Interoperability

The Grand Myopia

Finance and the broader idea of commerce is ultimately a human endeavor. There exist elegant languages, extremely precise tools to capture intent, and endless mazes of techniques to achieve recourse in the event of bad outcomes as well as thousands of years of laws seeking equity in trade. In fact some of the earliest forms of writing were commercial contracts.

Yet the human element cannot be eschewed regardless of the disintermediation to logic, machines or governmental sentinels entrusted with terrible powers. Therein lies the grand myopia of cryptocurrencies. They are mostly divorced from human reality.

People make mistakes. People change their minds. People do not always fully understand the business relationships they are agreeing to enter. People get misled and defrauded. Circumstances change on an individual and state level that require unique solutions. Belaboring this point, most contracts contain force majeure clauses.

However, cryptocurrencies seek to toss out human understanding, compassion and judgement in exchange for an uncaring digital judge perfectly bound to a constitution without consideration to fairness or outcome. Given that humans have always tried and will continue to attempt to change rules to selfish ends, it is refreshing to actually have a system that cannot be corrupted.

But what happens when a user needs to blend these new systems with traditional financial systems? What happens when one needs to live in the human world? For example, property rights such as land registration live entirely in the physical world. Even tokenizing the land still requires some acknowledgement of the incumbent jurisdiction.

To provide another point, a bar of gold cannot move itself. The digital judge can command its movement, but cannot force it without humans to accommodate. Hence a digital ledger can drift from reality.

Thus a protocol designer needs to decide how much human reality should be permitted in his cryptocurrency. The more flexibility, the less fidelity to the absolute one should expect. The more consumer protection, the more mechanisms have to exist to provide rollbacks, refunds and editing of history.

This section and the next on regulation covers Cardano’s pragmatic approach to the topic. In terms of interoperability, there are two broad groups to discuss. First, interoperability with legacy financial systems (the non-cryptocurrency world). Second, interoperability with other cryptocurrencies.

Last updated: July 17, 2020 11:40 UTC

© IOHK 2015 - 2020


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