Crypto for Beginners: Blockchain is All About Permissionlessness
Blockchain technology facilitates permissionlessness and censorship resistance.
In my last post, I mentioned how I explained the 4 myths of crypto to my friend who is starting on her crypto journey.
In this post, I’ll communicate how I continued to explain crypto to her to make her say, “Holy shit Mike, that was the best explanation of crypto I’ve ever heard, I actually kind of get it now.”
Maybe my friend only heard one or two explanations of crypto before mine, but I’ll take it!
Anyway, in my opinion, the primary value of blockchain comes down to permissionlessness.
This post talks about the permissioned systems we use today, and how blockchain aims to make our world more permissionless and censorship resistant.
Let’s go!
We live in a world of permissioned systems
The definition of permissionlessness is that anyone, at any time, can participate in and access systems and services, without the possibility of being censored.
In permissionless systems, there are no gatekeepers, decision makers, and overlords who can tell you what you can or can’t do with your money, time, or information.
Unfortunately, most of the systems we’re part of and apps that we use today are permissioned. Censorship, or the threat of it, is omnipresent.
Let’s walk through a few examples of permissioned systems to see how current companies censor their users, and what blockchain protocols are doing to fix this.
Social media platforms censor controversial users
When Donald Trump was President of the United States, he was a masterful user of Twitter - for better or for worse. He used the social network to deliver his narrative to millions of people all over the world.
Eventually, the management team at Twitter permanently banned @realDonaldTrump, claiming that his tweets aimed to incite additional violence after the storming of the Capitol on January 6, 2021.
Just the other day, Instagram and Twitter suspended Kanye West’s accounts for anti-semitic remarks he made.
I believe that these social networks did the right thing, according to their Terms of Service, by banning Trump and Ye.
But this is a quintessential example of censorship - where centralized parties (Twitter and Instagram management) decided that Trump and Ye could not use their platforms anymore because their posts did not adhere to company policies.
As a result, decentralized social networks are being built to combat this censorship.
DeSo is developing a blockchain protocol on which decentralized social networks can be built, Lens is a decentralized social graph that allows users to take their content wherever they go, and Twitter even spun out its own decentralized social network protocol Bluesky.
PayPal controls its users’ money
I can pay or accept money from anyone in the world with PayPal…unless they don’t like what I’m paying for, or don’t approve of what I’m doing to earn the money people are paying me.
In November 2019, PayPal blocked live performer payouts on Pornhub.
PayPal did not approve of what was happening on Pornhub and censored live performers and minimized their ability to make a living. This led to more cryptocurrencies like Verge being used for these transactions.
More recently, PayPal released a new user policy that said they could fine customers $2,500 for posting what management deemed “misinformation”. This caused a firestorm on social media, and the company has since retracted and clarified their statement.
We can debate whether the porn industry is morally right or wrong. We can argue about what constitutes misinformation. Regardless of these definitions, PayPal’s blocking of payments to Pornhub performers, and even thinking that they can take our money away, is censorship at its finest.
Mortgage companies censor homebuyers
Mortgage brokers are the ultimate gatekeepers.
They look at your income, assets, credit history, and other financial aspects to determine whether you are qualified to acquire a loan to buy a home.
These mortgage companies obviously have risk limits that they need to adhere to and can’t lend their money to anyone. But this doesn’t change the fact that the lending industry is a permissioned system guarded by centralized parties.
Blockchain lending platforms like MakerDAO and Compound have changed the game by allowing you to permissionlessly acquire a loan by putting cryptocurrency up as collateral, no questions asked.
These apps don’t need to know who you are, what you do for work, or where you live. As long as you have enough collateral, you can obtain a loan with transparent, standard parameters.
Amazing.
How blockchain facilitates permissionlessness
Centralization is the common thread in all of the examples above.
There are centralized parties - Twitter and Instagram management, the PayPal team, and mortgage brokers - who stand in between a person and their audience or money.
Additionally, all of the assets involved - users’ content, and the balances of money owed and possibly lended - reside in centralized databases (most likely on cloud computing servers like Amazon Web Services) managed by these centralized parties.
These centralized parties can alter the contents of these centralized databases however they see fit.
So how do we solve this centralization problem?
Decentralization by blockchain technology.
So instead of having all of this data stored on centralized servers, blockchain technology distributes this data across thousands of computers, which typically can be run by normal people like you and me (we’re called “miners” or “validators”, depending on the type of blockchain we’re contributing to), across the globe.
Once data is posted to the blockchain, it can’t be altered, and it’s open for all of the world to see.
In exchange for contributing computing power to help store all this data, miners/validators are compensated in the cryptocurrency that is native to said blockchain. Like I mentioned in blockchain Myth #1, this is the primary purpose of specific cryptocurrencies - to be the medium of exchange for their blockchain ecosystem.
Not only does this decentralize how the data is stored, it decentralizes power over the network. Decentralization takes control away from a few people on a management team and transfers it to hundreds or thousands of community members who help govern the system.
Instead of the C-suite of Twitter and Instagram deciding what you and I can or can’t post, the community that consists of miners/validators and others who own the network’s cryptocurrency now make these important decisions together.
The management team at PayPal can’t simply decide who can get paid through their network and or keep their money; now anyone can make or receive payments with no restrictions.
Instead of some white-collar banker deciding the fates of our loans, borrower conditions are transparently written in code and anyone can get a loan without gatekeepers.
Blockchain makes the world fairer and more transparent, and transfers the power from few to many.
Conclusion
We live in a world where an immense amount of power is being concentrated in the hands of the few. This centralization of control can lead to censorship resistance and may erode our freedoms.
I know it sounds dramatic, but it’s completely true. You just don’t realize this censorship until it actually happens.
Blockchain technology aims to create permissionless systems that are censorship resistant, and where community members can govern the applications they use.
I don’t know if this is the best explanation you’ve ever read, but hopefully it helps you understand the value of blockchain and cryptocurrency on a high level.
If you’d like to read more of an in-depth overview of how blockchain works, here is an article I wrote that is much more comprehensive. There is so much more to learn about blockchain; I’ve been studying the subject for almost a decade and I’m blown away everyday about how much I still need to absorb.
Let me know if you have any questions! I’d love to hear your thoughts in the comments below or on this Twitter thread:
https://twitter.com/mikewchan/status/1579857976860758017
Thanks for reading!