Cryptomarkets are capitalism on steroids

Satoshi Nakamoto created Bitcoin because he wanted to free ordinary people from the shackles of big banks and the effects of capitalism. However, with cryptocurrencies we repeat the same negatively impactful virtues of capitalism that made him develop Bitcoin in the first place.

These days one often hears phrases like “it’s all about money and profits”.

It is a good clue on what goes wrong, but only half-way there.

Through decade long recycling of language in pop culture and politics many people mix up the words ‘profits’ and ‘growth’. They’re different — and that matters.
Because of it ‘profits’ got a negative reputation it does not deserve and that prevents of from fixing our broken economic incentive structures.
Even worse: we replicate them.

It’s not profit that counts, but growth.

The most influential and biggest companies in the world run with Venture Capital, where ownership is distributed through shares or private equity.
The problem is that investors only get a return if the speculative value of that company’s shares increase. The ability to make profits is only a metric to determine growth, it’s not what companies are critically dependent on in order to provide shareholder return. You need to keep making profits even if you have enough to be successful.

And since there is literally no cap on how much a company can be worth, everyone strives to grow as much as possible.

There is only one trajectory. More growth. More Unicorns, and now: more Dragons.

The resulting centralisation of economies creates imbalances and exploitations that rip apart the fabric of our society, endanger the health of our planet and create huge wealth inequalities.

With cryptocurrencies we repeat the same negatively impactful virtues of capitalism that lead to Satoshi Nakamoto develop Bitcoin in the first place.

Don’t get me wrong, I see a lot of value in the rise of cryptocurrencies, because It suddenly gave (a lot of) capital to a lot of smart people, many of them with good intentions and values for a better future. Even though it is an economic infrastructure replicating a lot of negative dynamics of capitalism, I think it is a necessary stepping stone to something better — and we are still exploring a lot.

Also I’d like to emphasize that I don’t argue against everything capitalism stands for. A Twitter user puts it into good words.

“Capitalism has its virtues. If we can kick greed out of it, it could be great.”

With virtues being the empowerment of personal liberty & hard work, the fundamental drivers behind the ability for ‘the miracle’ of liberal democracy to work.

So what goes wrong in the crypto land?

1. Capitalism/Cryptocurrencies value only one metric: (unlimited) growth.

Just like with investing in stocks/equity, holders and hodlers of cryptocurrencies’ make their money if the value of a token grows. Also there is no cap either.
Again most wealth ends up in the hands of few. The centralisation that happened over the past century took in the regular economy took place in just a decade in the crypto market, and is a lot worse.

The top 1% of bitcoin holders hold 95% of value, while in regular capitalism they hold 50%. And bitcoin even has one of the best distributions. It gets worse with other coins. Waay worse: https://arewedecentralizedyet.com

2. Emotions and social manipulation have even stronger effects.

That people don’t have to go through banks or traders to buy shares in a companies/ecosystem, crypto-currencies is certainly something good in equalising access to financial resources and markets. But the downsides of this are equally worrisome.

Remember the time when news broke that Vitalik Buterin died and the market cap of Ethereum dropped by $4 billion in a day?

In crypto (the inevitably uninformed) and inherently emotionally driven crowd is able to quickly react to news by buying and selling stocks with little barriers. Thus the market gets even more volatile and susceptible to manipulation and misinformation. Together with the speculative nature it supercharges the negative effects of capitalism.
In capitalism, for the better or worse, you have at least some moderating institutions like central banks or regulations.

3. Political competition, instead of service competition

Adam Smith famously argued that capitalism would bring us service competition, which certainly happened to a big extent. Unfortunately with increasing need to produce growth, most companies compete on a political level by buying or bullying each other out of the market — not by being the best service anymore.
With the crypto world, we now see communities emotionally hyped up fighting against each other in their pursuits to convince the world which one is the best (or which one to avoid because it is a “scam”). Implicitly and Explicitly they know they can only make profits if their ecosystem grows/wins. It’s just the same but with a lot more emotions.
And we all see how those manifests in nasty conflicts.

Cryptocurrencies are all about incentive design: So is this really the kind of mentality we want to incentivise for the future? Do we really want to fight fire with fire? I think there are better ways.

Humanity has so many challenges that we can’t afford wasting resources in infighting, or trying to solve the problems we caused with methods that are just the same — on steroids.

For the future we need systems that create intrinsic motivation for limited growth, in which it is more profitable to collaborate than to compete.

Maybe a look into what made crypto so attractive to people leads us finding an alternative that satisfies them too?

Crypto’s values we want:

1. Universal access to markets
   Being able to acquire a share of a company/ecosystem independently from location, ethnicity or level of capital resources.
2. Skin in the game
   Getting richly rewarded for early contributions and hard work
3. Putting economic power back into the hands of people
   Creating an environment that distributes benefits evenly among participants.
4. Personal Liberty for individuals
   It would certainly be good to have less bureaucracy and sensible regulation.

What we don’t want:

1. Speculation
   The value of a company/ecosystem must not be determined through speculative value, becaus then only growth matters.
2. Unlimited expectations of financial returns
   For participants we need an intrinsic motivation to stop growing.
3. Economically motivated fights/division
   Instead we need more incentives to collaborate on infrastructure.

Additional requirements:

1. Less regulatory need.
   We don’t want a government or regulation be necessary to align market behaviour to be for the greater good. The regulation needs to come intrinsically.
2. Companies & Ecosystems in control of the people who contribute
   We don’t want to have shareholders keeping the majority of control over a company’s/ecosystem’s fate without ever contributing sweat and tears.
3. Creating sustainable businesses that work in favour of users
   Companies’ main focus shall be to develop useful products and be financially sustainable, no to infinitely grow and infringe privacy or be economically reliant on exploiting user data.

What are the technical, economical and philosophical components of a system able to solve this? Are there more requirements you can think of to add here?

Let me know in the comments.

Still here? At worldbrain.io We have developed our own approach to solve these issues and power our economy. Combining data interoperability, open-source software and a non-speculative economic model called ‘Steward Ownership, we aim to create an ecosystem in which it is more profitable to collaborate than to compete and by an order of magnitude harder to monopolise, while still keeping the benefits promised by cryptocurrencies. To find out more, you can read our manifesto.
Of course this approach is full of unproven assumptions that will have to be tested and roasted as we go. After years of research this seems to be the most viable path to go for us. Let us know how we can improve.

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Acknowledgements:

Thanks to Vincent den Boer, Lauren Moore Nignon, Odysseas Neslechanidis, Vikas Erraballi and Samuel Stowers for your feedbacks. Helped me a lot to get the point across better, by honing the language and logic. :)