As a futurist, pragmatist, humanist, and blockchain enthusiast, over the past several years I’ve increasingly come to see blockchain as the missing link on which to build a whole new family of informal institutions that can allow humanity to leapfrog or transcend beyond prior states of human progress, which I shall label Humanity 1.0 and Humanity 2.0. These labels employ key concepts developed by economic historian Douglass North, which he taught me as his doctoral student many years ago.
- Humanity 1.0 – what Doug referred to as the “natural order” – this is the economic system typical of hunter-gatherer, agrarian, and early-civilized societies, with the dominant institutions being family clan, mafia, and kinship structures. Enforcement of agreements in the economy is done via personal trust, loyalty, and threat of shadow of the future. If someone cheats or defrauds you, you can resort to ‘naming and shaming’ them and the community of people around you can ostracize the bad individual, but short of beating the person up and/or kicking them out of your social circles, there was little else you could do. In-group and out-group have been key concepts to understand the natural order, and in China and Turkey (places where Humanity 1.0 is still practiced), for example, in-group relationships are always approached with the utmost loyalty, respect, and integrity (many cups of tea are drunk together before a business transaction) whereas out-group relationships are in many cases characterized by behaviors of deception, intent to defraud, and extreme distrust. Over the past hundred years in China and Turkey, a business man could defraud the current group of investors, skip town, and start over with a new personal name and a new business name in a different town 200 miles away with little repercussion.
- Humanity 2.0 – what Doug referred to as “impersonal exchange economies” – in these systems enforcement of agreements is by third-party institutions. The dominant institutions being contracts, rule of law, courts, and police. The first impersonal exchange economies are thought to have originated in Italy, with the trade guilds playing the role of the third-party institutions that would sanction craftsmen who did not perform according to their contracts. Once there exists functioning third-party enforcement of contractual agreements, then it is possible to transact and do business people with people you have never met in the economy, because you don’t need to trust the people, your trust is placed in the contracts and the third-party enforcing institutions (i.e. the courts and police). It is this system as we have in America that makes it possible for me personally to have a credit card with a company where I don’t know any of the executives personally, and with a monthly statement showing transactions with 100+ entities whom I’ve never met, done a reference check on, or done business with previously. In a Humanity 1.0 system this would be impossible. But in the Humanity 2.0 system, trust is placed in the rule of law and third-party enforcement of agreements. Within impersonal exchange economies the so-called transaction sector of the economy grows enormously as people engage in high numbers of smaller transactions with all kinds of intermediaries and service providers, while the transaction costs per individual transaction tend to fall with sophisticated contracting, payment, and insurance technologies. Not surprisingly, there is a phenomenon in the American business culture where personal relationships mean very little (no cups of tea are drunk before a transaction), what is enshrined in the contract carries the day, and the lawyers rule the roost, as the contract is all that matters!
The logic of Humanity 1.0 arrangements existed in agrarian societies prior to the rise of nation-states and has continued to exist in the 20th and 21st century in a majority of the world’s developing countries. For example, in many developing countries, even though democracies, courts, and rule of law seem to be present from the outside, once you peel the onion and understand what is actually happening in the country, you find out that the democracy is a sham, the courts are corrupt, and personal relationships w/ the strongman and his surrounding elite can tip the scales of justice (e.g. Pakistan, Russia, Venezuela). Thus, the whole country still runs as a Humanity 1.0 system.
For a society to evolve from the state of Humanity 1.0 to the state of Humanity 2.0, the hands of the President or Prime Minister as well as key cabinet minsters and senators must be bound by the institutions of the state, so that these individuals cannot interfere with administration of the institutions of democracy, rule of law, courts, and so forth. Sadly, many of the countries that have copied the British institutions of the nation-state, democracy, rule of law, and courts have manipulated, altered, and twisted how the social behaviors of these key institutions are replicated and practiced, rendering the Humanity 2.0 institutional templates as a facade masking Humanity 1.0 informal institutional behaviors.
For example, there are stories of the courts in Pakistan where Military Generals sit on the front bench in the court room when they desire a certain decision to be delivered by the Magistrate; this is a case of a Humanity 1.0 institutions overriding the Humanity 2.0 institutional facade. I mean, why even have the court building if basically it is a mob/mafia rule and the Military Generals are for all intents and purposes above the rule of law?
To share a personal anecdote, I can remember interacting w/ Doug North when he was in his mid-80s. I was visiting him at his summer house in Benzonia, Michigan during a time when I was writing a paper and he was working on his book “Understanding the Process of Economic Change“. I remember he was very excited like a young boy on Christmas eve as he was pursuing the question “what are the ‘doorstep conditions‘ allowing a country to evolve from the natural state (Humanity 1.0) into an impersonal exchange system (Humanity 2.0)?” Specifically, how does a country evolve its institutions to bind the hands of the political elite and the military against interfering with the rule of law? How has this evolution happened across human history in different countries over time, and how can we effect this to happen in a positive way in the future?
Around that time, Doug was making visits to Bangkok to meet with King Bhumibol, to discuss how it might be possible to evolve Thailand’s constitution and institutions to prevent backsliding of democratic progress if and when new self-interested leaders would come to power in the future. Sadly, Doug and old King Bhumibol were not successful in their precautionary efforts to strengthen the Thai constitution and democracy, as over the past decade we have all watched Thailand regress badly into dictatorship, censorship of free speech, loss of individual freedoms, killing of journalists, meddling with democracy, and weakening of rule of law.
I also distinctly remember Doug saying to me: “It is my greatest fear that a charismatic leader could come to power in America, and subvert the institutions of our great American democracy, and the country could regress back into the economic dark ages of the ‘natural state’ of medieval times (i.e the equilibrium conditions dictated by the institutions of Humanity 1.0). Based on my knowledge of economic history, there is nothing to preventing this pathway from unfolding even here in America.”
Doug passed away in 2015, a full year before the rise of Donald Trump, and several years before Donald Trump’s attempt to subvert the American constitution, democracy, and rule of law. How sage his predictions had been!
As far as I know, in all places where Humanity 2.0 has been achieved, the leadership was democratically elected, and democracy was the basis of transition of power of the political elite. The institution of democracy is necessary in order to transition power in a peaceful manner and to prevent a powerful leader rising up above the rule of law, lengthening his/her own stay in office, and becoming all powerful — i.e. becoming a king.
Now, coming to Humanity 3.0, in my mind’s eye I can foresee a new ‘equilibrium state’ for human political-economy, made possible by a new set of informal institutions maintained by blockchain systems, the conditions for which I can now see evolving in front of my very eyes with public/private key pairs as the link for each individual to express his/her free will, dApps as the point of access, and protocols enforced by blockchain nodes maintaining social, political, and economy stability. Even though many people may not yet realize that the creation of new kinds of informal institutions is what is actually happening on top of blockchain, that is indeed where I see it all going, that is what I see as the potential highest and best use of the technology, and thus why I am setting out to write this blog to add shape and form to this nascent and emergent trajectory of human progress.
Here are a few key attributes of the new economic and political institutions that can and will emerge on top of blockchain:
- they make it possible to have advanced forms of human governance and civilization without the premise of violence that was necessary to sustain Humanity 2.0,
- they enable every member of the system to sign payments, votes, and other events via their private key with a clear record of the ‘transaction’ recorded on a blockchain enabling everyone in the system to trust the records & results,
- they begin to do away with the need of horribly-inefficient middle men that are nation-states and governments to preside over public matters of elections; money markets; public-record keeping; private property rights; budget allocations to defense, education, and healthcare services; and enforcement of justice as all of which can be done better, cheaper, and more justly and transparently via decentralized protocols and direct democracy,
- they surpass the limitations of nation-states in defining currency regimes and defining the role & function of the financial sector,
- they extend the role of courts from merely arbitrating disputes over personal injury, property, and the like to actually (potentially) reversing transactions in the economy in order to guarantee the service of justice,
If Milton Friedman could see what I can envision now, in terms of leveraging the new technological frontier to achieve a blockchain-administered substitute for the apparatus of government, without any corruption, or inefficiency in the administrative apparatus needed to deliver all manner of public goods and services, I believe he would leap for joy in his grave immediately upon recognizing the incredible opportunity for human progress and advancement of our species. The systems that we can create under this new technology frontier could likely make Milton’s lifetime dream of a “small and limited government” look a lot closer to out-dated concepts of governmental bloat and inefficiency then to the new models of efficiency that I imagine should possible by exploiting this new technology frontier!
From a blue sky potential standpoint, this new level of efficiency that can be achieved in administering public/network level services on top of neutral blockchain systems can push the frontier of what makes sense to deliver to society as public goods, as there are no longer heavy transaction costs of administration requiring an extreme burden of taxation to support the model.
To explain the direction I am headed from the standpoint of eliminating middle men: the government is the biggest middle man of all, and if we can replace all of the functions of the government with a neutral, technology-layer that always does its job like a loyal and faithful clipboard army, at minimal transaction costs, then we really will have accomplished something for humanity’s future!
In the same way that the Humanity 2.0 institutions brought down the average transaction costs of a single average transaction in the economy, thereby allowing the transaction and financial sector of the economy as a whole to flourish and grow, the Humanity 3.0 institutions will bring down the average costs of providing community goods and public services, and will allow the public sector of the economy as a whole to flourish and grow!
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As a person who is highly self-critical and also somewhat lazy when it comes to publishing my own original intellectual ideas, I am starting this blog project both with cautious excitement about how important it could be as a lighthouse for the future of our human species, but also with a certain trepidation due to what I fear as my own ineptitude in communicating the flickering ideas that I see within my own mind’s eye, which come in fit’s and starts like shooting stars, and which are difficult to pin down into a linear sequence in written prose.
Oddly, it was the death of the first Bitcoin maximalist Mircea Popescu that triggered me to finally sit down and begin the effort to linearize my ideas. I had visited his blog Trilema occasionally over the years, and when I saw news of his passing earlier today and revisited his blog once again, I realized that if I didn’t get busy writing and sharing my own ideas my chance to do so could also be lost.
Over the past year I’ve been experiencing chest pain and a great deal of eye pain, and the number of hours in the day during which my mind is sharp is considerably fewer now then a few short years ago. As a humanist, the fear of losing my window of opportunity to make a positive contribution within humanity is perhaps my greatest fear, and I need to get busy here or else surely I will meet my end feeling regret that I didn’t exercise my opportunity to contribute when I had the chance. This fear may be my greatest motivator to get busy on this blogging project.
So, without further ado, let’s get on with it — I genuinely hope the ideas I share here can be useful for others to critique, piggyback upon, and building technology over the years that follow.
Humanity 3.0 