A platypus is a mammal right (it has fur)? No wait, it is a bird (it has webbed feet, a beak, and lays eggs)?
As it happens a platypus is neither a mammal nor a bird — it is the sole living representative of its family and genus in the biologist’s taxonomy of the species.
It struck me this morning that perhaps blockchain protocol Institutions are similarly unique? Perhaps the old taxonomy of “informal institutions” versus “formal institutions” advanced by Douglass North, W.Richard Scott, and the other social scientists is not sufficiently developed to be useful in classification?
A core assumption from the very beginning of my intellectual pursuit here on Humanity 3.0 Blog is that institutions created by smart contracts and accessible via dApps should be classified as “informal institutions”.
I reached this conclusion by observing that the enforcement mechanism of a blockchain protocol institution is exclusion from participating in the group of dApp users who enjoy benefits of the institution, if/when they decide to deviate and not follow the protocol rules exactly.
For example, with a dApp enabling voting, here are the rules encoded in the underlying contract:
- you must vote between the hours of 9-5pm,
- you must select one (and only one) of the three names on the digital ballot,
- you must not write in an additional name on the digital ballot (it is actually impossible to add another name in the dApp interface), and
- you must not vote more then once from your crypto address,
Within this voting example, if a blockchain citizen doesn’t follow exactly the rules, which are enforced perfectly by the smart contract, they simply cannot participate in the act of voting.
For months, there has been a troubling issue gnawing at me related to this blogging project: while the mechanism of enforcement for a blockchain protocol institution is indeed exclusion from the protocol if you don’t follow it exactly (implying classification of a blockchain protocol institution as more like an *informal* institution), at the same time, the enforcement is 100% perfect and accurate every-time in its application; even, at the scale of millions or billions of people using a dApp (eg voting), not one rule-breaker can slip through the cracks and get away with breaking a rule or sub-rule, which actually feels a lot more like a *formal* institution in how it is enforced at such a consistent rate.
Yes, indeed, this is what has been gnawing at me: in a certain sense blockchain protocol institutions are very much formal in nature. This is to say, they are enforced perfectly, 100% of the time, even at the scale of million or billions of people or machines in a network practicing the use of the institution. There is also never any glitch in enforcement. The validators are always alert, active, and doing their duty, like an army of customs officers, probation officers, or police officers with their clipboards out, constantly on caffeine, and never falling asleep. And since they actually prevent any rules from being broken, ever, this means they enforce “proactively” and not “reactively” (as was done in the old world).
However, a BPI is different from a formal institution though too, it is actually neutrally-consistent in its enforcement, as in the old world there are ballot stuffing events that get intentionally overlooked, crooked police who hide wrongdoing, biases in judges brains that lead to wrongful sentencings, and so on.
This makes a blockchain protocol institution a very remarkable and new kind of “animal in the zoo” so to speak. It incorporates the much softer enforcement mechanism of an informal institution (ostracization or exclusion from the community / group practicing the protocol), but, it also incorporates the much harder element of extreme and iron-clad consistency of enforcement (by making it impossible to break the rule). In this regard, even for very minor crimes (eg. not defacing the ballot by adding a 4th name or not voting outside hours of 9-5pm) every rule and sub-rule is enforced to the letter of the law. In the old world, there are actually thousands of minor infractions of voting rules, which even with millions of volunteer elections officers cannot all be caught, and thus it is both expensive to run an old world election and in a closely contested election trust in the institution itself is regularly called into question, due to the impossible task of correctly and accurately enforcing all of the individual rules over a space of millions of voters.
For serious crimes like white collar fraud, murder, vandalism, enforcement via Rule of Law is uneven, and sometimes people commit crimes and simply do not get caught. Not with Rule of Code, people simply cannot break any rules.
Especially for traditions, norms, conventions, and other informal institutions in the pre-Web 3.0 era, these were enforced even more unevenly. Sometimes they would be enforced, and sometimes not at all. Especially if a group who creates an informal institution would grow to 100 members or beyond (eg America has 330m people now), enforcement by the act of ostracization from the group would be incredibly hit and miss as a means of enforcing the informal institution. This is why we needed informal institutions and Rule of Law in the first place, because enforcing informal institutions was so hit and miss, so unreliable, and there were horrible crimes & violence everywhere, all the time.
For example, take a simple convention like “thou shalt not spit in public”, but, unless a boy’s mother or family members are there watching him, he might spit while riding the train, and the people around him might frown, but he is not actually booted off of the train, and certainly he isn’t reported to police to be fined or jailed (unless he is a boy growing up in Singapore where this rule has in fact been formalized). Or, as a different example, if an Orthodox Jew doesn’t follow the Easter traditions, he’s unlikely to be shunned just for missing the traditions on the one single occasion.
Perhaps this is why sociologists and economists first used the label “informal” in their classification and typification of traditions, protocols, and conventions–it is because the enforcement happens in an informal, unreliable, and rather inconsistent way, and, it isn’t really formally policed. Indeed an informal institution exhibits informality in three ways: it is “informally” recorded (i.e. not written down), and, it has a softer form of “informal” enforcement via shunning from the group without any judgement published in a court register or formal proceeding, and, it is hit and miss in the efficacy of coverage of the enforcement (sometimes it is enforced, sometimes it isn’t).
In contrast, the hallmark of a formal institution is not only that it is written down on parchment paper (i.e. a legal code passed by the Congress) but also the formality or severity by which is the punishment is invoked (eg, jailings or fines backed by violence). Also, thirdly, the consistency by which the punishment is levied, i.e. theoretically for something like murder the institution should be enforced every single time a murder is committed. However, in most cases, the police are not present at the scene of the murder, and thus enforcement is a gray area and hit and miss even for formal institutions.
To a certain extent, a blockchain protocol institution is even more formal than an old-world formal institution, it is specified in computer code, it is enforced formally every single time, and the coverage of enforcement is 100%. The validators do not sleep. They do not need make mistakes. They are never lazy, biased, or on vacation.
The last point is to say, the validators enforcing the smart contract are always alert, always on guard, always doing their duty to let transactions, votes, decisions, social events to be approved only if they meet exactly the “letter of the protocol rules and sub-rules” as specified in the smart contract that the dApp is running on. Anyone failing to follow the rules is excluded from the protocol. It works 100% of the time like clockwork.
Thus, here is my new conclusion about how to properly classify blockchain protocol institutions:
- they are a new class of institution, wholly different in kind, not exactly like the informal institutions that sociologists and economists have studied for 50 years, and not exactly like formal institutions either,
- they are similar to informal institutions in the sense that enforcement happens through the mechanism of ostracization by the group (ie. exclusion from a protocol if rules not followed exactly) and not by formal fines/punishments (although in the case of slashing there is loss of a “bond”- maybe need to consider this more?),
- they are similar to formal institutions in the sense that they are formally specified in written form and then enforcement is levied in a formalized and iron-clad way,
- however, they are different from both formal and informal institutions of the older pre-Internet technology world, in the sense that the enforcement always happens perfectly, reliably, consistently, and dependably, 100% of the time, without fail,
Thus, we can say that blockchain protocol institutions are like a platypus, they are not mammal and not fowl, they are a new hybrid form, different in kind.
Blockchain protocols systems basically allow us to convert the mechanism of enforcement of the much softer breed of informal institutions (which could not be enforced consistently in the old world) into perfectly formalized institutions (enshrined in computer code) that are enforced 100% of the time like clockwork.
This might be one of the reasons that the leaders of the old world has such a hard time grappling with, comprehending , and coming to terms with the incredibly important innovation that blockchain and smart contracts represent: we truly are dealing with a new kind of platypus, and we do not have any prior context for it in our brains or our social / legal / political / regulatory realms.
Basically, we are creating a totally new “social technology for establishing order in humanity. It is not different in degree, it is different in kind, and it can be used for enforcing social contracts and delivery of public goods in the digital economy at huge scale. This is perhaps why nobody with formal education properly understands what it is, how it is important, or what it is good for?
If we can get more clarity around that it is, and what it is good for, as opposed to just using it for ICOs and token pumps — which all of the VCs are to blame for fanning the flames on imo — then we can start to harness it for fixing real problems in the world.
Now, an important caveat: Rule of Code cannot work in the meat space, it cannot prevent boys from spitting or Orthadox Jews from breaking Easter traditions. But it can enforce all manner of rules related to social compacts, social contracts, and, naturally, provisioning of public goods which is a special kind of social contract (this includes the entire space of money, finance, banking, lending, insurance, pension, and public goods (once we get better contractor management platforms).
There is absolutely no question that the BPI can be a tour de force in the institutional builders tool kit, an incredibly useful, powerful, and amazing “social technology” invention for the ordering of human behavior in social, economic, and political systems.
Enforcement of social compacts consistently leads to trust. Trust leads to flow. And flow leads to human productivity and wealth creation.
By the way, for those that haven’t read my earlier work, Doug North made the discovery that 80% of the variation in wealth (i.e. GDP per capita) across all countries around the world over the past 200 years can be explained by one variable and one variable alone: presence of effective Rule of Law.
All of those other variables that the World Bank tracks, yeah, they don’t really matter all that much.
So just think about that. If Rule of Code provides a cheaper and more efficient system for enforcing social contracts than Rule of Law, and if this system can work for everyone in the world, and if we can use it to provision public goods too, then this might actually in fact be the most important invention of our Century? Do you see that, too?
Am I going crazy?
Is challenging the last 600 years of how we do things insane?
Please someone tell me I’m not going mad.
Humanity 3.0 