Our last post ended with the question: Is everything going on-chain?

An economy that is on-chain has the following differences compared to our current economies:

• Composability

• Transparency

• Uncensorable

• Reduced need for trusted third parties

Let’s go through each of these.

Composability

Smart-contract blockchains are the first global APIs. Anything that is on-chain follows the same standards that programmers can build on top of. Similarly, every app, wallet, and exchange that wants to interact with these types of assets integrates code that can interact with these standards.

Think about the kind of coordination it would take if you wanted to get insurances, art, tickets, wine bottles, and music all on the same standards. With blockchains you can trade, own, and use all assets using the same apps, wallets, and exchanges.

In theory it's possible to make a global API without blockchains, but in practice this hasn't happened, and would be impossible to coordinate. Having a fully composable economy reduces friction and unlocks new possibilities for cross-sector applications.

Transparency and perfect provenance

https://twitter.com/theklineventure/status/1548352845379878912

The blow-up of Luna and Three Arrows Capital was resolved almost instantly on-chain. The ripple effects, or contagion, only became clear days or weeks after these blow-ups happened. Investors had no idea what companies like Celsius and BlockFi were doing with their money and many now have frozen funds on these insolvent platforms.

Transparency is inherent to blockchains such as Ethereum and Solana. Anyone with an internet connection can check the data and see a perfect record of the history of every on-chain asset. An on-chain economy is less prone to blow-ups such as the 2008 economic crisis. On the blockchain, there is no way for banks to lend out the same dollar to 10 different companies and socializing the risk to innocent people. Given how much impact the 2008 crisis had on many people’s lives, this benefit is not to be overlooked.

Uncensorable and provably equal

Blockchains are agnostic to its users. Anyone can access the data, anyone can send a transaction, and anyone can become a validator.

You cannot be kicked off the blockchain like you can off Facebook or Twitter (even if you are the president of the United States). You can get a loan and a savings account without experts deeming you worthy enough. The fact that blockchains do not discriminate between users means that people from all over the world will have the exact same economic tools at their disposal as the most powerful people.

Removing trusted third parties

Over the last decades we have become increasingly dependent on the internet for our livelihoods, social life, entertainment, and information. The internet is ran by a select group of companies that own all your data and digital assets. Trusted third parties existed before the internet (governments, banks), but our reliance on them has vastly increased as we have transitioned more and more into the digital world.

https://twitter.com/punk6529/status/1443921349676867586

With blockchains you trust code, rather than people. The code is open source and can be checked by anyone with the technological know-how. By replacing people with code you make it impossible to cheat, to commit fraud, and to break contracts. Additionally, consumers would actually own their digital assets such as their social media accounts and content, in-game items, and online courses.

The major benefits of removing trusted third parties are:

• Trusted third parties in the digital world tend to become monopolies. If we move increasingly digital, the world is at risk to be run by a handful of Big Tech companies.

• Trusted third parties form a single point of failure. Imagine what could happen if the government implements central bank digital currencies (CBDCs) and their system gets hacked. Or what if a dictator takes over in 10, 20 or 30 years and demands control of Facebook’s Metaverse?

• Ownership for consumers. It is arguably better to own your assets, than to risk being denied access. If citizens truly own their assets it is impossible for a Justin Trudeau to cut you off the payment system.

Even in a blockchain world, trusted third parties will still exist. There need to be entities that put real-world assets on-chain and regulatory bodies that keep these entities in check. For real-world assets therefore, the main benefit of going on-chain is efficiency. For intangible goods and digitally native assets, we can now just trust the code.

A last key point is that when we trust blockchains instead of third parties we can build systems enforced by blockchains rather than states. This means that we may even be able to start countries around cryptographic truth. Crypto isn’t just a technological breakthrough, it is also a philosophical and societal one.

https://twitter.com/zerox_wes/status/1546840335187415040

Synthesis

There are so many benefits to putting our economy on-chain. If assets are composable, globally accessible, uncensorable, and all of that with true ownership, the economy would get rid of many market inefficiencies. It will become easier to buy and sell virtually any good, to proof who owns what, to own culture, and to ensure people follow the rules (cheating is not possible on-chain). I envision that everyone will have hundreds or thousands of NFTs in their wallets, ranging from sneakers and tickets to art and diplomas. The benefits of having these assets represented as NFTs and connected to the rest of the on-chain economy will be too great to pass on.

Blockchains enforce values such as equality of opportunity, truth, transparency, and autonomy. I think a society that runs on blockchains will be significantly more democratic. In my mind, the alternative is a world ran by a handful of Big Tech companies, that could be taken over by governments like China or the USA at any moment. This issue will become especially important as we move to augmented and virtual reality and technology becomes even more embedded into our lives.

Many challenges remain before we can have our on-chain economy. We need to onboard billions of users, have simple methods for keeping your assets secure, reduce the possibility of human error (sending to wrong address), and we need to speed up the technology and lower transaction costs. Lastly, the biggest of challenge of all is regulation. I am convinced that a fully functional blockchain-based economy would benefit >99.99% of the world. However, the winners of the old system and people that misunderstand blockchains, will prefer having centralized systems win out. The regulatory battle is one that we must win to protect our freedom. If we do, I think almost every asset will go on-chain. This would give us more freedom and could unlock a new wave of human creativity.

ps. thanks to @punk6529 for many great insights. Definitely check him out on Twitter!

Our last post ended with the question: Is everything going on-chain?

An economy that is on-chain has the following differences compared to our current economies:

• Composability

• Transparency

• Uncensorable

• Reduced need for trusted third parties

Let’s go through each of these.

Composability

Smart-contract blockchains are the first global APIs. Anything that is on-chain follows the same standards that programmers can build on top of. Similarly, every app, wallet, and exchange that wants to interact with these types of assets integrates code that can interact with these standards.

Think about the kind of coordination it would take if you wanted to get insurances, art, tickets, wine bottles, and music all on the same standards. With blockchains you can trade, own, and use all assets using the same apps, wallets, and exchanges.

In theory it's possible to make a global API without blockchains, but in practice this hasn't happened, and would be impossible to coordinate. Having a fully composable economy reduces friction and unlocks new possibilities for cross-sector applications.

Transparency and perfect provenance

https://twitter.com/theklineventure/status/1548352845379878912

The blow-up of Luna and Three Arrows Capital was resolved almost instantly on-chain. The ripple effects, or contagion, only became clear days or weeks after these blow-ups happened. Investors had no idea what companies like Celsius and BlockFi were doing with their money and many now have frozen funds on these insolvent platforms.

Transparency is inherent to blockchains such as Ethereum and Solana. Anyone with an internet connection can check the data and see a perfect record of the history of every on-chain asset. An on-chain economy is less prone to blow-ups such as the 2008 economic crisis. On the blockchain, there is no way for banks to lend out the same dollar to 10 different companies and socializing the risk to innocent people. Given how much impact the 2008 crisis had on many people’s lives, this benefit is not to be overlooked.

Uncensorable and provably equal

Blockchains are agnostic to its users. Anyone can access the data, anyone can send a transaction, and anyone can become a validator.

You cannot be kicked off the blockchain like you can off Facebook or Twitter (even if you are the president of the United States). You can get a loan and a savings account without experts deeming you worthy enough. The fact that blockchains do not discriminate between users means that people from all over the world will have the exact same economic tools at their disposal as the most powerful people.

Removing trusted third parties

Over the last decades we have become increasingly dependent on the internet for our livelihoods, social life, entertainment, and information. The internet is ran by a select group of companies that own all your data and digital assets. Trusted third parties existed before the internet (governments, banks), but our reliance on them has vastly increased as we have transitioned more and more into the digital world.

https://twitter.com/punk6529/status/1443921349676867586

With blockchains you trust code, rather than people. The code is open source and can be checked by anyone with the technological know-how. By replacing people with code you make it impossible to cheat, to commit fraud, and to break contracts. Additionally, consumers would actually own their digital assets such as their social media accounts and content, in-game items, and online courses.

The major benefits of removing trusted third parties are:

• Trusted third parties in the digital world tend to become monopolies. If we move increasingly digital, the world is at risk to be run by a handful of Big Tech companies.

• Trusted third parties form a single point of failure. Imagine what could happen if the government implements central bank digital currencies (CBDCs) and their system gets hacked. Or what if a dictator takes over in 10, 20 or 30 years and demands control of Facebook’s Metaverse?

• Ownership for consumers. It is arguably better to own your assets, than to risk being denied access. If citizens truly own their assets it is impossible for a Justin Trudeau to cut you off the payment system.

Even in a blockchain world, trusted third parties will still exist. There need to be entities that put real-world assets on-chain and regulatory bodies that keep these entities in check. For real-world assets therefore, the main benefit of going on-chain is efficiency. For intangible goods and digitally native assets, we can now just trust the code.

A last key point is that when we trust blockchains instead of third parties we can build systems enforced by blockchains rather than states. This means that we may even be able to start countries around cryptographic truth. Crypto isn’t just a technological breakthrough, it is also a philosophical and societal one.

https://twitter.com/zerox_wes/status/1546840335187415040

Synthesis

There are so many benefits to putting our economy on-chain. If assets are composable, globally accessible, uncensorable, and all of that with true ownership, the economy would get rid of many market inefficiencies. It will become easier to buy and sell virtually any good, to proof who owns what, to own culture, and to ensure people follow the rules (cheating is not possible on-chain). I envision that everyone will have hundreds or thousands of NFTs in their wallets, ranging from sneakers and tickets to art and diplomas. The benefits of having these assets represented as NFTs and connected to the rest of the on-chain economy will be too great to pass on.

Blockchains enforce values such as equality of opportunity, truth, transparency, and autonomy. I think a society that runs on blockchains will be significantly more democratic. In my mind, the alternative is a world ran by a handful of Big Tech companies, that could be taken over by governments like China or the USA at any moment. This issue will become especially important as we move to augmented and virtual reality and technology becomes even more embedded into our lives.

Many challenges remain before we can have our on-chain economy. We need to onboard billions of users, have simple methods for keeping your assets secure, reduce the possibility of human error (sending to wrong address), and we need to speed up the technology and lower transaction costs. Lastly, the biggest of challenge of all is regulation. I am convinced that a fully functional blockchain-based economy would benefit >99.99% of the world. However, the winners of the old system and people that misunderstand blockchains, will prefer having centralized systems win out. The regulatory battle is one that we must win to protect our freedom. If we do, I think almost every asset will go on-chain. This would give us more freedom and could unlock a new wave of human creativity.

ps. thanks to @punk6529 for many great insights. Definitely check him out on Twitter!