The Breakdown - Networks vs. Governments: Could Crypto-Powered Digital Communities Challenge the Power of Cities and States?

Episode Date: May 30, 2021

What exists between a Facebook group and a formal organization? Right now, not much. But in the future, Balaji Srinivasan argues, blockchain-powered communities will be able to exert the power to help them develop the polities of the future. On this “Long Reads Sunday,” NLW reads Balaji’s “A Network Union.”  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and bitstamp and produced and distributed by CoinDes. What's going on, guys? It is Sunday, May 30th, and that means it's time for Long Reads Sunday. Recently, we have had a lot of heavy Long Reads Sundays. We've countered Bitcoin. utility fud by seeing how Bitcoin is used in politically difficult countries around the world. We've discussed the geopolitics of central bank digital currencies. I thought for this holiday weekend, we'd get a little more out there and talk about not places and political groups that exist today,

but what might exist in the future. In the same way that the internet has now evolved native digital currencies that don't belong to any one company or geographic region, it strikes me as nearly unfathomable that it won't also develop native organizational form. Obviously, we're watching a lot of the proto versions of those efforts with DAOs. How do you add resource coordination layers to informal social networks? There are many, many steps left to evolve here, and obviously a huge range of networks and communities and people doing so. And for today's LRS, I'm going to read a recent piece by past guest, Balaji-Shrinivasin,

on one version of how this might all look in the future, the network union. The network union. The network union is the antecedent of the network state, a social network with a blockchain, a leader, and a purpose. We know how to start new communities, new companies, and new currencies, but the process of founding new cities or countries may require new ideas. Here, we describe an abstraction we call the network union, a social graph organized in a tree-like structure with a leader, a purpose, a crypto-based financial and messaging system, and a daily call to action. The network union integrates concepts from traditional unions, startup corporate

structures, Facebook groups, crypto tribes, Dow's, and UK-style shadow cabinets. On one level, it's a straightforward integration of the tools offered by blockchains with the existing functionality of social networks. On the other hand, it's a way to go from an influencer posting online to a scaled community with digital bylaws, crowdfunding capability, a track record of collective bargaining on behalf of its members, and a numerically quantifiable level of social capital. It is thus an intermediate form between mere online communities and full-fledged network states. Bowling alone but posting together. As motivation, the sociologist Robert Putnam observed 20 years ago that American were now bowling alone. The community organizations that had been the lifeblood of America for decades,

religious groups, labor unions, veterans organizations, fraternal clubs were now largely defunct, replaced with an atomized society of strangers that lacked purpose, when bowling by themselves, and interacted with each other at scale mainly through the formal mechanisms of the state and the market. The forces that cause this state of affairs are a topic for another day. One can blame the enemy of modernity on state regulation, market mechanisms are both, but the forces that are quietly fixing this situation can be observed all around us. They are the organic groups that have been forming on the internet for the last 20 years, like subredits, Facebook groups, telegram channels, and online forums. Right now, these social networks are mainly used for idly sharing information,

messaging, commiserating, recreating, sometimes raising awareness or signing petitions. But with blockchains, we can power them up dramatically. With backlinks, we can quantify their support base, and with the concept of a network union, we can re-conceptualize their very purpose. Blockchains change social technology. The advent of mobile phones yielded new primitives that gave rise to new social networks. Ubiguous internet-connected location-tagged cameras in particular enabled services like Instagram, Snapchat, and TikTok. Blockchains are similarly transformative for social networks as they provide a series of new tools.

Consider, for example, a new social network organized around something as simple as issuing an Ethereum-based ERC-20 token to every member. This gives tokens. Every user of this token-based social network receives tokens. Depending on the issuance policy, early users may get more than later users. Balances. Every user now has the ability to buy items and pay users with their token-based balance, an obvious functionality that does not exist on Facebook, Twitter, and LinkedIn. Crowdfunding. Every user can use their balance to crowdfund public goods on the site.

Encryption. Every user has an Ethereum wallet, public-private key pair so they can digitally sign documents. Messaging. Every user can use their private public key pair to send encrypted messages back and forth to each other. Partial sovereignty. If the ERC-20 contract admin privileges are removed or moved to a genuinely decentralized chain, tokens can't easily be seized by other parties. Users can't be de-platformed and community connections can't be broken by outside parties. Governance. The combination of the ability to communicate and transact allows for governance mechanisms with informal and financial components. Log-in. By hodeling the token with something like a provable time lock, users can demonstrate they are invested in the long-term health of the community.

This can be used as a login criterion to access community-created services. Quantifiable social capital. The market cap of the token quantifies the value of being a member of a community. Blockchains break network effects. Why? Because token upside is inversely proportional to network effect. You can now give early adopters a karma-like stake in the network to reward them for inviting others. While people have written about these ideas for years, up to this point we haven't really had the on-chain capacity to integrate these kind of functions with social network workloads. But because many scaling techniques are pure software and coming online fast, token-based social networks will soon arise. The social technology is thus now available to increase the seriousness

of what you can do with the social network. But the other part is social support. Backlinks quantify social support. A startup that achieves ambitious goals is in staffed higgity-piggity from the population at large. It has a clear CEO, a flattish but hierarchical leadership structure, a definite culture, and an admission policy as selective as any university. This is very different from the entropic structure of social networks. Put another way, there are significant gates on joining Facebook the company and no gates whatsoever on joining Facebook the social network. To join Facebook the company, you need to pass a series of challenging interviews and then operate within an explicit hierarchy towards a leader-defined purpose. To join Facebook the social network, you only need a pulse

and your purpose is entirely self-defined. These couldn't be more different, but can we make them more similar? What would it look like to have something at the scale of Facebook the network or even orders of magnitude smaller that operated as effectively as Facebook the company? One approach is to start thinking about social network structure in terms of backlinks. a concept popularized by search engines. A backlink is an incoming link to a web page. For a popular URL like Google.com, the number of incoming links is far in excess of the number of outbound links.

But the quantity of backlinks is by no means the only thing that matters. The quality does as well. Backlinks allow us to quantify a leader's support base. Every leader has individuals that support them. Some of those individuals in turn have other individuals supporting them. If we treat each expression of support as a backlink, if the asymmetric act of merely choosing to follow someone is turned into the asymmetric act of choosing to follow their direction, we can summon an immediate mental vision of a digital

leader's support base. Without such a base of support, a leader cannot lead. Their pronouncements will fall on deaf ears if they cannot acquire sufficient backlinks. Looking for the best way to unlock your crypto's liquidity, nexo.io is exactly what you need. Borrow against your digital assets at just 6.9% APR, earn passive income, with yields of up to 12%, and swap between more than 100 market pairs with the instant nexo exchange. Try the next number. NXO wallet app to get the whole 360 degrees of crypto banking. Get started at NXO.io. That's N-E-X-O.I-O to get started today. Secure, regulated, and reliable, BitStamp is the cryptocurrency exchange of choice for more than 4 million investors and traders worldwide. Since 2011, BitStamp has been a trailblazer in security,

head of the class in personal customer service, and dedicated to making buying crypto fast and easy. Whether you are investing on our desktop platform and mobile app or trading on our speedy APIs, BitStamp gives you all the tools you need to reach your crypto goals. Visit bitstamp.net to learn more. BitStamp for all the ways we crypto. Ayres get backlinks all at once. Founders build them over time. The process of backlink acquisition is quite different for the two kinds of leaders, founders and heirs.

The institutional error typically gets all their backlinks at once. One day they don't have control of the fortune or the position or the institution. the next day they do. Now, to be fair, there can be incrementality in inheritance, if there is still a residual culture of paying one's dues and working your way up. But those dues are typically not paid to the customer, but to internal parties to gain political capital for the promotion. Once promoted, the jump in backlinks is fairly discontinuous. One day you are a private citizen and the next you are the governor of a state of millions of people. By contrast, the technology founder gets their backlinks over time. Mark Zuckerberg did not get elected to run a three billion person social network

with no prior executive experience. He started it in his dorm room and convinced every single person in his support base to join him over a period of 15 plus years. Some of them he recruited directly, but 99% plus of them joined him indirectly through the user interfaces his people designed. At every step of the way, if anyone questioned why this person was the CEO of Facebook, the answer was clear, because he was the founder of Facebook. Importantly, both of these paths to building support are considered legitimate. You can win an election, inherit an institution, and get all the backlinks at once. or you can found something, build it up from scratch, and get the backlinks over time. Both are considered legitimate paths to becoming a leader.

However, the founder's path has the crucial additional quality of selecting for competence. Remember, when COVID came, the institutional errors failed, but the technological founders succeeded. From social graphs to social trees. There's one catch, though. The current quality of backlinks that founders generate when creating new companies, communities, and currencies is not sufficient for starting new cities or countries. One way to think about it is to note that it is considered legitimate for Mark Zuckerberg to give explicit direction to all 50,000 Facebook employees, but not to all 3 billion Facebook users, even if he is, in a sense, the ultimate system administrator of the platform. The reason it's not considered legitimate is that Facebook users didn't sign that social network contract. They signed up for sharing photos with friends. They didn't sign up to start a new city or a new country. But what if they did? What if we developed a new kind of social network organized not as a social graph, but as a social tree? Organized like a company hierarchy, but at the scale of a city or state.

state. Don't say that is impossible because founder-run Amazon scaled to 1.1 million employees, which already makes them bigger than dozens of UN member countries. All of the people under Jeff Bezos are organized in a functional hierarchy under a single CEO, and all of them have explicitly opted into being there. This combines the competency of the startup and the legitimacy of the state, and gives us a taste of what's possible. The backlinks are like girders, forming a base of social support. We want to be able to build something that without having to first create a trillion-dollar company and become one of the world's richest men. And where it gets interesting is to set up something that could get to Amazon's scale, but organized as a social tree. So you have a million people organized in a hierarchical structure

for a common purpose outside of work. The network union. What common purpose are people organizing for at that scale, if not work? The answer is that they are organizing to defend their interest as a sovereign collective, as a network union. A network union is a global mobile social network with an integrated blockchain and an explicit backlink structure, capable of collective bargaining with giant corporations and states alike. It is a check on the power of both concentrated capital and political capitals. The integrated blockchain gives the network union access to the social technologies listed above, encrypted messaging, crowdfunding, governance, and the like. And the explicit backlink structure gives the network union a social support base with a clear leader, a concrete

purpose, and an internal conflict resolution mechanism. Social networks are intropic, network unions are directed. The combination is an enormous level up over existing social networks. The blockchain component provides economic alignment, and the backlink component provides ideological alignment. The leader provides clear direction and the network union has an actual purpose. Compare this to the aimless dunking and entropic time wasting on current social networks, and you'll see the difference. Put another way, if we're thinking about crowdfunding, mass migration, and social media mobs, these are examples of people collectively voting with their wallet, feet, and voice respectively. Today, that's all disorganized. What a network

Union does is organize people directly, recruit them peer-to-peer, slot them into a social tree, and coordinate them with messaging apps and economic alignment for collective action. The Collective Action of a Network Union While network unions may participate in politics of laws permit, they prioritize daily action over occasional elections. Like a traditional union, they employ a series of escalating tactics to negotiate with entities of smaller size and scale, like businesses and governments. But unlike a traditional union, their point of view on any given issue can be from the consumer, user, producer, or labor side, rather than labor alone, depending on the role of their

constituency. One day, the network union may bargain on behalf of the collective for cheaper bulk purchases of a high-volume staple-like masks. The next day, it could negotiate with a payments platform to reinstate a de-platform member, and the next day it might find a job for a union member down on her luck. In general, if a corporation demonetizes you, unbanks you, de-platforms you, censors you, or otherwise harms you, a network union has your back. If a state doesn't respect your group's interest, a network union has your back, too. In addition to defense, a network union takes positive action. It fields teams for e-sports. It organizes collective projects like shared wikis and open source projects. And it may crowdfund

the startup of a union member in good standing, while taking a cut for the network union itself, using its integrated blockchain for both purposes. It is the job of the network union leader to organize these regular calls to action, distributed in the encrypted blockchain mediated news feed for network union members. The network union is thus a more purposeful and organized online community than a social network, but it can also be founded in scale to millions of people from a laptop. It is this kind of structure that will let us move from simply inheriting cities and countries to founding them from scratch, from bowling alone to bowling together. All right, so tons to unpack here. I think one thing that I want to make sure that you guys know

is that the context for this is a project called 1729 where Bologi is actually experimenting with this sort of task-based network organization. So this is something that's a little bit more active than just a blog post. Now, I think there are a ton of questions in here. Just to take one example, as Bologi said, people have been writing about this idea of tokens being able to incentivize and overcome network effects for a bunch of years now without that really playing out. Every social network we've seen that tries to use tokens or some sort of internal currency as a reward for participation has totally failed to get traction. Leading me to be pretty convinced that the primary value proposition of a network can't be a token,

it can't be any sort of currency, whatever, even if they're giving away the value in Bitcoin. The fact is, people will not take the time to join a new network just to earn some Bitcoin for small tasks. At least not yet. At least not at any scale that we've seen. What I think is more interesting here is the idea of direction as the idea of explicitly joining a collective with an intention to seize some type of power that has been taken away. We've discussed on this show numerous times the idea of things like de-platforming, be it from financial networks or from social networks. This is a particular phenomenon of a time in which private networks have claimed a type of power that previously was reserved only for the state. When I say that I think it's inevitable that we see

internet-native versions of organization, it's because there has to be some counterbalance to that power, and I don't think working through the state alone through traditional governance mechanisms is a sufficient answer. It's not a palatable answer for many, which leads you to this sort of experiment. Could you organize enough power around some collective, some network union to use Bologi's parlance, to actually influence a change in behavior? I don't know what the answer is. I don't know what blockchain's role is. I certainly don't know what the role of tokens is in all of this. But I do know that people are largely dissatisfied with the way that power is meted out across media, the state, and technology networks right now. And something's got to give.

Anyways, as I said, I thought this would be a fun one for a long weekend. I hope you're having a mimosa or something akin to it while you're listening. But either way, I hope you're having a great time. And until tomorrow, guys, be safe and take care of each other. Peace.