Blockchain and its Chain of Buts

Issue #9 of The Two But Rule

If you’re up to date on The Two But Rule, you’re probably seeing buts everywhere. And every time you do, you probably can’t help saying:

“But that won’t work, but it would if…”

That’s momentum thinking. Welcome to our community of but-heads. You’re down the rabbit hole now. #2buts 🙂

At this point, you’re likely beginning to recognize that the two-but rule rarely involves a single iteration. Life is a chain of buts, and rarely just a single chain.

Image by Dall-E: Colorful painting of a Two-But Blockchain.

Building a chain of buts to overcome a complicated problem or capture a nuanced opportunity might look like this:

“We could do X.”
“But that won’t work, because A, B, and C.”
“But A would work if D, B if E, and C if F.”
“But E wont work, because G.”
“But E would work if H…” 

…and so on. 

The key is to make sure that when you add up each chain of buts, the number is always divisible by two. 

To illustrate this, consider the field of blockchain, where the sheer number of barely concealed buts packed together in one space could put a hot yoga class to shame.

Blockchain’s Many Buts

If you’re looking for the motherlode of buts today, look no further than the field of blockchain. There were over 780 million people interacting with blockchains at the end of 2022. And with a trillion dollars of money held on them – much more, or much less, on any given day – the many problems with the technology and its uses (any one of which would normally be a show-stopper) have become a square array of problems-to-solve.

---

For anyone just arriving from 2007, a blockchain is just a kind of database with a few special properties that make it interesting for recording transactions. Think of it as a digital bank ledger that won’t allow anyone, even a system administrator, to:

• Erase or change previously confirmed entries;

• Falsely claim that a particular transaction didn’t occur;

• Censor or prohibit a valid transaction from being processed. 

It does this by allowing anyone to operate a copy of the ledger and collaborate to agree on the validity and ordering of the transactions. Sounds simple, right? It’s not. 

Here we could go into the many wonky details about blockchain technology, but in terms of momentum thinking the most important thing is this: 

The technology is less interesting than the intentions of the people using it. 

The intentions of the people who launched the blockchain that popularized the concept of cryptocurrency (you may have heard of Bitcoin) were very specific: 

Move money around the world directly from one person to another without the possibility of any government, bank or other centralized organization being able to intervene or learn who is transacting. 

When Bitcoin entered the scene in 2008, the world was grappling with the collapse of the banking industry, caused by historic levels of incompetence and greed. It was easy to appreciate Bitcoin’s “crypto-anarchist” goals. 

In the decade that followed, Bitcoin’s growth went hyperbolic, with thousands of other blockchains springing up to copy or innovate on the design. Banks and enterprise vendors such as IBM even tried to get in on the act. (Though it turns out that a blockchain run by a set of known organizations misses the point of the technology and devolves into becoming just a more complicated, slow, and less secure version of a traditional database.)

---

The hype around the subject of blockchain and its associated buzzwords (terms like Web3, DeFi, NFTs, Cryptocurrency, and Tokens) has exploded. Were it not for this viral bloom – and the seductive power of regulatory arbitrage applied to gambling…ahem…global finance – the technical, regulatory, political, economic, and basic common-sense problems with the blockchain approach might have already brought it all down like a house of cards. 

Here are just a few of the problems our anti-hero, one-but guy, might point out:

But 1.1 – The goal is to move money anonymously, BUT every transaction is public. A public blockchain is essentially a digital nudist colony. And in a world of AI, there’s enough data out there for a growing number of actors to figure out who you are, what you have, and who you’re transacting with. (Seriously, don’t do things you don’t want everyone to know about on any kind of blockchain.) 

But 2.1 – The goal is to achieve a new form of digital money, free of government intervention and onerous banking fees, BUT because blockchains like Bitcoin are designed to sacrifice scalability, speed and computational efficiency for decentralization and censorship resistance, every transaction comes with a sometimes significant marginal cost. During times of network congestion, the transaction fee for the $2.00 pack of gum you want to buy with cryptocurrency can rise to hundreds of dollars. 

But 3.1 – The goal is to bank the unbanked and foster financial inclusion for all, BUT the nature of today’s cryptocurrencies is such that people who acquired tokens early can become fabulously wealthy, driving up prices for essential goods and services, while latecomers tend to get wiped out in bubble crashes. Even if cryptocurrency prices stabilize, the descendants of people who didn’t “HODL” early could become subjugated to the hegemonic power of the crypto-elites.

Now, applying the two-but rule, we get the following:

But 1.2 – But we can use new techniques such as zero knowledge cryptography to let people transact without any observer being able to know the accounts transacting or the amounts involved in the transactions. We can also use a system called a mixer to further confuse anyone trying to track money flows.

But 2.2 – But we don’t have to run all the transactions directly on big public blockchains. Today, a variety of approaches are being developed to enable more efficient machines to manage peer-to-peer transactions and then settle them in batches on a blockchain. Done right, this can reduce the marginal cost of any given transaction, though ultimately not to zero.

But 3.2 – But we can design future cryptocurrencies to better ensure financial inclusion. We can enact policies, enforced by blockchain-based “decentralized autonomous organizations” (DAOs), to regularly drop tokens on community members’ accounts, so that they don’t get left behind.

Those sound pretty good, but here comes the third wave of buts:

But 1.3 – BUT if we make cryptocurrencies truly private and untraceable, then North Korea gets to launder money with impunity. 

But 2.3 – BUT adding more layers of computing on top of blockchains leads to complexity, and complexity is the enemy of security. Already in 2022, the favorite way for scammers and thieves to steal billions in cryptocurrency was by exploiting flaws in the bridges between these systems.

But 3.3 – BUT anonymous users voting to reduce the purchasing power of their hoarded wealth in order to level the playing field for newcomers seems like a dubious proposition.

And so on. For each of these buts, there’s another but being theorized, proposed or deployed. To tell the full story of all the pairs of buts at play in this but-chain could fill up a five-year Netflix series. 

The ultimate second-but for blockchain is clear.

The money and power involved here is astronomical, beyond the dreams of avarice.

There are a ton of ultra-rich people for whom blockchain provides an excellent fit for their needs. In particular, the ability to move large fistfuls of money across borders untraceably. (Well, sort-of untraceably. There’s little doubt that law enforcement agencies are joyously collecting data, feeding machine learning algorithms, and triangulating the activities and trading partners of anyone transacting on public blockchains.)

Nevertheless, because of the huge amount of money to be made on cryptocurrency – practically out of thin air – many of the best minds in the world have been drawn into the effort of figuring it out. It’s fun when you can afford to employ an endless supply of very smart but-heads. 

Two-But App?

Do we need a new app to track and organize all of these buts? It would be exciting, and at least amusing, to see someone build that. Maybe it should have a counter and an alert when the chain fails to include an even number of buts. Maybe a way of graphing all the different chains. And maybe some AI tool based on ChatGPT to draw connections between different buts in different chains. (More on ChatGPT in an upcoming issue.) 

Embracing Your But is a State of Mind

While keeping a firm grip on your buts and tracking all those chains in excruciating detail may be what you're into, the point of the two-but rule isn’t to prescribe a rigid framework. It’s enough to be lightly aware of the pattern as you go through life. That subtle habit of being mindful of your many buts can be life changing. And when you find yourself lost in an endeavor that seems hopelessly mired in problems, groupthink and gridlock, your ability to string together a chain of buts can be a handy source of insight, comfort and momentum.