Written by: Jingyi, Founder of Yunqi Fangda and LD Capital Advisor
"Be brave and tell us what the gods mean, no matter what you know. I swear to Apollo, beloved of Zeus - the god you, Calchas, prayed to when you interpreted his will to the Danaans - that as long as I live and as long as I can see the sun shining on the earth, no one will dare to act violently against you by the deep sea ships. No Danaan will dare to use force against you, even if you are referring to Agamemnon, who now claims to be the best hero among the Achaeans!" - "The Epic of Homer"
From the 14th to the 16th century, Europe had at least 166 large-scale wars that led to the destruction of nations and races. On average, each war lasted more than 8 years, with more than two or three wars being fought simultaneously each year. There were 15 wars that lasted more than 8 years. From the beginning of the Age of Discovery in 1500 AD to the eve of the Industrial Revolution in 1700, Europe was at war 95% of the time during these 200 years. In order to win war after war, European countries had to spend an average of more than 80% of their fiscal revenue on military expenditures each year. The emergence of war capitalism began to have a profound impact on Western civilization and the formation of the global economic structure. The fundamental reason is that in an era when regional expansion and population annexation were the main growth models, the economic benefits of violence were the greatest. City-states needed the protection of a more powerful government to fight violence. In the century-long war between Britain and France, British hegemony rose, and English has become the main language of global knowledge and business exchanges. The victory on the Plains of Abraham set the stage for the success of the American Revolution. India has become the country with the largest English-speaking population to date, and the continuous influx of wealth has provided fuel for the Industrial Revolution. The competition for powerful governments and world hegemony has become the main logic of major economies.
However, today, human beings have evolved from the industrial age to the information age. The logic of social structure and economic growth has undergone fundamental changes. The costs and benefits of violence are decreasing, and the methods are changing. The fundamental conflict of human beings has changed from the hegemony of great powers to the contradiction between highly developed technological productivity and limited resources. Interstellar exploration to expand resources and promote more efficient resource allocation in production relations are the paths and solutions that humans are exploring. In the information age, the network economy will surely flourish and give birth to more advanced organizational and individual forms - NETWORK STATE (network state) and TSI (The sovereign individual).
The importance of gunpowder weapons and navigation technology has been replaced by long-distance communication and high-throughput computing. The late fifteenth century was a dark age and a desperate era, but this is not unique in history. Before all the changes come, social unrest and instability are inevitable products. Today, the winner-takes-all competition model, the long-arm jurisdiction of power politics, high-cost division of labor and cooperation, and the migration of large-scale production will all face changes. Changes have already begun and will intensify, based on the following background and facts:
Market efficiency is effective in distributing power
In the view of Marxism and institutional economics, the determining factor of resource allocation is not the market, but the power structure in the institutional arrangement. Institutions and resource allocation are two main endogenous variables, and the power of different groups is the main factor in institutional change. The source of power includes the legitimate political power under the political system and the actual political power under the resource allocation state, which is essentially economic power. It is the distribution of power that determines the economic system, resource allocation and economic growth rate.
We can easily find that the premise of this view has two conditions: one is the strength and stability of power, and the other is the growth rate of economic growth. In today's world, governments are in debt and deficit, and the cost of issuing more money is passed on. Economic growth cannot find an outlet, and the world has entered an era of stock game. The protection and leverage of power are weakened. After considering risk costs and preference factors, resources will sooner or later choose to flow to markets with higher allocation efficiency and tax friendliness.
The government's fiscal expenditure burden is high
Take the US government as an example. In the 30 years since 1990, the US federal government's fiscal revenue and expenditure were only slightly surplus in 1999 and 2000, and the fiscal revenue and expenditure of the US federal government in the other 28 years were all fiscal deficits. In the next nine years (2022-2031), the US federal government's comprehensive fiscal revenue is expected to maintain an average annual growth rate of 3.45%, and by 2031, the US federal government's fiscal revenue will reach 5.957 trillion US dollars. At the same time, the federal government's comprehensive fiscal expenditure is expected to maintain an average annual growth rate of 3.88% in these nine years; by 2031, the US fiscal expenditure will reach 7.812 trillion US dollars. According to this estimate, the US federal government's fiscal deficit in 2031 is estimated to reach 1.855 trillion US dollars. (Data source: US Congressional Office) Against the background of the rise of the Internet economy, it can be foreseen that the tax capacity of fiscal revenue will further decline.
Intensified monopoly and concentration of capital investment
Monopoly and concentration are the result of the development of the industrial age, and economies of scale have given birth to modern giant companies. Since the 20th century, due to the standardization and divisibility of division of labor, the scale of equipment and industry has soared rapidly. Effective economies of scale have raised the threshold for industrial iteration and replacement, and the product cycle is relatively long. We have seen that in the respective dividend eras of China and the United States, relatively stable market situations and corporate profit models have emerged in the process of economic growth. However, with the development of society and the maturity of the market, companies will have to further develop their scale or structural transformation, and the requirements for fixed capital investment will become higher and higher, which will inevitably lead to the rigidification of production efficiency. In the information age, information technology has reduced the cost of equipment investment, shortened the product cycle, and made iterations faster and competition intensified.
Complexity outstrips originality
The world has developed into an extremely complex and sophisticated behemoth.
Darwin's theory of evolution proposed that organisms evolve through "genetic variation" and "natural selection", and believed that this variation is random. However, with the development of modern biology, research has found that life is a complex circular feedback system based on biological molecules, and shape changes are affected by various factors. In this system, although everything can be traced, we can foresee its complexity and the precision and size of the algorithm. The development of society is constructed by countless organisms and the material world.
In the book Hidden Order: Adaptability Makes Complexity, the Santa Fe Institute, a representative school of complex system science, analyzed cities, the human immune system, the central nervous system, and ecosystems, and found that although these systems have very different details, they have the following commonalities: In the face of change, the system shows coordinated operation and persistence. These characteristics rely on extensive interactions, the aggregation of multiple elements, and adaptability or learning. These challenges faced by economic systems, the Internet, and embryos, such as trade balance, computer viruses, and birth defects, have many similarities in terms of mechanism.
From a speck of dust to the vast universe, only adaptive complex systems that do not rely on central authority will be the most advanced systems with the longest lifespan. And everything that follows will only become more complicated.
The mathematical essence of everything returning to oneness
The evolution of the world pattern and geopolitics in history is rooted in the influence of violence and leverage. The original conflict between violence and prevention in the information age can be solved by using mathematical characteristics in a world built by 0 and 1 based on the logic of property preservation, and mathematics is the most rigorous science. Although mathematics itself is equivalent and symmetrical, the resource consumption on both sides of the equal sign is asymmetric, such as prime number multiplication and factorization. This essential feature has begun to dominate the shaping of the network economy. Asymmetric cryptographic algorithms (RSA) and elliptic curve cryptography (ECC) also use cryptographic proofs to build the foundation for property preservation in today's crypto world. The crypto bible "Sovereign Individual" clearly foresaw this possibility in the 1990s. This feature discovered by high-throughput computing has led to the emergence of a new economic model that will rely more on spontaneous adaptation mechanisms and less on conscious decisions and the allocation of resources by bureaucratic institutions. The new system led by protection will be completely different from the old system dominated by coercion in the industrial era.
Based on the above background and facts, we can clearly see the inevitability of change, and we can also predict that a cyber state that does not rely on a powerful government and jurisdiction system will emerge, and TSI will rise.
As described in the "Iliad", in the age of the gods, gods and humans lived together, and there was no difference in appearance. However, the productivity and intelligence of the gods were at their peak, and they had more rights to allocate resources. The Olympus of the gods was mysterious and rich, but it was difficult for ordinary working people to reach it. The earliest imagination of the origin of human spiritual civilization may be our ultimate form. In the not too distant future, powerful TSIs will live in the same physical environment as those ordinary people who are dominated, but they are in a more independent cyberspace at the same time, just like the children of Zeus in Greek mythology, who enjoy their own unique culture and system, which cannot be reached by parliament and royal power. These TSIs will have more resources and transcend the powerful. In the new world, there is an independent, reasonable and efficient configuration system and consensus rules. With the arrival of this day, everything will be reconstructed.
The definition of TSI is not limited to a single natural human being, but should include all sets that can embody complete free will and independent consciousness. Therefore, TSI can be a natural person, a highly cohesive organization, or a set of account identities unified by logic. As long as all historical data of a physically extinct human individual can be unified and integrated in cyberspace, and the logic representing personal will can be realized through algorithmic simulation and program, in theory, TSI will not disappear in cyberspace. This will also be the first time in human history that immortality can be achieved in the digital world, free from physical limitations.
The emergence of Chat-GPT will accelerate the lifting of the seal. The increase in computing power under Moore's Law will summon the "talking tools" described by Aristotle, and the tools he mentioned are people. In our next world, this "tool man" refers to all applications that can interact, execute, and even self-learn and improve.
All of this will cause huge changes and have far-reaching impacts on the entire society, including but not limited to the following aspects:
1. Digital nomads who live around the world
The identity form of the future is rooted and grown in cyberspace, and on this basis, the corresponding social and class extensions are formed. It has bottom-up attributes, which is fundamentally different from nationality as a product of systemic coercion. Digital nomads freely choose their place of residence and offshore registration (if necessary), but the difference is that they have the option to enter or exit, and will not pay high imposed taxes. In other words, the protection provided by the government in the physical space is an optional service for digital nomads. They are customers of the government, not objects of rule. Some of these early digital nomads will return to the real world and continue to become citizens, while others will choose and adapt to this new identity and model, become true TSIs, and continue to build the cyber country and accumulate more wealth and resources.
2. The Internet economy will not be universally welcomed
Individual liberation and freedom have never been a common need of human nature, nor do everyone want to be the winner in the next game. Risk aversion, seeking shelter and a sense of belonging will still be the mentality of most people. Facing the uncertainty of the future will arouse people's dissatisfaction, and dissatisfaction with the present is always accompanied by nostalgia. Those who are most afraid of the emergence of new things may mainly come from the middle class in the current wealthy countries. They will feel the threat brought by technologies such as artificial intelligence and blockchain in the information age, and this group is very large. At the same time, most people at the top of the pyramid in the current social structure will also be dissatisfied with the new freedom of TSI and will criticize it from the perspective of morality and public opinion.
3. The resource allocation and taxation capabilities of the governments of major countries have declined significantly.
The need to seek power protection decreases, and individuals with funds and wealth will transfer funds to jurisdictions that are better than market-based allocations and tax-friendly, and can withdraw at any time. The decline in tax capacity will cause Western governments to use totalitarian means to suppress the Internet economy. The recent CFTC lawsuit against Binance and the previous SEC definition of all cryptocurrencies except BTC as securities will lead to more stringent measures and means.
4. Large organizations are dismantled, the original division of labor is broken, and the work form and functions are changed
The bloated and inefficient platform organizations have laid off a large number of employees, and there are no longer cost-effective jobs with "less work and more pay". The employment form of work tends to be project-based, time-based, and workload-based, and it is not necessarily a certain position within the organization. The labor rewards of extreme and outstanding individuals are greater than ever before.
5. Artificial intelligence and encryption technology are two ends of the scale, penetrating and influencing each other, restricting and balancing each other
Chat-GPT is the ultimate embodiment of optimizing efficiency after resource concentration. Encryption technology is the basic technology of decentralization, just like the two ends of a scale. Everything develops and balances in contradictions, and future business model innovations will make choices between the two extremes.
6. Cyberspace commercial entities and super TSI emerge
Metaverse, DID, DEFI, Gamefi, and other applications that appear today will eventually be connected and circulated through information networks interwoven by various protocols and cross-chain bridges, forming a cyberspace business entity. Super TSI controls super resources in this space.
7. Cognition and thought equal individual wealth and ability. Internet economy becomes the largest economy
By 2025, there will be millions of participants in the network economy. In the age of information explosion, cognition and thought will become scarce and valuable resources. There will be many Bill Gates among them. The greatest economic phenomenon in the next 30 years will be the network economy, not the BRIC countries.
The existence of the network economy will accelerate its self-growth and iteration due to more efficient resource allocation and elimination mechanisms, adaptive bottom-up complex systems, and its vigorous development will inevitably lead to the emergence of new organizational forms and business models. The network state will emerge and exist independently outside the system, but will be organically integrated with the real world to become a unique and huge economy. Digital Nomads and TSIs are the main components of this economy.
Predicting the future is never an easy task. Trying to outline the vague image of the future is to see the present more clearly. In the business development and track investment in the crypto world, the following trends may emerge:
1. The boundaries between infrastructure, protocol and application layers will be broken
Due to the unpredictability of application product development thresholds and user preferences, competition in the application track is often more intense, and the current ecological niche is relatively weak. Today, large funds tend to invest in infrastructure and public chains, which also leads to extremely high valuations of these tracks, over-concentration of resources, and low output efficiency. After all, not all public chains can complete the construction of the ecosystem in a short period of time. In the cyber business space, a more likely possibility in the future is that products that solve certain pain points of user needs may themselves be an open source protocol, or even L1 itself, such as the emergence of a specific application chain. The so-called "fat protocol, light application" means a distinction based on functional attributes, not necessarily a technical architecture. Applications must be the ultimate weapon to meet the explosion of the network economy. Infrastructure without application scenarios is meaningless. The continuous improvement of infrastructure, such as L2, reduces the cost and improves performance for application development. The two are complementary and can even be combined in some scenarios.
2. User application scenarios based on a new paradigm
From 2017 to now, we have seen countless application forms emerge, but there has been no large-scale user product so far. On the one hand, it is due to time and cycle factors, and on the other hand, it is because the new business form is still in the process of formation. The entrepreneurial team must have very deep thinking ability to build based on the underlying needs, which is undoubtedly a huge challenge. Based on the previous analysis, although the user experience needs and product forms are still uncertain, under the premise of the general trend of cyberspace and cyber business, we can basically predict these aspects: tool platforms based on technology to build content, network construction under new contractual relationships, cross-chain identity and social networking, the convenience of decentralized transactions and asset preservation, network national governance, etc. I am very glad to see that ChainIDE, as a platform for developers to build smart contracts, has more than 70,000 dapps built and deployed based on its front-end and back-end; and the number of contracts signed through Ethsign has exceeded 180,000, and the commercial infrastructure Token table based on this new contractual relationship has also started to go online on the test network. These are all products that aim to solve pain points and provide platforms and underlying infrastructure. Although these figures are still insignificant today, with the advent of a new era, explosive growth is expected in 2025.
3. Outside the native encryption space, there will be an intermediate layer that combines with real business
Not everyone needs complete autonomy and the ability to preserve their own property, but based on the expectation of traditional financial collapse and currency over-issuance, some asset allocation will still be made in the crypto space. The current centralized exchanges have assumed this function and will absorb more liquidity. In the future, there will be mezzanine applications with the same ecological niche but richer functions. The business model will mainly continue the original Internet demand, but in terms of payment and content, there will be more connections with the encrypted network space.
Finally, standing at the crossroads of time and looking into the distance, we can already see the gods waking up on the looming peak of Mount Olympus.