Parallels in the Social Contracts of Blockchain Systems and the United States’ Founding Documents

In order to understand smart contracts, it is important to understand contract principles as a general matter. A contract is an agreement between at least two parties to execute a mutual exchange of value. Therefore, a contract without value ceases to be a contract and becomes something else entirely, like a gift or duress. A social contract takes this a bit further by exchanging value between members of a society and the “society” itself by exchanging a restriction of freedom for a mutually beneficial, usually enforced system between participants in a societal ecosystem. The ideal social contract is one that results in increased value for voluntary participants, rather than the kind enforced by representatives of “society” in the social contract.

It is also important to also understand value because without it, a contract ceases to exist. If recent developments in the stock market have taught us anything, it is that value is subjective rather than objective. When I speak of subjectivity, I mean that the nature of value is in its recognition by two or more parties at a similar point in time. The strength of value is determined by this recognition, which, if proliferated widely enough, may rise to the level of social contract as the inherent benefit of this value is used and accepted by a larger group of people in the greater societal ecosystem. When it rises to this level, value becomes viral, and the resulting growth in demand leads to exponential growth of the underlying value. Revolutions are similar in many respects.

Revolutions are usually populist, for better or worse, and Americans have had at various points in time a predisposition toward the democratic ideal: an idealistic faith in the judgment of one’s neighbor—that their perspective may join with others to reveal a truth that would lay buried and hidden if not for their mutual trust and concerted action to reveal it. This confidence in a largely voluntary, collectivized contract has allowed them to freely pursue that which has been the pipedream of every attempt at a “planned” economy. Their commitment to these democratized ideals was memorialized in the Constitution, Bill of Rights, and Declaration of Independence, which resulted in the rise of several variations of a common social contract. This tapestry of social contracts resulted in a robust system of democracy that allowed our country to operate on the same founding documents far longer than most other constitutional republics.

What proponents of planned economies often get wrong is the very idea of a revolution—the idea that it must go further than simply speak for the underrepresented, and must hold the people’s power for them in trust like a doting parent. The question that rarely gets much scrutiny is whether this changes much of anything at all? Perhaps more correctly, those whose interests are meant to be served by revolution are those who recognize that rather than seeking recourse through socially-accepted channels of disagreement, they must venture into the unknown to start fresh or alter the broken links in the social chain of command.

Bitcoin: Nakamoto’s Declaration of the Value of Individual Interests

Every revolution begins with an assertion. This assertion (or idea), if it is powerful enough, can act either negatively or positively on existing social contracts, relative to the individual’s point of view. Point of view is distinct from results because branding has pervaded so deeply into the realm of politics that we often judge things based upon identification with the idea, rather than the performance of the idea. This inflates the idea and tethers one’s sense of self to its success, which also serves to inflate the ego in opposition to the rational, detached mind and against those who don’t similarly identify with the idea. Unfortunately, disagreements stemming from ego rarely result in enlightenment for either side. This idea inflation renders impotent the substance of genuine disagreement.

In spite of this tendency to be hacked by those in control of the idea or assertion, ego does have innate value as evidence of individual consciousness and self-determination, with related rights found in the concepts of natural law (which is, itself, a form of an implied social contract). Ego, like all sources of power, is dangerous when left uncontrolled. It is a strong individual who can control the power of ego on their own, yet many individuals feel they require some sort of independent system to keep this ego power within the bounds of accountability.

Such systems include the historic proliferation of government systems and the recent adoption of technological systems that don’t require trust to operate effectively. The trustless systems derive their strength from their code, which prevents the breakdown of relationships among users as a result of errors that are so prevalent in fundamentally-human systems, such as governments. As history has repeatedly shown, a permanent human governmental system has never existed, regardless of the strength of the ego that supports them. The negative results of inflated ego can be understood as hubris, and the demise of the systems they support is often precipitated by clashes of the egoic cycle innate to humanity.

Surely, an alternative to hubris and the egoic cycle must exist in our age of technology and nearly instantaneous access to digital information. Such an alternative was proposed in 2008 when the Bitcoin whitepages presented a system that diverged from the revenge cycle of these revolutions traditionally tainted by self-interest. The bitcoin system was not only a recognition of self-interest, but an embrace of its existence as a universal truth among parties to a social contract by the implementation of a byzantine structure to their interactions expressly limited by code. The instantaneous confirmation of unified effort toward a common goal without the possibility of being subverted by any of the other parties was a liberating concept considering how the risk of working together was handled in the past.

In terms of government systems, our semi-public central banking regime was implemented as a way to combat the trust problem of value exchange via centralized control over many aspects of money, including economics and security of money supply. However, the value of such a controlled system is hamstrung by the fact that the people in charge of central banks don’t understand how inflation works, are not bound by democratic considerations present in other branches of government, and that the dollar has lost over 96% of its value since the creation of the Federal Reserve (arguably the most “successful” of the central banks). Bitcoin represents not only a real and robust alternative to monetary systems most individuals had no input in creating (nor any viable means of escaping), but also a means of minimizing the inflationary effects of modern society on ego.

In my opinion, Bitcoin’s assertion goes to the root of value, which is in an individual’s power to make a decision about an exchange of value for their own subjective benefit. If the exchange is voluntary and without malice, both sides can end up better off, resulting in greater societal growth. The fundamentals of this root assertion of value can be noted in the Declaration of Independence, which states:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Decentralized Applications: A Constitution of Creativity

In order to achieve success, the instigators of revolution must make concerted effort to ensure that the system they advocate for is better than the one cast aside. Assertion without action lacks teeth. As proponents of an idea, they must assume responsibility to put aside self-interest in pursuit of the ideal, which can often be wishful thinking when considering that inflated ego is required to gain needed power needed for a successful idea. At America’s founding, the government system pursued by the new tenants of power previously held by the king was divided due to conflict-inflated ego and differing perspectives on the concept of liberty in the wake of the Revolutionary War. This unbalance led to the adoption of a system of loosely-connected States via the Articles of Confederation, which was a system too decentralized to last very long as a unified government.

In this context, the balance to be struck was between enforcement and liberty, with inefficiency resulting if either side was weighted too heavily. After lengthy debate between Federalists and Anti-Federalists, the new government adopted by the United States was created by the Constitution of 1787, which balanced the Anti-Federalist desire for unfettered individuality in the context of local communities and the Federalist desire for a government that protected the liberty of citizens of the Republic, regardless of their state of citizenship. In effect, this Constitution created one of the first Free Trade Zones, and is loosely similar to the system adopted by the European Union today. The benefits include less costly transactions, freer movement of people, and less emphasis on arbitrary borders to the general benefit of the people who live between them.

The social contract of Ethereum is similar to the one that arose out of the Constitution of 1787 in that it provided a solid platform of rules as well as fertile ground for growth and innovation among the users. The platform for the US Constitution was based on Enlightenment principles, while the Ethereum protocol was based on mathematics. The former allowed for incremental changes in the social contract due to evolving concepts of law and ethics, while the latter allowed for flexibility of the state of the network because relationships between users will never remain static. The flexibility of the Ethereum source protocol allows for many different kinds of value creation for users, and is largely defined by them within the boundaries of the source protocol and what is allowed by the validators.

The validators act in a somewhat judicial capacity, proposing and incorporating data into the public ledger, and being rewarded or punished depending on whether their proposals benefit the network. There are more requirements, steps, and investment required to be a validator node due to the power they wield and the potential for inexperienced participants to fail in this capacity. Additionally, validators are tasked with “whistleblowing” on bad actors who fail in their duties to the network. In this way, there are multiple checks and balances in this network, but virtually all operate based on the principles of objective, trustless systems.

Non-Fungible Tokens: Right to Assert Individual, Subjective Value

One of the most recent developments in the blockchain space is the proliferation of Non-Fungible Tokens, or NFTs. These digital assets are simply more individualized versions of the cryptocurrency systems many are already familiar with, and offer unique value due to their often limited quantity and nuanced value proposition. The value by which they are based can take on as many forms as people are creative, including things such as digital art, digital real estate, and even digital cats that replicate with genetic traits.

This is, in my opinion, a manifestation of the innate subjectivity of value itself, which is a natural evolution of the assertion made by Bitcoin on the inherent value of an individual’s control over their own transactions. This next step asserts that people should be free to decide what is valuable in their own eyes based on their own benign personal justifications. This “libertarian Maslow’s hierarchy” is a cornerstone of western prosperity as long as its pursuit does not harm anyone else in the process.

Many people may currently scoff at the idea of digital art, but freedom is the right to make a good decision as well as a bad one. Even non-cryptographic digital assets can objectively be more valuable than those backed by national governments (vis-à-vis World of Warcraft gold vs. Venezuelan bolivares). At the end of the day, the purchase of benign assets by willing buyers should be nobody’s business but their own, and that individuality should be respected if we are consistent about the beauty of individuality.

We are the music makers, And we are the dreamers of dreams ...

• ARTHUR O'SHAUGHNESSY

Conclusion

The blockchain space has exploded in the last few years once people recognized its potential as an outlet for value creation. The legacy systems employed by the corporate and financial worlds worked for a long time, but as digital media and assets have exploded in use, the realization that we can build something better has allowed people to experiment with new ways to interact with one another more efficiently and securely. The valuable pieces of the old systems can also be integrated in ways that allow for voluntary participation based on compulsory ideal parameters, resulting in lower costs and more relaxed systems of exchange.

Thus far, we have seen developers craft these ideal systems of exchange in code and usher in a new generation of the Internet, commonly known as Web3. These systems have resulted in compelling arguments against redundancies in the corporate world and in favor of individual investment in skills and knowledge to continue growing these digital capabilities. It is truly amazing that as trust has become so rare to be prohibitively expensive, people have created a system that allows users to rise above it.