Vitalik Buterin, the brilliant founder of the Ethereum blockchain, said lately:
“What matters is that blockchains and cryptocurrency, originally founded in a vision of using technology to escape from the failures of human politics, have essentially all but replicated it. Crypto is a reflection of the world at large”.
I couldn’t agree more with him.
The currency war, globalization, employment rate, inflation, governance, etc. are the issues pervading both worlds. EOS, the blockchain and the token with Block.one and a big community behind it mimic the US China trade war quite well. It could be said that the crypto world is a multiplayer game with real people and those behind who pull the strings. If this is the case then entering the game could be the key to solving not only the trade war but solving other global problems.
EOS as the mirror of the geopolitical situation
EOS is a governed blockchain that finds its application in almost every field. It is a distributed network of block producers who verify transactions and come to a consensus regarding software upgrades and governance matters. Similarly to citizens choosing their government representatives, also block producers (BPs) are chosen by the token holders in continuous voting.
Initially, BPs were creating free tools to attract more users, grow the network, gaining votes for their contributions but despite EOS had a constitution forbidding vote-buying, there was no way to verify it and many BPs started secretly trading votes. Likewise, there is no way to eliminate vote-buying from voting for government representatives. Although illegal, vote-buying was reported in countries like Italy, Argentina, Nigeria, Indonesia, and many others. Also the last presidential elections in the USA were plagued with allegations of fraud, vote-rigging, repression of voter’s rights, hacking and media control. All these things happen despite the laws proving their ineffectiveness.
Due to the unenforceability of subjective rules, the constitution has been replaced after the majority of the token holders voted for it in a referendum. Since then, vote-buying is not forbidden and many BPs, as well as the token holders, embraced “voting rewards”. Token holders can now stake their tokens and gain rewards for it while BPs can use them for voting themselves and other BPs. This led to a big shuffling in the block producer ranks. Those BPs who were using their earnings to buy votes went fast to the top while many BPs attached ideologically to no-vote-buying or those who retain that vote-buying is detrimental to the network fell in the ranking.
Their stance is that vote-buying leads to the race to the bottom. In this race, BPs who run an EOS node as secondary business or employ manpower in the areas where labor is cheap are those who win.
The same happens with American or European companies displacing their production to the areas where the cost is less. Gaining access to the enormous Chinese market and their means of production is something many companies can’t resist. Escape of jobs and capital is also the cause of the trade war Trump runs against China.
Vote rewards seem to be the cause of the growing number of BPs coming from East although there’s no way to verify where they operate from. Opening up to vote-trading led also the cryptocurrency exchanges to become always more prominent actors of the scene. Rent-seeking is a profitable business after all. The problem with the exchanges, the crypto banks, is more complex though. They’re being accused of voting without permission with the EOS of their customers. They don’t use own EOS tokens to gain top ranks and earn more rewards. They often don’t contribute to the development of the tools, miss blocks, and they could be involved in creating sock puppets (shadow BPs) earning them even more block rewards. This again reflects the situation we can see with ordinary companies or banks. This leads to nothing else than centralization of the capital and power in few hands. This is called monopolization.
It is a fact though that since the mainnet launch EOS achieved the highest 57.89% vote ratio. Voting rewards and resources exchange REX staking surely has played a major role in it but this is not necessarily a good thing. It could be the cause of uninformed voting. The assumption is that the voters don’t choose a BP because it is a “good BP”, but because it offers the highest reward.
It needs to be noted that an EOS voter can vote for up to 30 BPs with his stake. This proved to be a highly inefficient mechanism and Brendan Blumer, the CEO of Block.one, put forward one token one vote proposal.
Currently, many BPs complain of unfair competition and feel that joining the race is the only way to keep going but the distance between top BPs and those who launched the chain is so big that even Block.one who’s holding the biggest stake wouldn’t propel them into the top 21 positions. The open community continues discussing over best voting mechanism, voting rebates and the solutions to sock puppets between others. Finding a way to align all parties would be almost like solving the world governance problem. This is where Talkchain comes to mind. Talkchain, the platform for decentralized governance and collective decision making uses one account one vote which eventually will become one person one vote and it seems to be the perfect solution to the EOS pains. With its asynchronous video forum and an embodied voting system, it permits users to participate directly in an uncensored, unmoderated, self-actuated debate, to influence the vote and to become a scalable conflict resolution mechanism. In short, the Will of the Community (collective decision) becomes law (smart contract). Such a platform is what it takes to eliminate the mainstream media deception from politics and other debates. It is what serves to build a truly democratic system. Switzerland is the best example of the consensus built on a continuous referendum.
US China trade war and similarities with EOS
The ongoing economic conflict between the world’s two largest world economies escalated in the USA rising tariffs and other trade barriers on China. Donal Trump believes that China conduces “unfair trade practices” like the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.
The US is the biggest importer while China is the biggest exporter.
The US imports $3.1 trillion of which $539.5 billion worth of goods come from China which equals 17.3%. Conversely, US exports $2.5 trillion of which $120.3 billion worth of goods goes to China which equals 4.8%. This means that China is giving the US less than the US is giving to China. US total trade deficit is $621 billion and the US trade deficit with China is $401.9 billion. This means that China accounts for 67% of the total US trade deficit.
It is difficult to say who’s going to win this power game. The US is strong at innovation, technology, and free-market competition while China’s strength derives mostly from cheap labor, copying, and manufacturing. This is not far from the picture we take from EOS. Western BPs engage in the governance process, produce free tools, develop the network and implement changes to the system. From East EOS takes the large user base although it can’t be verified where they really come from.
Wherever the truth lies it is obvious that trade war hurts the US by influencing negatively other foreign relationships, the small business owner, farmers, and consumers. Due to complete control of the Chinese media by the Chinese Communist Party, we can’t say if their reported 3.8% unemployment is the real measure or not. Their net migration rate is negative while the US migration rate is the highest in the world which means that the US is the most attractive country to live in.
EOS too is hurt by the current BPs situation with the media seeing EOS in a bad light despite EOS remaining the blockchain with the most activity and with some exciting development being created at a continuous rate.
One question resurfaces spontaneously: what if EOS divided into two chains? What if there was one Eastern and one Western chain? Which would attract most talent, money, and be most successful? Which community would create a better governance model and how trade via Inter Blockchain Communication could be managed at best?
Who needs who the most?
EOS as well as US China trade war demand another question. Who needs who the most?
China’s exports to the US fell 7.8% in June and US exports to China slumped 31%. Apparently, this has little impact on the broader Chinese economy because net exports have shrunk to 1% of total GDP. China’s slowdown has been created primarily by domestic, structural drivers like little investment in infrastructure, slowing industrial output and the decline in the construction of new houses. Despite its growth is lowest in 30 years China remains the most vibrant economy. Similarly, EOS is the blockchain with the most activity and attracting many developers and businesses.
Recently, the US declared China a currency manipulator saying it’s using yuan to gain “unfair advantage” in trade. A weaker currency has its benefits because it makes exports more competitive. That gives multinational corporations an edge against rivals. Many S&P 500 companies have gotten hit this year because the dollar has been so strong but if everybody races to the bottom it can be very disruptive to the markets and the global economy.
When a country like China weakens its currency other countries take steps to protect their economies. It causes not only tensions and rises walls between countries but it also slows trade.
Other than weakening their currency China could also sell US debt but does it really benefit them?
It currently equals $1.13 trillion. The interest is based on the US treasury rate at the current rate of 3.4% for 10 years.
1.3 trillion is 28% of 4.02 trillion in US trillion bills. Selling US debt though wouldn’t be the best idea because as we’ve seen above a 17.3% market share is a big chunk. By selling US debt China will take the biggest hit.
Trump owns the Deutsche Bank 1 billion dollars but he is not worried. It’s the bank who should be worried. If China owns much of the US market share then who should be worried?
A leverage game
This is a leverage game between China and the US but it proves to be quite effective after all. In response to the allegations of forced transfer agreements what means that the companies are forced to share trade secrets with the CCP, the National People’s Congress endorsed a new foreign investment bill, to take effect in 2020. It prohibits the forced transfer of intellectual property from foreign companies and grants stronger protection against counterfeiting and (intellectual property) and theft. China had also planned to lift restrictions on foreign investment in the automotive industry in 2022. What if it’s all about making the game fair for everyone? What if it’s not and it’s more about the race in innovation? Sectors like green energy, artificial intelligence, space, and 5G are those where productivity will increase and this is what the two countries are trying to get a foothold in.
There’s one more other thing everybody fear. What if it will come to war? I really doubt that Donald Trump wants war and it is unlikely that Xi Jinping would go down this path. They may have no choice though. They could be drawn into it in an escalating Iran vs Saudi Arabia conflict. They might have no choice. As outrageous as this scenario is, it remains a possibility.
The same could happen with EOS. The chain is currently built in such a way that BPs who don’t produce blocks can’t be removed. If at least 7 BPs stop producing, this could lead to the network halt. That could be the breaking point and a reason to fork the chain. Another, more plausible, reason to fork the chain and creating a new one could be the impossibility of western BPs to compete in this market. Even if they join the voter-rewards club it could be too late for them.
The EOS community is trying to figure out how the incentives between the token holders, exchanges, decentralized application owners, and BPs can be aligned at best. It is trying to see what good voting rewards can bring to the table and if the game can be played by fair rules.
It is not surprising that the crypto world reflects the larger geopolitical, economic and social situation. The money creates power and the power creates money. It’s an auto-feeding process driving to monopolies and regimes. Whoever has more cash, whoever needs the other less, whoever is more stable is going to win this game. The US attracting the whole talent and much power force is setting the ground for own production of phones and other technology. On the other hand, China brought millions of people out of poverty but struggles now to maintain the level of satisfaction it created before. It is yet to be seen if the EOS community used to getting rewards will start asking for more what will lead to inflation increase. Universal Basic Income could be perhaps a better solution. Whatever the answer is, an unmoderated, trustless debate not influenced by the mainstream media narrative, a debate where each participant has an equal voice and where each vote is provably verified is essential to solve the conflict. It is the only way to find the way out of this downward spiral and Talkchain is what it takes to make the collective intelligence so powerful in the construction of the truly democratic system.
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