The Three Stages of Ownership  

I constantly get the question: why do we need this blockchain thing anyway? Here is why.

Every society with a vibrant commercial life exalts private property as an institution. The entrenchment of this institution occurs in three stages. All three are essential.

The first stage is to create private property itself. This is usually done out of the necessity of getting enough to eat. Contrary to every socialist claim, this doesn’t happen through magic or authoritarian dictate. You need fences to grow things and raise animals, and you need your neighbors to regard them as inviolable. To invade them must become a kind of taboo, as Sigmund Freud wrote. This stage is necessary to escape primitive conditions. For society to mature, private property needs to be discovered as a technology for dealing with the problem of scarcity.

The second stage involves securing that property from people who would violate the new norm, because such people will always and everywhere exist. It must be effective enough to deter them from taking your stuff. Traps, lookouts, moats, threats, and various shows of knowledge and strength to be able to keep what is yours are essential. This is the original function of what is often called policing: it is part of the method by which people can rely on the fact of ownership as a persistent feature of their lives. Otherwise, wealth creation is impossible.

The third stage is the least understood of the three: you need some technology that compels social assent to what you regard as owned property. This is necessary to reduce the costs of securing property from invasion and creating a more stable environment for the rise of commercial life. Word of mouth can work on a limited scale.

But beyond that, you need some kind of record keeping that everyone regards as objective and not subject to manipulation and fraud. This is necessary because property changes hands. It moves from parent to child, from small owner to large owner, and so on. Private agreements can work in one round of trading. But in multiple rounds, confusion over titles can create serious disputes and problems.

Recording Ownership

This stage also requires some technological innovation. From ancient Mesopotamia archaeologists have discovered detailed records of ownership, ledgers listing property with numbers and owners. When archaeologists excavated a Mycenaean Greek site that dates from 1200 BC, they discovered it was a merchant’s house precisely because of all the record keeping. It was mostly kept on stones, which does indeed create an immutable record but it is not a very efficient or adaptable method for conducting business.

In recent decades scholars have unearthed a vast supply of tablets and inscriptions detailing ownership records in many parts of the Near East. Records from the 7th through the 5th century B.C. are revealing all kinds of documents related to estate ownership, goods for export and import, and detailed reports on raw materials. In ancient Iran, property was recorded on cylindrical tokens. Later, papyrus was the preferred writing surface but it tends to fade. Parchment and vellum (made from lambskin) were much better because the data had great longevity, but they were more expensive.

So much knowledge that historians possess about enterprise in these years draws from these records, without which they would have no evidence of complex economic structures. But what historians draw from these documents today was also useful to the people living in those times. They too had to have some record of ownership to delineate rights, else the rights become more susceptible to invasion. Verification of ownership is also essential in dealing with long trade routes. If you couldn’t verify your right to own what you are selling, you make the buyer vulnerable to all kinds of mischief at a later time.

The problem doesn’t only concern land and tangible property. It becomes a huge deal when it comes to moneylending, interest payments, banking, and corporate partnerships. Here record keeping becomes paramount to the business enterprise and to the historian’s task of making sense of economic history. Ledgers detailing ownership rights date from the earliest records in the history of man. If you look at the history of accountancy (this is actually a huge deal), you come to realize that accounting is a useful application of the much larger issue of confirming ownership rights.

The Invention of Numbers

Terrance Kealey, in his great book Sex, Science, and Profits does more than show that such records were crucial to the birth of civilization. He establishes that the need for such records was the whole reason for the invention of numbers themselves.

And it makes sense. Imagine being an early goat farmer. You need to count heads of livestock in order to establish that nothing is stolen, to quantify mortality, and to discern whether your small enterprise is profitable. It’s for this reason we have numbers to begin with. They certainly didn’t come into being because humankind has a compulsion for counting stars in the heavens. The Phoenician alphabet probably came about for the same reason: to facilitate commerce by gaining a great degree of certainty over ownership claims.

We even have evidence from the Bible for the need for such a technology. Moses – who proclaimed “thou shalt not steal” – had a vision of a tabernacle when he was on Mount Sinai. The youngest son of the high priest was tasked with carrying it out. But it wasn’t possible without a solid technology of recording what was used for what. “These are the amounts of the materials used for the tabernacle, the tabernacle of the covenant law,” says Exodus 38:21, “which were recorded at Moses’ command by the Levites under the direction of Ithamar son of Aaron, the priest.”

Title Companies

As enterprise grew more sophisticated in the late medieval period, recording ownership claims itself became a business, and thus was the title company born. These took on new importance in the American experience because property was not granted based on political connections but rather homesteaded and traded with every manner of stipulation regarding surrounding resources.

In times of political upheaval, being able to demonstrate your ownership claims through some objective record can make all the difference. This was true in Roman times, when such records could resolve disputes with tax farmers. But it was even true in the aftermath of the collapse of the Berlin Wall, when some effort was made to restore East German property to its rightful owners. Establishing who owns what is a crucial feature of ownership itself.

Ambiguity over ownership is one of the more frustrating problems of the human experience. Consider the phrase “possession is nine-tenths of the law.” It is of Scottish origin, and said with a bit of cynicism. It is an exaggerated send up of the constant problem all courts face of knowing who owns what. Most systems are so bad that judges have generally said: if you possess physically it, it is yours.

Surely there has to be a better way!

The Blockchain

You can notice that the technology for achieving the goal of recording rights has improved along with the increased complexity of economic structures. It followed a long trajectory: stones, clay, papyrus, vellum, scrolls, books, databases, and computer files. It makes perfect sense that in the 21st century, the digital times would cry out for another and better solution.

Looking back, it is obvious that a technology that seeks to provide social assent should not be controlled by a central party. It should be seen by all and be able to be confirmed or denied by any interested party, so that consensus is realized as the claims to ownership are being made.

Here is the core function of the blockchain. It provides a distributed system for verifying claims of ownership, whatever they may be. A few years ago, this truth was not widely understood because everyone was so distracted by the incredible fact that the tokens that make the blockchain work obtained a market value, and behaved like money themselves.

A market-created money made out of digits? That is indeed amazing. But to observe only this is to limit the implications.

The blockchain today performs the same function that a record of ownership provided in the 11th century BC. It confirms that this is mine and that is yours, and thus makes possible a greater degree of peaceful trade and wealth creation.

When you think of it this way, you realize that the blockchain is a new technology that provides for an ancient need. If it had existed in the 11th century BC, along with the supporting technology, it would have been used.

The point is that it is here now. It is the future, until the next technology comes along. What gives rise to such services is not the longing for edgy new gizmos or the digitalization of everything but rather a universal human need.

First, you need to claim a thing. Second, you need to defend your claim. Third, you need to verify that claim against every form of theft, fraud, deception, cheating, and anyone who would use some measure of ambiguity to take what is rightfully yours. By nearly perfecting this third stage, the blockchain has earned for itself the respect and admiration of everyone who wants a more civilized life.