In an otherwise perfect interview on the importance of social innovation (that I wholly agree with and that I encourage everybody to read) Jaromil said something interesting about the use of blockchain to create scarcity in the digital realm.

With the blockchain the situation is paradoxically creating scarcity, because if I give you something I will not have it anymore, and I can’t spend it anymore. The blockchain creates for the first time a condition in which it will be possible to create a unique asset in the digital dimension.

For some, creating scarcity is the holy grail in the digital domain. Because scarcity does not naturally exist there. In the digital domain it is easy to make exact digital copies of digital documents, pictures, videos, etc. Scarcity would re-establish copyright, or at least prevent large scale copyright infringements. And it would prove Paul Graham wrong.

I fear the situation is slightly more complex than that, and that, in fact, digital scarcity is a Fata Morgana.

Let me explain.

Using a blockchain I can (more or less) securely send Bitcoin to someone else. This idea is not limited to Bitcoin. It can also be used to assign and transfer ownership of other digital assets, like digital artworks. What blockchain does is solving the double spending problem, i.e. the problem that if I have a digital item of value, I could make a perfect copy and give it away more than once (in return for something else of value). Blockchain ‘solves’ this problem in completely distributed setting (which was deemed impossible earlier).

It is important to realise that Bitcoin solves this problem by redefining it: it is not that it prevents me from making a digital copy of what I have (that would clearly be impossible). Instead it redefines ownership (and hence whether whatever I have holds value) from simply having something to controlling something. Something only has value when I can transfer ownership. The blockchain creates an external record of who owns/controls what, and thus ensures that with every transaction ownership is indeed transferred from one person to the next.

It thus creates a particular kind of digital scarcity in that it allows you to obtain and/or relinquish control over a digital asset. But this control is relative to a particular application that ‘manages’ the asset. (E.g. for Bitcoin the bitcoin blockchain ensures that once you send someone else some bitcoin, you no longer own or control it, and thus cannot spend it again.) You still have it though, in the sense that you have the bits that constitute the asset. So if the asset represents a digital work of art you still have the digital artwork. And that may personally be of value to you. But you can no longer control it (within the context of the particular application); you no longer own it and thus derive value (in the context of the application) from it.

Another way to understand this, is that the blockchain can be used to ‘atomically’ transfer ownership of an asset from one actor to the next, but that this transaction never destroys the copy of the asset held by the previous owner. It only destroys the ‘value’ attributed to the original copy.

This reminds of a discussion I once had with someone about whether one can force deletion of digital information that once was given to someone else. Again, this is in itself impossible in general. But if this information is only valuable if it is authentic (i.e. if it is signed by the sender) then we can remove the value by revoking the signature! For official documents this (sort of) works, but even then the fact that I once signed a contract (and later revoked that signature) may reveal a lot of information that many people may deem true regardless of the fact that the signature is no longer valid.

Returning to the idea of using the blockchain to manage ownership of digital artworks, the blockchain in itself will not prevent anybody from enjoying a copy. (And so, (un)fortunately, Paul Graham is still right). You need all the original digital rights management tricks like trusted players, trusted hardware or trusted execution environments to prevent anyone but the rightful owner to enjoy the artwork.

Real scarcity in the digital world still does not exist.