Comparing. Comparing Current and Decentralised Model 1/5
Next: Value engines.
Let’s compare the current model – at least how it is more of less in Finland to a possible token-based decentralized model.
We’ll split the models into three rough layers. The stack of state – SoS (Yes, we are re-using acronyms here):
Minimum viable state – monetary system, markets, legal system, security
Growth services – health, education, infra…
External interface – interface to other nations, regional and international organs
Current Model - Minimum Viable State
Figure. Minimum viable centralized state.
Citizens work for enterprises or directly sell their services and products on the markets. Enterprises are hierarchically organized to work on more complex services and products also sold on the markets. Taxes are levied on financial transactions and the state funds itself on these. For the minimum state, these funds are used to pay for violence machinery that punishes wrongdoers and creates trust. Trust allows people to take risk, start companies and get compensated when rules and contracts are violated. For the future development of the system, people vote on regular basis on decision makers who set up the rules and define what types of organizations take care that activities the state is responsible for, get carried out.
Background
To see how we ended up here, its good to take a look at the path taken.
The monetary system was started about 5000 years ago as a solution to the rulers’ dilemma. Rulers in ancient world were constantly battling each other trying to conquer neighboring city states for more wealth, power and social status. Everyone did empire building.
Organizing and running an army takes lots of money and resources that the ruler needs to extract from the farmers and other inhabitants. Taking this with force creates natural antipathy towards the great leader even when there would be publicly promoted belief that the right to rule is a God given decree. Privately subjects may have differing views on divinity but none of these got chiseled down into stone.
The dilemma is thus, how to increase ruler’s income and hence army without alienating subjects?
Money was the solution. Once money was established, the ruler made everyone pay taxes in the coinage minted by the ruler and the ruler paid the army’s salary in it. The only way for the farmers and other citizens to get the coins for taxes was to sell produce (grain, horses, fodder, leather, caskets) to the army. Thus, the initial markets were created. Ruler pays salary to army; army buys supplies from members of the society and suppliers pay taxes to ruler. A closed value loop was formed.
Coinage works also in trading directly between subjects, people who have nothing directly to sell to the army, get money by providing services and products via markets to those who do. Ruler’s force gets extended to a new use: ensuring that the markets work well, everyone follows common rules and cheaters get punished as a deterrent. Well working markets increased economic activity, increasing monetary flows for ruler to tax. Which leads to a larger army leading to success at war, more subjects to tax and bigger status symbols like more palaces to not live in. A self-reinforcing loop.
Some traders have excess coinage and start loaning these to people against interest. Debt gets invented. (For more see: Debt, the first 5000 years by David Graeber)
Nowadays decision making has moved from a single individual making all important decision to a representative democracy with large hierarchical public organizations implementing the decisions made.
This is essentially the core of the state even today – Minimum Viable State. State violence system (police, courts) ensures a fair playground for all people to conduct their business on open market places. Out of the earning the state takes taxes in a multitude form to pay for several core services like the judicial system, army, needed infra for the markets to operate and the many growth services to protect and increase the common pie.
The markets and the state are two interchangeable parts of the same system. You cannot have one without the other. They are the same thing.
Typically, people on the left of the political spectrum criticize the markets (capitalism), invent all kinds of policies to curtail and “punish” it. On the right-side criticism focuses to the state with desire for it to have as little power as possible.
Everything is made by markets – every product and service we use daily was created in some format of a market environment enabled by the state. In a sense both capitalism critics and neoliberals are sitting on the same branch. Main ideological difference being that they start sawing it from opposite directions.
In areas where state is weak, the markets also tend to work poorly with corruption and existing players being able to influence the law. They do this to prevent fair access from competition and ultimately this slows down economic activity. When state is too strong, its overpowering force with high taxes and too detailed regulations prevent attempts at innovation and if anyone gets through barriers of regulation, taxes ensure there will be little reward (this relationship of dwindling taxes as tax rate increases is captured in Laffer’s curve, https://en.wikipedia.org/wiki/Laffer_curve ).
A balance is needed but there is no natural “right” balance. You could view this imbalance as the driving force behind societies where sometimes focus is on the one or other side.
Decentralized model - Minimum Viable State
Decentralization is coming to be on the side of the current model.
People work for decentralized projects (decentralized autonomous organizations, internet native organizations = for this discussion the same thing). The orchestration of the work is automated. There is a set of code, called smart contracts, that define the rules of the organization, what is possible and what the outcome of each operation is. Anyone can join without prior agreement and start getting rewards based on the rules and the work they put in. Anyone can stop working at will.
All services and digital artifacts are produced by the participants. They get sold on the markets as before. The same people can also be consumers of these services and digital products (they are called then prosumers) but do not have to be.
Payments happen via smart contracts that automatically enforce rules. This creates trust as it is mechanically not possible to follow rules.
Some part of the money flow goes to Treasury that is used to fund future development and running costs. States also want their fingers in the pie in the form of taxes.
Decisions about the future development of each project (producing those services and products) is also delegated back to the participants. The same group of people create, consume and steer.
Every project creates around it a mini-economy. A proto-state so to speak. Specifically, they have both monetary and fiscal policies. Monetary policy is the model how many initial tokens they are, how now tokens are created and allocated, what the initial token distribution is. And the fiscal policy is how the funds in the Treasury is used or if the initial project team reserved some tokens for themselves or to a project Fund with some specific rules, how those funds are used.
Anything that is digital, is by default global. Anything that is physical, is by default local.
Initially local services will follow current model. But the payment of local product and services could also be done via smart contracts.
Current Model - Growth Services
The aim of these services is to both grow the common pie and to protect against shrinking/destruction and recover from problems. To increase wealth and wellbeing in general.
The model below is definitely Nordic, shaped by bad weather that is horrid enough for people to cope alone but need to join forces. On a global, interconnected digital world other models may work from time to time better as the environment can be fundamentally different. But then again, maybe it’s not so good anywhere.
Growth services can be roughly divided into two categories based on their primary benefit – services that mainly grow the national output and ones that prevent the decline/destruction even when most services have flavor of both.
Grow
Public education allows everyone to follow their interests and get to a position where they can maximize their potential producing as much value to themselves and the surroundings as possible. Educated people also make less mistakes in taking care of common assets thus protecting existing investments.
Private property related services like lending, insurance and concepts like limited liability are the core growth engine of societies. They create wealth by reducing investor risks and speed up investments. People can invest more than they can afford against future income if they have collateral. Property laws create the environment for that.
Core infrastructure like roads, harbours, airports reduce friction in economy allowing goods and people to move fast and cheaply.
Many countries have specific industrial policies targeting the growth of economic sector. These fluctuate and change from time to time. Usually, idea is to fund the development of new, successful products. I.e., lower the risk so companies follow unsure but promising ideas.
Protect
Public health ensures everyone gets a good start in life, gets back to work fast should anything happen and has as good as possible retirement years when hardware starts to show its wear and tear.
Social security to ensure that no one’s permanently falls outside of society (markets) should they fall ill or lose a job. Social security also reduces risk when starting something new like a new business leading ideally to more experimentation and learning.
Some private services are also central to a well-functioning society. For example, independent news media/information sources create trust in society and increases the risk and cost for being exposed of all types of wrongdoings. Currently a fading approach as activist journalists take over.
Religion is also one of the services that has built regular rituals reminding practitioners daily and weekly to be a human and kind to other folks. A trust building element. Religious rituals also are ways for people to network, get friends and form bonds. Art expresses emotions and struggles of artists, creating meaning in domains where words do exist.
One of the issues today is that the number of people on the receiving end of benefits is growing more rapidly the value created in the national economy. Some reasons being the aging population and the constant increase in benefits. Funding so far being done both by increases in national debt and taxes.
The major inhibitor for the growth and prosperity of society are high taxes as they reduce the motivation for extra work and risk taking as with increased taxation individuals gain less and less of the income they manage to acquire. The rule in general is that if you want to reduce something, increase the taxes on it. A model currently used to combat among other climate change.
Working more tends to benefit the society in two ways: a doctor who works slightly more naturally treats more patients but they also gain more experience and become better at their work. This makes high taxation into a power brake.
Decentralized Growth Services
In essence the needs do not change, but the way they are addressed, will.
Growth
Anyone can get education on anything through online courses. Automated translation services make education available in people’s own language and the need to learn foreign languages is diminished, but some people still learn languages to understand each other better. Schools and universities continue to be important because large part of human interaction is non-verbal, and they also act as places where people form life lasting friendships that later lead to co-operating teams and companies. To get students to visit the campus, universities need to provide additional recreational services – not just classrooms. Good restaurants and quality of craft beer will be more important than the quality of professors, otherwise students will just watch lectures from their room and miss out forming human connections.
However online education has opened up skills to a totally new user groups that previously did not have this opportunity (they live in far-away places, are too young or old, have physical disabilities or are just weirdos interested in the wrong things at the wrong times etc.).
Note that these changes are happening now and the ones most supporting decentralization is the location independence and ability for anyone to gain knowledge.
We haven’t talked before but property is clearly getting tokenized and the administrative aspects automated via smart contracts. New property classes emerge due to automation. For example, companies/teams can tokenize expected income from signed but not delivered deals, future income of patents, future increase in art value etc. Peer funding will also become more popular.
Core infrastructure like roads, harbors, airports own themselves and have moved to the self-funding model. There has been initial investment into the automation of these services and in future they collect enough funds from users based on usage so that replenishment can be done automatically. AI based predictive models are used for scheduling repairs and expansions or removing unwanted infra.
In special cases citizens can group together to use their ‘infrastructure budget’ to make improvements and new developments even when state would not approve or prioritize them. The saving up can take several years during which the funds may be invested into something totally different to gather compound interest to speed up the waiting period. This is a crowdsourced society development model.
Global projects that work in the same area but are not directly competing or are both competing and cooperating, will start putting funds together to drive forwards developments and policy changes on national and international level to meet their needs. They can do this for example by hiring lawyers for dialogue with politicians and in some cases developers for joint R&D for example to improve security. This leads to thematic organization rather than along national lines on what in essence is industrial policy. These superstructures of cooperating teams will be coordinated by smart contracts.
Protect
Health services are automated to a great deal. Wearables and disposable, cheap analysis “strips” are used to monitor and analyze both healthy and sick people. Based on collected information, decisions and recommendations are made in near real time on medication, need for consultation or motivation. Dosages are personalized to minimize side effects. Robots perform increasingly operations like take MRI images or perform chirurgic operation. Inside hospitals all the logistics work like moving patients from place to place, fetching medicine, taking bedsheets for cleaning have been automated releasing personnel to work with patients. It is possible that patient associations will be the primary organizers of health services in the future as their incentives align well with the wellbeing of patients.
In social security new models will be tried. Mentoring models where say long-time unemployed who found a way out help others and they can earn salary/commission from the taxes the newly employed pay. In public sector power is distributed down the hierarchy ladder to teams who have freedom to organize their work and experiment to find methods are found that work well. Working methods will quickly be distributed to other teams and the inventing team will be rewarded financially based on the savings realized.
Media organizations continue to struggle to meet competition from online services. Some media go towards so called long-read model where substantial effort is placed on base research to come up with articles that explain the backgrounds for recent events. This content will be financed via subscription fees, not ads. Others have evolved from fact based “newspapers of record” towards activism and stories that resemble online media and enforce the beliefs of their readers.
Digitalization flattens out the world and allows bad actors from anywhere to attack and disrupt core infrastructure and mess with peoples’ perceptions by spreading false news.
Current trend is to for a separate, siloed agencies to combat cyber threats. A wholistic approach is needed. In decentralized world this is handled by testing everything in production – digital services, people, physical infrastructure. Be your own worst enemy, discover and fix problems before they can. Journalism used to be the testing method of past but reduced budgets have caused it to change the model to revenue protecting narratives.
Testing methods in decentralized world will be for example bugs’ bounties (paying anyone for finding faults) and Fraud Corps (permanent trickster teams that return your money after you lost it). Safety investigation authorities will model and simulate design vulnerabilities of physical products and complex systems in proactive manner to smoke out potential failure cases and emerging behaviors. They will also analyze incidents that have happened just like today is done for airplane accidents. Both methods lead to improvement suggestions and actions.
The main difference between bugs bounties and safety authorities/Fraud Corps is that bugs bounties are bottom-up penetration tests done truly randomly and authorities are systematic approach going through everything and with real-life tests, simulations and other mathematical tools trying to find flaws. The random nature of bugs bounties allows to smoke out systematic omissions in authorities work, authorities work being better funded can be expected to turn out more flaws.
Religions will be religions and artists will continue doing art, some with more modern tools. Artists will have new possibilities as smart contracts allow for example artists to have some set percentage of each price increase of their work as it gets sold and re-sold in auctions.
Centralized - External Interface
Again, quite self-evident:
Defence forces to protect everyone’s freedom from outside threat
Diplomacy to solve disputes between nations reducing risk of warfare. Also, for global agreements to prevent global threats like acid rain and global warming.Trade agreements reduce friction between nations also leading to better division of work between nations and bigger pie, if there is fair play ground and wrongdoers face credible punishments.
States in future will have public application programming interfaces (APIs) for users to automate their needs. (wishful thinking by the writer…)
Trade agreements are one area where they’ve been weaponized by one-sided policies where one big actor subsidizes its enterprises to drive competition elsewhere out and there have been no effective measures to stop this for decades.
State APIs
One emerging interface for states, is to have APIs to access them. These API allow to call state services like use registration services and help automation of tax collection, statistics gathering and so on.
The users or APIs may be current, past or future citizens, other states (when for example individual moves from country to country), companies, buildings or perhaps any devices in future like self-moving cars, harbors, airports, point of sales, medical equipment, endangered animals (elephants could take snap-shots of poachers, identity them, inform authorities and send a notification to poachers: “thank you for using our service…” in real time etc.).
Quality of these APIs will be one of the key factors in future. There will be commercial alternatives to public services for example regarding health analytics, education and smart contracts can replace much of legal framework as they automate actions. States that do not have public APIs won’t have a future unless they can dictate their way.
Decentralised External Services
Armies will be augmented with decentralized defence systems creating virtual drone and robot armies (armies that get produced with 3D printers only when there is real need) and internet defense forces in the form of hack back labs.
There is an eternal bugs bounty on everything so that weak spots are exposed before adversaries figure them out and some folks earn a nice income being mischievous.
Decentralized energy generation and production facilities will be a major improvement in ensuring frictionless functioning of society even during disturbances and emergency conditions.
On the side of diplomacy and international organs, decentralized autonomous organizations will emerge solving global issues. Some of them will focus on monitoring globally issues like pollution, natural catastrophes, famines, armed conflicts, military installations, movement of people and report these in a reliable, non-repudiable way.
Others in creating global common goods.
Language service performing translations in real time allow these teams to communicate with each other. Different models for scaling very large decision-making bodies up to a billion individuals are tried such as hierarchical team model where each team decides one representative to the above model and where computers are used to synthetize, categories and present the millions of proposals and ideas into simpler forms that help people to understand and get new insights in their iterative learning processes
Everything has a programming interface (API). If it does not have an API, it does not exist. This includes public side services like discussed on centralized model already. APIs are used to reduce friction on everything. I can move from country to country just with a few swipes of my finger of preference. Any given country is unlikely to create such global reaching services, hence DAOs are needed to address common issues.