I am of the perspective that what we currently have is information-poor capitalism. We all agree that markets are really good at making decisions, but we’re also throwing away practically all the data people need to make decisions, because when we built this form of capitalism, information was expensive, but now information is cheap. So if I look at something in a store, I want to pull out the total transaction history of that object right back to where the metal was taken out of the ground. I think that’s my right as the purchaser of that object to get full disclosure of everything that went into that object. To me, this is like rich-contextual capitalism…
To me, price signaling is just not enough data anymore. I don’t just want price signaling, I want full bandwidth read-write access to the entire universe of information about me decisions, including the composition of things I might buy, including the options I could have exercised if I known they had existed, and then I want to use software to crop that complexity down to something that allows me to live…
Right now, we are constantly asked to make decisions with really poor information. So capitalism as it is typically experienced by people is that you have a vendor that knows everything and you as a consumer have practically no information to make the decision. So, as a result, the vendor is constantly pushing us around based on the information asymmetry…
Right now, the financial system is information asymmetric in that when you make a payment, nothing comes back to you. You give them to money, they give you the product or the service or whatever it is, but there is no bi-directional exchange of information at a fundamental level.
How about a system where when I make a payment, they hand me the carbon bill associated with the payment. Right? I book a flight and they give me like 1.7 tons of carbon. Oh, and by the way… there are the other ecological impacts of this airplane.
That was Vinay Gupta on a very interesting episode of the Venture Stories podcast. You can imagine that such transparency not only benefiting consumers concerned with their ecological impacts. Perhaps as much as 50% of DOD acquisition funding goes to measures for transparency and accountability. For example, 5000-series regulations for cost and software reporting, tracking critical components to Chinese or Russian suppliers, contract regulations for DCAA audits, the whole DOD comptroller audit of defense expenditures, tracking budgets to obligations to expenditures, and much more.
Here is Gupta on blockchain as a solution:
Generally speaking, I discount decentralization to zero. I don’t think decentralization is going to happen. I don’t think it’s that important.
For me the blockchain is about transparency, which gives rise to accountability, and accountability gives rise to trust. I think the blockchain is how we force people to be transparent in their doings as they affect the public sphere, and because if the only way you can get these services to operate is that you have to write to a public blockchain we can watch what people do, and that becomes incredibly important when we talk about things like aircraft maintenance. I want to see a public log-book for every single thing that has been done to the plane I’m about to get onto.
Gupta’s vision of the blockchain gels pretty well with what government acquisition needs to stay transparent and accountable. For example, the 2018 audit of the DOD expenditures costed over $400 million over and above regular comptroller operations, and that’s just a tiny fraction of the funds going to some form of accountability. Blockchain can make these processes far more robust for far cheaper. Furthermore, they would inject a great deal of cybersecurity into payments systems, which today could likely be in part hacked and brought to a standstill if an adversary wished it.
I have two quibbles, however, with Gupta’s view of blockchain. First, he doesn’t seem to appreciate how blockchains wrap powerful incentives into economic activity (for example, Chris Dixon’s thesis). Second, Gupta thinks that we need to remove information asymmetry from markets in order to put consumers on the same information plane as producers. But he neglects the role of rivalrous competition as a discovery procedure. Suppliers are held in check not because the consumers know everything about their supply chain, but because they have alternative options which keeps prices down and quality up. As Adam Smith wrote:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages
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