We are living in a civilizational moment of great promise and great consequence. Patrick Byrne expressed this opinion in a conversation about blockchain and his new property rights register for people whose lack of such rights condemns them to inescapable poverty.
Blockchain Offers Us The Potential For Institutional Innovation.
Blockchain stands at the nexus between technology and institutions. Our institutions are failing us and we are losing trust in them. Without trust, the institutions are no longer valid. They are no longer fit for the function for which they evolved to perform.
Financial institutions provide us with a glaring example. Big banks exercise an intermediary role between lender and borrower, between buyer and seller, and between other financial counterparties. It’s important that we trust them to perform this role with integrity, safety, confidentiality and impartiality, and to act to cut out financial risk. But that trust level is eroding. Banks take our deposits and give us a claim on that deposit in return. Then they lend out those deposits to borrowers nine times over in a process called fractional reserve banking. Now not one party but 10 parties believe they have a claim on the deposited amount. The bank makes the bet that all 10 claims will not come up at the same time.
Such a monetary system is facilitated by the central bank, a joint venture of the big private banks and government. When the Federal Reserve creates money and expands credit, the benefit goes first to the institutions who are closest to the source. This includes the big private banks. They get money at the lowest possible cost – close to zero interest rates. Elsewhere in the economy, credit card borrowers are paying 20+% interest, and small business borrowers and pay day loan borrowers may be paying 30+%. The distance between Wall Street financial institutions and everyday borrowers is unfathomable.
The Scourge Of Wall Street.
Patrick Byrne has been called the scourge of Wall Street. He sniffed out specific corruptions in financial institutions and reported on them in a website called Deep Capture. But more important than his condemnations of the financial institution status quo are his efforts to create an entirely new set of institutions. If you can’t beat them, innovate.
Initially, Byrne was both a thought leader and execution leader in Bitcoin and blockchain. He was early to see the potential of Bitcoin as an alternative currency, likening it to a return to the gold standard that provided the stable financial support for the greatest age of innovation and growing prosperity we have so far seen. “It’s like online gold”, he was quoted as saying. “The supply of the digital currency is controlled by software running across a worldwide network of computers, and its value is decided not by the feds or the big banks, but by the people. It can make our country more robust.” He saw the civilizational potential before anyone else did.
His company, Overstock.com, quickly became the first major online retailer to accept payments in Bitcoin, letting people buy everything from patio furniture to smartphone cases with the fledgling digital currency. Byrne himself converted many of his US Dollars to Bitcoin. His commitment is not merely philosophical.
The Unleashing Of 5 Billion New Entrepreneurs.
Now, Byrne has advanced the idea of blockchain as a civilizational moment to a whole new level. His goal is to bring 5 billion more people into the private property entrepreneurial economy. He believes that doing so will alleviate poverty, grow wealth and turn back terrorism all over the globe.
His partner in the enterprise is Hernando De Soto, one of the most influential economists of all time, and possibly the most important in the world today. In his book The Mystery Of Capital, de Soto established that the capability of capitalism to achieve adoption in any individual country and to raise the GDP per capita and living standards in that country is governed by the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we’ve forgotten that creating this system is also what allowed people everywhere to leverage property into wealth.
Formalizing property rights can unleash economic power among financially subjugated people. Generating strong formal property rights not only alleviates poverty, it counters the militant terrorism that can take over poor, undeveloped nations. People stop operating in black markets, where terrorists thrive, and start new businesses based on self-reliance and enterprise in a private property economy. De Soto demonstrated this in Peru, where his property rights registration campaign kickstarted an economic miracle.
His method was painstaking. He distributed leaflets to individuals throughout the country, inviting them to bring evidence of informal property ownership, and converted the information into a standardized database, so that individuals can protect their wealth, identify themselves, and to use their assets as guarantees, as investment tokens, and as a means for corporate organization.
Today, the powerful technology of blockchain can be utilized to bring efficiency to De Soto’s method, and to add digital scaling and network effects. This is where Patrick Byrne comes in, bringing his blockchain expertise and the power of large investment. He believes the solution will change the world.
That’s why he calls the adoption of blockchain and Bitcoin a civilizational moment. From a world in which elites control the creation of money, as well as the intermediation of all money based exchanges and financial institutions, and all the permissions required to do business in such a world, he sees a movement towards a people’s money, and disintermediated peer-to-peer exchanges anchored in a secure private property economy registered on the blockchain. If he is successful in bringing 5 billion more individuals into the entrepreneurial economy, elitist corruption and control will be highly diluted and the black-market fueled violence of exploitative terrorism will be thwarted. A civilizational moment, indeed.
Image courtesy of Wired magazine.