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Wednesday, December 27, 2017

Why Americans Don't "Get" Blockchain

It is said that a main appeal of "cryptocurrencies" like Bitcoin, and ethereum, is their ability to replace the need to "trust" intermediaries in transactions with a cryptographic, mathematic-based consensus that does away with the requirement that one trust a third party.

Major institutions in the post-industrial, information-age Western world are still considered to be trustworthy by customers and the general public. This is despite the huge data breaches sustained by customers of the credit bureau agency Equifax, the internet company Yahoo!, and even some government agencies.

The institutional advantage in selling "peace of mind" to consumers should have been eroded by these events, unless consumers and the general public have become resigned to the inevitability of data breaches and other malfeasance by bad actors, lumped into a catch-all category referred most often to as "hackers."

Nonetheless, the Western world's consumer markets still hold faith in large companies. This may explain some (but not all) of the skepticism about the overall value of digital protocols which are traded, on one exchange or another, and used as alternative, non-government-issued stores of value. The cryptographic nature of some of the protocols has given rise to the term "cryptocurrency."

This skepticism persists, despite and perhaps even because of the recent rise in most cryptocurrencies' trading prices. Bitcoin has risen from $3,000 to $16,000 in little more than three months, and from $1,000 just twelve months ago. 

However, this skepticism may illustrate the huge difference between the post-industrial West and the "rest of the world," and hint at why cryptos are being valued the way they are.

Modern economies' naysayers say that Bitcoin and similar protocols should have no value because they are intangible and represent "nothing."

These theories mistakenly project Western experiences over the rest of the world. In the process, they reveal a thorough misunderstanding of the cultural, economic and government systems most prevalent in the rest of the world.

In most of the world, institutions are simply not trusted. The Western paradigm is flipped on its head; banks, governments and even churches are often overtly distrusted and assumed to be corrupt, untrustworthy or incompetent.

In those societies, an electronic form of value transmission is a needed, essential avenue to safeguard and transfer data. In the absence of trusted repositories for portable assets, or for intangible assets such as electronic data, access to cryptographically secure systems for ensuring an "original state" of data deposits, or a non-corruptible transaction ledger, may have a value of ... infinity.

In short, the value of Bitcoin and its blockchain technology foundation can only be appreciated by those who understand the value of a system of economic transfer which does not require its users to "trust" (or more accurately, to "hope" in the honesty of) institutions or other intermediaries whose past performance or behavior has often demonstrated their untrustworthiness.

Westerners from nations with relatively developed economic and legal systems most often do not have (or don't realize they haven't had) the experience of institutional betrayal from once-trusted institutions. 
Until Westerners at large and the financial community in general realize they cannot trust the institutions in their societies to safeguard their assets, their data or their rights, they will not fully appreciate the value, potential and utility of blockchain technology. In the interim, those from non-Western cultures will have a big head-start in developing and implementing this groundbreaking technology.

Eric Dixon is a New York-based lawyer and strategic advisor who got involved in the cryptocurrency space in 2013. He has two blockchain technology inventions, was an influential commentator on the New York State "Bitlicense" upon its proposal and revision in 2014, drafted the first United States Congressional bill on blockchain technology regulation (111th Cong., H.R. 5777), and has met with state regulators on related industry issues. He advises several blockchain startups including Synapse Foundation's smart contract data "oracle" technology initiative called the Zap Project, and Blockchain Technologies Corporation.  

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