Blockchain: An entangled political economy approach

Abstract: This paper incorporates blockchain activities into the broader remit of entangled political economy theory, emphasising economic and other social phenomena as the emergent by-product of human interactions. Blockchains are a digital technology combining peer-to-peer network computing and cryptography to create an immutable decentralised public ledger. The blockchain contrasts vintage ledger technologies, either paper-based or maintained by in-house databases, largely reliant upon hierarchical, third-party trust mechanisms for their maintenance and security. Recent contributions to the blockchain studies literature suggest that the blockchain itself poses as an institutional technology that could challenge existing forms of coordination and governance organised on the basis of vintage ledgers. This proposition has significant implications for the relevance of existing entangled relationships in the economic, social and political domains. Blockchain enables non-territorial “crypto-secession” not only reducing the costs associated with maintaining ledgers, but radically revising and deconcentrating data-conditioned networks to fundamentally challenge the economic positions of legacy firms and governments. These insights are further illuminated with reference to finance, property and identity cases. Entangled political economy provides a compelling lens through which we can discern the impact of blockchain technology on some of our most important relationships.

Introduction

Throughout written history human beings have actively engaged in the creation, collection, recording and presentation of data in qualitative and quantitative forms. Data serves as a necessary, but not sufficient, platform for providing information in economic, political, scientific, social and technical contexts. A central consideration is whether the available data is so structured to provide users with useful information guiding decision-making processes. The concept of the ledger – that is, data structured by rules enabling information to be interpreted and shared by potentially large numbers of users – is occasionally heralded as a landmark technology conducive to numerous strains of human development (Berg et al, 2018).

Ledger technologies – such as literacy and numeracy, double entry bookkeeping, and digital databases – have facilitated the development of modern economic, social and political infrastructure such as firms, markets, bureaucracies and governments. The underlying purpose of the many organisations and economic institutions is to register and store the data that populates ledgers, and to secure consensus and trust in the ledgers so maintained.

Ledger technology has undergone a significant transformation in recent years, consequent to developments in cryptography and distributed computing and incentive mechanisms. Blockchain, the distributed ledger technology underpinning cryptocurrencies such as Bitcoin and Ethereum, provides an immutable, decentralised public ledger. Blockchain enables public verification and consensus over the state of the ledger, through a distributed network of computers. This style of ledger technology is effectively situated alongside conventional ledgers upheld by hierarchical organisations, operating within largely monocentric environments which have tended to be susceptible to counterfeiting, hacking and other forms of sabotage.

Blockchain studies have attempted to understand the significance of blockchain through the prism of innovation (Catalini and Gans, 2017) and as an institutional technology of coordination (Davidson et al, 2018, following Williamson, 1985, and Hayek, 1945). This paper adds to this literature by placing blockchains within the broader theoretical context of entangled political economy. Entangled political economy contextualises social phenomena as the largely unintended by-product of interactions between individuals and their enterprises operating amongst economic, social and political domains. Eschewing a comparative static, equilibrium perspective of human activity, entangled political economy draws upon the concepts of complexity, evolutionary change and networks to assess the dynamics of social change.

We consider that blockchain studies and entangled political economy can fruitfully draw upon a sharing of analytical lenses and key insights. This is because blockchain poses as a new institutional governance technology that potentially opens up new spaces and potentials for human interaction and exchange. Testing intellectual complementarities with regard to both literatures, we ask: what would an entangled political economy between the blockchain ‘crypto-economy’ (Berg et al, 2017a) and conventional territorial jurisdictions look like? The intellectual calibre of entangled political economy can be deepened through an incorporation of understandings already gleaned from the growing blockchain studies literature. Covering this ground enables us to answer another question: what does an appreciation of distributed ledger technology add to the entangled political economy literature?

A generalised account of entangled political economy theory

Since the inception of political economy, economists and other social scientists have sought to explain the social phenomena of economy and polity, and the interrelationships between them. The conventional approach to political economy, which generally took shape from the onset of neoclassical economics during the late nineteenth century, has been to effectively treat economy and polity as distinctly separable phenomena. In this context the agents participating within the institutional ramparts of polity act, in typically ex-post fashion, upon the choices made by participants within the market-based economy to alter economic outcomes so as to meet particular objectives.

The notion of ‘market failure’ seems entirely consistent with this ‘additive political economy’ narrative: political actors act benevolently and coherently, using fiscal and regulatory instruments, to ensure that activities between agents within the economic sphere secure the most efficient economic gains possible. From this standpoint, policy activity can be viewed as akin to a disinterested rewriting of the manuscript of economic life. Market outcomes are presumed to be deficient in providing public goods and controlling the generation of external costs. It is under such a situation that actors write the first draft of the manuscript of economic life; however, that manuscript is somehow filled with holes and filling those holes is the task of political action within additive political economy. Polity in this scheme of thought is the locus of activity dedicated to improving upon the results of market-generated activity (Wagner, 2016). The stress upon economic-political separability in human action merely allows for a heavily constrained, and arguably distorted, purview of relationships. Indeed, styles of political economy with priority placed upon separable activities between domains have come under growing criticism primarily, but not exclusively, on account of their lack of realism.

An important aspect of critiques against additive political economy concerns the need to better integrate economic and political actions. This criticism has led to the presentation of an alternative strain of ‘entangled political economy’, emphasising the importance of interactions between individuals and groups on an economic, political and social basis. In other words, political economy is most appropriately characterised by an ‘entangled’ condition of intertwining relationships between individuals and groups all acting within the same societal plane. Therefore, ‘society is not encountered as a formless mass but as a structured network of connections and relationships’ (Wagner, 2009, 7).

There are several features of entangled political economy deserving of further consideration. The extent of networked interactions among people is numerous yet incomplete, meaning that not all actor-elements within the system are connected with each other. The reality of network incompleteness within entangled political economy reflects opportunities to secure potential new gains for participants in the evolutionary game of social life – to the extent they are prepared to undergo the fatigues of seeking to discover such gains with, and through, others. Far from being the outcome of conscious design on the part of the unique and idiosyncratic participants in the network of political-social-economic interaction, however, entangled political economy is an emergent by-product of the striving by individuals to secure gains (profits, votes, support and care) through cooperation with others.

According to the theory propounded by Wagner, political and non-political agents are actively commingling within society. This, in turn, induces emergent patterns of entanglement of varying kinds. However, the attributes of connections forged within an entangled political economy will differ in substance, depending upon which agents undertake what kinds of actions in concert with one another. Voluntaristic and mutually beneficial interactions between market participants are referred to by Wagner as being of a ‘dyadic’ nature: ‘[t]he dyadic relationships of market catallaxy are between equals who must continually attract one another in an environment of open competition where there are no entitlements to receive continued support outside of mutual attraction’ (Wagner, 2016, 125). In such instances of entanglement, the two participating individuals fully determine the conditions of their relationship (Podemska-Mikluch and Wagner, 2013).

In contrast there are some interactions, largely involving political actors, which are referred to as ‘triadic exchanges’. Triadic exchanges reflect ‘interactions that are beneficial to a subset of the participants implicated in the transaction while being detrimental to the remainder of those participants who contribute to financing that activity as forced carriers’ (Aligica and Wagner, 2015, 8). The phenomenon of triadic exchange appears to be most apparent with respect to fiscal and regulatory proposals to reallocate or redistribute resources, necessarily realigning the pattern and strength of network connections in a zero-sum fashion.

Conceiving political economy as the study of simultaneously intertwining economic and political relations, entangled political economy provides an account of politico-economic evolution which appears to fit reasonably well with social realities. The Wagnerian framework is consistent with the Hayekian (1964) idea that social phenomena exude orders of magnitude of complexity greater than stylised accounts of human action which conventional political economy provide, the latter radically abstracting away the terms and conditions of ‘structured living-togetherness’ in which we meaningfully find ourselves.

Entangled political economy in the context of blockchain institutional technology

Envisioning an entangled political economy of humans and technological artefacts

In his vision of political economy embodying a sense of non-equilibriating participation amongst heterogeneous individuals and groups in numerous domains of activity, Richard Wagner suggests ‘entangled political economy is a feature of the effort to treat economics genuinely as a social science’ (Wagner, 2014, 33). The attempted reorientation of economics as genuinely social in character involves an emphasis upon participation between and amongst individuals and their agencies, in an effort to pursue (preferably, mutually agreeable) gains. The overwhelming emphasis upon production techniques in conventional strains of political economy are effectively relegated to the background narrative under entangled political economy, in favour of relationships.

Although participation, and not production, is casted into the foreground of human action, it remains legitimate to consider the impacts of technology (of which production is of a kind) insofar as it elicits networked webs of societal participation. The ‘actor-network theory’ (ANT) of sociologist Bruno Latour indicates that networks between human beings are facilitated and organised to some extent by non-human artefacts, and combinations thereof, including machines, texts, biological substances, and so on (see also Herrmann-Pillath, 2013). To be sure, Latour does not propose equivalence between humans and the artefacts they use: ‘ANT is not the empty claim that objects do things “instead” of human actors: it simply says that no science of the social can even begin if the question of who and what participates in the action is not first of all thoroughly explored, even though it might mean letting elements in which, for lack of a better term, we would call non-humans’ (Latour, 2005, 72).

The inherent value of ANT, according to its proponents, is that it enables analysts to comprehend and appreciate the social reality that networks are the product of humans and the things, identities, relations and inscriptions they interpret and use in the course of performing action (Crawford, 2005). Consider that the creation, collection and verification of data represent a cornerstone of modern economic, social and political management. This is especially the case in recent years as data has emerged as a bona fide asset class capturing value (Tapscott and Tapscott, 2016). In no small part, the centrality of data in our lives rests upon the notion that individuals organise and structure many of their key interactions with one another on the basis of data and its interpretation. In virtually every respect in which it is found, data is in turn given human meaning and structure by ledger technology which, as mentioned previously, is described as ‘data structured by rules’.

The blockchain represents a new iteration of a wave of technological innovations which have eased communication and transaction costs, enabling people to discover and implement economic, social and political projects on a global scale. These information and communication technologies (ICTs), such as the Internet and mobile phones, have been the subject of extensive adoption over the past two decades. Blockchains leverage off already-existing ICT applications to provide an indelible and secure distributed record of transactions and other data, potentially posing as an instance whereby ‘[t]echnological change begets economic evolution by complex recombinant means over partially organized distributed networks’ (Potts, 2000, 5). What does that mean from an entangled political economy perspective? The blockchain ledger provides a new, online avenue through which people can render connections that leverage off data, making previously unavailable relationships in a crypto-economic domain now possible, contrasting the connections grounded in vintage ledger technologies recorded on paper or through offline spreadsheets and databases.

Figure 1 illustrates that entanglement materialises between people, having regard to the technologies they use (in this case, distributed ledger technology operating on peer-to-peer computer networks). The hexagonal shapes in the Figure represent non-political actors (individuals and enterprises operating on a for-profit or not-forprofit basis), whereas the triangles represent political actors. Network connections between the actors are represented by the lines.

Prior to blockchain people rendered exchanges that were entirely underpinned by the creation and transmission of data recorded in vintage ledgers. The technological space of the vintage ledger is represented by the square encasing the entirety of entangled political economy, as shown in Panel A. By contrast, blockchain technology enables actors to augment their traditional data-laden connections with those leveraged through the blockchain or, alternatively, to discontinue connections that solely rely upon the utilisation of vintage ledgers. In Panel B of Figure 1 the porous oval shape represents a group of actors that have adopted the blockchain ledger. Two of the three non-political actors now rely exclusively upon the blockchain for their data management needs – as discussed later, this is referred to as ‘crypto-secession’. One of the three non-political actors maintains their network connections using both blockchain and traditional ledger technologies.

Figure 1: Impact of blockchain on entangled political economy

Given that technology constrains societal relations, blockchain is important to entangled political economy because it can facilitate new and important relationships. It is worthwhile noting that an institutional governance technology as profound as blockchain would not necessarily occupy such a prominent or wide-ranging sense of importance within the more conventional domain of additive political economy. All but the most trivial connections and interactions which transpire within an economy – owing to inherent uncertainty and positive transaction costs – require modes of governance in order to come to fruition. From this perspective, blockchain is a technology that reconfigures the prevalence, if not the very nature, of entangled relationships.

Credible ledger technology as necessary condition for trustful, yet entangled, relations

Blockchain is a distributed network, orchestrated by humans, of thousands of nodes – represented by computer-objects running blockchain software – determining which data are to be regarded as permissible for the purposes of unlocking value for humans. There is the potential for blockchains to provide an infrastructure or governance layer for other emerging technologies, such as artificial intelligence and the Internet of Things, to alter the patterns of entangled political economy in unforeseen ways: ‘[b] lockchain technology facilitates the coordination and acknowledgement of all manner of human interaction, facilitating a higher order of collaboration and possibly paving the way for human/machine interaction’ (Swan, 2015, 29). In this context ledger maintenance and security is vested in, and governed by, the ‘constitutional rules’ of computer coding and cryptography which is less corruptible and error-prone than the legal rules established by humankind.

An upshot of the blockchain ledger, particularly those of an open and permissionless variety, is that trust in blockchain platforms substitutes for conventional trust in third parties to protect data from counterfeiting, fraud, hacking, theft and misrepresentation. Such a transformation in the terms and conditions of trust has a potentially significant impact upon the ways in which commingled relations are constituted in an entangled political economy.

The foundation of the modern economic system is represented by the existence of large, hierarchical organisations with increasingly monocentric tendencies, namely the corporation and government, which in turn give rise to hubs of concentrated economic and political power. In the face of the ever-present potential for individuals to opportunistically gain by falsifying, or in other respects corrupting, data, economic and political enterprises have emerged as a third-party mechanism to fortify trust on behalf of the disparate actors composing society: ‘techno-social assemblages based on trusted management and centralized control are inherent in pre-blockchain ledger technology’ (Velasco, 2017, 716). In turn, it is no understatement to suggest that the delegation of ledger-integrity functions and responsibilities to these ‘peculiar enterprises’ has supported the globalised production prowess of the private sector and the emergence of a powerful, multi-functional public sector.

One of the implications arising from the maintenance of trust through hierarchical, third-party enterprises is that ‘establishing that trust can be very expensive, often involving large, visible and irreversible investments’ (Davidson et al, 2018, 6). The recording of vast quantities of data in closed, permissioned ledgers maintained by economic and political enterprises also reduces the degeneracy of networks ‘by requiring entrepreneurial plans to pass through particular nodes’ (Wagner, 2010, 116). The lack of options to append, retrieve, store and validate data in a vintage-ledger economy enables conventional third parties to accumulate, and discriminatorily redistribute, rents, consequently raising the threat of trust and power abuses. As has been recently stated, ‘[i]t is surely a bit ironic that so many people wonder what governments can do to improve the state of trust when a consideration of different ways of fabricating connections gives good reason to think that governments would to a significant degree degrade trust-based relationships, due to the replacement of the voluntarism of dyadic transactions with the compulsion that accompanies politically triadic transactions’ (Wagner, 2016, 75).

The ingeniousness of blockchain is that it does not absolve actors within society of the need to trust each other, given the importance of trust in bringing about a reasonable semblance of inter-subjective compatibilities surrounding the relative benefits and costs of certain actions (Lewis, 2000). A distinct advantage of blockchain is its application of a kind of ‘decentralised trust’ to ensure the validation of data and protect the public ledger. The ‘electronic transactions can be automatically verified and recorded by the nodes of the network through cryptographic algorithms, without human intervention, central authority, point of control or third party…. Even if some nodes are unreliable, dishonest or malicious, the network is able to correctly verify the transactions and protect the ledger from tampering’ (Atzori, 2015, 2). The combination of cryptography and economic incentives applied through peer-to-peer blockchain networks overcomes problems of inconsistency and uncertainty that can arise when economic and political enterprises are charged with maintaining ledgers.

Blockchain, crypto-secession and the altered dynamics of entanglement

A critical issue in political economy concerns the consistency of human action with underlying principles deemed to be conducive to broad-scale harmony and peace. The dual presence of the political and apolitical in society gives rise to tensions, referred to in the entangled political economy literature as ‘social tectonics’. In no small part, social tectonics emerges because of entanglements amongst individuals and groups whose actions are grounded in sharply divergent ordering principles. In their essence voluntaristic, dyadic exchanges are reflective in the principles of liberty, equality and mutuality. It is in respect of coercive triadic exchanges, by contrast, that the principles of hierarchy, status and domination – each of which contravenes the foundational moral code that people are not to be treated as the ends of others – most clearly take hold in civil society.

An important dimension of social tectonics is that repeated interactions between political and non-political enterprises fosters the evolution of mutually interdependent ‘monstrous moral hybrid’ organisations strewn throughout entangled political economy networks (Salter, 2012). The tendency towards monstrous moral hybridity, all else being equal, would increase the more extensive the sense of entanglement between actors across orders – for example, the political enlisting of economic enterprises to provide data which fulfil taxation, regulatory and other policy objectives.

With respect to an economic enterprise identified as exuding the features of monstrous moral hybridity, the commercial ethics of industriousness, honest dealings with others and exemplary customer service become ‘crowded out’ by the adoption of ethics more characteristic of dealings in the political order. The inculcation of such political ethics as loyalty, obedience and respect for hierarchy by economic monstrous moral hybrids has significant implications for the integrity of sound ordering principles within entangled political economy. Of course the norms of the economic order may infiltrate actions undertaken within the political order, with arguably ethically dubious effects.

The preceding discussion also suggests that relationships between economic and political enterprises are also likely to entail some degree of parasitism. From a political perspective such a phenomenon is attributable to the lack of capability on the part of political enterprises to self-generate valuations concerning their activities, or similarly to engage in economic calculation in the absence of market-price referents. Richard Wagner and other entangled political economy theorists largely discuss parasitical attachments through the prism of fiscal policy, and to a lesser extent regulatory policy. It is important to recognise that much of the political interest in soliciting parasitical attachments rests in a desirability to obtain data, as well as information and intelligence, all of which is conducive to collecting tax revenues, ensuring regulatory compliance and undertaking expenditures to achieve policy objectives.

It should be recognised that an incentive to generate entanglements of a parasitical nature is not the sole preserve of political agents. Until the very recent emergence of blockchain on the social-evolutionary scene, data management protocols accorded a prominent role for large, hierarchical corporate structures entrusted to store, secure and verify data. To be sure such a role often comes with the willing support of political actors, who can outsource their data management needs to the private sector. In a taxation context, for instance, it is observed that:

… large corporations provide more nourishment for political parasitism… The preponderance of modern taxation is collected for government by corporations…. It is surely plausible to think that the corporate form of enterprise in conjunction with its elaborate procedures for record keeping facilitates tax extraction within a society by obviating the need for governmental entities to reach directly to individual citizens.… In this setting there are reasonable grounds for thinking that parliamentary assemblies would be able to arrange a larger volume of deals in an economy where much activity is organised through large firms than when it is organised as a nation of shopkeepers, due to the position of firms as agents of tax collection. (Wagner, 2016, 178)

In one significant respect the prospect of securing triadic exchanges – potentially leading toward a durable, albeit parasitic, relationship with political actors – may prove especially attractive to managers of economic enterprises vulnerable to competitive challenge. By the same token the emergence of the modern firm as a harvester and gatekeeper of value-added data implies that political actors would seem all too willing to provide support to such economic enterprises, even at the cost of parasitism and monstrous moral hybridity degrading the integrity of an open, competitive economic order.

Another issue to bear in mind is that entrepreneurial human action, as broadly conceived, is subject to ‘filtering’ processes which affect the probability of successful outcomes. As Richard Wagner (2017) has noted with respect to political action, filtering processes invariably involve participants within network structures, albeit accorded some semblance of authority, esteem or prestige, scrutinising the veracity of proposed acts and behaviours. It is envisaged that the performance of such scrutiny would ensure that productive and other-regarding forms of conduct are encouraged, while discouraging unproductive and selfish activities.

Against a background of limited cognition and asymmetric access to information and knowledge, there is the non-trivial risk that filtering processes work imperfectly. Oliver Williamson notes that many formal institutions, certainly those situated within the economic order, are intended to hedge against instances of opportunism or ‘self-interest seeking with guile’ (Williamson, 1993, 97). In practice the potential for strategic gaming of institutional norms and practices, enabling the realisation of opportunism, cannot be ruled out in an entangled political economy populated by monstrous moral hybrids engulfed by relational parasitism. As part of their rent-seeking activities, economic enterprises opportunistically act to filter data to win particularised concessions via the political process. In a case of ‘telling them what they want to hear’, economic rent-seekers may selectively present, or misconstrue, the data they offer to legislators, bureaucrats and other political actors if such opportunistic actions improve their chances of success. More generally, it appears more likely that breaches of trust which relate to the supply of non-credible data would prevail in monocentricallyoriented network environments with confounding ordering principles applying.

The blockchain potentially poses a challenge to those economic, social and political participants interested in perpetuating vintage ledgers. According to Swan, ‘[w]hat the blockchain could facilitate in an automated computational way is one universal, seamless model for the coordinated activity of near-infinite numbers of transactions, a universal transaction system of an order never before imagined for human activity’ (Swan, 2015, 31). In one sense blockchains offer the potential for new, dyadic exchanges to occur through public ledgers, without recourse to third parties. The blockchain may not only de-concentrate existing networks, breaking up parasitical attachments, but can create new and previously unimagined virtual network structures.

MacDonald (2015) and Allen (2017) illuminate the potential for blockchains to fundamentally reshape network structures through a process that is coined crypto-secession. Under this scenario actors abdicate from involving themselves in conventional networks, given that the blockchain enables people to forge trustgalvanising network structures in which information and knowledge, as derived from data, flow more seamlessly and securely amongst agents. This process need not involve territorial mobility, as discussed in Tiebout (1956) and Buchanan and Faith (1987), but rather with crypto-secessionists opting for the ‘virtual world’ of blockchain whilst remaining in the same geographic space. In this sense, technologies such as blockchain open up new possibilities for economic, social and political entanglement to which individuals, and groups of individuals, can crypto-secede. These new spaces of coordination, as illustrated in Panel B of Figure 1, ultimately compete with existing entanglements and networks and will ultimately succeed, or fail, through an evolutionary process of ledger technology adoption.

As observed by Catallini and Gans (2017), blockchain reduces the cost of networking, and raises the cost of maintaining conventional intermediaries, inducing an architectural change to value creation and capture. Indeed, where it is discovered that blockchains are comparatively effective at solving economic and non-economic problems, individuals will crypto-secede from existing institutions and embrace decentralised blockchain-based applications (Allen, 2017). In any event, cryptosecession is expected in some respects to fundamentally alter the networked webs of entangled political economy and, in so doing, reduce the power of data-driven hierarchies (Markey and Towler, 2018).

A second way through which blockchain exerts change is by introducing a sense of fluidity in organisational forms as we presently know them. The emergence of ‘smart contracting’ through the Ethereum blockchain, for example, enables the establishment of new elements in the entangled political economy picture – such as ‘crypto-firms’, ‘crypto-altruists’, ‘crypto-democrats’, and so on. These entities, more generically referred to as ‘decentralised autonomous organisations’ (DAOs) and ‘decentralised collaborative organisations’ (DCOs), maintain their corporate identity data, financial and other transactional records and programming (‘constitutional’) rules all on the blockchain, rather than vested in legacy firms and governments.

The potential significance of crypto-entities from an entangled political economy perspective cannot be understated. The blockchain enables virtual start-ups and open-source enterprises to directly compete with entrenched, conventional-economy incumbents with inflated transaction costs and locked-up rents. The peer-to-peer decentralisation properties of blockchain imply that no single participant has full control over the underlying digital assets and data (Catalini and Gans, 2017). It would be of little surprise, then, that ‘[a]n economy with blockchain technology is institutionally more varied and complex than an economy without it’ (Davidson et al, 2018, 16).

Individuals and groups entrepreneurially participate in the development of advantageous projects with others, and are not inert in the face of innovation and other aspects of change. The theory of crypto-secession suggests that, as blockchain technology becomes widely adopted, centralised entities, such as governmental agencies and large firms, could lose an ability to leverage their privileged data access capabilities for the purpose of influencing economic, social and political activity. It is possible that governments and corporates would seek to defend their ‘Big Player’ network positions (Koppl, 2002). Political restrictions on the capacity of individuals to crypto-secede and govern new decentralised relationships, in effect, seek to restrain the evolutionary outgrowth of competing forms of governance through ledger technology. Policymakers may attempt to ban blockchain-related activities, such as participating in cryptocurrency exchanges, or try to discourage blockchain use (for example, requiring users to register their crypto-wallet details with taxation and other authorities). The use of moral suasion to discourage the use of blockchain may also be interpreted as part of broader efforts to maintain loyalty and support for incumbent, yet fragile, high-cost and potentially corruptible, centralised third-party arrangements.

There is a considerable threat that the full potential of blockchain may be compromised by strategies to co-opt blockchain into existing production and organisational structures or, in the far more unlikely event in terms of effectiveness, efforts to ban the usage of decentralised public ledgers outright. However, we contend there is potentially significant upside associated with existing participants in entangled political economy embracing an accommodating stance toward blockchain.

On the understanding that blockchain technology may dramatically reduce the costs of conducting commercial activity, presently-existing firms could respond to crypto-secession by abstaining from treating their customers’ data as proprietary, or at least they could commit to maintain, retrieve and validate data more securely and at lower cost. Should such responses from conventional economic enterprises necessitate a retreat from parasitic attachments with political players, on consumer privacy or other grounds, monstrous moral hybrids in the economy could return to their previous, commercially-oriented form.

The potential of blockchain to disrupt long-retained laws, regulations and taxation systems is clear, especially if sufficient numbers of individuals and their enterprises anonymously crypto-secede to participate in blockchain-orchestrated networks. However, the advent of blockchain could be constructively used by political actors to engage in policy reform rather than attempting to punitively tax and regulate blockchain application-use. Governments could focus upon the establishment of ‘crypto-friendly’ rules which enable individuals and groups to engage in blockchain adoption processes with minimal uncertainty. This includes promoting a climate of generic capability support enabling the citizenry to participate in the crypto-economy, rather than enacting discriminatory policies and rules in the name of assisting certain interests to adjust to the realities of blockchain (Dopfer and Potts, 2008).

Blockchain applications in entangled political economy frame: three cases

Identity

Entangled political economy and other process-oriented guises of political economy have rightly stressed the importance of dynamic interactions between individuals and groups as the underlying basis for the realisation of objectives. However, this characterisation begs the question: what enables individuals and their entities to realise mutually agreeable and advantageous arrangements in the face of opportunism? Identity – the attribution and recognition of features attributed to people, on the basis of their personal characteristics or social affiliation – serves as an integral way of facilitating many kinds of interactions. Indeed, we suggest identity technology represents the sine qua non of modern human activity, for without identity it is virtually impossible to meaningfully engage in economic, social and political activities.

The use of identity appears especially salient in large-scale societies consisting of great numbers of diverse inhabitants, wherein the possibilities for gain through cheating, fraud, misrepresentation and theft appear, at least on the surface, to be extensive. Who are we proposing to enter into a contract with, and how do we know the proposed contractual counter-party will adhere to the agreement? Just who is this individual offering to donate a large sum of money to the charitable cause, and do we expect them to make good on their donation offer? Who exactly is that person coming forward requesting to cast a ballot to elect the next legislative assembly? It would seem that in these instances, and more, the presentation of appropriate identity technologies by those seeking exchange relations would help suppress opportunism within society more broadly (Berg et al, 2017b; Berg, 2018).

Government has maintained a longstanding interest in developing and maintaining identity ledgers for the purposes of tracking the wealth, movement and lawful conduct of citizens, as well as monitoring the transition of individuals through critical life episodes such as birth, marriage and death (Scott, 1998). From an entangled political economy perspective, identity provides a means through which individuals, firms and other entities are politically perceived as being viable for parasitical attachment. As noted previously taxation and regulation can influence the degree and extent to which entanglements emerge, but it is the political ability to use certain identity records that establishes which attachments are to be sought in the first instance. In other words, the policymaker must establish criteria for who is to be taxed and regulated prior to any fiscal and regulatory activities taking place.

The important point to be made here is that, in similar fashion to many other ledgers, identity records have become vested in hierarchical third parties such as governments and large firms. Governments have established mass-population identity records such as drivers’ licenses, travel passports and voting registries, and have coopted longstanding records emergent within civil society (for example, relating to births, deaths and marriages), for surveillance, rent creation and revenue extraction purposes. Some public sector entities have outsourced identity-verifying ‘gatekeeping’ roles to firms.

Firms also use publicly-managed identities as inputs into the commercial and business management of identity, affecting the ability of people to open a bank account, attain employment and to transfer assets (Berg et al, 2017b). It is hypothesised that monstrous moral hybrid enterprises are able to retain disproportionate influence, and secure hefty rents, by virtue of their advantaged access to large pools of identity data. This is partly attributable to the notion that ‘digital identification methods currently available… mostly rely on a trusted intermediator to verify the authenticity of an identity. This introduces service fees and gives the intermediator all the power to decide which service providers are allowed to make use of the verified identity’ (Matilla, 2016, 14).

Another important aspect of governmental involvement in maintaining centralised identity ledgers is that there is a tension between a legal-centric view of identity and one which comprehends the fluid, contextual and subjective nature of identity (Berg et al, 2017b; Novak, 2018). A legal-centric identity perspective not only places a premium upon the stability of identity records, but seeks a uniform (or at least heavily simplified) identity for all. Identity uniformity and stability is likely to enhance the ease of tax collection, allocation of income support and other payments, and more easily identify the targets of regulatory policy, even if this involves ‘data sharing’ procedures across agencies to be activated. Political and bureaucratic resistance against the ratification of multiple identities, or changes to existing identity classifications, can be viewed through the prism of a desire for the status quo with regard to vintage identity ledgers.

Although the application of centralised (paper-based and digital) ledger technologies for identity may achieve scale economies and similar benefits, there is the notinconsiderable risk that such centralised ledgers are amenable to identification error, fraud and identity theft. The relative advantage of blockchain over its centralised counterparts in the identity application-space is that, with respect to the former, identity is crypographically secured and decentralised.

Identity verified on an open, permissionless blockchain equips individuals with a greater sense of ownership and control over their identity attributes, as they see fit. Transacting individuals and groups requiring the verification of the identity of a given individual, business or other enterprise would be able to verify identity claims, with minimal costs and less processing time, without being able to alter identity records. Whilst the revelation of identity may be useful in some circumstances, others may wish to protect their identity when using blockchain applications. It is for that reason that certain blockchain developers are creating additional safeguards, such as ‘zero-knowledge proofs’ which verify transactions whilst maintaining an ‘identity firewall’ that does not reveal the identity of the transacting parties (Rogaway, 2015; Orcutt, 2017).

Blockchain technology is likely to fulfil individuals’ desire to maintain a wide range of identities to satisfy their work, family and social commitments, and to maintain those identities in a highly portable fashion, whilst maintaining privacy (Berg, 2018). To be sure, blockchain does not remove the need for enterprises to attest to relevant features of our identity – for later use when we make identity claims – nonetheless the blockchain removes the need for third parties to necessarily store and verify our identities. With the potential to reallocate identity records from legacy third parties to the citizen, the potential of blockchain technology to crypto-secessionally disrupt conventional, highly-entangled identity governance regimes becomes apparent. At the very least, blockchain identity protocols provide a contestable alternative to centralised identity ledger systems, providing greater incentives for existing identity holders to pay greater heed to the identification needs of individuals as they commingle economically, socially and politically.

Property

The right of people to acquire and transfer valuable resources through exchanges agreeable to the affected parties, and which do not compromise the ability of others to undertake the same kinds of action, has long been considered as a cornerstone of individual freedom and human flourishing. The resources, or property, referred to here could be in the form of tangible property (food, clothing, housing, computers, industrial machinery, and so on) or intangible property with no physical substance, such as financial securities, patents, trademarks and copyrights.

The distributed ownership of property that is evident in market-oriented economic orders accords the property-title possessors a ‘bundle of rights’ with respect to the management of property (Honoré, 1961; Demsetz, 1967; Epstein, 2011). Those who own property are able to determine various conditions of property access, control, use and disposition, consistent with cultural norms, market conditions and legal circumstances which prevail at the time. Informing the complexity surrounding the management of property rights is the fact that the pursuit of enterprises, projects and ventures by people, in accordance with their own lights, will tend to disperse ownership and control across a wide array of actors. Agents contestably interacting with others, in the pursuit of economic gain, will fashion the evolutionary combination and recombination of bundles of property rights (Gaus, 2012).

It should be recognised in this dynamic context that the potential for social tectonics, amongst heterogeneous people with divergent interests with respect to the acquisition, use and disposal of property, is probabilistically non-trivial. As Richard Wagner has indicated, ‘[e]ntangled political economy starts from recognition that property rights are not absolute and invariant, but rather denote social relationships that are subject continually to margins of contestation and potential change’ (Wagner, 2016, 164). This discussion implies that rights with respect to property are not only transferred on a voluntaristic basis, but may be involuntarily taken away through mechanisms such as taxation, seizure, divesture or judicial action via the political process (Wright and De Filippi, 2015). The spectre of limited forbearance from interfering with someone else’s justly-acquired properties suggests the distinction between private and public properties, let alone the salience of the ‘mine and thine’ ethical grammar associated with private property holdings, may become distinctly less clear on occasion (Martin, 2017; Wagner, 2016).

Given the contestability of property rights the need for credible, trustworthy records of ‘who’ legitimately owns ‘what’ (in part, an identity question), as well as information concerning the extent of their influence and control over those ‘whats’, comes to the fore. Generally speaking, most developed countries maintain well-established and high-quality property title ledgers (registers), as well as elaborate contract regulations to support exchanges of property amongst non-intimates. The protection of property rights in those locations is buttressed, in most cases, by the relatively low incidence of official corruption.

However, property ledgers even in developed countries tend to be centralised, paper-based and fragmented. This makes such records prone to tampering and costly to maintain, as well as being somewhat cumbersome in terms of public access, record verification and amendment. The extensive management of property ledgers by political enterprises allows for significant tax attachments to property (through sales taxes, property taxes and excises), as well as the extensive regulation of economic activity.

The work of development economist Hernando de Soto raised the lack of highquality property and asset registries as a factor inhibiting the material advancement of peoples in the developing world. Although residents of developing countries have access to significant amounts of resources, a lack of asset records means that the effective property owners cannot credibly leverage their assets as collateral for finance. Even if asset inventories are available they may be of insufficient quality to provide economically meaningful information ‘about who really owns those assets or how people have organized the rights that govern them. All the photographs and computer inventories in the world cannot tell anyone what local rules enforce these rights or what network of relationships sustains them’ (de Soto, 2000, 214).

Modern recognition of property rights has been predicated on the assumption that centralised, large-scale, formal trust networks are necessary to allocate such rights amongst the innumerable participants within entangled political economy. Central to these arrangements is the role of government, which ‘bundles together widespread recognition, some sense of legitimacy, and powers of enforcement’ (Miller and Stiegler, 2004, 69). Distributed ledger technologies (such as blockchain) provide a potentially credible alternative to conventional property rights protections, through the use of cryptography and economic incentives on peer-to-peer distributed virtual networks – even in the face of hostile participants motivated by competing, if not conflicting, interests.

As mentioned previously, blockchain technology can be used to create immutable and censorship-resistant distributed records of great variety. Indeed, it is conceivable that all aspects of the property rights bundle could be indelibly recorded on the blockchain using ‘coloured tokens’, and similar unique identifiers, denoting the assignment of rights to whoever legitimately possesses those (Antonopoulos, 2017). In the event of a change of ownership, access or some other provision concerning a given asset, this change can be validated through the blockchain consensus mechanism – rather than ratified by a government bureau, or some other intermediator on behalf of government – and instantaneously recognised on all property-ledger copies within the blockchain network. In effect these forms of ‘smart property’ are not merely recorded on the blockchain, but can be controlled and traded through that medium (Swan, 2015; Wright and De Filippi, 2015).

It is also possible that new configurations of digital property could emerge as individuals and groups interact with each other through this distributed ledger realm, effectively crypto-seceding from the conventional property rights regime. The formation, validating, exchanging and recording of property rights on the blockchain are, in turn, likely to have a significant effect upon the form of entanglements established in the non-blockchain economy. In particular, any wearing down of concentrated network hubs – long reliant upon centralised, vintage property ledgers – may lead to more flexible and fairer spaces for entrepreneurial discovery and interaction to harness value with respect to property configurations (Wright and De Filippi, 2015).

Finance

The provision of finance through banks, and other financial institutions, represents another pivotal form of economic activity. Banking and similar financial enterprises essentially play a ‘two-sided’ role in the market, attempting to intermediate the interests of savers (holding excessive amounts of funding) and borrowers (holding an insufficient quantum of funds). Banks arrange for savers to deposit their funds which are then used to lend funds to borrowers, with the latter using loan finance for investment or consumption purposes and promising to return the proceeds (plus interest) at a later date. With the prototype of the modern bank evidenced as early as medieval and Renaissance Italy (De Roover, 1963), such institutions have been closely intertwined with the long run economic development of nations.

Financial sector growth and maturation, including in the form of those political enterprises known as central banks, has corresponded with the positioning of banks as systemically central players within the financial system (Koppl, 2002). Having developed as scaled-up, trusted hierarchies managing the flow of funds throughout the economy, financial institutions have long presided over the stewardship of financial ledgers which track and validate deposits, loans and other financial transactions: ‘[m] anagement of the large-scale ledgers that run the governable part of our economy happen to reside in central and commercial banks that co-evolved alongside ledger technology’ (Velasco, 2017, 716).

The increase in social legibility and intelligibility associated with the entrenchment of centralised and hierarchical financial entities came with a host of negative sideeffects. The concentration of banks and other financial institutions diminished the proclivity of such entities to provide value-adding financial products to meet the needs of customers, and has been identified in recent research as a contributor to economic inequality (Baker, 2016; Lindsey and Teles, 2017; Novak, 2018). There are also legitimate questions about the trustworthiness of hierarchical banks to secure sensitive financial data in the face of threats such as fraud, hacking and theft.

The tendency toward monocentricity in financial services, especially through central banks legislatively charged to act as a ‘lender of last resort’, also encouraged interest rate manipulability, inflationary money supply, fiscal expansion through seigniorage revenue and the creation of substantial rents (MacDonald et al, 2016). As has also been noted in great detail by several scholars (Calomiris and Haber, 2014; Smith et al, 2011), the financial system is also subject to periodic crises typified by several constraints on liquidity and a lack of confidence by participants with respect to the prudential soundness of financial providers and their transactions. The bailout of major financial enterprises by governments in developed countries during the 2007–08 ‘global financial crisis’ (GFC) appeared to be motivated as much by the state’s ongoing interest in maintaining fiscal and regulatory control as much as safeguarding deposits and promoting investor confidence.

The raft of blockchain-enabled fiat ‘cryptocurrencies’, such as Bitcoin, Ethereum, Ripple and Litecoin, represents the earliest stage of blockchain technological application. The effervescence of the cryptocurrency meso-adoption phase – particularly during the latter part of 2017 as the Bitcoin price enjoyed record highs – has attracted substantial investment, not to mention growing cultural, economic, social and political interest. One of the more intriguing features of cryptocurrencies, aside from proof of work and other consensus-laden processes to confirm transactions, is the issuance of tokens as a vehicle for obtaining investment funds within the blockchain space. This procedure, known as an ‘initial coin offering’ (ICO), effectively bypasses the time, costs and intrusions which go with relying upon conventional financial institutions as a source of capital raisings. Specialists in peer-to-peer blockchain finance, such as Tapscott and Tapscott (2016), have also observed the introduction of digital securities and other financial assets which have been designed in an attempt to induce a better matching of risks and saving-investment profiles.

Notwithstanding these important developments, our central argument is that the open-source and evolutionary nature of blockchain suggests that cryptocurrencies may not ultimately represent the most impactful manifestation of distributed ledger technology upon the financial system. Cryptocurrency exchanges, or crypto-firms which enable customers to trade certain cryptocurrencies for other cryptocurrencies or traditional fiat currency, now represent an important part of the blockchain landscape. It is conceivable to imagine the establishment of a certain form of DAO, which we shall refer to as a ‘crypto-bank’, an entity operating through the blockchain that undertakes similar functions to already-existing banks. Unlike modern financial institutions, the ledger of the crypto-bank is publicly available for continuous prudential scrutiny by blockchain participants. In the event of insolvency the cryptobank immediately self-liquidates, with no recourse to expensive and inequalityinducing bailout mechanisms by government.

All of the blockchain financial innovations mentioned here reflect crypto-secessional activity to varying degrees. The decision to crypto-secede will, to some extent, reflect individual assessments regarding the efficacy of blockchain activity to empower users to unbundle services traditionally administered within banks, as well as the ongoing risk of conventional financial institutions to imprudently exercise opportunistic behaviour at the expense of their customers. As noted by MacDonald et al (2016), the continuing adoption of financial activities through the blockchain in itself reduces institutional exit costs associated with seceding from hierarchically organised banks.

There have been reports that major financial institutions operating on a global scale, such as Goldman Sachs and JP Morgan, are currently experimenting with the development of closed, permissioned blockchains for their enterprises. Whilst acknowledging some technical efficiency benefits at the margins, from the cryptosecession perspective such efforts seem largely reflective of a desire to co-opt blockchain technology into existing managerial and operational strategies. In effect the economic power of currently influential enterprises and other actors would continue to ramify throughout entangled political economy to the extent that genuinely open-ended and permissionless blockchains are curtailed by presentlydominant financial houses.

Conclusion

There has been a significant amount of interest surrounding blockchain technology, and its potential to reshape business, society and politics. Blockchain technology potentially shifts modes of economic, social and political coordination. The contribution of this paper is to use the theory of entangled political economy in an attempt to comprehend the potential impacts of distributed public ledgers upon the nature and extent of interaction between actors. To do this a number of applications of blockchain have been presented, referring to the potential for blockchain adoption to reform the sets of dyadic and triadic exchanges that have previously unfolded within society.

Many of the organisational structures and networked connections in existence today reflect a long drawn-out process in which the responsibility to maintain, secure and amend ledgers has been largely allotted to large hierarchies. Although the development of concentrated hubs of ledger control within society has been rationalised on the basis of promoting trust, the lack of distributed responsibility has ironically made data and information systems vulnerable to error and malfeasance. There have been numerous instances of government agencies either mishandling sensitive personal data or being preyed upon by fraudsters and hackers. Similar issues have affected large companies with major storehouses of some of our most important information. Unsurprisingly, these developments have reduced trust both in politics (contributing to a ‘democratic deficit’ between citizenry and state) and in major corporations.

The ingenious combination of cryptography, economics and computer science enables even our most important and sensitive information to be recorded and amended securely in the face of opportunistic conduct. The ability of actors to use blockchain to crypto-secede from legacy hierarchies has significant implications for the stability of existing networks, as well as the potential for new connective structures to emerge in the crypto-economy as well as the conventional, vintage-ledger economy.

Any fundamental reshaping of the contours of entangled political economy, especially a loosening of those ‘thick attachments’ between citizen and state grounded in the acquisition of data about the former by the latter, may well pose as the most striking impact of blockchain into the future. The extent to which blockchain leverages a reshaping of existing entanglements will depend upon many factors, including the preparedness of political actors to maintain abstract, generic, cryptofriendly rules facilitating blockchain adoption, even if at the cost of some ‘creative destruction’ of legacy network configurations.

It is our view that the presence of blockchain also adds to entangled political economy in several ways. This includes new insights regarding the integration of technology in network analysis; the nature of trust-enhancing institutional mechanisms; the influence of technology upon institutional change and persistence; and the applicability of use-cases in understanding economic, social and political relationships. Our argument is that the advent of blockchain illuminates certain hitherto under-appreciated features of the entangled political economy framework, and in so doing provides an opportunity for a deeper understanding of the essence of human relations, as well as harnessing innovation and technology to enhance our potential for living better together.

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