The Dark Clouds of Financial Cryptography

I feel we’re on the precipice of some delightfully weird and possibly very alarming developments at the intersection of code and money.  There is something deep in the rules that is getting rewritten, only we can’t quite see how yet. I’ve had this feeling before, as a self-described Cypherpunk in the 1990s. We knew or hoped that encrypted communication would change global politics, but we didn’t quite know how yet. And then Wikileaks happened. As Bruce Sterling wrote at the time,

At last — at long last — the homemade nitroglycerin in the old cypherpunks blast shack has gone off.

That was exactly how I felt when that first SIGACT dump hit the net, by then a newly hired editor at the Associated Press. Now I’m studying finance, and I can’t shake the feeling that cryptocurrencies — and their abstracted cousins, “smart contracts” and other computational financial instruments — are another explosion of weirdness waiting to happen.

I’m hardly alone in this. Lots of technologists think the “block chain” pioneered by bitcoin is going to be consequential. But I think they think this for the wrong reasons. Bitcoin itself is never going to replace our current system of money transfer and clearing; it’s much slower than existing payment systems, often more expensive, uses far too much energy, and don’t scale well. Rather, bitcoin is just a taste, a hint: it shows that we can mix computers and money in surprising and consequential ways. And there are more ominous portents, such as contracts that are actually code and the very first “distributed autonomous organizations.” But we’ll get to that.

What is clear is that we are turning capitalism into code — trading systems, economic policy, financial instruments, even money itself – and this is going to change a lot of things. Continue reading The Dark Clouds of Financial Cryptography