How Crypto-Economic Systems Could Save Capitalism and Democracy

tl;dr: Crypto-economic systems may provide the harmonic balance between individual ambition and sustainable collective living.

When I saw an article entitled How Marcus Aurelius Influenced Adam Smith (No, Really), I had no choice but to read it.

Over the last few years, my interest in philosophy has grown and I’ve become increasingly fond of the wisdom of the last of the great emperors.

Simultaneously, I’ve long appreciated Adam Smith, particularly after a fortunate travel experience that I had at the young age of 14.

A Young Boy Appreciates Liberty and Capitalism

During the summer of 1987, my father took me to the Soviet Union, communist Poland, and East Germany. The Cold War was on and though there were signs of thawing like perestroika and glasnost, no one then was predicting that the entire East Bloc would disappear in 4 years.

No one.

It was a challenging trip as we had to register with the police and were very aware of the surveillance apparatus of the State. At the time, it was the world’s most advanced. Today, China is taking that cake.

We had to be particularly careful as we were also going to visit people known as refuseniks.” These were Jews who had requested permission to emigrate from the USSR to go to Israel and were, as a result, ostracized and stripped of many dignities including loss of jobs.

Two weeks was enough.

I remember sitting at the Checkpoint Charlie museum on the West Berlin side of the Berlin Wall, enjoying the openness of a free society and thinking to myself, “I am so glad I was born in America.”

It was the first and most intense gratitude I’ve ever felt for the concept of liberty.

I also saw the economic output of the two systems of government. The grocery stores in the East had empty shelves. Food was rationed. People would stop us on the street and offer to buy my blue jeans from me. There was scarcity.

Going into the KaDeWe department store on the Kurfurstendamm in West Berlin was a culture shock. It was 5 floors of evidence of what a capitalist society could create.

There was no doubt in my mind that people in capitalist society had a higher quality of life based on the availability of basic necessities alone- than people in an ostensibly Socialist one.

Capitalism Under Fire

Over the last few years, many people, including myself, have started to wonder about just how effective and fair capitalism is. Any trip to San Francisco, Seattle, or New York these days is a great way to see firsthand the stark divide between the haves and the have nots.

I wouldn’t be the first person to observe that recent elections in the US, UK, Brazil, and Italy plus protests in France are partially about the increasing concentration of the results of capitalism in the hands of fewer and fewer people.

This is a natural outgrowth of digital technologies that provide global scale and tremendous leverage. All technologies create some form of leverage, but the rise of powerful digital capabilities over the past 20 years removes the constraints of the physical world.

It’s not just concentration of wealth, it’s the byproduct of the system that is cause for consternation; single-use plastic that ends up in rivers and oceans, vast garbage mounds that stretch for kilometers and spontaneously combust, an increase in carbon dioxide in the atmosphere.

And, apparently, we’re not recycling anything close to what we think we are.

Given all of this, it’s natural to question the value of Adam Smith’s core insight:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Everyone, working for his own best interest, can contribute to an improved common good.

At the same time, Marcus Aurelius would point out that gains acquired at the expense of others are ill-gotten. I recently saw a great quote of his that would fit here, but I can’t find it now. Aargh.

Today, the expense of others is in the damage we do to the environment or our desire for fast fashion leading us to turn a blind eye to the waste and child exploitation that comes along with it.

Is Cryptoeconomics a Version of Capitalism with Stronger Alignment for the Common Good?

One of the benefits of studying blockchains and crypto is that it has forced me to not only understand and think about money, but also to think about laws, regulation, and enforcement.

As a history major, I can think of plenty of examples where the Lord Acton quote has been evident.

In my mind, the lesson of all of this is that people can be trusted-but only to a point.

So, if we are really committed to creating a world where we see the fruits of an incentive-based system that rewards individual initiative while also protecting society overall from harmful side effects, we need to find a way to simultaneously protect the individual while protecting the commons.

I probably need to do some more reading of Elinor Olstrom, who won a Nobel Prize for her work, but I understand the basic idea to be that big problems require large-scale coordination and alignment. For more, see this previous blog post.

This is where crypto-networks have a chance to shine.

We now have a way to proper incentives for people to pursue their own self-interest while also effectively protecting the “commons” through large-scale governance and coordination mechanisms such as the ones that Aragon and DAOstack (discl: advisor).

We also now have a way to protect ourselves from ourselves.

One of the maxims of the crypto crowd is “Trust but Verify.”

[Interestingly enough, that was something that Ronald Reagan used to say when it came to nuclear arms control deals with the Soviets. Even better, it is apparently a Russian phrase.]

It’s a reflection that I can take your word for it, but I can also look at the blockchain to make sure you are telling the truth. And you know that, so you can’t mislead me. This concept lies at the heart of decentralized governance.

The combination may just be what we need to be successful as a planet going forward.

A few weeks ago, I published an article in VentureBeat called Is Web 3.0 the next lifestyle brand?

I wonder now if I was selling it short?

It’s more than a lifestyle brand. Yes, blockchains can be a form of liberation from digital tyranny, but they can also give us a way to pursue our selfish interests while protecting what we all share.

How Crypto-Economic Systems Could Save Capitalism and Democracy was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.