I’ve been reflecting on Tornado Cash’s ban and it’s an extremely powerful example of why @balaji’s network state will exist.
Tornado Cash was a public good: non-exclusionary and non-rivalrous, whose existence is protected by the 1st Amendment. What does its ban mean?
The past week has been a fascinating conflict between national government and a new digital-native state over a digital public good. To date, public goods like Tornado Cash have been the backbone of network states, and their mistreatment by the government promises to be a primary source of future tension.
Based on the Treasury’s treatment of Tornado Cash and the ensuing public reaction of crypto users, I think we will reflect on this moment as the canonical example of why network states exist and what a new era of geopolitics could look like.
The government’s treatment of public goods will dictate the next chapter of political history…
In my opinion, public goods are the best manifestation of the social contract we make with one another and government. Public goods are a prisoner’s dilemma where citizens can cooperate to maximize collective value or cheat and try to privatize the good. One form of “cheating” traditionally discussed is free-riding: enjoying and extracting from the public goods without contributing to them at a level of replacement.
For example, if I go to a park to play football, leave a huge divot in the grass, and walk away: I am a free rider enjoying the existence of the park without contributing to its well-being. Furthermore, I’m creating negative externalities by leaving the divot in the grass.
We pay taxes to the government to ease this free-rider problem. It is easier for me to internalize the externality of a divot by paying taxes that can be allocated to fixing it than repairing it myself. Taxes can be an efficient way to ensure cooperation and solve for negative externalities. But mostly, the very nature of public goods being non-exclusionary and non-rivalrous means we cooperate without the nudge. In many respects, it is actually our implicit incentive towards cooperation over public goods that ensures the smooth functioning of society.
Importantly, the value of public goods is prescribed and experienced bottoms-up by citizens. It is the citizens that empower the government by actively deciding its role incentivizing cooperation and materializing our social contract is valuable.
We have no single leader, nor will we have one, so we address you with no greater authority than that with which the public itself always speaks. We declare the global social space we are fashioning to be independent of the monoliths you seek to impose on us. You have no moral right to rule us, nor do you possess any methods of enclosure we have reason to fear. - @verses_xyz | Interdependence of Cyberspace
"Why are public parks more desirable than public parking lots? This brings us to an important realization: any definition of public goods presupposes a shared understanding of what is in the public's benefit, and why." - @otherinternet__ | Positive Sum Worlds
With Tornado Cash, there was no shared understanding between government and citizens on what is in the public’s benefit. The government acted as a Leviathan, removing bottoms-up value attribution with little evidence that it understands what cryptocurrencies are or why Tornado might be a valuable public good.
When the government takes control of public goods without citizens voting, it’s a uniquely explicit example of the government inserting itself somewhere it has no business for no one’s benefit but its own. Hobbes bests Rousseau and the will of the people falls to the will of the Sovereign.
Just power is derived from the consent of the governed. You have neither solicited nor received ours. You do not understand us, nor do you know our world. The Pluriverse does not lie within your borders. Do not think that you can build it as such, as though it were a private project. You cannot. Our vision grows through our collective actions.- @verses_xyz | Interdependence of Cyberspace
Tornado Cash is hardly a white knight, but its treatment is scary and begs the question of how we determine what is valuable in a society and where those societies exist.
Open-source software (OSS) complicates this issue because it is a rare breed of public goods that transcends national borders.
Google "public good" and you're sure to find examples of parks, clean air, NATIONAL defense - all local instantiations.
Because Tornado cash indiscriminately serves a global public, it is irrational to believe any one national government could reasonably establish a “shared understanding of what is in the public’s benefit, and why.” Most governments are poorly equipped to even try.
This moment is important because it highlights not only a lack of understanding of what is in the public’s benefit and why but also who the public even is.
The fact that public goods are local and a function of shared values is important because it also means they are judged relatively.
To illustrate this point: in Boston, we have an overwhelmingly shared belief that clean air is valuable. We pay taxes to maximize air quality because it equally affects all of us.
However, environmental concern is a luxury good.
In emerging markets, clean air might not be a shared value because there's a unanimous preference for quick economic development (shared beliefs).
Also, in Boston, we value clean air, but we don't subsidize, say Indonesia's, green movement (locally instantiated).
Crypto is a new digital locality comprised of individuals across borders that are united by shared beliefs and economic incentives.
The crypto locality has no relation to shared physical space but is still governed by an equally viable social contract that is enforced by a community-empowered third party (smart contracts and the right to fork).
A fantastic illustration of this is the @KERNEL_0x project I contributed to this fall: The Interdependence of Cyberspace. The purpose of this project was to codify the values we hold dear in our digital locality: “We are writing our own social contracts. This governance will arise according to the conditions of our world, not yours. Our world is different.”
This treatise’s existence demonstrates the social contract referenced above is not just theoretical: participants have put pen to paper and established it to be an important issue. Hundreds more left their John Hancock. Furthermore, how it was published was interesting. People were asked to sign it to signal support for these virtues and it is hosted on @ArweaveTeam. Arweave creates digital permanence for both the documents and its signatories and enables the document to be forked should others disagree or amendments need to be made.
In many ways, this single document really represents the idea of the metaverse: digital institutions become as important to us as our physical world ones. But what happens when our digital and physical institutions conflict?
I'm happy to abide by clean air laws because I've opted into this set of values by living in Boston, but I'm equally passionate about my digital locality, crypto.
Banning Tornado Cash is so interesting to me because it’s the most recent instance of the government dictating physical world social contracts must supersede digital.
It sounds insane for this to even be a problem, but the very reaction to this news is clear evidence that a significant number of people would choose their digital institutions over their physical ones. They’re also willing to fight for them.
https://twitter.com/RyanSAdams/status/1559565929163390979?s=20&t=hm2iX6HxRQelopwBHD8h0Q
This underpins the growing tension between national and post-national societies (network states). The irony is that governments’ treatment of digital public goods can create a tragedy of the commons among nations.
Should someone decide their digital values supersede their physical ones, they should have no problem moving to a country that meets base their needs a better accommodates their highest-order beliefs.
https://twitter.com/RyanSAdams/status/1559987783623663617
[Closed Fiefdoms], your concepts of community, identity, expression, property, value, and movement are insufficient. They are based on the artificial borders you’ve drawn around us. We did not draw those borders, nor did we have a say in how they were drawn. There are no gatekeepers here…
You are terrified of our technologies because your power holds no sway. We dissolve data silos into interoperable and self-sovereign worlds. All the sentiments and expressions of humanity, from the debasing to the angelic, are parts of a seamless whole, the global conversation of bits. We cannot separate the air that chokes from the air upon which wings beat. - @verses_xyz | Interdependence of Cyberspace
This new reality creates a prisoner's dilemma for nations: accommodate network states, or regulate them away and lose citizens to them and nations that “cooperate.”
Just as, say, Indonesia would have reason to cheat on a clean air regulatory pact, other countries will "cheat" on network state accommodations. The more a government imposes its will, the more incentive there is for citizens to leave, the greater incentives for countries to "cheat."
Look at FTX domiciled in the Bahamas…
This will continue until we reach a Nash Equilibrium where the marginal gains of small government accommodation are no greater than its marginal cost (ex. Tornado $ laundering).
This isn't a new idea. A hyperbolic example might be Cuba where a loss of individual sovereignty leads to emigration.
The Nash Equilibrium we've reached in geopolitics to date is democracy, "the worst form of government - except for all the others that have been tried."
What's new is a new form of government that has not been tried: network states. We have not yet seen geopolitics waged without physical borders.
I have no idea where the new equilibrium will land, but Tornado Cash’s highlights why a new one might exist. If it does, it is sure to be a brave new world and I look forward to seeing where flags are flown.
Thanks for reading! I’ve created a crowdfund whose proceeds will be used to fund Gitcoin grants advancing privacy efforts. If you enjoyed this article, please consider contributing! (will post txn confirmations to verify use of proceeds…)
crowdfund://0x767261f37A300B2c055552739AA2Fe73460884e9?version=factory_5&network=mainnet
In summary: