesting, I think that would be a particularly interesting application of a blockchain technology that could actually maybe have an impact on people, but I’m not saying it will be the only solution to the world’s problems.
Jason: Right. I was just in Berlin where people were presenting on self-owning cars using the blockchain where they’re generating their own…
Brett: That sounds like bullshit to me. Fine, if you want to work on sci-fi stuff… That often seems…
Jason: You have a very salty view about the future, it seems.
Brett: I mean, the tech industry is full of… To me, it’s like 85% rhetoric, often without understanding the implications of the things you’re talking about, not you but people who are saying self-learning cars… Why, why do you want a self-learning car? What’s the point? It’s kind of like stuff for the sake of it somehow.
Jason: Well, certainly we’re seeing a lot of that with ICOs, and that’s kind of what I was touching on before, where people are coming up with these ideas just for the sake of it because maybe they can raise some money…
Brett: If I was to critique the self-owning car concept, a way more important thing in the world right now… If you’re trying to grant rights to inanimate objects, why are you doing that before granting rights to animate creatures that really exist, like non-human creatures, like dogs? Why are you so interested in giving a car rights but not another actual being rights? There’s a lot of this bullshit that flies around the tech industry, this inability to conceptualise what’s actually meaningful. When you clear all that stuff away, some of the most authentic for me and the most exciting things are around decentralised technology systems that also have meaningful governance systems, such that the people who are using them have a meaningful say in how they’re run, which currently is not the case in blockchain systems.
In blockchain you’ve got a decentralised tech system with a very poor governance system. I can use Bitcoin, but I don’t have a say in how it’s run, so essentially it’s just another centralised system to me, it’s just another bureaucracy I interact with. Until you actually have a meaningful way to have some kind of say or whatever it is, then it becomes really interesting, because then you can authentically have a decentralised Uber, you can have cooperatives that are doing mutual insurance in countries where you don’t have access to financial services, there’s a whole number of things that could come out of it. But I don’t particularly find stuff like “We’ll tokenise the world for a more efficient trading system,” particularly interesting – that’s just what corporations do already.
Jason: You said that if maybe 85% is hype, then what’s the 15% that really is the core use you think?
Brett: I don’t know yet, that’s my suspicion that’s it is 15%. Maybe my message would be for anybody who is coming into the blockchain community is that the profound aspect of blockchain technology is it’s a means for a network of strangers to keep track of each other’s relative positions or coordinate each other without a central point, at least in the open versions, and then you’ve got to decide in what contexts that’s actually an empowering thing. It’s not obvious that’s necessarily empowering in all situations, but you might say in certain contexts that’s going to be profound, that’s going to be interesting. The context might be there’s been a breakdown of the centralised system somewhere, and therefore maybe we can implement this other system. The context might be there’s a centralised system that’s being very abusive, for example you might say Uber: let’s form a decentralised version of it, maybe it will be less abusive, but only if you’ve got… There’s a whole bunch of contingencies whether or not the technology will actually be profound. On the dystopian side, what would be really crap is if you implement a decentralised system that nobody can change and then become dependent upon it – that’s even worse than a centralised system!
Jason: Right, right.
Brett: We’re still quite far away from that, but that’s…
Jason: Like with an AI for instance.
Brett: Yeah. Like, why do you want that kind of thing? I sometimes think that people whose world is immersed in technology start to fetishise digital technology for its own sake and start to say that it’s inevitable and we’ll just move towards this. That’s bullshit. Nothing is inevitable, you can stop things from happening and you can… If you don’t want a particular outcome to happen, you can politically stop it, you can get together and say, “We decide as a community that we don’t want this particular thing.” So all this kind of stuff like AIs will take over the world and we’ll be living in a giant sprawling network of robots and whatever… It might be the case, but I’m going to fight it, you know.
Jason: Okay. What would the most hopeful outcome do you think be, what would the most hopeful future for these technologies and how they’re meshing with society be?
Brett: Well, I don’t necessarily have a hopeful…
Jason: The least dystopian, let’s put it that way. [laughs]
Brett: To me, the world isn’t something that’s progressing towards a higher state. I tend to see stuff in terms of trade-offs. It’s like you can fix one thing, but now you’re going to cause a new problem. Often what’s happening in the world to me is you’re trying to balance interest and you try to balance stuff and you try to decide what’s the best of both worlds kind of thing. I don’t tend to see the world in terms of how a lot of people in the entrepreneurial community see it, which is this solution mentality, that the world is a series of things we’re trying to solve towards utopia, you get better and better and better and better… That’s clearly not true. For example, look at the sheer levels of ecological destruction we have in our world, which is what all the levels of prosperity have created. This is a clear example of a trade-off, and not thinking about those things is a very toxic thing. So with blockchain, what I would hope is that it enables a fairer distribution of power, without creating inhumane system that make people feel deeply alienated. I hope it stays grounded to reality, and that would be cool if it does that. And I’m sure it will: in reality, if it didn’t do that, people would tear it down.
Jason: Right. Hopefully, as long as it is not too decentralised.
Brett: Yeah, yeah. Well, if you’re going to make it completely decentralised, make it actually decentralised. Bitcoin isn’t decentralised. In principle decentralised, but it’s not meaningfully decentralised in a real way.
Jason: You actually have whales who control most of the network.
Brett: Yeah, there’s lots of things so you’ve got to be pragmatic about what you mean. What kind of balance between centralisation and decentralisation do you really want? Our existing system isn’t centralised, we’ve got a hybrid system right now of centralised-decentralised. A market for example is decentralised, and we’re surrounded by markets everywhere, that’s a decentralised system. But then there’s centralised aspects that enable that decentralised system to work, the legal system and the money system and so on. Any system is a hybrid between these types of forces and you’ve got to decide what the balance between them is, and sort of fetishising particular outcomes is… It’s either a sign of self-interest or it’s a sign of naivety. [laughs] That’s my jaded perspective, sorry.
Jason: Okay, it’s a refreshing perspective – obviously there’s so much hype in blockchain. However, for the average individual who is looking at blockchain and doesn’t fully understand it and wants to keep pace of the times and the changes, what do you think the best thing to do would be?
Brett: Well, the best thing immediately would just be to try the systems, it’s always best to get hands-on knowledge of how something works, download some of the wallets and play around with them. But also, don’t go into it with the assumption that it’s going to change everything. I work with lots of alternative economic systems beyond blockchain, and I am always interested and I’m open-minded, but I’m not going, “This is obviously going to solve everything,” you have to kind of go into it with that mentality. If you go into it with an open mentality – playful and creative but without being uncritical – that’s a good position to start off with, because then you’re like, “I can see what I can do with this or what I can’t do with it.”
In terms of actually reading up about it, there’s lots of stuff out there. It’s probably best not to read people who are technical, because they tend to be absolutely atrocious at describing blockchain technology. Try to understand the technology contextually, so don’t just zoom into blockchain, into the hashing functions and stuff; look at it in comparison to other systems which you already know, because then you can see what it’s trying to do, that’s often quite useful, so understanding Bitcoin relative to the existing banking sector. And don’t only read people who are writing about blockchain technology, because frequently they don’t actually have very holistic knowledge. I could give lots of references, but that’s pretty much it.
Jason: Awesome. If people want to find out more about you and your writing, where should they go?
Brett: You can type in “Brett Scott finance or money” into the Google machine, the oracle, or you can get me @Suitpossum on Twitter.
Jason: Alright, thank you so much for talking to me – it was a great conversation!
Brett: Thanks!