Crypto is not an alternative to Capitalism

Blockchain is a technology, but for many, it’s also a promise of escaping the current financial system rigged by the ruling class and generational wealth. Cryptocurrencies can replace dreaded banks, and DAOs can supplant corporations. Once they do, everything will be good and fair.

On a fundamental level, you can think of DAOs as internet-native constitutions. Like regular constitutions, DAOs embed a fundamental set of rules and principles that establish an organization and determine its governance structure. But unlike regular constitutions, DAOs can execute some activities fully autonomously. For example, a DAO with its own internal capital can automatically buy and sell cryptocurrencies based on specific programmatic conditions.

One example of a fully decentralized institution is Uniswap:

Uniswap doesn’t actually exist in any technological (servers, accounts, log-ins, etc.) or legal (LLC, S-corp) form that we’re used to.* Rather, Uniswap is a decentralized protocol, and the governing body of that protocol is a decentralized autonomous organization (DAO) on the Ethereum blockchain

DAOs are appealing to the anarchists out there, looking for their perfect slice of non-capitalist utopia. But DAOs are built on top of the Ethereum network to execute smart contracts making it work. The more Ethereum you have, the more influence you can have over the organizations. They are literally running on money.

There are solutions to that inequality – for example, you can limit the number of voting rights a person can have or regulate smart contracts in a way to provide equity according to a more fair set of rules.

Proof of Stake

One valid criticism of Bitcoin and other cryptocurrencies is the significant environmental impact. New York Times explains that Bitcoin uses as much electricity as Finland or Washington State.

That is because the proof-of-work system is basically exchanging electricity to “mine” new Bitcoin or Ethereum. The brilliant minds behind Ethereum want to change that: Instead of working and burning electricity, they want you to just put up your existing Ethereum to mine a new one without using any energy.

In a proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over the token in proportion to the amount they stake. Generally, these token stakers get additional ownership in the token over time via network fees, newly minted tokens or other such reward mechanisms.

US News

Proof of stake solves the problem of the environmental impact because it is using the more efficient system: You get more power according to how many resources you have.

That is the essence of Capitalism.

I don’t consider it a bad thing. Capitalism is very effective at solving problems of people who have capital and inefficiencies of alternatives are wildly documented. I grew up in communist Poland and still remember meat shortages.

Blockchain technology promised to reinvent everything from the first principles and it arrived at a conclusion that capitalism is the most efficient way to allocate resources. Anyone from communist Poland could tell you that.