Can crypto save capitalism?
To save capitalism, we need many more people to be capital owners. Crypto-enabled digital assets could make this a reality.
Capitalism is broken, honest
Even the FT says so. I’m currently in the Bay Area, but I’m fairly sure I could hear Surrey stockbrokers spluttering over their morning coffee as they read this article in this morning’s FT: “Britain and the US are poor societies with some very rich people” (subs reqd, but contents of the article are below in this Twitter thread by the author).
When the FT - the FT! - shines such a clear light on the failures of US and UK ‘free market’ capitalism to work for the majority of the people we should take heed. In today’s world facts don’t matter much (alas) but the genius of the headline is it captures data-driven insights with a Tik Tok sound bite. “The Tories created a poor country with some rich people in it” is a better frame for a conversation than “Socialism is broken, look at what happened to Venezuela”. It’s a screeching narrative violation, delivered by a trusted insider.
Britain is one of the poorest countries in Europe, but enough of the population still think the model is working because… shiny things. Billionaire-owned offshore media, corporate political donations, a failing education system, and a collective belief - shared by both the US and UK - of some kind of exceptionalism.
Time for a reckoning. When the dust settles and new more enlightened ways of thinking gain traction that give us a better chance of avoiding climate and societal collapse, people will want to know how we’ve been hoodwinked by laissez faire callous neoliberals for so long. Hopefully, unlike with tobacco and now climate change, the reckoning will not take half a century. That’s a fascinating story that I will return to another time, but for now I’m more interested in new ideas for actually doing something about it.
The system won’t fix itself. Although clear-headed insights and pithy soundbites are needed, the reality is that those in power have very little incentive to change. Even the pandemic didn’t result in a reset - in the UK at least the Conservatives are doubling down, while the Republicans have not had an actual policy agenda since 2016. While there are a handful of those at the top of the pile calling for systems change, there’s a tragedy of the commons in play. Those who can won’t stop extracting until society collapses - something that I’ve heard predicted about the UK three times this week. Capitalism needs to be fixed to be saved - you can reject the extreme laissez fare model while still holding on to a lot of the good.
Inertia is real. Changing the system will require something radical, and I hope we can act before it’s too late.
The master’s tools will never dismantle the master’s house - Audre Lorde
Science advances one funeral at a time - Max Planck
You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete. - Buckminster Fuller
Time for a new approach
No, it’s not about Norway. The UK and Norway split the rights to North Sea oil. The Brits gorged on the cookie, while our Nordic neighbours refrained, investing in the future and setting up their country for success. The mindset that led to their success speaks to their assumptions about the role of the State in society, commitment to future generations and many other factors. That’s the political fight we’ve been having for decades, and sadly there’s little prospect of breakthrough thinking in entrenched positions on both sides of the Atlantic.
Building an alternative model. Notwithstanding some progress on climate change, radical solutions from the gridlocked and partisan UK and US governments are not going to be forthcoming. It’s time to build. The ambition needs to be even greater than A16Z’s bold ideas for reimagining housing, infrastructure and education. Capitalism needs a reset. And crypto may be the answer.
Wait, crypto will save us? The mainstream perception of crypto is tech geeks, libertarians, weird comics, bros making millions and losing it, and insane energy waste. Crypto coins have hit the headlines, but there’s something more interesting than pump-and-dump scams: seeds of a new way to think about capital.
The recent crypto crash may be bolster crypto sceptics, but Satoshi’s 8-page white paper that introduced Bitcoin gave us something novel: ‘digital products’. And these might end up delivering something more valuable than animal-theme currencies.
Introducing digital products. Digital products don’t sound particularly novel. Haven’t we had them already? Not really. We can think of a product as something that is exclusive: You own it, and can do with it what you like. That online newspaper or Netflix is a subscription service, a stream of value that requires you to keep your account in good standing, or they’ll turn you off. Digital files - code, songs, videos, images - can be copied flawlessly and infinitely, so not it’s not really a product in the sense that when you have it, others don’t. DRM does not deliver digital products, in fact the opposite - it prevents you from owning what you thought was yours. Cory Doctorow goes into splendid detail about this here.
NFTs are digital products. The first wave of value that has been created by digital products has been seen in NFTs. You can prove ownership of a digital asset, and exclude others (while anyone can copy the image of a BoredApe or a Moonbird, only the owner will be able to gain access to the private parties and exclusive benefits).
Digital alchemy
This ability to exclude others is crucial, and in the past has only been possible with physical goods. Hernando do Soto pointed out how property rights were a crucial part of wealth accumulation, detailing six specific steps that certain countries had taken to create a property rights system. He proposed that when added to physical assets, these property rights could create capital (see graphic below).
So a pile of bricks will remain just that unless the social and political context recognises it as your house, allowing you peace of mind (so you don’t have to spend the whole time camped there repelling others who may want to move in) and giving you an asset to leverage to build other things (e.g. getting a loan to start a business).
Man has been trying to create gold out of base metal for eons - property rights were the magic formula that turned a pile of bricks into something intangible, namely capital.
Valuing externalities
As Robert Kennedy, and its creator noted, GDP doesn’t measure happiness. Weapons of war and chronic disease make the numbers look good, while caregiving, the Amazon rainforest and clean air are deemed worthless. It’s no surprise we are where we are. Digital alchemy can be applied to these bring these externalities into the economic system. Instead of working for free, a community could reward its constituents with tokens relating to the effort and expertise they are contributing. Then it’s just up to the creativity of the community how it turns these tokens into value. In the case of caregiving, employers and governments are increasingly recognising the important role played by caregivers, and tokens that track formerly unvalued contributions could go some way to bringing these externalities into the community.
Digital assets as forms of capital
These tokens are not just digital products, but digital assets. The grumpy cat image was shared millions of times (again below, in case you’ve forgotten) however, the person who was able to prove that theirs was THE original image sold it for $83k.
The fact that the NFT market is now worth around 80% less than it was a few months ago is irrelevant, people are making real money on digital products. Digital products, such as NFTs, are a new form of assets. A capitalist system that’s increasingly unequal and a political system that’s not responsive to the desires of the voters result in ever increasing accumulation of capital, creating an ever bigger divide.
Don’t seize existing capital, make more of it. So rather than the masses rising up and taking capital they feel is theirs, how much better to create a new class of capital and capitalists, where their wealth is a reward for their effort, not the product of rentier capitalism. The American dream was about new routes to prosperity - crypto-enabled capital could yet deliver what America has failed to.
Ah, but, this still needs the government… Property rights are enforced by governments (and by extension their armies who have the monopoly of violence). Red-blooded libertarians (who incidentally are big fans of Mr De Soto) may chafe that the vision of crypto is to be entirely self managed, eschewing big government and living in piece, paying in crypto coins and shooting things. That’s their vision, it’s not mine. And more importantly, it’s not the most influential innovator in the space, who is more interested in collectively solving the problems of society than atomising it.
The way of the DAO. New more collective forms of work, enabled by DAOs allow people to be rewarded in new ways. Great ideas can be bootstrapped and coordinated by protocols, rewarding contributors with tokens that can be exchanged for real value. In the same way that early employees of startups get stock that might be worth millions, tokens can reward contributors. However, unlike stock, tokens can be programmed - automatically being allocated to a diverse network of contributors in ways that are impractical and expensive with traditional stocks. They can also be traded, though the US says that makes them securities, and as such need heavy regulation. Details aside, we’re seeing a variety of ways in which new forms of collective work can manifest into real value, and create new opportunities for capital accumulation.
A call to action: make this ours, not theirs
This is still all very new and nothing is locked in. Many worry that this is just Web2 in another guise, and others offer thoughtful critiques to keep in mind to avoid the missteps of the past. What the world needs, in my view, is for ‘the community’ to take ownership of this issue, and demand that the technologists build something that addresses the looming problems we’re facing as a society.
If you don’t understand the tech babble of Web3 - and nobody will blame you, it’s often impenetrable - that’s their problem, not yours. The tech geeks have built something potentially magical - a tool for digital alchemy that has the potential to turn unpaid work into something valuable, and at the same time, align it with the missions that humanity needs to work on.
In the spirit of Web3, let’s all take collective ownership of this idea and shape into something better. Making capital available for the masses would go some way to alter the worrying trajectory that we’re on.