Deep Thoughts by ADA Whale
In crypto we spend an extraordinary amount of time bickering about “the tech”. One person will claim that something is “better tech” in a 27 post long thread on X followed with images depicting virtual machines and rollup layers, and another will reply that in the 1980s the battle between VHS and BetaMax was not won by the one with the best tech, sharding is superior anyway, and a long discussion ensues. Endless comparisons of GitHub commits, roadmaps, scaling techniques and consensus algorithms.
In my view this is all the result of the VC injected “crypto as a technology stock investment” thinking, which is fundamentally incorrect at its core as crypto should be looked at and valued as a currency and not a stock even from the perspective of lack of shareholder rights or legal recourse alone, but I also think it misses the point about crypto entirely.
If we go back to the origins of crypto, we see that the whole movement started with the cypherpunks. A group that saw us headed to a 1984 Big Brother like society of censorship and monitoring, and argued for privacy as a weapon to fight back: “we are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures and with electronic money” it said in their manifesto.
This movement went on to produce Bitcoin predecessors Hashcash, Bitgold and eventually Bitcoin itself, a peer-to-peer electronic cash system that solved the Byzantine Generals Problem and brought us decentralised digital money. Bitcoin’s birth was particularly serendipitous as it happened around the 2008 Global Financial Crisis, a stress event in traditional markets which central banks and governments fought by speeding up the mass debasement of fiat currency. The scarcity embedded into Bitcoin proved to be an antidote to that, and this property has arguably played a much bigger role in its success since then than anything else. A nice confluence of events.
Digitalisation, Privacy, Cryptography, Digital Scarcity, Decentralisation
What trends played a role here at high level? We have digitalisation, privacy, cryptography, digital scarcity and decentralisation. These are the core concepts that gave birth to what we are all active in today, and are all topics with deep roots that go back to the 1970s or beyond. When we talk about technology in the context of crypto, these longer trends, not man-made narratives, is what we want to focus on. How to enhance privacy, cryptography or decentralisation. The rest is trivial.
Overall, I think the differences between decentralised protocols above a certain threshold of decentralisation are nuanced and I don’t really care all that much about the intricate details of each and every one of them as long as it’s stable, secure, decentralised, economically sustainable and can cope with future growth. We’re all at the starting lines here and maximalist attitudes will be proven by history to be ridiculous. Of course there are a number of imposters amongst us, protocols that pretend to be the same as the rest of us that are really something else all together.
I also think it’s a safe assumption to say that the above trends did not stop and end with Bitcoin, but that any truly revolutionary new developments out of crypto will come forth out of similar or the exact same trends, coupled with a societal trigger similar to 2008.
Is DeFi the Next Revolution? Maybe Not
I think DeFi and programmable money as well as advances in cryptography like zero knowledge proofs in some ways can stake a claim to representing such advances. Certainly the big financiers in the industry would like them to be that. They missed the boat on Bitcoin but don’t want to miss it on the next big thing, and they have decided it to be DeFi. Or NFTs. Or SocialFi. Or scaling. Basically whatever they can generate some temporary hype around. Chasing their own tails.
I’m a big fan of and heavy user of DeFi, and as a tradfi pro financial markets fascinate me to no end. But to me its current state is also a bit how tradfi would have looked if there were no regulators and it would just be a free for all market with the strong ones preying on the weak. As a platform, DeFi is extremely useful in the wider context of crypto digital economies – something I will get into shortly. But revolutionary it is simply not. It is a new financial market ruled by techies, a new banker elite with no regulator in sight. Spare me the lectures on composability, I beg of you, I have zero interest in it.
CBDCs, Surveillance and the Era of the Digital Economy
Rather where I think we find the confluence of these decades old trends - of which particularly digitalisation has been speeding up in recent years via AI - and a societal trigger, is in the form of CBDCs and “you will own nothing and be happy” WEF-planned Industrial Revolution type thinking. Because, like Bitcoin saved us from central bank profligacy, digital economies naturally will save us from the total control information and monetary global autocracy some of our overlords seem to have in mind.
Today, you and I are citizens of a country. That country has a currency, a government, a military, a society and an economy. These days it’s hard to say which countries are truly in good and bad shape because increasingly they all don’t look great, but let’s say that if you were born in the United States or France you benefit from a better system and stronger institutions than if you were born in Nigeria or Tajikistan, and this will come to define your life.
These governments are increasingly holding sway over our lives. If we only look at it through an economic lens, we can see that the share of government expenditures as part of GDP in the US has risen from 3% in the 1930s to >40% today. Surveillance and social monitoring is increasingly intense as we see from 1 billion CCTV cameras currently operating globally, and particularly saw in the online sphere during the period of censorship in 2020-21. As evidenced by online safety bills and unelected bureaucrats trying to shut down or censor X, it’s not getting any better.
CBDCs in a way are just the natural evolution of government money, and can be framed as a completely innocent thing or as a weapon by the establishment to further the above trends depending on who is talking. Fact is that the core idea behind them, without even speculating on any ulterior motives, is to replace analog cash with digital cash. Since the former can be used anonymously and supports a black market out of the government’s control, while the latter cannot, this naturally facilitates increased monitoring and control. And personally I think that given the trend of things in the world, governments are likely to grasp this opportunity.
The whole KYC/AML net that they’ve thrown over our heads the last few decades will get tightened. No longer will it be KYC/AML to transfer $100,000 in a bank, but the same concept under a different name driven by your social credit score might come to apply to your daily supermarket shopping. It may not be imminent or super visible right away, and many people will love the stable coin airdrops as they slowly close the net. Especially as their jobs are made obsolete because of the AI revolution taking place simultaneously.
Of course, this is a pessimistic view on how it could evolve and there will be countries where trust between citizens and government hasn’t yet been fully eroded, that won’t go all the way down this path. But many will.
Can We Opt Out? Crypto as a Parallel Polis
But what if you and I could actually opt out? What if we could remain where we are, but adopt a different form of digital cash, and move a part of our economic activity - which is becoming increasingly digital anyway - on-chain to become part of a globally dispersed digital economic society, with its own currency, government, culture? One not under the control of our local government. That we could earn and spend most of our money and have our own digital identity within that? One that we can increasingly emigrate to as governments tie the noose around our necks to solve problems they themselves have created. That’s the promise of crypto.
Crypto can serve as such a digital economy, a digital parallel system, much like the concept of the “parallel polis” by Czech dissident Vaclav Benda, who proposed building parallel structures free of state influence in the 1970s USSR including art, information, education, technology and economy. A parallel system that anyone can opt into to escape these vile global trends. We can’t seem to do much to stop Klaus Schwab, but we can certainly use the tools at our disposal to become uncontrollable.
The 1997 book “the Sovereign Individual” foresaw a lot of the current trends: “Now the advent of the Information Age implies another revolution in the character of money. As cybercommerce begins, it will lead inevitably to cybermoney. This new form of money will reset the odds, reducing the capacity of the world's nationstates to determine who becomes a Sovereign Individual. A crucial part of this change will come about because of the effect of information technology in liberating the holders of wealth from expropriation through inflation. Soon, you will pay for almost any transaction over the Net the same time you place it, using cybercash. This new digital form of money is destined to play a pivotal role in cybercommerce. It will consist of encrypted sequences of multihundred-digit prime numbers. Unique, anonymous, and verifiable, this money will accommodate the largest transactions. It will also be divisible into the tiniest fraction of value. It will be tradable at a keystroke in a multi-trillion-dollar wholesale market without borders.”
If you pay attention however, you see that today Bitcoin and most cryptocurrencies keep their eyes firmly focused on the old world and gaining adoption there. If they succeed the world will certainly be a better place, and Cardano can keep up the fight for adoption there as well. But besides conquering the analog world of government, tech and tradfi, conquering the digital one first will prove to be that much easier; it would be like an invasion of the dysfunctional system from two sides, including from higher up the very mountaintop that governments are preparing full scale war on their populations from with CBDCs.
As more people move into digital economies, traditional economies and governments will still have a role to play but as they lose control of people’s economic wellbeing and money, and depending on how nice they want to play with crypto, taxation (you can’t have it both ways), are reduced to much more of a client-patron relationship.
How Will Life Look for Those That Opt in to a Digital Economy?
On the day to day, you will keep a growing part of your savings and investments within a digital economy, commensurate with the size of your liabilities and daily expenses in the fiat world. You could even choose to hold foreign currencies (stable coins) on-chain to manage your assets vis a vis old world liabilities. This digital economy should be viewed as a foreign economy to the country you live in, but one that is always at your fingertips.
Every digital service that can be imagined will serve you directly within the digital economy. You buy your books, music, storage, videos, subscriptions (email, magazines), games, apps, art and all sorts of services within it. Social media separates from a global one-size fits all experience like today on X, to one compartmentalised and dedicated to your digital economy. Of course within that there will be many subcultures and some people will happily straddle between different digital economies. Many real world services will start to cater specifically to your digital economy.
Groceries, flight tickets, restaurants, much of it will be payable by an app that settles things in your digital currency while paying vendors whatever currency they want to obtain. Some real world businesses will onboard on-chain, as it becomes less of “I hope Amazon one day supports Cardano because it will make my coin go up” and more “Cardano is a large digital economy worth billions/trillions that Amazon would like to tap into”. When you go shopping, beforehand you look in the Cardano register which businesses are part of our community and give them your business.
For every transaction you do, you pay a small tax that goes into the treasury. Every few weeks you vote for things that money in the treasury gets spent on, and once a year there is an election cycle for the Cardano government, a group of people that becomes increasingly prominent in your life and whose names you get more familiar with than your own country’s ministers. There will be a steady flow of events and you make friends and acquaintances all around the ecosystem.
Meanwhile in the real world - the people that opt in to stronger digital economies thrive and outperform their peers. It becomes one of the most important choices in life. Governments become smaller, their budget to control every aspect of our lives and wage wars around the planet shrink. Yet they maintain the roads and hospitals, provide us with security. Government centers that were previously used to hand out social benefits are repurposed to ones where they help people onboard to a handful of government recommended digital economies. In these same economies governments have their dapps where they allow you to vote for the next (small) national government and pay a reasonable amount of taxes. They might make the case for another moon-landing or Mars mission and first poll the populace on their interest in it, and if affirmative, start crowdsourcing contributions. They do this simultaneously on the 5 largest networks serving 80% of humanity. Governments will play nice with crypto.
Now if you live in the United States or Ghana and haven’t onboarded to a digital economy, you effectively start with equal opportunity. Build a business, with zero barriers to entry, and you can gain customers and start earning and benefiting. Find decentralised funding for the best ideas on-chain easily. You and your real life community will thrive.
Which Digital Economy to Choose?
Many digital economies will co-exist, each with their own culture and dynamics. My advice would be to assess them not only on a technical basis, but more like you do a country you’re immigrating to, or a foreign currency you’d choose to hold.
You would firstly want to look at strength of the institutions, look at economic growth (and if it’s inclusive or extractive growth!), political system, demographics, infrastructure, monetary and fiscal policy, internal and external security, wealth distribution, and so on. Let’s compare Cardano to Solana and Ethereum on these at super high level:
* Economic growth: probably equivalent for Cardano and Solana, with Ethereum stagnating but a much larger economy. However the core difference is that Cardano has become a circular economy where holders pay a small tax, the government maintains a treasury and new businesses can get funded from that as long as their IRR>0 to the entire ecosystem. In Solana there’s a steady flow of people extracting more out of the economy than they put in.
* Political system: Cardano is moving towards a democratic-like representation of holders, Ethereum somewhat of a meritocracy, Solana an oligarchic autocracy.
* Demographics: All are growing, and Cardano and Ethereum are probably higher educated than Solana
* Infrastructure: Cardano has small roads that are great quality, in good state and can easily be expanded. Ethereum has slightly bigger roads that are in disrepair. Solana has high speed rails that were constructed too fast and once a year have an accident killing hundreds
* Monetary policy: Cardano follows crypto best practices (BTC like). Solana obfuscates how it manages money. Ethereum has implemented a modern crypto monetary policy that has scarcity benefits but hurts economic growth during boom times.
* Fiscal policy: Cardano has one with Catalyst and the treasury. Solana and Ethereum are dependent on foreign donations
* Internal security: Ethereum and Solana dapps are vulnerable to hacks, Cardano less so
* External security: Ouroboros is a much stronger root of trust than Solana. Ethereum is secure but its parliament is staffed with mercenaries that report to a foreign banking system. We can argue for ages about how decentralised or not Solana is and what it's MAV is, but I think it's pretty clear that if the US government came knocking, they'd take their network down in a day. External security isn't great. Good luck doing that with Cardano.
* Wealth distribution: Cardano is the most equally divided digital society, while Solana is the least so with a handful of people likely owning the majority of all wealth. Ethereum is somewhere in between
Caveats and Closing Notes
Crypto won’t stop at Bitcoin, though Bitcoin itself will likely forever remain an important component of it. Future leaps like Bitcoin won’t happen because venture capitalists put labels like “Web3” on things they can extract most value from. Rather, they will have to come forth out of similar trends and a societal trigger, and I believe crypto digital economies as already foreseen in the “Sovereign Individual” book in the mid 1990s coupled with either the CBDC agenda or growing surveillance and taxation may provide it.
Governments are not going down without a fight and it will take time before we reach the crypto utopia painted in this article. Even the trigger to a snowballing exodus into crypto digital economies (CBDCs and the like) may be another 5 years away. Governments could go for a more intermediate game theoretically optimal route and shy away from them altogether while dissuading crypto use. But you have to understand the only thing that would do is slow the trajectory we are on, not turn it around.
Is the world we would end up at desirable? To me the answer is a strong YES. It levels the playing field globally, and reverses the trend of governments that assert themselves ever more strongly in our lives. It likely reduces their ability to wage wars, shifts our economic focus more online which can reduce materialism and wastefulness in the real world. It will be good for the environment. The one downside may be that we start living more next to each other than with each other, but in history we have seen such pillarisation of societies before and arguably it isn’t much different from reality today where left and right have grown increasingly far apart. Except it will be more peaceful as none of the groups will feel perpetually wronged, and all of them are economically thriving.
And Cardano? It will do well in a world like this. It is one of the only protocols founded on a rather complete vision for a world like this. We should expect other protocols try to imitate Cardano in the years ahead, but with a solid head start Cardano is likely to emerge as one of the biggest things of the 21st century.