The case of friction or lack thereof when it comes to the Internet raises many moral and legal concerns. The most prominent example is modern social media and the challenges it faces when it comes to what is right or not. When you remove friction, many bad things happen alongside the good ones:
"Tech companies reported over 45 million online photos and videos of children being sexually abused", The New York Times, 2019
The Internet removes friction. Stuff happens much faster, much easier, much further than ever before in a way that is fundamentally different than it is in the analogue world. The economic implication of this is the zero marginal cost of transactions and lack of geographic barriers. The fact that there is no more friction makes it a hugely positive thing, but it is also a hugely negative thing. The lack of friction is not inherently good or inherently evil, and we need to be aware of that reality when designing new products and services.
"With the loss of friction, there is necessarily the loss of everything built on friction, including value, privacy, and livelihoods.", Ben Thompson, 2013
Technology is inherently amoral. It enables us, for example, to build communities gathered around specific causes, like for example the Bitcoin Subreddit. The removal of friction makes it easy to join like-minded groups. You go online and find the people who think the same as you do, and now you feel "Oh, I am not the only one thinking about that." This is how movements like the Flat Earth Society re-emerged in recent years. Like-minded groups don't need to be gathered around facts or moral causes, like for example homophobic groups.
Sometimes being in a community one gets blinded by the fact that everybody thinks the same and steers the community in one direction - like for example the Bitcoin Subreddit focusing on the superiority of BTC and its price movements instead of discussing future updates and improvements to the protocol. Suddenly we have a major problem of a split. Each cryptocurrency creates a community around it which gets very hostile towards other crypto projects as it grows. This phenomenon is not tied only to crypto. We see the same behaviour in sports, luxury brands and many other industries.
Friction could be something very useful in keeping society in order. Some people would also call it bureaucracy. What happens when you remove friction? Take, for example, the 2017 Initial Coin Offering (ICO) hype which ended up raising 7 billion dollars. Removing friction for listing tokens and investing in crypto startups resulted in the most significant upswing in the crypto market in 2018. The ease of creating useless tokens and contributing funds to these projects showed that friction is a significant factor when it comes to raising funds from crowd-investing. This was the first time where even a teenager was able to invest in digital assets. Of course, we would need to factor in the Venture Capital's (VC) irrational exuberance which is a result of searching for the next big thing in technology. Now, after global legislation managed to catch up with ICOs, they almost completely disappeared from the radar.
Friction and public Blockchains
Public blockchains are inherently amoral, just like any technology. Bitcoin is the best example of a frictionless blockchain where anybody is free to use the network without asking for permission. Blockchain enables people to skip intermediaries or in other cases, change the intermediary. An example of changing intermediaries would be MakerDAO which specialises in blockchain financial products. In this case, users skip traditional financial institutions which tend to be very bureaucratic and switch to a company managing the future of the underlying smart contracts. Ultimately the new system offers much less friction when it comes to financial freedom. Removing intermediaries, on the one hand, poses legal risks and other challenges, but on the other hand, gives people more freedom to transact (the 2,5 billion unbanked people around the world not having access to any banking services could profit from the new technology). Like any technology, public blockchains such as Bitcoin can also be used with bad intent:
"Over the course of the entire year, we traced $2.8 billion in Bitcoin that moved from criminal entities to exchanges.", Chainanalysis.com, 2020
Do such criminal activities pose a massive risk on the future of blockchain technology? I would say no. It only makes for occasional lousy publicity. The current banking system is the primary generator of money laundering, and the public does not seem to care a lot. It appears that modern connected banking systems increase the size of money laundering instead of reducing it. Here are a few examples:
Investigation reveals how Troika Dialog channelled $4.6bn to Europe and US, The Guardian
Danske Bank chief resigns over €200bn money-laundering scandal, The Guardian
HSBC Holdings Plc was fined $1.9 billion in 2012 for handling funds from drug traffickers, terror groups, and Washington-sanctioned nations such as Iran, Bloomberg
In 2014, BNP Paribas SA had to pay almost $9 billion for dealing with Iran and other countries deemed pariahs by the U.S., Bloomberg
Friction and private Blockchains
One of the reasons why private blockchains exist is the presence of friction and convenience from developer's perspective. The owners of a private blockchain can set all rules and conditions for participating in the network. Owning every part of the protocol helps with faster development and decision making. Friction is not a constant value. One could add more friction and make it more difficult for users to bend the rules or add less friction for ease of use. An example of such system would be adding Know Your Customer (KYC) rules to the system, where a new user would be excluded from the system if they do not provide personal information to the service provider.
The lack of Friction is not inherently good or inherently evil
Friction makes everything harder, both doing good or doing evil. We saw it happen with social media (the ongoing Facebook scandals regarding privacy and handling of data), and future blockchain networks will face issues caused by the lack of friction. In future transactions will become more private, and holding value in digital assets would become easier. On the one hand, added privacy might not get tolerated by regulators; on the other hand, the lack of privacy might pose risks for the users of public blockchain infrastructure. It is difficult for an industry to self-regulate when there is no push for improvement from the outside. Blockchain is still in its infancy and knowing how to make everything right is impossible. We should embrace the technology and prepare for both the positive and negative impact it will have on future societies.