Crypto — Generative Capitalism vs Extractive Capitalism
The last 13 000 years have been a history of growing Extractive Capitalism. In extractive capitalism each person seeks to maximise their personal (or family) wealth by extracting as much value from the ecosystem in which they live without a connection or concern to the long term sustainability of the ecosystem.
This worked extremely well while we were living in small groups as part of the larger ecosystem and therefore subject to the laws of the greater ecosystem. What we have seen in the last few hundred years in general and the last 40 years in particular is that this extractive capitalism and extreme individuality is no longer sustainable. The signs are clear in all facets of our modern civilisation our financial systems are now so fragile that they can no longer survive without continual stimulus to prop them up. Our ecological system is showing all signs of reaching a tipping point with strange global weather patterns and extreme ecological destruction almost everywhere we look. Our government systems, health systems, education systems and news reporting lose increasing trust on a daily basis. Most recently our big tech internet friends that were meant to save us from big government in the form of Facebook, Google, Twitter have started the inevitable slide into the abys as they prioritise profits and government compliance over their users and lose the most important asset they have user trust.
Why is this? What is it about our current system where each upstart, with the best intention in the world, promising freedom eventually becomes the next extractive autocrat crushing freedom?
As anyone who has studied systems theory, chinese medicine or or or would know the problem is always deeper than the symptoms.
This leads me to the questions. What is the thinking that underpins the system that leads inexorably to one extractive organisation after another? What is the system that leads to the thinking that leads to one extractive organisation after another.
The easiest place to study this is in the wild frontiers of Silicon Valley (Ok not so wild anymore). You can read the mindset, the ethos of our culture in the language of silicon valley. Most successful silicon valley startups are platforms that rely on the network effect, the network effect is demonstrated in Metcalf's law, basically you try build a product or service that captures the time and attention of a large number of people and then you find a way to monetise this service.
Step 1 of lean startup customer product fit — keep tweaking your product until there is a maximal alignment between your product features and your customer needs. Absolutely nothing wrong with that. This is flat part of the hockey stick there are not yet enough people in the network for Metcalfs law to kick in.
Step 2 is where it starts to get tricky — make sure that you have a sticky platform. This loosely translates into make it hard for your users to leave. If your users entire social network is on facebook and to leave your platform would mean losing contact with all your friends, events, groups then the platform is sticky. This is the infamous hockey stick stage where things go parabolic.
Step 3 Extract value from your captures user group. This is where things swing suddenly after spending step 1 and step 2 focused on adding as much value to the user as possible now the focus becomes how do we maximise our profits from these users. Facebook now only has to be good enough to not piss you off enough into leaving their platform and losing all your friends, contacts, events, groups and pages. That is it. as long as they stick to this very low bar, they can serve you up as the food for their advertisers so that together they can extract as much value as they can to make their quarterly earnings reports and show continual growth to their shareholders. This is the end of the hockey stick all users ever likely to be on Facebook are on Facebook and everyone is spending a few hours a day posting and reading others posts. A revenue model that earns healthy incomes has been found. This is the perfect time for the Venture capitalists having made 1000 X or more gains to exit via IPO’s now the retail investors (and users) can now purchase shares in the company. This is the first time you the person who helped grow Facebook, you the early adopters who promoted Facebook by inviting all your friends, created posts, groups, pages and events basically you the people who made Facebook valuable who created the content, now for the first time you can buy shares and profit financially from Facebooks success. Now when all the gains have been extracted by the Venture capitalists. And if you think your shares will give you any rights to change or modify the direction or decisions of FB think again. Even as a shareholder you are still excluded from any decision making with regard to the asset that you helped create, the network that runs your social life. You are rendered powerless in a system that you helped to build.
Step 4: The early leavers, those of us with the least tolerance for these extractive methods, start leaving, we are small in number hardly noticeable at first, but we are actually the most important people in any ecosystem as we are also the early adopters of the next innovation. We are the ones who seek and find the next the young projects that promise to solve the problems of the system we are leaving. Because our numbers are small the incumbent (Facebook)does not notice at first, their profits are still going up, their user numbers look good.
Step 5: A tipping point is reached the early leavers /adopters find some new sugar an exciting new project that servers our needs better. Eventually enough of us accumulate that the new system starts a hockey stick growth (Step 2) while the old system Facebook suddenly experiences an increasingly sharp decline. Unfortunately for Facebook by the time they notice the real value in their system has been lost as their previously engaged users leave in droves creating the hockey stick for the next innovation.
This pattern is not new it existed long before the internet. All companies have traditionally gone through this growth and decay curve. The difference now is a matter of time scale and magnitude. Web 2.0 companies go through this full cycle in the matter of a decade or two and reach billions of people whereas Legacy companies grow 60 years or more before the beginnings of a decline and they seldom reach more than 100’s of millions of customers.
So how is crypto different. Firstly Crypto is the same it follows metcalfs law the more people who use crypto the more valuable it becomes.
One difference is that as an early adopter an early user a natural seeker in the dark forest you are directly rewarded for these tendencies. Often you will be airdropped tokens from a project you have found and love with certainty you can buy tokens in the project you use at their launch. If you are good at finding exciting new projects and you buy their tokens then when the masses arrive in step 2 and 3 you stand to make the unreasonably profits of 100 or 1000 X’s previously reserved solely for the Elite venture capitalists.
Difference two is that for you to understand projects chose the best ones to get involved in to become a true gem finder you have to learn an entirely new way of thinking you have to learn how to create and identify systems that are decentralised, you need to understand how they work and organise themselves to operate without a hierachy or organisational head making decisions. You have to learn how self organising systems work so as to be immune to outside attacks (Hacks) that would try to take control and in so doing be able to extract undue value from the system’s users.
Difference three is that most projects are open source and the databases decentralised as such if any group in the ecosystem e.g. investors, developers, validators or users start to extract excessive value (more value than they create) then someone can create a clone and with almost no migrational friction you can swap to the new cloned system.
Another difference is that with all the best projects especially those being developed on PolakDot and Kusama decentralised enforced programmatically controlled governance is built into the system. As a token holder you have direct access to vote or appose significant changes in policy that would negatively affect you. You are immediately part of the ecosystem a beneficiary and a decision maker as well as a user. You grow financially as the ecosystem develops. You can use this wealth to buy expensive goods in the legacy world but most of us reinvest our wealth into new exciting projects and by buying more coins in the projects we love.
The last difference that I will list here is that some of us even begin to imagine a project that you would like to build, a new exciting project that fills you with excitement. A project that scratches an itch in our minds. With the wealth that we have created by being early adopters and investors we have developed the wealth, the expertise and a deep sense of what to create next. We become innovators and creators as well as early adopters and investors. The entire system is therefore continually regenerative, the early adopters are rewarded for early adoption, no group can ever gain enough power to become extractive on the rest for any length in time.
So crypto, for the first time in recorded history, promising the possibility of a generative ecosystem, a generative capitalism where you as a participant is free and encouraged to make as much money and generate as much profit as you can through your own creativity, by finding hidden gems, creating videos, writing code or whatever interests you but no matter how good you are and how creative you are you will never become entrenched in the structure and governance of any system you will never be allowed to make decisions on behalf a other people whose sole purpose is to benefit yourself and a few other elite, you will never become the CEO of a fortune 100 company with disproportional power over others, with the right to make decisions that only serve your pension fund investors to the detriment of your community the users, developers who made you great in the first place. In fact you will only continue to grow your wealth by serving others and helping them grow. You should only enter crypto if you understand that you will never be able to establish another FaceBook, Uber, AirBnB, Twitter or Google here. You can become exceptionally wealthy, you can become enormously influential, you can make a significant contribution to society but you will never be able to set up a structure where you extract abnormal wealth from captured users who are so bound up in your system that it is almost impossible for them to leave. This is the promise of decentralisation, by ensuring that you can never have so much power that you can abuse it as a central authority be that a bureaucratic, a politician, a banks, big pharma or a big tech CEOs.
In crypto the best way to generate sustainable wealth for yourself is to generate sustainable wealth for all of those around you, its built into the decentralised system as executable code and an ethos held dear in our hearts.
The benefits are enormous it is insane how creative and innovative you become when you are being rewarded for your innovation and creativity. It is incredible how creative you become when you know that you are playing in a system that cannot be rigged. It is incredible how your thinking changes when you judge every system that you interact with through the lens of where is this system vulnerable to attack, how do we design against that? Where can someone take control of this system and extract excessive value? Where is this system vulnerable of being used to abuse me? How could this system be designed so that no one human or group of humans have to behave as ethically perfect beings for generations to come for the system to remain free and fair? How can the system be changed so as to adapt to changing circumstances?
This is the lens that you learn to use when judging crypto projects. It is through this lense that I evaluate crypto projects this is why I am growing to love Polkadot more and more the more I learn about her. She addresses all of these issues not just within Polkadot but also for entire Polkadot ecosystem.