Brief notes on Vitalik Buterin on Nathan Schneider on the limits of cryptoeconomics

There are many critiques that blockchain or cryptocurrency (I know they are two different words but now they are tied up so much) world is a "neoliberalism-style" bubble which corrodes democratic values and leaves many people's unmet needs seem like indisputable inasmuch as this world is like what Vitalik said:

The world of cryptocurrency is very economic (lots of tokens flying around everywhere, with lots of functions being assigned to those tokens), very neo (the space is 12 years old!) and very liberal (freedom and voluntary participation are core to the whole thing).

Let's go back one step, what neoliberalism looks like? Why and how neoliberalism harms the society? Here is Wendy Brown:

Neoliberalism transmogrifies every human domain and endeavor, along with humans themselves, according to a specific image of the economic. All conduct is economic conduct; all spheres of existence are framed and measured by economic terms and metrics, even when those spheres are not directly monetized. In neoliberal reason and in domains governed by it, we are only and everywhere homo oeconomicus.

Wendy Brown's Undoing the Demos, itself. The book helpfully provides a list of the top "four deleterious effects" (the below are reformatted and abridged but direct quotes):

• Intensified inequality, in which the very top strata acquires and retains ever more wealth, the very bottom is literally turned out on the streets or into the growing urban and sub-urban slums of the world, while the middle strata works more hours for less pay, fewer benefits, less security...
• Crass or unethical commercialization of things and activities considered inappropriate for marketization. The claim is that marketization contributes to human exploitation or degradation, [...] limits or stratifies access to what ought to be broadly accessible and shared, [...] or because it enables something intrinsically horrific or severely denigrating to the planet.
• Ever-growing intimacy of corporate and finance capital with the state, and corporate domination of political decisions and economic policy
• Economic havoc wreaked on the economy by the ascendance and liberty of finance capital, especially the destabilizing effects of the inherent bubbles and other dramatic fluctuations of financial markets.

If you finish reading the Vitalik’s piece and have dived into blockchain since the “DeFi Summer” then you know now today the whole blockchain world indeed a neoliberalism thing. No alternative blockchain governance pattern is ubiquitous other than the “one token one vote” governance pattern. Though we can see the shift that tons of blockchain communities toward the direction to less economic and more democratic governance mechanisms, the “one token one vote” scheme still in the dominant position.

Vitalik's points of current and future governance patterns are very clear:

So where does my own opposition to mixing finance and governance come from? This is a complicated topic, and my conclusions are in large part a result of my own failure after years of attempts to find a financialized governance mechanism that is economically stable.

[...] And how could blockchain systems be designed to account for these critiques? Nathan's answer: more hybrid approaches combining ideas from both economics and politics. But what will it actually take to achieve that, and will it give the results that we want? My answer: yes, but there's a lot of subtleties involved.

If you interest in details on "more hybrid approches combing ideas from both econmics and politics", this discussion on Vitalik's post is meticulous. Here are some quotes:

By designing democracy into the base-layer of the system, it is possible to overcome the kinds of limitations that cryptoeconomics is vulnerable to, such as by counteracting plutocracy with mass participation and making visible the externalities that markets might otherwise fail to see. (Nathan Schneider)

Financialization, as Nathan points out in his conclusion, has benefits in that it attracts a large amount of motivation and energy into building and participating in systems that would not otherwise exist. Furthermore, preventing financialization is very difficult and high cost, and works best when done sparingly, where it is needed most. However, it is also true that financialized systems are much more stable if their incentives are anchored around a system that is ultimately non-financial. (Vitalik Buterin)

If cryptoeconomics needs a political layer, and is no longer self-sufficient, what good is cryptoeconomics? One answer might be that cryptoeconomics can be the basis for securing more democratic and values-centered governance, where incentives can reduce reliance on military or police power. Through mature designs that integrate with less-economic purposes, cryptoeconomics might transcend its initial limitations. Politics needs cryptoeconomics, too ... by integrating cryptoeconomics with democracy, both legacies seem poised to benefit. (Nathan Schneider)

Fortunately, blockchains do have one very powerful tool in their grasp that makes security under such porous conditions actually feasible: cryptography. [...] Cryptography can even prevent collusion! Blockchains allow applications to live on a substrate that their governance does not control, which allows them to effectively implement techniques. [...] Finally, freedom to fork is much more practical, and forking is much lower in economic and human cost, than most centralized systems. (Vitalik Buterin)

OK, done.