Power has historically shifted from governments to people. Democracy is the product of revolution and disruptive innovation by those who abhor the elitism of aristocracy and monarchy, who fear the one-sidedness of theocracy, and who see the impracticability of communism. More than ever, governments represent fairer and more reliable social contracts. How can we merge the rule of law with “code is law”, and can we have both?
As we contemplate the unstoppable power of decentralization, we must recognize the following: mass communications, intercontinental travel, widespread literacy, internet proliferation, pro-democracy movement, and the rise of gig economies.
Liquid load: individual control, instant gratification, real-time impact
The problem with taxes is the hostile tension that arises once a year between governments and voters. Ultimately, we fund senior officials whose judgment we trust less than our own. The solution is that we can monitor our community contributions in real time, on the streets we walk, with fellow community members as co-creators at the local level. Web3 is an opportunity to make taxes meaningful, to build a sense of community through economic power, and to enjoy paying our taxes instead of fearing the act. Liquid taxation works in the following way.
Imagine getting an estimated tax bill at the beginning of the year based on your income and assets. This rating will be loaded into your municipal crypto wallet. Throughout the year, if you see issues that need solving and causes that need to be supported, send whatever amount you think it’s worth. If you like, recruit friends to contribute with you from their tax pool. If you see something that needs attention, you create a funding pool for that problem, like a crowdfunding platform.
When people determine for themselves the problems and associated solutions of their own neighborhood in which they start a family and start working, the impact is easily measurable and immediately gratifying. It creates a sense of community when local issues are dealt with so quickly and efficiently that they don’t have to be tampered with at the national level. At the end of the year, everyone gets a summary of how they’ve contributed to their own economy, how much of their tax bill has been deployed, and what kind of benefits they’re earning. Thus, taxation is done in real time as an instrument of liquid democracy. Places become isolated from the delay, human error, asymmetric information and bureaucracy of higher governments.
If you don’t spend your tax bill, the difference will go to your local government to be used at its discretion. If you spend more than you actually owe in taxes, you get money back. If you feel like it, you can delegate your tax spending power to a friend or family member whose judgment you trust. If this all sounds like a decentralized autonomous organization (DAO), it’s because that’s a potential instance of liquid taxation.
Related: Decentralized Autonomous Organizations: Tax Considerations
Smart contract procurement: automation, scale, economic efficiency
Government spending is inefficient because of bureaucratic silos. By automating procurement contract negotiations between suppliers and government organizations, we can save government finances and help large companies earn more money.
It helps everyone distribute effective products and services from city to city, state to state, and department to department. Smart contract procurement can also automate and align the terms for termination and refund when things go wrong. In the world of Web3, procurement will not happen through legal, political and bureaucratic teams that act both redundantly and inefficiently.
Smart contract purchasing is more meritocratic and competitive than what we have today. It is also a resilient tool for public sector agents who often receive less than they earn from the private sector. On top of this system, we can set up smart contract microbonds and municipal utility tokens that attract discretionary funding for local problems.
Related: What Are Smart Contracts in Blockchain and How Do They Work?
Multi-currency monetary system: from physical to digital, national to local
The problems with physical currencies are well known. Digital currencies offer superior traceability, security, privacy and administrative convenience. The problem is that central banks issue a common currency for a diverse set of jurisdictions. Just as it makes sense for the world not to have a single planetary currency, it also makes sense for a country to have a diversified set of currencies that are interoperable between the federal, state, and city levels.
Related: From Cash to Crypto: The Cantillon Effect vs. the Nakamoto Effect
Decentralization does not mean crypto anarchy. It means moving power and responsibility into places, from abstractions like federal governments to frontline agents like city governments. “Power to the people” means power to the cities. Local authorities and neighborhood communities should solve their own problems rather than negotiate with higher levels of government and tie their hands.
Multi-currency monetary systems have the following benefits: 1) preserving value created and shared within local communities; 2) alleviation of administrative burdens of higher authorities; 3) enabling a nation’s microcosm to interact autonomously with solving “North Star” metric problems in real time; 4) isolation of city and state economies from the adverse effects that come down to national and international economies. With a physical coin, this model would be a total mess. However, with a digital currency and smart contracts, this model is possible for the first time in history.
Community involvement, social resilience and economic efficiency are the foundation of the social contract in liberal democracies around the world. With the unstoppable power of Web3, we have the opportunity to make public administration and financing fair and fun for the first time in history through liquidity, smart contract buying and multi-currency monetary systems.
This article does not contain investment advice or recommendations. Every investment and trading move carries risks, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the author only and do not necessarily reflect or represent the views and opinions of Coin-Crypto.
Originally from Tokyo and Seoul, Luke Kim is co-founder of Berkeley Blockchain Xcelerator, co-inventor of two blockchain-based public finance models in partnership with a US mayor’s office, Partner at Truth Cartel, and co-founder of Startup Grind Berkeley. He is an investor and advisor to changemakers in the world of Web3.