17 - A Bankless Nation (Part 1)

welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we are here to help you become more bankless david how are things my friend things are fantastic i'm extremely excited about this episode this has been a subject that i have been tossing around in my head for a long long time and i'm excited to break this down and pull this apart with you well what is the topic

tell us the topic is what are we all doing here uh so every person in crypto is kind of doing their own individual thing right the the whole cool thing about these systems is that there's so many different groups of stakeholders groups of communities right we have the builders we have the community members you have the investors the developers and each one is doing their has their own specific role in bitcoin and ethereum in these greater crypto systems right and so the different roles all depend on each

other there's this feedback loop between each individual one and it kind of just reminds me of that ancient parable of the blind men feeling the elephant right so you know one one man is feeling the leg and says like oh an elephant is like a tree and another blind man is feeling the trunk and it says oh an elephant is like a snake and none of them really get it right but they all get it right individually right because they're just they can feel and sense what they feel and sense and they they get that right but they don't get

to put things into context with the rest of the elephant and so that's that's kind of what i see going on in the crypto land right we call this the cryptocurrency industry or the blockchain industry and really if we consider like ethereum and bitcoin as blockchains we're selling them just so incredibly short of what they actually are like the blockchain aspect of these systems is the most boring part like a blockchain is just like a specific type of database uh an immutable database that just is

append only and that's not interesting like you can just have a blockchain running on your computer and have your data your computer be a blockchain database but that's just not interesting at all likewise like i mean money is definitely interesting and the cryptocurrency aspect of these systems is is decently interesting but it's just one part of these whole entire systems and the crypto part just refers to cryptography and it has nothing really to do with the money from the outside of the industry and the inside end of this

industry we haven't really figured out what actually emerges when you stitch every single independent piece of these blockchain crypto systems together and so i wrote this article called a bankless nation where i kind of illustrate what i think of these systems are and i think of them as digital nations and what a nation really is is a bunch of independent components that all kind of work together in harmony in this seamless fashion to produce this result and the

result is a place where people can live and coordinate and operate with each other and i see bitcoin and ethereum as a new version and a new iteration a new paradigm of what a nation is it's it is this central system that allows people to coordinate cooperate and communicate with each other uh across a shared set of like standards a shared protocol that we are all agreeing to abide by yeah i think it's a powerful analogy and uh

your piece uh this week on bank list it'll be last week by the time folks listened to it um was fantastic it was just part one so we're actually going to be doing a part two of this podcast and you'll be releasing part two of an article that further explores the topic of the bankless nation and i like how you framed that when i was reading the piece david one of the the the coolest things i took away was like this question of you know an alien comes down to earth and sees everything that that

humanity has produced its societies it's it's cities it's technology it's it's money it's it's morality and ask the question what are you guys doing here like what's what's this all about right what's the point yeah what's the point and the humans go we're trying to coordinate right like that's kind of the answer that that is why uh yuval harari talks about this in his book sapiens that is why man is sort of ascended from its primal roots and distance itself far distance itself from

the animal kingdom is because of our ability to coordinate in societies in nations and when we talk about nations i think people might get tripped up by that because the the the standard definition of a nation we think of a nation as a nation state right just like the us or china or um russia but what we're taking a broader view when we use the term nation uh as sort of a tribe of people organizing around a protocol right

and we're going to define that and talk about that a little bit and this is this is kind of the the why we're here it's it's it's bigger than crypto it's bigger than blockchain it's almost the story of human progress throughout history and our ability to coordinate and organize as a society so it's a it's a really deep concept too and that's why it's going to be so so exciting to talk about i've been mentioning to my crypto friends my ethereum friends my bankless friends like i wake up in the morning just extremely optimistic about the

world around me which kind of goes at odds with the world around us you know as we see it right there's there's protests across the nation across across the usa nation across also the whole entire world there's conflict between russia china u.s there's this pandemic but i've been waking up in the morning just extremely optimistic about the future and it's really because of the nation i see ahead of us and you know everyone needs a purpose in life and i think with

this article i've it was really more for me right it was really me trying to figure out what i'm doing with my life and and what i'm trying to do with my life is is show people that there is this new nation ahead of us and then we can all be citizens of it because citizenship is an opt-in thing it's not you don't ask for permission for citizenship of bitcoin or ethereum and so i'm trying to just raise the flag and say like hey there's this new way we can organize each other there's this new organizational scheme that we should all

operate by and it's better and so when i wake up in the morning i'm trying to spread this message as far and wide as possible there is this new nation this new frontier ahead of us and it is better and we should all go there yeah absolutely david all right man well we're gonna dive in uh you've got me excited to talk about this but before we do let's talk about some bankless tools from our fantastic sponsors first i wanna tell you about maltus maltes gives you the ability to run your business without a bank we're all on our

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things that you can do on ave first there are a tokens which represent interest-bearing versions of the tokens deposited into the ave borrowing and lending platform but the ave borrowing and lending platform is different from the borrowing and lending platforms that you may know on ethereum ave allows for fixed interest loans so that the interest rate doesn't shift under your fee as you are making your personal or business financial decisions uh we've all seen the maker dow interest rate go from a half a percent to a 20.5 percent

over the course of a year ave allows for interest rates that don't change which is a really important money lego for building stable dependable businesses on ethereum in addition to that there's also the flash loans which allow you to borrow assets with the xero collateral so long as you pay those assets back in the same transaction there are just a ton of use cases that i'm really optimistic about including being able to pay back your collateral from a maker dow vault and then open it up back again with a different collateral using the

ave flash loan system so there's no surprise that ave has been marching to the top of the d5 charts they have almost 90 million dollars locked in defy threatening to take over compound at number three with 93 million dollars in d5 so check them out at ave dot com that's aave.com all right david let's dive right in this is a bankless nation you know you talked about why current definitions suck in the intro of of cryptocurrency and

blockchain so the current definition the analogy that you've opted to use is the analogy of a nation i think we should spend a minute defining what a nation actually is like when we say nation most people think about america or they think about you know china or some nation state but but what is a nation at a more fundamental level yeah the the current iteration of nations are these like geographic areas that have these set of rules that people

abide by but if you want to look back into history we see different types of organizational schemes that if you kind of restrict the current the the current temporal version of what nations are you can start to see that different nations have actually come and gone throughout time and and different versions of nations and so there are plenty of different systems that fit the definition for a nation but before we go into those let me let me try and define a nation in its most

most general sense and so in in the article i say nations are systems that humans use as scaffolding for their daily activities they create the structure for the constituent components of a nation that compose them and i really like the image of a nation as an organism an organism is something that is composed of many different independent parts that each work to achieve its own individual goals but then when you stitch the component parts together they create the nation right and every

single nation is centered around like some sort of like dna right as a as a creature is as a an organism is the dna the protocol of the creature defines what the creature will look like at maturity it defines like where all the organs of a creature position themselves around each other and then as the as the creature grows it consumes resources and then it grows and develops into a larger and larger body uh and and nations do the same thing nations are like bodies they have

internal organs they have protective defenses they have offensive systems they consume resources generate outputs they produce waste and they are primarily concerned with their own survival nations also live in places of scarcity and they compete with other nations in order to do what's best for itself and you know even nations can often band together like other creatures in order to prove their own individual chances of success and so what really what nations really are are these tools that humans

leverage in order to access stability for themselves they offer organizational structures that people depend on for coordination trust and protection and then because they offer these services towards people the services of you know enabling coordination enabling trust and then also protecting the the system at large the nation is able to then achieve its own livelihood achieve its sustenance by charging taxes upon the people which the people are largely happy to pay because you know the ability ability

to coordinate and be protected is really beneficial so long as what they are paying is worth those things people are generally happy to to pay them so really what a nation is is a organizational scheme where people are allowed to produce an economy inside of and then the nation protects that economy using the taxes of the people of the system uh and and it grow and they just grow and develop and mature over time now there's

the important thing to understand is that there is no such thing as a immortal nation there all things in the world develop grow developed and then die they die of old age and and nations are no exception so some of the earliest versions of a nation and there are plenty of ones earlier than this but like the a big archetype for an early nation is actually religion and so religion is a creature that grows develops matures and has you know hasn't completely died they don't completely

die they just whittle over time um but they are replaced by new nations that offer these same basic services but without with less costs upon the people and this is kind of the age-old conflict that a nation or a state and i've spoken about this in in previous episodes at the the age-old tug of war between the people of a nation and the nation itself where the incentives of the nation are to be maximally extractive of the

people it's designed to look after itself and the more taxes it can charge upon people the better this is why martin luther nailed the 99 theses to the church to the door of the catholic church because it was saying you guys are charging too much you guys are not following the protocol you guys are doing things for your own benefit and your indulgences are costing too much from the people and you're not worth the cost that that of the extortion that you're making and so i kind of see this going on with our

current nation states where the the the populist uprising both of the on the right and the left in the united states are both generally reactions to the costs of the usa nation versus the benefits that that the usa nation is providing and that's why i'm so optimistic about bitcoin and ethereum which are these nations that are designed to be minimally extractive by design dude there's so much to unpack there there's there's so much in that right so a few things that you said a nation is like an organism right so it

has a has a lifespan it also competes with other organisms with other nations and you also said that when we talk about nations we're not just talking about nation states we're also talking about religions as well as as being kind of a a pro-donation as well or a different type of nation uh and i know we'll talk about you know the differences between maybe a religion nation of a religion or a nation-state and these digital nations that that we're creating um but like i guess in

terms of purpose here um let's get back to that for a second so you said the purpose is of a nation is is to provide security and um like eventually to like foster an economy so you create like this trust layer and we've talked in many episodes including the previous episode with nick carter about the the settlement layer of crypto versus versus nation states and how that's something that's like a property rights layer that is generally enforced by nation state but can also be enforced by crypto

currencies and you know chains like ethereum and and bitcoin but it like is the purpose here once you have those ingredients once you have the trust and the security and the law the settlement layer is the purpose really to grow an economy is that what we're trying to do here is to coordinate like growth and progress of an economy i think so and i think we can see evidence from this in the fact that animals always tend to group up over time there are very few animals that are just complete lone rangers and

that's because that being around other animals that you can trust and coordinate with is always beneficial to the individual and so like seven individuals being a pack allows for that pack to survive at a at a stronger rate than if the individuals were alone and so over time evolution has forced in the desire to trust and communicate and cooperate and coordinate around each other so that a group of of creatures a group of

organisms are are better able to find resources and survive and so we have the desire to trust and coordinate with each other baked into our dna baked into the into the protocol of creatures and and nations are no different so the dna of a nation the protocol of a nation is always designed to coordinate people to allow for people to coordinate commerce around each other and so the the whole idea about an economy is the

an economy is a tool it is a tool that people can tap into in order to achieve their own personal goals and the important thing is like one person can have one set of goals that means nothing to anyone else but the shared economy that we all tap into allows us to achieve our own individual goals with whatever they may be without having to dictate what those goals should be upon others so this economy is the central tool that we all use in order to

live our own lives and what a nation is is this scaffolding for an economy the protocol of a nation is a an ideological belief that this particular protocol that we have designed that we are creating is a good way to foster an economy is a good way to allow for commerce to happen and the way that a protocol of a nation becomes good is that it does the heavy lifting of coordination of of of trust and it does

that for the individuals so they don't have to do that themselves okay so like let's go back and talk about something because i i think we're making the argument here and you certainly made it in in your post that you know basically coordination is is is why humans have made all of the progress that we've made as a species as a uh as a like a you know a civilization right um but like but like why why is that required why is coordination

required um it feels like maybe there are some limitations in our biological wet wear like like like almost in our dna that make it so that we have a hard time coordinating um can you talk a little bit about that like why do we need nations to coordinate why has it taken us so long in human history to to get to the point of having like religions and having having nation states so humans have an inherent limitation on

how far they can scale their own individual trust and there's something called dunbar's number which is a number that is unique to every single uh mammal every single organism but the human dunbar number is 150 and what that means is that humans have a really hard time scaling trust beyond a hundred and fifty individual people and so hunter-gatherers nomadic country-gatherers they tend to never be in tribes larger than 150 because it a

a tribe larger than 150 tends to break down is that is that because like your brain just can't your brain can't handle it so you can't have enough close you can't have enough trust right with there's too many permutations of individual connections individual relationships for you as an individual to be able to hold all of those connections remember all those faces remember who to trust and who not to trust all at once it's too hard there's too much information there yeah like a basic a

basic way of saying this is like um uh you know i trust my family because i know them right like i grew up with them you know and i know which which which of the family members are trustworthy or not which i would loan to or not i trust my close friends right but like beyond that circle you know a somebody who's friends with me on facebook yeah i kind of trust them not really but like outside of that i don't know them well enough in order to to trust them right it's not it doesn't scale outside of some kind of like

number radius and i guess dunbar's numbers saying that's 100 that number is about 150 for most people absolutely and i think nicholas taleb said this right where as a model for how he treats others is uh somewhat related to this where he goes uh there should be communism among family socialism among friends capitalism among uh among your neighborhood among your state and then libertarianism among the world and that's really just an illustration of as you include more and more people in your

daily commerce in your in your economy you need to trust them less and less and less because you don't know who they are but so these nations these systems are a tool for us to scale up dunbar's number in a way that we can include them in our loki we can include them in our circles so if we were to set up like what's the fundamental problem like humans are better when we coordinate right like we can clearly see that we organize we create better technology we're better when we coordinate but the

fundamental biological limitation we have around that coordination is dunbar's number which allows us to which means that we can only trust up to about 150 people in that kind of sharing you know communist relationship if you will but apart from that we need technology and when i say technology like we're talking about the nation as a technology right like it's a social technology we need that that technology in order to scale it beyond a radius of

about 150 relationships is that right that's totally right and like imagine imagine what the world would be like if you know there are seven billion people on the world and and there are were 150 different like tribes it would it would not be the world that we would have today we would not have cities we would not have skyscrapers we would not have like innovation or technology or improvement or advancement at all we would just have 150 different tribes that couldn't trust other tribes and the nation is a solution for this the nation

allows us to coordinate among larger groups of people this is why new york city is like what 10 million people and it operates pretty well on a day-to-day basis yeah it's funny it's totally and it's funny it's funny how um in crypto even in crypto circles right so so people talk about the scalability problem of crypto right and they talk about it in terms of uh transactions per second right like this kind of limited very narrow technical definition of scalability right but but really what we're all

talking about and this is a fundamental like scalability dilemma with humanity is how do we scale trust that's what crypto and blockchains public blockchains like ethereum and bitcoin are actually trying to solve for right they're trying to scale trust and if you can solve that well then you've got something really incredible like a new substrate that can be built on top of absolutely and i don't think bringing this back into something concrete today like i don't think anyone

really thinks that it's possible that there's going to be like one single nation of earth right it's and especially in the last 10 years where we have seen a rise in populism i've seen a rise in isolationism uh you know the brexit where the uk uh exited from the eu we are just seeing a breakdown in the nation's ability this nation states ability to coordinate trust across the whole world and so what that really indicates to me is that if we really want to get the whole world coordinated

which is what the whole point of this whole human experiment is we're going to need a new system a new scaffolding to coordinate and trust each other around and it looks like the technology of the nation state is not going to be the thing that does that well okay so what's the prop so so i i know a lot of like globalists for instance right maybe partially in the progressive crowd who love that vision though of like one world one nation right but like what's the problem with that why doesn't it why doesn't scale why is that a bad idea i

mean i do believe in one world one nation i don't believe in one world one nation states uh and there's just so many problems with that is and one of the biggest ones is currency uh we're all using a different money to trade and trust each other with and money is one of these another tool that everyone uses and it's better when everyone uses the same currency but the nation state puts up its protective walls it puts up his taxes it puts up its military to protect the currency

and it it inherently puts the people of the world at odds with each other by forcing them to use different money different currency and so each individual nation state is using a different way of value expression a different way to communicate value by imparting different currencies upon each of its population but i could solve that so let's say the the one world one nation like no problem david we've got one currency now like it's called you know u.s u.s jabroni bucks whatever

that's our current well but why hasn't that happened like did i just solve it here here's here's another thought on that this is like uh this week um well so over the past three months the the u.s federal government has printed an unprecedented amount of money trillions of dollars 2.2 trillion getting ready to print another 500 billion okay right so someone argue we need it stimulus all of these reasons modern monetary theory all of these things right uh 500 billion of which went to the ppp program supposedly to

small businesses we know from some information that some of those funds went to large corporations who shouldn't have been eligible uh this week steve mnuchin secretary of the treasury says that the information about who received the 500 billion dollars in ppp loans is proprietary and confidential that the u.s public basically our money if you live in america it's your money as a us citizen

you don't get to see who actually received your money as part of a government stimulus your elected representatives should be accountable for right like to me that sums up the problem of like the moral hazard of one world one government that's the u.s imagine if that happened with like a centralized one one government overlord right corruption leaked in now these people are in power you can't get them out of

power they're not accountable to the people and what do the people do like you've put all your eggs in this basket and the basket turns out to be full of rotten eggs right uh that seems to be one of the main problems here specifically when the state has control of the monty of the money printer because they can do all sorts of things uh to reward themselves and what you could end up with and that's kind of my fear for for the us honestly is uh some

kind of a kleptocracy where those in power are stealing uh from like your elected officials are stealing from the public yeah that's that's a fantastic point and i think what you're alluding to is just the limitations that uh the incentive structure of the nation-state has in contrast with its people the the nation-state inherently has a stance against its own people because its people are the one group of people that can remove the nation-state from power and so if the current people

that are in power inside the nation-state remove the ability for the people to remove them from power then they have perpetual control then they have perpetual say over how things work and this has been a core reason as to why nations uh both of religion and uh and of nation states and all the other nations in in history have have failed is because the more successful a nation becomes the the larger a target it come becomes for

capture because the and the united states protocol i would say has been the best example of this the being able to influence control over the rules and regulations of the united states is one of the most valuable assets you have as an individual especially as an individual with a company or corporation inside the united states if you can make the protocol of the united states been to your will then you are inherently advantaged that's the the biggest weakness of the united states protocol and nation states is that those that are