The foundations of public blockchains were laid by cypherpunks. Even though the crypto industry was always destined to harbor a variety of ideas and practices, it’s the principles of decentralization, open source software, cryptographic security, privacy, and self-sovereignty that underpin its most disruptive outputs. But there’s a problem. Absent a regulatory framework that favors innovation and legitimizes blockchains as administrative infrastructure with unique capabilities, crypto entrepreneurs have been facing a difficult choice: stay true to the purist ethos and thereby significantly complicate their project’s structure and operations, or compromise on the original ideals in return for regulatory blessings and a more conventional path to mainstream success. I call this the Cryptopreneur’s Dilemma.
Read moreStable Coins, Stable Growth
The core function of blockchain networks is to securely process and maintain timestamped information records. In principle, this can be any kind of data, but the most typical example is information related to financial balances and transactions. The simplest, most common financial transaction is payment and, while most blockchains today serve multiple use cases, processing transfers of nominal units of value – such as when paying for goods, services, or other cryptoassets – remains an essential use case for all major networks. But while successful blockchains are already dominant payment networks in some niche markets, their success for everyday payments at scale is much more strongly tied to government-regulated fiat as opposed to cryptocurrencies.
Read moreOnchain Finance is Thriving; What’s Next?
Decentralized public blockchain networks have existed for ~15 years with the associated cryptoassets currently going through their fourth major market cycle. Throughout these years, and especially since the launch of Ethereum in 2015, considerable time and resources have been spent theorizing about and developing applications on top of these networks. While progress has been impressive in the context of financial use cases, other types of applications have struggled, mainly due to the complexity of delivering scalable and seamless user experiences within the constraints imposed by decentralization, as well as fragmentation across different ecosystems and standards. However, recent technological advancements, both within and outside the blockchain industry, have made a broader range of applications not only more feasible, but also more necessary than ever.
Read moreInstitutionalization = Network Success
“Better technology doesn’t always win” is an old adage in entrepreneurship with numerous well-studied examples from business history: standard vs. wider and more performant railway track gauges, combustion vs. electrical engines for inner city car transport, Qwerty vs. Dvorak as keyboard layouts, VHS vs. Betamax as videotape formats, etc. Similarly, while it is true that solving technical problems related to scalability, privacy, cost, and user experience is essential for driving the adoption of blockchain networks, the long-term success of individual networks is not only – and, in some cases, not even primarily – a function of their relative technical merits. It’s also a function of their relative institutionalization.
Read moreProgressive Compliance
The road to progressive decentralization runs parallel to – and will eventually intersect with – the road to progressive compliance. The challenge is that, while “decentralization” in crypto has a broadly global definition, regulation is and will likely remain a national, or at least a regional, matter. Thus, there is no universal playbook towards compliance beyond what should be obvious to anyone. But the most important task at hand is to ensure that all of the above does not come at the cost of freedom to create and maintain open-source technologies, nor at the cost of what’s essential to the value proposition of blockchains: public verifiability of information, reduced reliance on the subjectivity of human administrators (automation), and tilting the power balance between institutions and individuals in favor of the latter (self-sovereignty).
Read moreMiddlemachines
To understand Web3, one needs to recognize not only how it aims to differ from the previous generation of web-based services, but also the functional equivalence between traditional and digital bureaucratization, or manual vs. automated bureaucracies. Both are based on formal rules of procedure (protocol) but whereas the former relies on human intermediaries (‘middlemen’) to perform administrative functions such as keeping information records and facilitating transactions in reference to these records, the latter pushes humans to the edges by replacing manual administration with computers and software. This results in more technological intermediation or, as I’ve come to call it, middlemachines.
Read moreHow Crypto Is Shaping the Digital Revolution
I have previously categorized ’crypto’ – a catch-all for blockchain- and Web3-related innovation – as part of the Digital Revolution that started around the late 1960s to early 1970s with the invention of packet-switched networks, microprocessors, and other digital technologies that enabled the proliferation of personal computers and the Internet. I would like to expand on that by:
Providing a brief theoretical outline of the two main stages of technological revolutions;
Comparing the organizational and institutional shifts of the previous revolution (centered around oil, automobiles, and mass production) with those of the current one (centered around digital information and communications technology) as imagined during the dot-com era (late 1990s, early 2000s); and
Discussing how ’crypto’ as a techno-populist reform movement and innovation cluster is shaping global institutions and governance as the Digital Revolution matures.
Throughout the text, I will be using ’ICT’ as a shorthand for digital information and communications technology, and ’ICT Revolution’ as a shorthand for the Digital Revolution. From here on, quotation marks around the word ’crypto’ will be omitted, while still referring not just to cryptography, but to all blockchain- and Web3-related innovation. Readers familiar with Carlota Perez’s theory of techno-economic paradigm shifts may skip the first section.
Read moreIsomorphism in DAO Governance
The term ’institutional isomorphism’ refers to similarities in the structure and processes of independent organizations. In the past, the spread of information and the adoption of similar practices was slower and often limited to organizations within a single country or region. But in the newly emerging institutional field of blockchain networks and decentralized autonomous organizations (DAOs), which benefit from near-instant global communications via the Internet, isomorphism develops much faster.
Read moreSystemic Risk Mitigation in DeFi
DeFi is not about rebuilding finance as we know it; it’s about building a better finance. History has shown that without appropriate rules, safeguards, and behavioral norms, financial markets become more prone to fraud, pro-cyclical excess, and crises. Occasionally, these crises take systemic proportions, threatening the stability of the economic system as a whole. A popular analogy for thinking about systemic risk in the financial sector is fire and building safety. While the analogy is far from perfect, perhaps there are lessons that today’s financial innovators can learn from the historical evolution of fire and building safety?
Read moreThe Great Automaton
The ability to invent and use tools is a defining attribute of Homo sapiens that led to the emergence of civilization. An important concept for framing the subsequent effects of technology on society is automation: any technique that reduces the need for human assistance in performing a task or completing a process. The connection between automation and progress is well understood. Although formulated in a different context, a quote from more than a century ago by the philosopher and mathematician Alfred North Whitehead sums it up nicely: “Civilization advances by extending the number of important operations which we can perform without thinking of them.”
Read moreTen Theses on Decentralized Network Governance
Based on my research over the past couple of years, I’ve put together a list of ten theses on decentralized network governance, including base layer public blockchain networks and applications (smart contracts) running on top of them. The ten ideas are listed from the more general and theoretical (descriptive) to the more specific and practical (prescriptive). The first five are revised summaries of my previous writing; the latter five are derived from more recent observations.
Read moreFOSS Governance and Blockchain Networks
The principles of free and open source software (FOSS) are fundamental to the ethos of the communities building blockchain networks. While it is not uncommon for a single organization or small group of core developers to coordinate and deliver most of the work, the source code is generally open for everyone to inspect and improve upon. Control is maintained not by keeping software proprietary, but through social and institutional means, including ideological discourse, community management, and trademark license agreements. Despite the unique governance challenges from issuing network-specific assets to operators, investors, users, or other stakeholders, there are important similarities between blockchain networks and traditional FOSS projects. Existing research on FOSS governance may therefore prove helpful in designing blockchain governance systems.
Read moreInstitutional Participation in Token-Weighted Network Governance
Blockchain enthusiasts often criticize traditional institutions for their tendency to concentrate resources and decision-making authority. But token-weighted governance without system design features that counteract centralization are clearly open to similar criticisms. As a result, large token holders are faced with a dilemma: abstain from participation to stay true to the ethos of decentralization, or seek to govern in a way that doesn’t disproportionately benefit powerful actors at the expense of other stakeholders.
Read moreOn Autonomous Software →
This article is a comment on Lane Rettig’s essay Autonocrats and Anthropocrats, connecting its central themes to two fundamental concepts in social sciences — the rule of law and social structure. It explains how the most informative analogue to a decentralized network of nodes running autonomous software is society itself. Digital record-keeping and distributed computer networks are comparable to other institutions with effects beyond the control of their creators, administrators, and users. As such, they represent an important area of research not only for computer scientists and software engineers but also for social and political theorists whose expertise could be usefully applied to the design and governance of these emerging systems.
Read moreThe DeFi Déjà Vu
There are important patterns in the historical development of finance, most notably systemic crises associated with the collapse of asset prices or income flows and the recurring interplay between financial innovation and regulation. Understanding these relationships can help the architects of open and automated crypto-financial services, known as DeFi, to assess potential risks and prepare for different economic and regulatory scenarios. This article highlights some relevant historical precedents and considers the potential long-term implications of this latest wave of financial innovation.
Read moreThe Bookkeeping View of Money →
The three common ways of theorizing money — as commodity, legal construction, and credit — can be effectively reconciled by considering it as a social institution for bookkeeping. This article outlines the four perspectives, lists materials for understanding each, and considers how some recent innovations in digital record-keeping fit into the picture.
Read moreCryptonetworks and Governments →
Public cryptonetworks have some unique features that put them in an ambiguous position vis-à-vis existing legal and administrative systems, especially governments. What should governments make of these emerging systems, and how might their societal role evolve in a cryptonetworked world? On the one hand, crypto represents an important and effective tool against authoritarianism, and certain aspects of it can arguably be framed as competitive with the State. On the other hand, it is also possible to envision a more symbiotic relationship in which well-intentioned governments are both active participants in and direct beneficiaries of public cryptonetworks.
Read moreThe Full Circle Hypothesis →
One thing more difficult than critical analysis is predicting the future. But here’s one possible scenario. While blockchain networks will continue to reinvent organizations that administer information and facilitate transactions connected to that information, on a societal level, the end result will look disturbingly familiar. I call this the full circle hypothesis.
Blockchains are Bureaucracies par Excellence
In an earlier post, I likened decentralized networks to fields - social arenas of symbolic and material production within which interested actors compete and cooperate over network-specific resources.
The promise of blockchain and related technologies is that these arenas can be set up in ways that minimize trust requirements, reduce concentration of control over data, and enable free, censorship-resistant transactions in an increasingly global and automated setting.
In this post, I propose this development represents an important step in the evolution of bureaucracy. That may sound counterintuitive given this term’s common association with inefficiency and excessive paper-shuffling. But once we understand the essence of bureaucratic organization, it will become clear that blockchain networks are actually bureaucracies par excellence.
Mario Laul
At the end of 2017, I started providing research support to Placeholder. It was a part-time role and I never took the opportunity to officially introduce myself via the blog. Better late than never!
I am happy to announce that I’ve now joined the team full time. In addition to supporting investment due diligence, my research efforts will focus primarily on the topic of cryptonetwork governance.
My background can broadly be described as social sciences. A few years ago, I completed my graduate degree in technology governance which translates to a mix of development economics, innovation studies, and public administration. Prior to my current role at Placeholder, I worked as a research assistant to Carlota Perez, focusing on the modern history of financial innovation and public policy in the UK, Germany, and the US. More recently, I had the opportunity to hone my analytical skills at the European Commission where I mainly worked with investment and financial data on one of the EU’s largest grant portfolios.
I’ve always had a keen interest in sociological theory, and each fall, I teach an introductory course on the sociology of culture to undergraduate art students in my home country of Estonia. I'm excited to leverage this background in my approach to decentralized networks, as I’ve previously done here.