Posted on Jan 27, 2024Read on

Blockchains as Institutions for the Digital Age

The most popular mental model for blockchains today is that of a shared computing platform. As computing platforms, they are touted for their ‘credible neutrality’, 'permissionlessness’ and marketed according to their various security and performance characteristics. Most commonly, they’re presented as an open, decentralized alternative to the prevailing paradigm, whether that be finance or tech. Within this framing, it’s generally assumed -- and explicitly asserted -- that there will be one or two platforms that end up winning a disproportionate share of this evidently existent market for decentralized trust and compute. If security and decentralization is what matters most, then we should expect Ethereum to capture the majority of demand. If speed and cost -- and UX generally -- is the primary determinant of success, then Solana -- or some other high-throughput chain -- would seem destined for the top spot. While this frame of things is entirely reasonable, it is, I suggest, an incomplete view of what blockchains ultimately are, and how they will be employed in the future.

Blockchains are not only new computing platforms. They are, above all, new kinds of Internet-native institutions; socioeconomic protocols uniquely fit for the dynamics of the digital age. As a novel technology for the coordination of financial and human capital, their invention is analogous to the invention of the joint-stock corporation some few centuries ago. Where corporations are constituted by equity and shareholders and codified in law, blockchains have tokens and token-holders and are codified by code. Both are fundamentally social structures for facilitating capital formation and the coordination of collective human behaviour. However, just as personal computing and the Internet liberated human agency from the constraints of physics and geography, blockchains liberate human coordination from the constraints of physical jurisdiction and legacy legal and financial instruments.

By virtue of their being radically distributed and instantiated in software -- i.e. digitally-native -- blockchains are social organisms uniquely fitted to the evolving dynamics of Internet society. As mechanisms for incentivising behaviour at Internet-scale and Internet-speed, they are without rival. While there are fundamental constraints on how and to whom equity can be distributed, tokens represent an infinitely more flexible financial technology, far better suited to the demands of Internet products and Internet communities (where blockchains are the substrate for mediating their issuance and exchange).

While it’s so embedded in the fabric of life so as to be taken for granted, the majority of the world works for companies, in service of shareholders, in exchange for money. Spelling this fact out is to assert one of the most banal and mundane realities of the 21st century. And yet it is nevertheless utterly fundamental to how the world works today. More to the point, however, it’s all an elaborate social contract we’ve constituted together; a shared story. Blockchains, I argue, represent the emergence of a new narrative; a world where, instead of companies, Internet-native folk work for Internet-native institutions in exchange for Internet-native monies. If this holds true, I expect blockchains will be to the the information age what the company was to the industrial age.

This is all bound to sound awfully abstract and hypothetical but we already have fairly strong validation of this overarching thesis in the form of Bitcoin, Ethereum, Solana and the long tail of blockchains today. These systems are already coordinating millions of people and trillions of dollars. However, where we will see a shift, I predict, is away from propositioning blockchains as general purpose technology platforms, and towards this more Institution or community-centric frame. Blockchains will be constructed and presented, not as credibly neutral platforms for whatever people might conceive of using them for, but as organisations / institutions in their own right. Where blockchains today take an unopinionated view of what they should be used for, blockchain networks of the near-future will have a far more concrete sense of purpose. Moreover, where the underlying economics of blockchains -- their monetary order -- today is designed solely for the purposes of securing the blockchain itself, the economics of blockchains in the future will be constructed to reward arbitrary behaviours that serve to advance their overarching purpose. You could, for instance, imagine a blockchain that sets out to solve climate change and which manages a shared treasury which gets allocated to various climate-related projects. Alternatively, you could imagine a blockchain which sets out to design a new brand of social media and coordinates its economic engine to incentivise adoption and reward contributions of various kinds. In such a world, the average blockchain will be marketed, less around their performance or ‘scalability’ qualities, than their social mission or agenda. To be clear, in this imagined future, I still expect a couple of large, general purpose platforms. However, I anticipate they will be greatly outnumbered by a long tail of mission or product-specific chains -- i.e. institutions -- that are constructed bespoke for purpose.