Code is Law..

..and protocols are people.. but will money still be speech?

I talked previously in Middlemen America about how code is the true source of power in tech, and there is an extractive middle layer of people who create value for themselves, merely by insulating the engine of the product from the end consumer. There are infinite degrees of this “translator” capture, and whether malicious or necessary, like art, those people are “worth” whatever they are being paid. The overarching point was that the cycle of technology washes out that middle layer in an ever expanding and contracting fashion. Tech inhales with new complexity, and middlemen rush to fill the void. The stack gets modernized and simplified, tech exhales, and middlemen get washed out.

We are in an interesting time period where tech is exhaling, the stack has been simplified, and mere mortals can operate complex systems. Tech is by nature deflationary, and in an environment where there have not been many tech innovations in the past few years, and interest rates are not-zero, we are now seeing the collective pumping of the growth breaks by tech in the form of layoffs and other belt tightening measures. So without money being pumped into the system to build deflationary things, we are left with only inflation (not to say that tech is the end-all-be-all of this). I do believe this period will be relatively short lived, and that tech is gearing up for another big inhale in the form of web3, in which code is going to be once again front and center.

The concept behind the Ethereum blockchain (or any blockchain besides BTC essentially) is that it is programmable money. You can create smart contracts that can make money do whatever you want it to do. Sing, dance, moonwalk, whatever. Web3’s essence is that these smart contracts are interacting with each other everywhere you go, much like the T&Cs and cookie tracking that everyone compulsively signs and agrees to without reading. The interoperability and composability of web3 lead to some interesting use cases, but at the center of it is the code. Fully transparent on a public ledger, open source, and just begging to be scraped, queried, and analyzed, the code will dictate every transaction made in the ecosystem.

One of the biggest pushbacks on the concept of web3 is that the average person won’t be able to trust these “trustless” systems. There is currently no GUI interface for a non-technical person to double check the math. This opens a sizable gap in the ability for participants to perform due diligence. The same way you would have to hire lawyers to read through a contract and tell you what sort of fine print you are signing, you will need programmers to read through mountains of code to tell you whether your smart contract is going to do what you think it will. I don’t think trust will go from 0-100 overnight, but slow iterations of added complexity will get it there. The Bureau of Labor Statistics says there are roughly 150k computer programmers in the United States. Compare that with 1.3M lawyers, and think about how lawyers are already overpaid (sorry to any JDs reading this). Lawyers get paid because they are an extractive middle person (sorry!), and there is a short supply and high demand. So as tech inhales the many hundreds of billions of dollars that has been invested into building web3 infra and dozens and then hundreds of millions of users begin to get on-chain, you could see the demand for people who know how to read what the frick is going on will skyrocket. Code is not only law, but money. That is an enormous amount of power to wield.

There are other weird semantic code issues that web3 is starting to surface as the protocols interact more and more with the real world. Two months ago, the Office of Foreign Asset Control sanctioned Tornado Cash in a move that sets a tremendous precedent, not only in what can be sanctioned, but in the very definition of code and protocols. Tornado Cash is a currency mixer, which essentially anonymizes blockchain transactions. This is necessary if you want to have any sort of privacy on-chain. Without a mixer, all transactions and wallet addresses are visible to everyone, which can lead to any number of dangerous situations. Having a public ledger is a feature in many cases, but a huge bug in others. You probably don’t want people to figure out who you are based on your wallet address, know your wallet contents, and then find you in real life to beat the seed phrase out of you. Or, if you are a business and contracting with your vendors, you don’t want your competitors to know your overhead costs. So mixers become an important part of web3 pseudonymity and censorship resistance.

Historically, OFAC has only sanctioned actual people, so this new action in a way is saying that a protocol or code can now be treated like a person. This action from the government will likely have cascading effects in the developer ecosystem, and not in the intended fashion. Because the protocol is open source, anyone can spin up a new Tornado Cash at will. OFAC can define ALL mixer protocols illegal, but it becomes a game of whack-a-mole, where more and more mixers keep popping up, and more and more wallet addresses are interacting with them. At some point, a critical mass of regular citizens could be utilizing mixers and the ramification is that this is one of the paths that leads to the Top vs Bottom, Authoritarian vs Libertarian, USD vs Crypto feud that many are predicting.

So coders become the new lawyers, and protocols become people. But what about speech? The Citizens United ruling in the Supreme Court in 2010 decided that a corporation’s ability to spend money is considered speech. Now this is obviously a corporation that is recognized by the US Government, but what about an LLC that operates as a DAO, spending their money on the blockchain? What about when AI is trained on coding language specifically and the code is several degrees away from even being written by a human? New financial rails built outside of traditional law and operated by developers and their constituents of users create new edge cases that can have massive implications on society.

There is something like a Moore’s Law going on with political spending on the Presidential General Election in which it only increases over time. With trillions of dollars on-chain, and increasing contentiousness about the legality of transactions and Top vs Bottom rhetoric, there is huge incentive for DAOs to suddenly turn into SuperPACs during election season to sway outcomes to be more friendly to Crypto. This is why most people in the space think that it is absolutely necessary for some regulation to be crafted around this now, solidifying the legality of Crypto, so that the United States does not lag behind other nations. Ray Dalio has famously talked about the changing world order, in which the credit/debt cycle of USD leads to it being replaced as the global reserve currency. There are currently no other currencies close in contention, but what if the Chinese come out with a digital Yuan while the United States can’t figure out what side it is on? If smart contracts increase visibility and efficiency in global markets and the US punts the responsibility of being the world leader in innovative technology while doubling down on protectionism and balkanization, and ignoring the proliferation of India and Africa as emerging markets, it is not far fetched to assume that China can slide in as global reserve currency in a couple decades. This is clearly 4-5 major hypothetical chess moves downstream, but it is not hyperbole to say that the decisions and perspectives that are made today have ramifications on the future of freedom on Earth.

TLDR: teach kids to code!