EthCC Journal: Exploring the Network State and a Decentralized Future
DeFi Dave Muses on Crucial Questions Confronting DeFi
By: David LiebowitzDeFi Essay
As the summer sun shone down on the Parisian streets, builders, creators, and everyone in between made their way to this year’s edition of EthCC.
The tone of this year’s conference, held July 19 to 22 in the City of Light, was marked by anticipation and uncertainty. Anticipation in the sense that a plethora of research and development are finally coming to fruition with The Merge, zkEVM compatibility, and more.
Yet in the background is a world that is seemingly growing more unstable. Soaring inflation in the U.S., a war in Europe, bank runs in China, supply chain shortages everywhere, and even an all out coup in Sri Lanka have us all anxiously questioning what will come next.
As traditional institutions struggle to adapt to a digital world, there are several crucial questions: Is there a system that can succeed the nation-state just as the nation-state succeeded the feudal system? Can said system cut out the extensive power intermediary platforms that are run by large conglomerates have over our lives?
Although he was not in attendance, one person whose influence was clearly over EthCC was angel investor, entrepreneur, and sociopolitical philosopher Balaji Srinivasan. In his most recent book, The Network State, he lays out a roadmap for a digital-first state.
He defines it as a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real-estate footprint to attain a measure of diplomatic recognition.
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His ideas have ignited much debate; Vitalik himself even wrote a response and elucidated the points he agreed with, and those he did not.
Yet one fundamental commonality in both the original proposal and the reaction was how crypto could be used as a tool to coordinate a network state and serve as a guarantor of individual rights within a larger system. This sentiment would be echoed by several speakers at EthCC who invoked the ideas presented in the network state.
What makes crypto a necessary component to a network state is that it provides the digital soil for sovereign societies to take root. Optimism CTO Karl Floersch and Orchid co-founder Steven Waterhouse observed that in the current structure of the internet, people are serfs who occupy the digital land and big tech intermediaries get to extract data at will.
Risk of Dystopia
In a future network state, blockchains can empower groups to control their collective digital destiny by “owning” the land they inhabit. Yet there was a warning in both Waterhouse’s speech as well as Amer Ameen’s: “if you think it’s just about the tech, you’re ngmi” which meant that if decentralization is not a first principle, then we are at risk of building a dystopia that is worse than before.
From a historical perspective, it’s evident that the central theme to the story of human coordination is the buildup and breaking down of intermediaries. In the 12th century, the Catholic Church was the all-engulfing behemoth that enforced the strict moral code for Europe.
All aspects of daily life were entwined with your relationship with God, as defined by Rome. Challenges were deemed heresy that carried the risk of severe punishment, including death.
Today, the vast majority of our interactions are facilitated by entities with the size and influence of the medieval Catholic Church, whether they are banks leveraging our money or big tech leveraging our data.
The advent of the printing press and the accessibility of information to the masses would help form a sense of national consciousness in societies who spoke the same language. This would eventually spark the Enlightenment and help usher in the separation of church and state. In a similar manner, crypto has the power to liberate consumers and separate data and money from state-level intermediaries.
What these two separations ultimately enable is the freedom for individuals to opt in under their own terms.
One application that I learned about at EthCC that is particularly relevant to data sovereignty is the Gitcoin passport, which founder-turned-community contributor Kevin Owocki presented at his speech.
The Gitcoin passport is an identity primitive that is a transportable proof of personhood in the Web3 space. Owocki emphasized to me how the Gitcoin passport would be “hella forkable,” letting any community mold it how they see fit.
Acting simultaneously as an identity and money lego, the Gitcoin passport can be used in a number of ways in a network state. Identity collateral can be accrued over time and can assist individuals in obtaining loans that would have been previously capital intensive.
In addition, as an alternative to “one coin, one vote”, the Gitcoin Passport offers a way to determine involvement in a community via decentralized identity identifiers, soulbound NFTs, etc. They can be used as filtering mechanisms of an on-chain census that qualifies individuals to participate in governance.
Since network states exist on a digital plane, measuring their extent will require a different methodology from that of a nation state and already, many crypto natives are intuitively aware of these borders.
Borders of the Network State
For example, the borders of communities in Web2 can be measured by impressions and reach. That is why when someone gets “canceled” on social media, it is a modern day exile verdict. In Web3, the borders of the network state can be built on a number of different levels whether they record miners validating blocks, statistics of protocols amassing TVL and transaction volume, or DAOs performing a census of its active participants.
There is mounting evidence the number of digital citizens with a presence on-chain are increasing rapidly. According to Snapshot data, the number of DAOs, proposals made in DAOs, and proposals that were voted on have all increased 8x in the past year. Meanwhile DAO analytics website DeepDAO reports there are more than 4,800 DAOs today with about$10B in their treasuries.
In addition, Joseph Je of PWN said in his presentation on crypto-native activity that there are 5M active DeFi wallets that produce $30 billion worth of demand. Je concludes that on-chain activity has reached escape velocity and mainstream acceptance should be no longer necessary to create a self-sufficient global economy that lives 100% on-chain.
Although the demand mentioned by Je may seem like a drop in the bucket relative to the wider global economy, the on-chain world is still in its nascent stages where its resilience is tested with each trial and tribulation.
Balaji mentions a sense of national consciousness as an integral part to a network state, a force built upon shared collective experiences and a common shared sense of values. Shared collective experiences can include events such as searching for yield during DeFi Summer or participating in Constitution DAO.
Although many of the endeavors may not work out, the shared sense of struggle and adversity forges a closer bond between all who participated. Furthermore, Karl of Optimism and Owocki of Gitcoin said the advancement and evolution of supporting public goods is an essential part of their network state.
EthCC provided much fruitful discussion about the social, economic, and political ramifications of a sovereign world that is made possible by Web3.
The Ability to Opt In
What has become clear is that in order for an empowered future for individuals to thrive, we cannot cut corners when it comes to building and maintaining decentralized architecture.
In addition, Amir Ameen called for Web3 to inherit the values that enshrine the concepts of open-source, trustlessness, privacy, shared ownership, and the ability to opt in.
The stakes are too high to compromise on anything else. At the end of his talk, Waterhouse posed several questions to the audience to ask themselves. He asked: “Why are you here? What motivates you? Are you a missionary here to contribute to this new world or a mercenary dead-set on extracting from it?”
I know what I’m here for. Do you?