Blockchain and the Permissionless State

Web3 shouldn't just strive for principles. We can deliver a better experience and more functionality than Web2. This is what will bring the next billion users and free us from the permission state we live in.

Elliot Alderson outside of E Corp or "Evil Corp"​, Mr. Robot, USA Network

TL:DR The ability to transact freely is an expression of our inalienable rights. In some cases, centralized businesses and bureaucrats can achieve a level of power where they can revoke these rights. Blockchain offers a path to freedom, but there are major deficiencies required that Seneca addresses.

One of the many things that makes the American experiment so exceptional is the presumption that liberty and freedom are rights we are born with, not privileges granted to us by a government, king, or any centralized entity. They are inherent; and thus we don’t need someone else’s permission to act.

Regardless of this presumption, over time we have granted so much power to our government — and its agents and partners — that we now exercise many rights with government permission. The Cato Institute explained this well in the 2017 piece titled The Permission Society, which contrasts this “permit system” with the “nuisance system” where one is free to do whatever they want up until the point that their actions infringe on the rights of others.

The Cato Institute piece does not touch on one of the rallying cries of Web3 evangelists: the freedom to transact. Much as the concentration of centralized power in an unchecked government creates the ability for it to revoke permission, centralized businesses can achieve a balance of power that gives them the ability to revoke the power to transact. This power can accompany market dominance where competitors are eliminated, or be associated with government cooperation (or coercion) such as we saw in the pre-Civil-Rights era or even in modern-day banking.

That we rely on transactions to live is a massive understatement. In the U.S. alone, Americans buy tens of thousands of items every hour on eCommerce sites, visit the doctor 2.4 million times a day, and use credit cards 369 billion times per year. We have a need, we find a provider for that need, and then exchange information, money, or some form of value to get that need met.  

Within the spectrum of transactions, there are choices that Americans make that are rightly called freedoms. We don’t have to go to the commissar for bread and we can choose to transact among many businesses. But what if the options are all the same? If you are unhappy that your bank is surveilling your transactions and reporting “suspicious” activities to regulators, you don’t have an option to go down the street to find one that doesn’t. Or what if you want to avoid online surveillance? Refusal to become a monetized asset to support surveillance capitalism will exclude you from the most relevant commerce sites, and also more importantly sites that are critical for career development in many fields.  The lack of options gives these organizations power to force you to accept terms and conditions.

Centralization is not evil. Rather, it allows for the emergence of authority that can enable evil. Google’s “Don’t be evil” was a noble aspiration in their code of conduct, not something that was architected into their code or corporate governance, unfortunately. In the early days, when the goal was focused exclusively on helping users find the most relevant search content, the idea to encode this in governance probably seemed like overkill. But in 2023, many entities have grown so powerful and vital in day-to-day life, that the average person can’t avoid permissioned systems for anything but the simplest transaction.  

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To illustrate how permission is yielded, let’s look at an example of a permissionless transaction.  Let’s say I buy a gaming PC for my child from my hobbyist neighbor. With some back and forth, we can easily work out details and features, a timeline for completion, and exchange of cash.  If there is a disagreement, we can draw upon years of a shared fence and a friendly relationship to make it right. While I may lose some legal and warranty options by not buying from a business, there is tremendous freedom here. No one else is involved in our transaction — no one to interfere, dictate terms, or take a cut.

As simple as this example may seem, it represents the upper limit of permissionless transactions. Add a little bit of complexity — such as the use of a credit card, a storefront, an online marketplace, or even doing the exchange at a flea market with cash — and we are now vulnerable to some form of meddling by a third party. This interference can be a minor inconvenience or it can result in more serious issues such as vulnerability to rent seeking or even exclusion from an entire industry if a transacting party runs afoul of a powerful third party.

The right to transact is now a privilege

There is no denying that many centralized businesses provide a great experience and tailor their services to address needs we didn’t even know we had, and government agents, bureaucrats, and regulators do provide a framework for fairness and justice. If I buy an electric tool from a reputable online retailer, I don’t have to worry about correct voltage or whether it meets U.S. manufacturing standards. I can also assume the payment processing will work and if something goes wrong there is a combination of laws and policies specific to the retailer that work reasonably well to safeguard my consumer rights.

Much as the concentration of centralized power in an unchecked government creates the ability for it to revoke permission, centralized businesses can achieve a balance of power that gives them the ability to revoke the power to transact.

But the downsides of this arrangement are high. In banking, for example, we are subject to government surveillance and regulations that can lead to banks creating rules that exclude people, regardless of whether they commit a transgression. The World Bank refers to those without a banking account as “invisible,” because they recognize that a bank account is a necessary ticket to participation in society.

Taking advantage of centralized business models as a means of controlling individuals’ rights is as old as our republic. In the earliest days of colonial America, the taxation of whiskey led to a revolt that threatened the existence of the fledgling federal government. The reason it was called the Whiskey Rebellion and not the “Beer Rebellion” is that whiskey had a system of transport and exchange that made it easy to track, seize, and tax. Beer did not.

The intent of these rules imposed by governments and businesses, in many cases, is to prevent criminals from having the type of freedom that infringes on others. Who is against that? But this approach results in disproportionately high costs to small businesses, people living in poverty, or anyone who falls into the category of being in the “wrong”.  Many Americans were horrified to see Canada freeze the bank accounts of truckers for six weeks while remaining seemingly ignorant to the fact that foreign-born Americans have suffered bank freezes for years.

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"The Whiskey Rebellion", General George Washington, three years before becoming one of the country's largest distillers, assembling troops to put down the rebellion, Metropolitan Museum of Art (1795).

Web3 offers freedom, but lacks the utility of Web2

The Web3 community sees decentralization as the path to transactional freedom. This belief stems from an optimistic desire to return to a permissionless society combined with the confidence that blockchain technology is the foundation necessary to make this new future possible. At Seneca, we too believe that decentralization is the path to freedom, but that we cannot get the next 1 billion users unless we beat the utility of Web2.

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We wanted freedom but got 8-bit nyan cats. Image Source: Esquire

Web2 is dominant over Web3 because it delivers more complex and tailored transactions. This is evident in the choices consumers make. Today, the volume of blockchain transactions represents a minuscule fraction of total digital transactions. Ask yourself, how many of your friends, neighbors, and family members use a decentralized application? And if you happen to be in a community of early adopters or maximalists, outside of money transfers, how much convenience and functionality have these people sacrificed?  

Blockchain enthusiasts tout that distributed ledger technology eliminates the need for trust and reliance on third parties, but they are referring to trust in cryptography and software which is only a portion of transaction. Can I really trust the other parties and their claims? Am I transacting with a hacked wallet or someone who is lying about having a license or skill? What about something routine like a money-back guarantee on a product purchase? Will they honor this? For those lucky enough to live in countries with a respect for the rule of law, Web2 is set up to address these issues. Fraud is rampant and identity theft or hacks are daily occurrences, but we have an established system of vendors, payment processors, and regulations that work together in some fashion. This shifts the burden away from requiring complete trust in the person or entity on the other side of the experience.

In terms of replicating the level of Web2 convenience, customization, and ability to handle complexity in transactions, right now in Web3 a customer is simply a wallet address. How does a business compete on customer segmentation or a tailored transaction without the data they have available in Web2? Consider decentralized finance (DeFi). A traditional bank can algorithmically apply thousands of data points regarding the customer to inform risk models, segment customers, and apply specific transaction terms. In DeFi, a customer with 2 ETH is the same as any other customer with 2 ETH except, possibly, the insights gained by viewing their transaction history.

Building the permissionless future

Fortunately, there is a path for Web3 to not only match Web2 in functionality, but surpass it at such a dramatic clip that digital interactions will never look the same. The sort of change that is so pivotal that we can’t remember how things were in the past.

The key is data. The world runs on data and Web2 has done a great job convincing us that data breaches and surveillance capitalism are just small prices to pay for the permission to transact.  Web3 applications can’t respond by putting data on-chain as this has obvious privacy issues.

This is where Seneca comes in. Seneca is a layer 1 blockchain built to enable applications to deliver hyper-personalized solutions without accessing user data or violating the privacy and agency of the user.  

Why does this matter?  Because the saying that the world runs on data refers not only to the importance of data in delivering functionality, but also the power that comes with holding data. By allowing an application to deliver a solution without accessing user data, the user doesn’t give up ownership of the data.  

And this is where Web3 can surpass Web2. What data might a business or individual bring into a transaction if they didn’t have to share the data? Imagine doing a WebMD search where the results were tailored to your height, weight, medical conditions, and current prescriptions?  Or a business using a third party application to analyze sensitive procurement data without moving to a third party server or implementing new software.  Or an insurance broker getting multiple quotes on behalf of her 500 clients without farming out sensitive client data to a rater who then pushes the data to multiple carriers.  

Seneca is enabling businesses and developers to build applications to deliver a level of utility and functionality we have never experienced and with the user agency and decentralization that return the balance of power back to the permissionless state.

Thank you for reading. If you liked this and haven't subscribed, please do and feel free to share with anyone you think may be interested in a more personalized and private future. We haven't gotten into the technical aspects as I promised in the last issue - this is coming!

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