Governed by Global Communities
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Governed by Global Communities
At Etherbridge, we have been thinking a lot about governance and general global decision-making. Blockchains will need to be governed, and so too will smart contracts. This month we thought we would share some of our thoughts on governance in crypto.
To lay the foundation for the remainder of this essay, we will separate cryptonetworks into two broad categories.
Blockchains as settlement engines. These are networks like Bitcoin, Ethereum and Solana.
Smart contracts as distributed digital intermediaries.
Blockchains:
Blockchains are single software-based solutions for the management of a wide array of assets. A network like Bitcoin only manages a narrow database of bitcoin transactions. In contrast, asset agnostic blockchains such as Ethereum and Solana can be used to account for, manage and provide settlement assurances on almost any asset imaginable. These networks use two primary token standards, which represent either fungible or non-fungible tokens of value.
Fungible – Perfect for representing financial assets
Non-fungible – perfect for representing either digital consumables or physical consumables.
Blockchains in this sense are very similar to centralised entities who manage:
The amount of money in circulation
The recording of share certificates
The recording of title deeds
The recording of debts
Our base view is that these networks should optimise for becoming censorship-resistant and protect the private property rights of anyone who chooses to use them. If they can get this right, they will create fertile base layers similar to the traditional combination of sound legal systems, healthy financial systems, and fair political systems.
Human history tells us a story that we hope blockchains can avoid. Powerful people always think they know what is best for everyone; their intention, we believe, is almost always pure. Obviously, there are many cases where these intentions are bad, but in the modern world, especially in most of our developed markets, it's difficult to believe our leaders have bad intentions. However, it's not about their intentions; it's actually more about the unintended consequences of their interventions.
We often refer to a scene between Jon Snow and Daenerys in Game of Thrones when thinking and talking about governments and leadership in general.
Dany: "It's not easy to see something that's never been before. A good world."
Jon: "How do you know? How do you know it'll be good?"
Dany: "Because I know what is good. And so do you."
Jon: "I don't."
Dany: "You do. You do. You've always known."
Jon: "What about everyone else? All the other people who think they know what's good."
Dany: "They don't get to choose"
This scene offers no solution to this problem of how to govern large groups of people. What it does highlight, however, is that many of us think that value or what is good is something objective, something we can decide on behalf of others. Value or good and bad are not objective concepts, and our incessant need to get everyone to believe in our version of good lies at the heart of some of society's most troubling problems.
We're also reminded about Michael Burry's last email to his clients before he closed down his fund:
"People want an authority to tell them how to value things, but they choose this authority not based on facts or results. They choose it because it seems authoritative and familiar."
The movement away from thinking about things logically to having our views of value dictated by our deepest fears and greed often leads to authoritative regimes and the abuse of many in the search for a "greater good". It makes us as a society manipulatable and allows governments with good intentions to lead us down the road of unintended consequences. Often the very solutions we come up with have greater negative externalities than the very problems we are seeking to solve.
Our hope for blockchains is that we respect the subjectivity of value and therefore create as few rules and ways to intervene as possible; blockchain governance shouldn't be about intervening for the "greater good". After all, we don't know what the greater good is or should be.
This core view will dictate what blockchains we allocate capital to in the Etherbridge Fund.
Smart Contracts and Distributed Digital Intermediaries:
If you think about almost any service on the internet, at its most basic, it is a database of assets managed by a set of algorithms. We have previously explained how assets are becoming tokens on blockchains, but now we will discuss the transition from algorithms or business logic to permissionless global smart contracts.
Smarts contracts are just rule sets that increase the expressiveness of what we can do with our assets. Imagine investments without asset management companies or ETF's; imagine eCommerce without the logistics algorithms of companies like Amazon or social media websites without Facebook's feed algorithms. Without these companies and the business logic they apply to our assets, we would find it very difficult as buyers and sellers of assets to optimally organise our activities in an efficient manner.
Smart contracts are new digital intermediaries. The way they are governed doesn't need to be as hands-off as the governance of underlying blockchains; in fact, it needs to be dynamic and constantly service the needs and wants of target clients. Smart contract governance, therefore, should loosely resemble how businesses today govern their products or services. These networks don't necessarily need to be decentralised; they can thrive as long as they are fair, transparent and open-source.
With the advent of DAO's, we are starting to see the various shapes and forms that this distributed global governance of business logic can take. Is there a winning formula? Not necessarily, and only time will tell us what the most efficient strategies are.
When we allocate capital to tokens that govern certain smart contracts, we want to be betting on the most efficient services, talented teams, and business logic that solve real use cases.
Regardless of our views on how things should be governed, the world finds itself with a new set of tools it can use to coordinate resources and provide value to those who choose to use them. This should make anyone who is paying attention excited for the future of humanity.
Notable Articles and News Stories This Week:
Payments Giant Block to Build Open-Source Bitcoin Mining System
Block, formerly known as payments company Square, is going ahead with its plan to build an open-source bitcoin mining system, according to a Tweet from Thomas Templeton, Block's general manager for hardware.
“We want to make mining more distributed and efficient in every way, from buying, to set up, to maintenance, to mining,” Templeton tweeted.
He also tweeted the company is open to making new ASICs (specialised bitcoin mining computers), and has started evaluating various IP blocks, open-source miner firmware, and other system software offerings.
Read more here
Powell Says Fed Will Release Crypto Report 'Within Weeks'
The Federal Reserve’s highly anticipated report on cryptocurrencies and central bank digital currencies (CBDCs) – initially slated to come out last September – will be released “within weeks,” Fed Chairman Jerome Powell told a U.S. Senate committee on Tuesday.
At Tuesday’s hearing, Powell was asked by Sen. Pat Toomey (R-Pa.), the committee's ranking member, whether a CBDC couldn't coexist with “well-regulated, privately issued stablecoins,” if Congress gave the Fed the authority to pursue the digital currency.
“No, not at all,” Powell responded.
Read the full story here
Digital Asset Platform SEBA Bank Raises $119M for Global Expansion
Digital asset banking platform SEBA Bank has raised 110 million Swiss francs ($118.6 million) in a Series C funding round co-led by crypto-focused firm DeFi Technologies, alternative investment platform Altive, and investment firms Ordway Selections and Summer Capital. Alameda Research was also a participant. SEBA previously raised a total of $126.5 million, according to Crunchbase data.
Launched in 2018, SEBA started as a crypto banking service and expanded into offering crypto trading and custody for institutional investors.
The company received a license from the Swiss Financial Market Supervisory Authority (FINMA) in 2019, the first time a company focused on digital assets received a license from the regulator.
Read more on the expansion here
Whilst we all have the option to look, to seek to understand, it’s often easier not to. Bitcoin, Ethereum and distributed ledger technology are complex systems that require significant due diligence. At Etherbridge, we aim to lower the barriers to understanding this fast-growing digital economy.
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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments.
