Crypto May Change How We Govern

Crypto communities may hold the key to a future with broader governance possibilities

By Sahil Handa

I ended my last column on a somewhat vague, utopian note: that self-governing digital networks could become a blueprint for new models of democracy and identity. Some of the networks to which I was referring are crypto communities, and in the intervening weeks, it seems everyone has begun talking about crypto. But most of the opinions don’t exactly inspire great hope in its future—and that’s not surprising given recent events. Over the past few months, cryptocurrencies have had their value slashed. Money has evaporated from the ecosystem, and many projects have gone bust. Even the most successful crypto companies are making heavy cuts.

The idea that this space could be an incubator for systems of democracy and identity, therefore, seems almost laughable. And as a person running a company in the space, I am clearly biased. But I still believe that the blockchain is a deeply significant technology—not just for financial transactions, but for governance and identity. In fact, it holds the potential to upend governing systems as we know them.

What Is Crypto?

So, you might be wondering, what exactly is crypto? Crypto is the ecosystem associated with a technology called the blockchain: a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a network. You can think of the blockchain as a kind of permanent database where every computer that can add to the database has a copy of every entry to the database.

Blockchain technology is meant to produce what crypto advocates call a “trustless” system: A piece of software can enforce rules over human relationships with no need for an intermediary. Cryptocurrencies use one-way hash functions to make statements—e.g., “David gave Tim ten dollars”—and then to immediately verify those statements. You can think of these statements, frequently labeled “smart contracts,” as super-powered vending machines: The computer program controls a set of assets and implements a set of predetermined rules. Cryptocurrencies are digital currencies in which transactions are verified by this decentralized mechanism, rather than a centralized third party, like a bank.

This is a truly revolutionary development, because it topples the very notion of responsibility and trust in an economic system. Specifically, crypto removes the need for older established institutions—all the way up to the state—in the functioning economy. Relying on a centralized third party to verify transactions requires a massive amount of trust in government institutions. A physical dollar is not valuable in and of itself: It is a contract. It is an affirmation from the U.S. government that it owes you the value of that dollar—it is a claim on the banking system and therefore on the U.S. Federal Reserve. Anyone making or executing a transaction needs to believe that the government has the legitimacy to be obeyed by all parties involved—and that its institutions have the capacity to save the system when it fails.

But the benefit of crypto is that a contract can be enforced internally—anyone, anywhere in the world can access and participate in open, borderless and censorship-resistant applications without needing permission from a trusted institution at the center. An early pioneer in the space, Nick Szabo, calls this phenomenon “the dawn of trustworthy computing.” Others have called it the first “violence-free money,” a reference to the state’s monopoly on violence. Crypto provides the capacity to enforce promises among a network in a distributed way.

But crypto is also a massive social phenomenon: Almost 200 million people have opted to exchange their money—their national fiat currency—into bits and bytes on a computer. Of course, there is plenty of speculation in the crypto world. Many traders became involved in the ecosystem because they stand to make plenty of money from the ecosystem. This is true for almost any industry: Money attracts money, which attracts more money. But it cannot be overstated that a substantial portion of these people have said that they would rather have those bits and bytes than their euros, dollars, pesos or naira—and that is an incredible phenomenon. As prominent crypto investor Avichal Garg put it, “Whenever 100 million people do something, you shouldn’t ignore it: If 100 million people think something is valuable, that’s an entire economy.”

Crypto’s Potential—Not Just for Finance

Clearly, the growing power of crypto matters for finance, since crypto reduces friction in the economy and is a massive enabler of money transfer. If more people continue to adopt crypto and transaction fees continue to decrease, it will transform the nature of the global economy. Anyone will be able to earn and spend money without revealing their identity: They could donate to unpopular causes, send money across borders, certifiably prove their credit score, gift money anonymously and have access to information about their employers, banks and other institutions that play a significant role in their lives. They could also, of course, use these technologies to organize violence and crime. After all, technological shifts are always morally neutral. Nation-states could use this as justification to seize control of the crypto ecosystem, but a continued technological ecosystem may mean that they have no choice.

But why does it matter for governance and identity? The answer, it seems to me, is about coordination and privacy. The kinds of problems facing 21st-century liberal democracies are highly complex and require deep levels of international cooperation. The threats of climate change, nuclear weapons and artificial intelligence mean that there has never been a greater need for global coordination. If we are going to experiment with the voting process beyond national representative democracy, then the properties of blockchain could be extremely useful.

That’s because the blockchain can be a container for rules, including political rules. Nobody has to count the ballot boxes—or, more specifically, nobody has to be trusted to count the ballot boxes. Since you are the only person who can write into the database—and you do that by signing off with your private key—you don’t require any additional form of verification for your identity. And the systems that determine who can vote on what issues, how much votes count and how decisions are made—these systems can be experimented with at a rapid pace in an entirely transparent way.

No Political Utopia

There is a long history of utopian political thought about the internet: Digitalization was meant to bring about the democratization of knowledge and power, freeing people from the centralized authority of the nation. In the late 1960s, Stewart Brand’s Whole Earth Catalog was one of many projects that prophesied a digital utopia where freedom, democracy and economic growth would finally coexist. By the 1990s, the term “information highway” had entered the common vernacular, and as the web grew exponentially, Brand’s predictions seemed to be coming true. “Information wants to be free,” was his battle cry, heralding this new digital age.

And techno-utopianism has hardly been limited to the internet—visions of rejuvenated democracy arise with almost every technological revolution. At a 1971 congressional committee hearing, Americans for Democratic Action argued that cable provided a chance to “regain our constitutional heritage of freedom of communication.” Cable was meant to be democracy’s savior: Today, cable is usually listed as only second to the internet in the all-time list of technological threats to democracy.

It is unlikely that the blockchain will be different: Crypto will not bring about a political utopia. But the bet I am placing is that experimentation with modes of governance is a net good for governance more broadly—and the blockchain is a technology that will quicken the pace at which we can experiment with our democratic institutions.

Already Experimenting

There are already examples of this kind of experimentation going on among crypto communities. Gitcoin is a public goods funding platform that utilizes a scheme called quadratic funding to support projects. Quadratic funding is a “mathematically optimal way to fund public goods in a democratic community”: A matching pool is raised, and then a crowdfunding campaign is matched according to an algorithm. The FTX Future Fund is a grant-making organization headed up by Sam Bankman-Fried, who founded FTX, one of the leading cryptocurrency exchanges. They plan to donate over a billion dollars to experimental projects that they believe are necessary for the world and to make all their decisions through the lens of effective altruism. They even have a “Project Ideas” page on their website, where they promise to provide funds to any talented founders who wish to tackle one of the projects that promise to positively impact the greatest number of people—projects including pathogen sterilization technology, research on alternate voting systems and new publishing houses.

Then there are groups like Nouns DAO, which is a “generative avatar art collective run by a group of crypto misfits.” Each “Noun” is a unique piece of art and stored directly on the blockchain. All Nouns are unique 32×32-pixel characters based on people, places and things — also known as nouns. The idea behind it is that you can be whatever you want online, whether that’s a horse, a pizza or a watermelon. Only one Noun is generated per day and is auctioned off every 24 hours, indefinitely. The Nouns DAO is the main governing body of Nouns and receives all of the proceeds attained from the daily Noun auctions. The core utility of Nouns DAO is that every Noun holder can sponsor and vote on proposals for the Nouns treasury to fund. It is not difficult to imagine that a similar logic could be applied to voting systems: One’s demonstrated proof of stake in a society could dictate the political power that they have in the society, without any need for a third party to verify that proof of stake.

In simple terms, the basic idea behind blockchain is that one can trust the system as a whole without necessarily trusting any of the participants. Instead of putting our faith in the government to count the ballot boxes and maintain a political system, people can put their faith in smart contracts—the applications on top of the blockchain that automatically execute any rules that are programmed into them. In a world where this becomes prevalent in politics, it could accomplish two things: First, it could increase trust that political outcomes are in fact fair (a premise that has been severely contested as recently as the 2020 presidential election, when Donald Trump made repeated claims of widespread election fraud). And secondly, it would permit quicker experimentation with different kinds of democratic systems, because changes to the way votes are made could themselves be voted on, rather than enacted from on high.

Most people’s political imaginations are constrained to the forms of politics we know now—free market capitalism, representative democracy and autocracy—so there will be plenty of replication in the crypto space. But crypto networks are already utilizing new forms of identity, communication, voting and participation analysis, so it is possible to imagine that these technologies could enable a broader set of governance possibilities.