New ecosystems cannot create old monsters. But they can create new ones. (And here's what we can do about it)
🚀 The January cohort of Hype-Free Crypto is now in session, with over 200 participants from companies such as Amazon, DoorDash, Snapchat, Novartis, GIC, and many others. The next cohort begins in a month. Join us!
Imagine a world where everyone has a passport and debit card issued by the United Nations. The passport and debit card enables anyone to move around freely. Could a country like the USSR survive as a superpower for 69 years in such a world? Could a tyrant like Stalin remain in control of such a superpower for 30 years?
Probably not. In such a world, the USSR would have collapsed much earlier, depleted of people and capital. Or it would have changed beyond recognition, in response to pressure from people and capital threatening to leave.
But would such a world be a better world? Giving people a UN passport and wallet would temper the tyrannical impulses of countries and their leaders, but it might turn the United Nations itself into a tyranny.
In other words: If the UN suddenly controls the movement and property rights of everyone on earth, the main risk to people's freedom becomes the UN itself.
So, what world would you rather live in? One with multiple oppressive countries, or one with a single, potentially tyrannical governing body? And, assuming you chose option 2, is there anything we can do to ensure the central governing body does not become tyrannical?
The future of the internet brings up similar dilemmas. We currently live in a world where a handful of platforms can severely restrict the freedom of individual users: they can shut down their business, cut off their communication with the customers and fans, freeze their accounts. Individuals have the power to leave, but they are forced to leave their property — and, sometimes, their whole online identity — behind. Let's call this world Web 2.0.
And then there's the alternative, Web3. It promises a world where users can easily move their accounts — identity, money, digital assets, history, data — between platforms. More accurately, it promises a world where user accounts are not tied to platforms at all. Instead, users have an account on the blockchain itself, and they can use the same account on different platforms. This is similar to the hypothetical world in which the UN is in charge of handing out passports and bank account.
The good news about Web3 is that it cannot give rise to the type of tyrannies we saw in Web 2.0. People often say "OpenSea will be the Facebook of Web3" or "Coinbase will be the Amazon of Web3". But they're missing an important point: In a world where users can pick up their things and leave, tyrants will behave completely differently. And tyrannies like the ones we've seen in the past could simply not survive.
The bad news about Web3 is that new types of tyrannies can emerge. In this case, the role of the UN is played by the largest blockchains, particularly Ethereum. Ethereum currently enables users to move freely between apps and platforms and move money and assets across digital and physical borders. That's wonderful and it enhances individual freedom and keeps all participants in check.
But it also poses a new type of risk — the risk of Ethereum itself becoming a tyranny.
A more limited example of this dynamic can be seen on Apple's app store. Apple makes it easy for users to maintain their privacy and accounts with multiple apps. It keeps app developers honest by enforcing rules, protecting user data, and withholding payments. This enhances the safety and freedom of all app store users. But it also turns the app store itself into a "tyrannical United Nations," governed by a powerful corporation that can now bully all individual "countries."
But there are two key differences between Apple (or the hypothetical "tyrannical UN) and Ethereum:
- Unlike Apple, Ethereum is an open-source project, operating transparently and governed by its community; and
- Unlike the UN, Ethereum is only one of several blockchains that people can use to maintain their accounts and developers can use to create new apps and platforms.
These differences show a lot of promise. They mean we can build a world in which a non-corporate and non-tyrannical institution helps enhance the freedom of all participants and keeps bad actors in check.
But this promise will not be fulfilled without two critical elements:
- The evolution of governance mechanisms for open source projects that prevent (or significantly reduce the chances of) these projects from becoming tyrannical and hostile to their own users; and
- The evolution of technologies that enable individuals to easily use their accounts and assets across different blockchains, and not just across different apps on the same blockchain.
The second is feasible. People are already working on tools of this kind, and some solutions already exist to enable it. These solutions are not yet ready for mainstream adoption, but they're getting there.
The first critical element — governance mechanism — is a much bigger challenge. It involves human beings and ultimately requires us to reinvent the mechanisms of democracy itself.
Can we figure out how to do so? We must. It's something the smartest people on earth should spend more time on.
Have a great week. 🙏 If you enjoyed this piece, subscribe to my newsletter and follow me on Twitter. If you'd like to dive deeper into the promise and limitations of blockchain technology, check out my Hype-Free Crypto course.
Receive a weekly email from Dror with the latest insights.