“What cryptocurrency threatens is the very existence of the nation-state, which will have to pivot quite radically in order to survive the coming onslaught from the blockchain. The resulting institutional framework might look entirely alien once the dust has settled.” – Justin Goro, from “The Great Hard Fork”
In the Tikal region of northern Guatemala, a vast complex called el Zotz hides under thick growth. The complex includes temples, plazas, and thoroughfares once teeming with Maya. This once-great civilization eventually drifted into obscurity. Some say a mixture of drought and excessive foresting caused the inhabitants to abandon the city. Since its heyday a thousand years ago, the jungle has been unforgiving in its vengeance.
A tidal wave of flora has swallowed the buildings, roads, and temples, turning mighty stone structures into mounds nearly indistinguishable from the surrounding landscape. Mother Nature can be relentless as she uncurls her snakes or unfurls her fronds. So the city has been returned to nature in unparalleled beauty and biodiversity. On the ground, of course, one can easily get tangled among the vines or bitten by insects, which once made it tough to map the city. But in 2016, archaeologists began using laser-guided GPS imaging technology to discover el Zotz’s true extent, which is nothing short of breathtaking.
A Lesson in the Leaves
Still, el Zotz is an object lesson. Intellectuals have turned the history of collapses like the Mayan’s into Malthusian horror stories. And these stories are not entirely wrong. But a different interpretation recommends itself: Though humans can design big, amazing things, our plans and designs will eventually succumb to natural systems, which — though robust and orderly — are unplanned and undesigned. So, instead of seeing the jungle’s revenge as nature defying human progress, we can see it as the victory of evolved systems over intelligent design.
But this doesn’t mean there’s no more room for human ingenuity.
As we enter the next era, we will start to mimic the patterns of natural systems such that our human systems are more resilient. And, indeed, if we can use better protocol design to unleash a thousand systems that take their cues from Darwin. Nature, too, is about well-designed protocols, even though those protocols are not designed by a designer. DNA is catallactic. DNA is code. And in biology, code is law. At the macro scale, we get planetary ecosystems that include such wonders as the Great Barrier Reef and the rainforests of Tikai.
In the age of cryptocurrencies and smart contracts, the codebase is akin to DNA. With code, we can create systems within systems (within systems), which make up the layers of a technological and sociological stack. According to the codebase, these layers express different properties, which gives rise to a dizzying array of possibilities. Such possibilities amount to five areas of transformation in how human beings organize themselves. These are incommensurable with some of the older ways. In each case, therefore, we have an evolving technological ecosystem that threatens to replace the old order, which are the various temples to power. It turns out that, like the temples to the Mayan Gods, our modern temples require their own forms of blood sacrifice.
The first temple to power is the Nation-State with its grand legislatures and executive palaces. Taxes supply blood for the gods in this temple. But a wave of technological solutions is allowing people new capabilities to self-govern.
The decentralized autonomous organization (DAO) is one such system, which can be instantiated in any number of groups using any number of consensus mechanisms. As more and more groups experiment with self-government using DAOs, the more they’ll see the power of programmable incentives and decentralized consensus mechanisms. Indeed, the most promising feature of DAOs is not collective decision-making at scale. It is the built-in right of exit. Such a threat of defection looms over any system, which has to provide value to keep members.
The temple gods are angry, though. Their very identity is wrapped up in the urge to control. They feed off our fears and the rents that are built into the control structure itself. Power’s priest class exists in a command hierarchy that offers them a sense of place, which they protect through increasingly illiberal means. And they worship in the Church of State on whose altar you will be sacrificed over and over again. Such is the essence of Centralism. Instead of experimentation, variety, and choice in governance systems, they believe theirs is The One True Way.
The more Decentralists challenge their authority within a burgeoning ecosystem of cryptocurrency tokens, digital ledgers, and forking systems, the more draconian they have become in their vain attempts to clearcut or burn our nascent rainforest.
The second temple to power is the Central Bank, with its esoteric symbols and shadowy meetings. Around them are supplicant banks, which serve as satraps in a system of private profit and socialized losses. All-seeing eyes and pyramidal structures are apt for a group that controls the sorcery of transmutation. In other words, these reverse alchemists need no longer turn gold into cheap alloys. They can magically debase the currency simply by adding zeros. Your blood sacrifice is inflation, which is nothing more than a tax on the powerless.
Decentralized finance, however, offers an alternative for the digital era, one that is transparent and disintermediates. With control and visibility of your assets, anyone can gain exposure to global markets and alternative currencies with the properties you seek. Decentralized finance offers an alternative to default systems whose existence has depended on suppressing alternatives. DeFi grows harder and harder to suppress. In fact, the more you try to regulate it, the more antifragile it becomes. As programmer Justin Goro reminds us, cryptocurrency is a beast that evolves such that “the more the state clamps down, the better the evasive technology will get.”
Unlike the legacy system, these alternatives offer financial services to anyone with an internet connection. By and large, these systems are owned and controlled by their users in a quasi-commons, not by middlemen. One can lend, borrow, long/short, earn interest, and more without custodians skimming off the top.
The powerful do not want ordinary people to escape crippling inflation or securities regulation. Financial institutions want you to operate within their matrix of go-betweens, brahmins, and fund managers, so you think their great pyramidal scheme is the only game in town. With DeFi, one can take out or pay off loans worth millions without the need for any lawyer, manager, or even personal identification. Such is unprecedented in human history. The most powerful bankers in the world are understandably concerned, for their system is being threatened by underthrow.
The third temple to power is the public corporation, with its top-heavy management hierarchies and short-term incentives. Corporate gods extract blood sacrifices through the legal architectures of the corporations themselves, which tend to rely on centuries-old organizational operating systems and static shareholder models.
A great power shift has arrived, which is transforming some public corporations into for-purpose partnerships with dynamic shareholder models.
- Instead of decisions flowing up and down chains of command through a layer of middle managers who create little value, enterprises are turning to self-management models like Holacracy and Morning Star that empower all and privilege no one.
- Instead of the traditional model that gives rise to a Taylorite class of scientific managers accountable to a disconnected cabal of shareholders, these organizations use templates that ensure decision-making authority gets distributed more broadly and clear rule sets that bind everyone equally.
- Instead of founders and investors gobbling up a greater share of proceeds, these forms disburse shares and dividends among all partners and colleagues from the start, according to the value of their contributions, including time and labor. Dynamic equity models slice up the pie according to principles encoded by real social contracts.
As more enterprises make these power shifts due to the problem of increased complexity, these new forms will come to predominate. And they point the way to a state of affairs that requires better rules, not better rulers: A world without bosses.
The fourth temple to power is the Welfare State. Though connected to the first temple, it has its own inertia. In terms of its extractive nature, it might be the most voracious of all. This temple sits on a great moral high ground after all, from which the slings and arrows of sanctimony can be launched. Such makes the Welfare State among the most difficult to reform or dislodge. People simply can’t imagine that an underclass of relatively poor people can become anything more than liabilities to be managed by functionaries.
The Welfare State’s very existence depends on wealth transfers that cause its recipients to become dependent. Massive constituencies become addicted to these transfers, which expands the very underclass the system was designed to help. The transfers thus create a perverse punishment of society’s most productive while rewarding the idlest. Such an assessment might seem cold, but reality can be cold. A society whose authorities disburse aid by algorithm instead of targeted altruism creates terrible unintended effects. It also grows and entrenches a parasitic administrative class. Who will make sure all the boxes get ticked and the largesse dispensed? Those who will agitate to preserve the status quo.
Nearly a century ago, the Welfare State grew such that what had been a vast mutual-aid sector was eventually crowded out. In other words, people used to weave their own safety nets, but Welfare State functionaries made the need for this sector redundant. With the rise of cryptocurrencies and DAOs, not to mention ballooning unfunded liabilities, the prospects for renewing the mutual-aid sector grow brighter by the day.
The fifth temple to power is the Military-Industrial Complex. Though connected to the first temple, it has its own inertia. And like the Welfare State, its appetite is insatiable. Its mission, once national defense, is now to expand an empire that extends around the earth. Instead of feeding on dependency, it feeds on war. Some argue that a global hegemon is good for peace, and yet what sort of peace can last when administered by an unholy alliance between those who profit from conflict and those whose raison d’etre is war? The blood sacrifice to the temple gods is not just taxes. It’s blood.
The final of the Five Disruptions is called polycentric defense. This change vector might be the toughest as most people simply can’t imagine a world without a monolithic military brass orbited by contractors. The concern is that, without that monolith, there would be no defense at all. Even standard economics textbooks call defense a ‘public good,’ which means it’s hard to supply the good and avoid free riders. So, no taxation, no defense. Today, the world’s preeminent military power spends more than the next ten other major powers combined. And, in reality, free-riding is rampant. The system is also enormously wasteful.
One defense contractor charged taxpayers $4,361 for a drive pin that should cost $46. Such overcharging is common and is a predictable consequence of the fact that the military functions in no way like a normal market actor. It is a monopsony with incentives to expand. But there is precedent for a more competitive polycentric military that doesn’t continue to bloat or degenerate, causing wars among smaller states.
Six hundred years ago, the Hanseatic League was a regional group of city-states that coordinated defense. This group held both economic and military sway in an area that went from Novgorod in northern Russia to trade zones near London. It lasted for about 500 years. The Hanseatic League established free trade among its members and created a navy and defense force to protect cargo. It mostly succeeded in eliminating pirates from the Baltic Sea.
Modern defense organizations are likely to use unconventional warfare because it’s both cheap and effective. One need only think of the effectiveness of the mujahideen against the major powers in Afghanistan. Furthermore, if the incentives align around preserving peace rather than perpetuating war, each region would have a stronger incentive to help neighboring regions defend themselves before an enemy arrived on its shores. If the various defense centers got resources through more direct means — such as dominant assurance contracts — market forces would get injected into the defense ecosystem. Regional defense entrepreneurs would provide the people with what they needed rather than providing politicians with whatever is politically expedient.
As a final note, as more of the world puts its stores of value into the cloud, there is comparatively less value to be expropriated in meatspace. Bitcoin, the first and perhaps the most resilient cryptocurrency, shows us the way. In short, you can invade a country to take over territory or steal its gold, but private keys live everywhere and nowhere. More and more value will live everywhere and nowhere, which means wars of appropriation are likely to decline as more economic energy gets stored in decentralized networks. More struggling states will come to view expatriates as refugees of a dying hegemon.
Yes, there will be setbacks. And things are likely to get worse before they get better. But the Decentralist revolution is a djinn, and Satoshi Nakamoto opened the bottle back in 2009.
This article, Disrupting the Five Temples of Power, was originally published by the American Institute for Economic Research and appears here with permission. Please support their efforts.