Bankless Year-End Summary: The Crypto Network Will Disrupt the Old Power Structures

Original Author: Bankless Co-founder David Hoffman

Original Source: Bankless

Translation by: The Way of the Metaverse

As we summarize this year, I want to take this opportunity to zoom out and refocus.

2021 was an incredible year for cryptocurrency. This year, the crypto community was right about many things:

• Inflation pushed people toward other forms of scarcity.

• Silicon Valley's business models led people to adopt new platforms.

• Banks pushed people to become more unbanked.

This year has been a huge W for all things crypto, and a huge L for everything existing.

What happened?

The world is currently undergoing a phase change. As old institutions become decrepit, new institutions are experiencing the growing pains of maturity. The old world, which made young people feel excluded, is being replaced by new alternatives built by those who were previously disenfranchised.

On the other side of this transition is a brighter future, with a fairer social system that treats all users equally.

While this last part is not guaranteed, let’s hope so.

The beneficiaries of these newly created crypto networks may easily become the drivers of the next era, just as the Baby Boomers were endowed with the gifts of the post-war era, and Millennials were endowed with the gifts of the digital age.

Will our children reject our social structures as we did with previous generations?

The answer to this critical question depends on us.

The Protocol Sink Thesis

The Protocol Sink Thesis is a key idea that Ryan and I relied on from the inception of Bankless. It states that companies, institutions, individuals, and nation-states will build on trusted, neutral, decentralized protocols rather than centralized alternatives that favor third parties.

The most decentralized protocols will sink to the foundational layer of social trust, just as high-density liquids sink to the bottom of a cup.

ETH is Honey

Let’s take a startup as an example.

For a startup, building on a protocol with public rules is safer than trusting another company not to mess things up. Protocols provide a stronger guarantee for business models compared to centralized alternatives. Since protocols are public goods, it is easier for startups to adopt the protocols provided rather than compete against them.

You can build AOL on the internet, but you cannot build the internet on AOL.

In February 2020, Ryan wrote, "Banks will not use their own lending pools, but will use Compound." Just last week, Coinbase announced it would integrate with Compound to offer yield on DAI. Coinbase is using two trusted, neutral DeFi applications, Compound and Maker, to create its yield product.

Now, the yield provided by the Compound protocol is the product offered by Coinbase. It is not unique to Coinbase; the same product can also be created by Binance, Kraken, Gemini, or any other institution that wants to earn yield from Compound and pass it on to customers.

Fortunately, individuals can freely obtain yield directly for themselves.

This model suggests that the scalability of protocols is far stronger than that of companies. You can build many companies on top of a protocol, and these companies can amplify the protocol's products to far more individuals than a single entity could.

Protocols can reach many more people than a single company.

That’s why the design of these protocols is crucial.

Not only will many companies leverage the power of DeFi applications, but other DeFi applications will also interact to create their products.

Money Legos—another Bankless meme.

The deeper an application is in the protocol pool, the more applications and businesses are built on that protocol. The liquidity of Uniswap is accessed by DeFi applications, DEX aggregators, and companies. The design decisions made when creating Uniswap affect everyone who uses it; the interest rate algorithms set by Compound affect all companies and individuals downstream of its yield; the risk tolerance of MakerDAO also impacts every dollar of the $9 billion in outstanding DAI that has been issued.

Because these protocols have strong social scalability, the choices made in their design become extremely important. The potential downstream consequences of good or bad choices can alter the course of humanity.

Don't Start a Civil War

When I signed up for Facebook in high school, I had no idea that Facebook would spark a civil war and shake the foundations of the world's strongest democracy. We had no way of knowing the long-term consequences of Facebook's business model… or all of Web2's consequences.

Yet, here we are. We have Silicon Valley giants that can rival the power of nation-states: people, while Web2 companies and nation-states consume them as commodity fuel.

The way we design social systems matters. Design decisions that seem trivial today can have catastrophic long-term consequences. Even the smallest incentive imbalances can create critical social rifts over future generations.

If we want these structures to work for us, for our children, and for our children's children, we must engage in a great deal of critical thinking about the design of these systems. When social institutions lean toward one group over another, that difference will eventually grow large enough to motivate the disadvantaged group to clear obstacles and start anew.

Jubilee

"Wiping the slate clean" is a behavior deeply rooted in human culture. We, as a species, seem unable to shake the need for debt cancellation and fresh starts.

We have a word for it: jubilee.

A debt jubilee refers to the forgiveness of insurmountable social debts, freeing the indebted class from bondage and allowing them to live anew. Religious jubilees take various forms, but generally deal with the issue of large-scale forgiveness of sins (if you believe David Graeber, debt and sin are similar social constructs).

At some point, social structures become too entrenched and undemocratic. Society feels as if it has entered a dead end, and the only way out is to take a few steps back.

The ledger is wiped clean; capital is destroyed.

The competitive landscape is leveled, and humanity starts anew.

This is what the Reformation, the French Revolution, the Communist Revolution, the Cuban Revolution, and many other wars fought over. The masses become increasingly intolerant of the elites, wiping the ledger clean.

When society becomes too unequal, the disadvantaged refuse to move forward with the elite. They rebel. They force the elites to distribute their wealth until things are fair enough to move forward as a collective society again.

The social structures that society relies on determine how quickly humanity reaches this state. Severely imbalanced social structures quickly tilt toward social unrest, while balanced social structures allow things to stabilize for longer.

You’ve never heard of TCP/IP or SMTP causing a civil war. Yet Facebook has nearly sparked two.

The Goal is Not to Step Back

Society takes small steps forward every day. We all get up in the morning, drink coffee, and then "work." This work adds a little progress and innovation to the global collective each day.

Social progress is expensive. Moving the weight of an entire society requires the social machine to move at a snail's pace; even the smallest innovations require a great deal of collective labor behind them.

And all of this can be overturned in a single revolution. Society is always under the threat of disintegration. If enough people in society believe we are making progress in the wrong direction, it becomes difficult to correct course to maintain the progress already made. If enough people feel we are heading toward a dead end, we will begin to split into different groups… often violently.

The story of human progress is one of taking two steps forward and one step back. Sometimes, if we’re lucky, we can take three steps forward. But if we’re unlucky, we may take three steps back. If we really mess up, we might accidentally trigger a full reset (the Great Filter theory).

Protocols are the Foundation of Progress

Steve Jobs once said, "Computers are the bicycles of the mind." The tools we create enable us to do more with less. This metaphor can be extended to society as a whole; where humanity needs to use tools, society can use protocols.

The Constitution is a protocol that organizes a republic of united states.

Protocols are a tool for social organization. With good protocols that the entire society can agree on, we have a way to "lock in" progress. We can rely on protocols to exist forever, even as the things we build on them come and go.

The internet is a great example. All societies agree: the internet is good. Now that we have it, we have a new way to coordinate global resources that we never had before. Importantly, we can never lose the internet. It cannot be shut down or paralyzed.

Protocols help scale human progress because we are all in the same arena. Protocols adopted globally allow humanity to "start on the same starting line." When we follow the same rules, we can all make progress more effectively.

If you want to go fast, go alone; if you want to go far, go together.

Those who shout 'WAGMI' know this; at least they understand it deeply.

Scaling Trust Through Protocols

From a macro perspective on the progress of the human story, scaling trust, coordination, and commerce among larger groups can be seen as humanity's primary goal to date.

If someone asks us: what are you doing here? Or conversely, humanity first needs to "get coordinated" so that they can begin to formulate "what is our collective purpose?" The answer to this question.

Either way, our primary goal as a species is to create social coordination protocols to help coordinate humanity on a large enough scale so that we can begin to work collectively toward a common goal.

Our existence is to kill the Moloch.

Religion, monarchy, nation-states, and now crypto networks are all advancements in social coordination technology. As the latest and most advanced social coordination technology, crypto networks have the capacity to create large-scale social coordination that surpasses anything we have seen before.

This is why we are all here. This is the 'meaning of it all.'

Humans are good, but our systems are flawed

Humans are extremely sensitive to fairness. Morality is built into our DNA. We have a highly specialized radar that can sense when someone is "out of sync" with the other members of the group.

Editor’s note: This is not unique to humans! This trait exists in all social animals, including bats, monkeys, and infants.

For thousands of years before resource abundance, it was extremely important for us to identify who among us was not supporting us. Whether we could do this well was a matter of life and death.

We have survived as a species because we are constantly checking to see if anyone might "free ride" or consume more than their fair share.

But this is a labor-intensive job. Person-to-person checks do not scale well. Instead, we must generate governance and coordination systems to scale fairness and justice. Religion advocates altruism and goodness; monarchies serve their people; governments tax the consumption of public resources.

While each system generally produces more positive outcomes than the previous one, each system also brings its own failures and shortcomings. No system is perfect, but humanity continues to seek systems with fewer flaws. Humans are born good, but we must then adapt to coordinate our social structures. The flaws we see in collective society are not because humans are flawed, but because our social structures project their flaws onto our behavior.

Humans can only be as good as our structures allow. We are always seeking more balanced systems because the more balanced a system is, the more comprehensive global fairness can be achieved.

More comprehensive global fairness creates a long-term sustainable balance that allows society to develop on that foundation. It allows us to take many collective steps before the micro changes in individual starting positions produce meaningful different outcomes for society as a whole.

The Crypto Renaissance

One of our favorite Bankless episodes is "The Crypto Renaissance."

Why?

Because it’s not about code, and it’s not about money. It’s about people.

The Crypto Renaissance tells a story as old as time. Deeply entrenched, hierarchical social structures oppress individuals. Corruption and capture render these systems decrepit and useless. And new systems are built out of the need to escape the control of the old systems. These new systems are inherently decentralized and permissionless; like a virus, they escape the grasp of the former elites.

A new world is created, a brighter future is created for all to share.

Then the wheels start turning. This new future grows in scale and complexity. Its innovations become slow as its ways become entrenched. It becomes large and difficult to surpass. It shifts from utilitarianism to oligarchism, depriving those who arrive too late of their rights.

The younger generation can only endure this oppression for so long, and eventually, they find a way out, using tools that are decentralized and permissionless.

A Small Window of Opportunity

We were born too late to explore the Earth, and too early to explore space. Fortunately, we live in the best time to explore the digital realm.

Crypto networks will disrupt old power structures. For better or worse. They will replace the old power structures with newer, more vibrant ones, though there is no guarantee they will be "better."

But it all depends on us.

Whether crypto networks burn their candle quickly or burn sustainably over more generations will be determined by the choices of the first generation of people building these structures.

As we build these new power structures, are we designing them in such a way as to protect our interests? Well, why wouldn’t we? We built them… isn’t that what the Baby Boomers did with their institutions?

Are we modeling these systems solely for our benefit?

Or… as we design these structures, are we leaving space for future generations? What about the future generations yet unborn who will ultimately need to be included in our fancy new social structures? If we don’t leave space for them now, they will rebel against the current incumbents just as we do now.

And from an investment perspective, this should be the profit-maximizing approach. If we can find ways to include future generations in the upward space, we can strive longer and harder.

As a society, the longer we can go without triggering a jubilee, the more total wealth we can create. Our goal is to avoid needing a jubilee, and we need to consider this before we form the final shape of the crypto networks we are building.

The window of opportunity is small, and it depends on how we adapt and adjust these systems to achieve long-term balance for as many generations as possible.

Bankless is Layer Zero Technology

Bankless is here to tell this story.

Religion, nation-states, crypto networks.

The common thread is people. People form religions, elect their representatives, and download specific node software to operate specific chains.

It is the people of the world who maintain the social structures we create.

L1 blockchains support L2 rollups in the way that people support L1 blockchains. Where L1 blockchains synchronize over the internet, people synchronize through stories.

Humans run on stories. That’s how we operate. Stories are the tools we use to generate a shared understanding among large groups, and it is through stories that the world adopts disruptive new technologies. Give me a scientific explanation or a technical argument, and maybe you can convince me. But tell me a story I can relate to, and I’m much more likely to be persuaded.

Bankless is about storytelling.

Bankless has 150,000 subscribers, 1.5 million downloads a month, and thousands of people dedicated to spreading the Bankless message, not because we provide good technical details and valuation metrics. It’s because we show how crypto is making the world a better place while doing these things.

Meaning; significance; purpose.

Like everything that exists in our social universe, Bankless is a narrative. It embodies a specific set of beliefs about the future and envisions a story about how we get there.

Bankless is the story we tell, with the aim of spreading knowledge and awareness about these grand new social structures we discover and the necessary means to protect them.

Inflation; governance; polarization; digital scarcity; rent-seeking; banks; DeFi; Web3; transparency; Facebook → Meta; Metaverse; NFTs; self-sovereignty; long-term thinking.

These are all part of a larger story that we believe Bankless can tell.

The more people download this story into their brains and willingly take on the responsibility of managing goodness in the protocols we use, the more successful and wealthy we can become.

Bankless is about making you wealthy, but not at the expense of future generations. We want you to be wealthy now, in the future, and for your children’s future. Bankless is about fostering fair and balanced social structures and helping improve those social structures that still need some work.

Bankless is here to expand the rabbit hole of crypto networks. As the developers in this industry dig the rabbit hole deeper, Bankless is digging it wider so that more people can understand the meaning of why they should go down in the first place. The sooner we get more people to adopt crypto protocols, the faster we can find fair and balanced protocols that achieve long-term balance for future generations.

When you adopt crypto protocols, you adopt the values of crypto. We have a responsibility to ensure that the values of the crypto networks remain aligned with the people who adopt them in the long term.

Don’t believe the short-termists and nihilists.

Decentralization matters, and we plan to fight for it.

We are heading west. This is a frontier, and it’s not for everyone.

But thank you for joining us on our Bankless journey.