Peter McCormack: I’ve been coming to San Francisco now, I think for 11 years and it’s changing a lot and not always for the better. There was a syringe outside as I came in, I went for a jog the last time I was here, ended up in the Tenderloin, I didn’t know the area and I was like, “what the fuck?” You’ve obviously witnessed it?
Balaji Srinivasan: Yeah I’ve tweeted about it a little bit. I think that the center here is starting to realize that things are kind of getting out of control.
Peter McCormack: When doing my research, I saw that Mark has said you’ve got the highest output of ideas and that you’re like a machine for ideas! Do you have ideas to solve these problems in San Francisco, because I know people are moving out and leaving because of this?
Balaji Srinivasan: Yeah I do, but I think it’s got to be at least multiple options. I gave a talk a while back, around six years ago on like Voice versus Exit, which conceptualizes… Voice is choosing to try to change the current system and to try to reform it, whereas Exit is to leave. For example, Voice is voting, Exit is immigration. Voice is submitting a bug report, Exit is forking. Voice is trying to do a turn around of a company, Exit is leaving to start your own and so on and so forth. I really believe in that and I think it’s a very powerful meta framework to look at a lot of things. So I think it’s actually good that folks are able to leave, that they leave for LA or Austin or Singapore or Switzerland or what have you.
I think that frankly should be the default option, because that is sort of guaranteed and that’s under individual control, whereas Voice is very much not guaranteed and in fact, sometimes cities do just die and fall off the map. Florence used to be this huge center of the world and kind of isn’t any more. Portugal used to be a big player in the age of exploration and really isn’t. So you can’t really bet on something actually getting fixed.
So A, I’d say Exit is your first option, but for those folks who are trying to fix it, for example Steven Bus, I retweeted him, he’s actually a former employee of mine, now a council at Google, very smart guy and has been working with Sonja Trauss and other folks on the YIMBY squad and they’ve actually… It’s not my style of things, but their persistence, three yards and a cloud of dust in an American football sense has really, to keep the metaphor going, moved the ball forward over the last few years where the whole YIMBY movement is now I’d argue, kind of where the center is and that’s a big change.
These things have inertia, but it feels like things are shifting. There was this attack on this lady Paneez, a completely unprovoked attack outside her apartment, it was on video, totally ludicrous of the person who was on the street a few days later, a violent criminal with no punishment. That was also kind of a turning point because everybody could see that happening to them and I think you’re going to start seeing change in the city. I’m not exactly sure when, but anyway that’s a high level.
Peter McCormack: I would’ve thought if there was a mass exit of employees or you couldn’t recruit the people and you were the type of company who wasn’t too into remote working, it might put a bit of pressure on the companies out here to want to make a difference.
Balaji Srinivasan: Absolutely! I think there are a lot of CEOs, and not just CEOs, founders, executives, engineers, anybody who works in tech over here who recognizes this is a recruiting problem. There’s a number of strategies, but these are some of the ideas that I can’t talk about! But there’s a number of strategies out there for trying to push things in a positive direction. It’s sort of like, for example after Obama won in 2012, they need to be able to give away the campaign playbook. There are articles on it like postmortems or what have you. I think after tech wins, they’ll give away the campaign playbook, but there’s a lot of folks thinking about this now.
Peter McCormack: Well listen, thanks for coming on. I’ve been pestering you for a while. Do you know how long?
Balaji Srinivasan: Like a year and a half or so?
Peter McCormack: It’s 14 months!
Balaji Srinivasan: Very persistent!
Peter McCormack: Well, do you know what? You have to hustle and you have to ask for favors and there’s a list of five I’ve got on my list that I’ve always struggled to get. I’m not going to name the others and show them up, but you’re one of them, so I really appreciate you coming on! You’ve obviously got a lot of experience in this space, you’ve done a lot of things, you’ve got strong views on crypto, you’ve worked for some of the biggest companies, you’re a VC, like there’s a lot here. I’m going to want to unwrap as much as I can, but I think a good starting point would be, I actually want to just go forward a bit.
I saw a really interesting interview with you, where you talked about these future VR worlds. What really struck me then, is you said that VR isn’t there yet, but in some ways it is, because I look at what’s happening at home with my children. My daughter is only on Roblox, my son is on Minecraft and Fortnite. These are virtual worlds, they’re just living it without a headset. But my daughter’s fully in Roblox, she’s building a house, she’s coming to me and saying, “dad, I need a unicorn” and I’m having to give 10 bucks or 5 bucks whatever.
So that world you’re seeing is happening, it’s just not with a headset. Can we kind of unpack that, talk about that future world you see and also why you think the VR bit hasn’t actually happened yet? Because there is an intersection here with crypto.
Balaji Srinivasan: Absolutely! My one liner is that I think VR will be to crypto, what the iPhone was to the internet. The internet was obviously going before the iPhone, but then post 2008, when you had iPhone apps and people could program for it, it just started going vertical. Everything became more useful when you could do it in a mobile form factor. Google maps became more useful, email became more useful, Twitter became more useful, because you had this device with you and it’s ubiquitous, you don’t have to just sit down in front of the desktop to do it. You can watch movies on the go, all this type of stuff.
Mobile was useful because humans are mobile and you might say, “well, what is VR?” VR is sessile, it’s a compliment to mobile. The big thing about VR is virtual reality and virtual currency go hand in glove. Just like with the iPhone we had precedents, the Palm Pilot was out 10 years before the iPhone. In fact, it was something that Peter Thiel and Max Levchin, they actually wanted to base PayPal on the Palm, because it was so ahead of the curve. They were thinking about mobile payments 10, 20 years before it became ubiquitous. I think virtual reality plus virtual currency is one of those very obvious marriages where we already have proof points.
You’ve had World of Warcraft and people buying and selling Warcraft Gold in China and Blizzard trying to stamp it out, that’s been going on since early 2000s. You have free to play games, you have Zynga, you have the use of credits in many different kinds of online systems, like iStock photo or what have you, obviously you’ve got frequent flyer miles, you’re starting to get a little further from games there, but the point being that kids are playing games a lot, so are adults. What hasn’t hit yet, but I think it’s there now… Oculus Quest is actually quite good. What hasn’t hit yet is a VR platform with the canonical killer app that gets a million or 10 million folks to put on a headset.
Once that happens, you can now not just have virtual reality and virtual currency, but what you get is a virtual economy. One way of thinking about it is, another big trend is remote work information work. Essentially what many people do, they don’t necessarily think of it this way, is they hit keys and fashion pleasing configurations of electrons and then they send them over an internet connection. You’re making like little sculptures and you can hit enter and you can copy that sculpture, that electron sculpture to another computer or a million other computers. It’s exactly like this high fidelity replica of exactly the electrons you configured locally.
What does that mean? So that’s obviously engineering, it can be thought of like that, but design as well, law, increasingly a lot of medicine and a lot of diagnoses like that, journalism, like video production, audio production and what’s interesting is it’s going to start getting into physical tasks as well, because lots of these robots will not be fully autonomous at the beginning. They’re going to have telepresence to control them. So if you’ve seen these beam robots for example, you can kind of move them around remotely, Edward Snowden used them to get into a conference or what have you, it’s like a TV on wheels basically.
But you hook something like that up to a Boston Dynamics humanoid form factor, you put those two things together, so Boston Dynamics thing can walk around, it’s got humanlike or animal like agility and the beam robot has telepresence. You put those together, you’ve got to a telepresent humanoid and now you can now have somebody be a “migrant worker” without actually having to leave their family. So you can have them go and they can just SSH in, they telepresence in, they can do whatever tasks they need to do, they get paid a salary and they come back and now they’re with their family and they don’t have to uproot.
Even if they can’t get a VISA, it doesn’t matter because they can connect. These are things which our current political system is not even designed for, because what it means is that your immigration policy is now your firewall. Can you prevent an encrypted connection coming over the internet? If you can’t, then somebody can animate a humanoid robot and walk around and do things. That’s not far off, what I’m talking about. You’ve seen Boston Dynamics, you’ve seen the telepresence stuff, we’re just talking about system integration.
I mean, when you say “just”, that’s always tricky to do, the latency will be the trickiest thing. But when you put that together and you start thinking about lots and lots of different professions being amenable to remote work, to digital work. Even five or six years ago, Rio Tinto, it’s a mining company, you might be familiar to them. So they were running fully autonomous mines out of Perth and this is actually where autonomy will and has come first.
Everybody talks about autonomous driving trucks on the highway, but when you’re on private property, when you’ve got a controlled environment, when it’s fenced in, we’ve had autonomous trucks for a while, because you can set up the entire thing. There’s no unexpected turns. There’s no traffic on the road that you don’t control. It’s like a so-called turnpike in the original sense of a turnpike, a private road. You can instrument it with sensors. You can set it up for autonomy, just like you can set up an assembly line to operate autonomously, it’s just like a little larger than an assembly line, it’s like a private mine or a private farm.
This is also happening in agriculture. Autonomous farming is way advanced beyond where people think it is. So you add all this stuff up and so that’s all the information professions, that’s lots of physical labor that’s actually mining and farming, huge chunks of the economy are now amenable to digital work. So that’s the kind of stuff that you can pull into a VR environment and earn virtual currency for.
Peter McCormack: Hey, it’s going to save me a bunch of flights a year!
Balaji Srinivasan: Yeah exactly!
Peter McCormack: Because do you know what, the reason I do my interviews in person is, however well you think you can do them online, it’s a 2-D environment. Whereas when I’m sat with you, it’s a 3-D environment. I see your gestures. I can see slight movements in your mouth where I know, “okay, you want to talk, you want to speak.” I can’t do that remotely and the in person interviews are much higher quality, but I guess in a VR environment, I put on my headset, we can sit opposite each other and it would be a very similar experience.
Balaji Srinivasan: Yeah, so the key is actually, what you need is a camera that is high fidelity enough to record every micro twitch like that and fashion an avatar in VR that has that degree of body language or what have you. That’s getting close. Facebook has a project called Facebook Avatar, that starts to get hyper-realistic avatars in VR. Again, you’re talking system integration. You’ve seen deep fakes, you’ve seen the extent to which you can animate all the muscles in a face on a computer.
Peter McCormack: Have you seen that new Chinese app that just came out this week? Within seven seconds, you can imprint a face on a video clip and it’s you. That blew my mind.
Balaji Srinivasan: Absolutely! So I think the next generation of VR cameras or VR headsets may have some kind of two-way setup. The tricky part is going to be recording the configuration of the eyes and so on, but that’s all potentially feasible. You just need a camera for the rest of your face and then something to record the position of the eyes and whatnot. I mean, eye tracking software already exists, so you kind of integrate these things to get a hyper-realistic VR avatar and now you just hyper deflate the cost of travel.
So it doesn’t matter what immigration restrictions people put up or tariffs or things like that. If you can connect over the internet, boom, you can materialize and you can meet up. Now of course there’s still going to be in person and actually one of the things I’m sort of long-term bull on, is perfumes and food because VR can digitize sight and sound and to some extent touch via haptics. So those experiences will hyper deflate. You’ll be able to walk around the Louvre so on. Anything that’s a visual thing, you can be put into that. But perfumes and foods, we don’t yet have electronic scent.
Maybe you could stimulate nerves or something with neural link, that’s a little farther off and I don’t feel the proof points are there yet. So that stuff actually I think will become the compliment. Then of course there are things like, humans can’t yet reproduce over the internet! So there’s always going to be a reason to meet in person, I’m not saying it goes away. I am, however saying that what we can do over the internet, we aren’t even fully there yet in terms of we can do.
Peter McCormack: So it’s really that transition from VR being a toy and fun, to being a tool. In that world where people are able to complete work tasks and be paid, naturally they’re going to be people who are going to be creating the bots that can automate those tasks. So we will live in a very kind of strange world where it doesn’t feel too far from the Matrix, where a lot of it is automated and a lot of it could get a bit weird. Do you think about that? Do you worry there’s risks of this?
Balaji Srinivasan: Well it’s interesting. There’s this term “NPC”, that is “non-player character” that’s common in video games. One thing that’s sort of funny is if you play a video game and you walk around and the way you interact with a shopkeeper in a video game, they’re an NPC and they’re kind of on a script. For the most part, like some video games will let you draw your sword and get in a fight with the shopkeeper. But for the most part, there’s the player’s character, other player characters and there’s NPCs.
A funny thing, somebody I was discussing this with the other day, most people who you interact with on a daily basis, obviously there’s your co-workers, there’s your friends and family or what have you, but lots of people walking down the street in a simulation, you wouldn’t really be able to tell the difference. You’re not probing their internal mind state, you’re not really having a conversation with them.
The folks who you’re walking down the street within a crowd, might as well be NPCs. In VR they maybe could be. When you go and buy something at Starbucks, you’re not engaging the cashier in a deep conversation, that would be inappropriate. So it’s as if that person could be an NPC. Now by the way, this is no diss on cashiers or anything like that.
Peter McCormack: But it can happen. You can go into Starbucks and you can have a conversation, you can strike up a conversation.
Balaji Srinivasan: It’s true, but most people do not. Even so, the point is that you could probably get pretty far in terms of an environment where there’s only maybe 20 humans playing, but 10,000 NPCs and make it feel a lot like a normal environment. So long as you didn’t push in, the so-called NPCs, too far outside their script.
Peter McCormack: Do you see it though, getting to the point whereby this is a world that people plug into, because they prefer it from the real world, like Ready Player One stuff.
Balaji Srinivasan: Yes.
Peter McCormack: Do you think therefore it would be important to know who is a real human and who isn’t? Almost like you could be cheated? I mean, if you go as far as thinking, I’m trying to remember the Joaquin Phoenix film where he builds the relationship.
Balaji Srinivasan: Her.
Peter McCormack: Yes, Her! But what if you build a relationship and it’s not with a human and you’ve realized that it’s not. There’s certain grey areas.
Balaji Srinivasan: The thing is, this sort of already happens. I’m too old for Tinder and married, whatever, but catfishing does happen. Folks build relationships with essentially artificial constructs that are not the human being who they thought was on the other end. That’s actually pretty common. So what do I think? I think certainly there’s deep human relationships where you’re fully Turing testing the other person. But I think an interesting insight is most human interactions are not like that. That’s really the core of what I’m trying to get at.
Most human interactions are not deep Turning tests where you’re getting into spirituality and religion and deep beliefs and so on and so forth. Most of them, frankly from the Starbucks cashier’s perspective, you’re an NPC. You’re just another person queuing up, latte or whatever, truly they could be in a Starbucks simulator and once in a while a customer acts out or does something weird, but basically you’re just queuing up. Could they possibly remember one of the thousand interchangeable people who comes every day?
I don’t know, if they’ve got a really good memory, maybe? So I think there’s something to that, because you might say that sounds dystopian or bad as an observation, but there is a good aspect of it, which is for some people, they enjoy something like mathematics. Frankly, if I have only one thing that I can do and you say, “I can only do one thing for the rest of my life”, and you say, “okay, I’ve got the printed companion of mathematics”, okay, I’ll at least be reasonably happy. Give me a pen, pencil and that and I can work on that pretty much for the rest of my life.
For a lot of people though, they really want some kind of social connection, social approval, affirmation etc. So in this kind of VR environment, if people don’t really know who’s real and who’s fake, you could have every woman a queen, every man a king. Everyone’s a winner because everyone’s super popular. Everyone has thousands of people telling them how great they are and so on and so forth.
Most people can’t be celebrities outside. What VR and AI and this NPC thing could do, is it could hyper deflate the experience of being a celebrity, because all these people are watching this stuff on television and are like, “oh, I wish I could be LeBron. I wish I could be Ariana Grande” or something like that. That’s a very common aspiration for people. For people who are like that, the VR environment would probably be better to them, than their offline environment.
We already see this with lots of young men who just basically play video games all day because it’s frankly better than their offline environment. People say, “oh, this is a bad thing” and I can understand how it’s bad. There’s interesting study that shows such men are actually happier! There’s no way that they can achieve maybe that level of success or they think they can’t in the offline world. VR; every man a King, every woman a queen.
Peter McCormack: Yeah, I tell you, it’s this funny thing because if I could put on a VR headset and ended up scoring the winning goal in a world cup final, that would be great, but I don’t ever think it would feel authentic enough, it would still feel like a game.
Balaji Srinivasan: So let me give a potential counter example to that. If you think about what’s happened to Twitter over the last 10 years.
Peter McCormack: I’m on the naughty step today, I’ve got a 12 hour ban, my first ever!
Balaji Srinivasan: I’m sorry to hear that! Well Twitter in 2007 before the Arab Spring aspect, it was people tweeting their breakfast. It was considered ludicrous and the idea that it would be an international incident that could start a nuclear war 12 years later, that every politician would be on it, in every country, in every language, that a significant fraction of newspaper articles would essentially be wrappers around tweets that people would routinely on a daily basis get fired for this, that people would care so much about this, that the venue of politics would shift from offline to this public war zone that we’ve developed and can’t seem to escape from, that would seem impossible. But that’s what it is!
Peter McCormack: Yeah, but I’m not sure if it’s made things better or worse and it’s not a binary answer. It’s made certain aspects better and certain aspects worse. I think things have become more divisive and argumentative, but it’s also a free knowledge up, it’s opened knowledge out to people and it’s allowed people to engage directly with people they can’t normally reach, which is good.
Balaji Srinivasan: So what you say there I think is a very important special case of a general observation. One of my sort of general rules, which is the internet increases variance. In anything, you’ll get more upside and more downside. For example with Uber, if you compare them to taxi rides, they have both extremely long rides and taxi rides don’t and extremely short pickups. If you take the 30 minute sitcom, we now have ten second GIFs and you have 10 hour Netflix binges. You go from, this person is working in a gig economy job from a normal job, to, oh this person has made a killing in crypto.
So variance just increases where you started out with the 30 minute sit-com and the 9-5 job and stuff that was sort of bucketed in this slot. Then you’ve got things that are much smaller than that and much larger than that on both ends. What do I think is good about Twitter? What I love about Twitter and the reason I’m on it still is that, at its best, you can find people of like-mind, you can learn and you can learn about all these different professions. I actually spend most of my time on Twitter in read only mode. I learn about geophysics, I learn about the politics of some country that I’ve never visited and I just use Google translate and I read like a thousand tweets, I’m like, “oh okay, so this, this and this.”
You can learn about history and all types of stuff you can learn about, it’s like this library. But it’s a library combined with a civil war! So you’re here studying and there’s people who are just shooting at each other. Sometimes you’ll put out something which is meant for your audience of folks who want to study and think and then one of the war zone participants will catch wind of it and come over and start shooting at you and try to pull you into the ongoing worldwide social war that we have. So what I actually think ultimately happens not just with Twitter but with Facebook and all these other things is we are unbundling and we’ll eventually rebundle the nation state.
So I think that is the macro, the most important consequence of the smartphone, the internet, crypto, VR, all of these things together lead to something called Tiebout sorting. I remember writing up some equations on this a while back, and then I went and did some research and like everything, somebody invented the concept 50 years ago, seven years ago, whatever. So Tiebout came out with this in I think like 1950 something and it’s an incredibly prescient model, where essentially he says, and he’s got like seven assumptions.
He’s like, if people have perfect information and they can move anywhere, like migration costs are very low and there isn’t spillover effects between communities and so on and so forth, he has a model for essentially how you can solve the free rider problem in politics, where folks can essentially move between jurisdictions, to the one that suits their preferences. So basically you treat your ballot not as somebody to be aggregated alone, but as a search query.
Okay so for example, you check off, “here’s my preferred tax rate, here’s my preferred abortion policy, gun policy, gay marriage policy”, whatever, you have your vector of preferences. Rather than simply aggregating that with other people in your current geography, you treat it as a search query and you rank order all the jurisdictions of the world.
Here’s Singapore, here’s Switzerland, here’s this, here’s that and here’s their match to my set of beliefs and then you migrate there. Now before that happens offline, that’s already happening online. That’s your Twitter followers, that’s the Facebook groups you’re joining, this is happening organically now where you’re searching for certain things, that’s the Bitcoin and crypto community.
Peter McCormack: I’m laughing because I’m being drawn personally into America.
Balaji Srinivasan: Interesting!
Peter McCormack: So I’ve built my podcast and I’ve travelled a lot here for my guests. My 50%+ listeners are American. I’m getting sucked now into American politics and discussions. I just did a show about gun rights and I’m trying to understand that and now I’m looking at how do I move here? How do I emigrate here? So I’m living what you’re saying.
Balaji Srinivasan: Exactly! So basically I think that aspect of folks finding their ideological compatriots in the cloud and then migrating physically is the story of the century. That is the big thing that the internet is going to catalyze, a gigantic wave of mass migrations where folks meet their co-religionists or their co-ideologists in the cloud and form communities offline.
Some examples include, I had an article on this in 2013, called “software is reorganizing the world”. Wired has messed up the formatting, I should probably repost it on my blog or something. I’ve got to get my blog up by the way. I’ve got so many blog posts I’ve just been holding back for a while!
Peter McCormack: Well I did notice. I clicked on the link and it took me to Medium and there hasn’t been anything since I think 2017?
Balaji Srinivasan: Oh yeah. But what I do is actually have on the order of a hundred blog posts written, I just haven’t published any of them. Part of the reason for that is, and I’ve got them all on my phone or my local thing or whatever, part of that is just because whenever you are a founder or an executive or CEO or something like that, you really want to minimize unnecessary drama. This is something to understand as to why, because you asked about VC and what have you, why do we try to maintain message discipline?
It’s not always successful, but the reason is because it’s selfish for you to cause unnecessary drama when your employees and your investors and your customers and so on are depending on the continued health of your organization. As an executive, you typically only want to take the minimum necessary number of polarizing positions, because every polarizing position you take can cut your support base in half or at least, even if it’s 70% support for the issue, you’ve just lost 30% of the audience.
Peter McCormack: So that’s the complete opposite of what I have to do. I take polarizing positions, I’ll sit in one camp and then I’ll sit in the other camp to try and see what the different arguments and points of view and then open up and understand the debate.
Balaji Srinivasan: Absolutely. So as a commentator, where you don’t have a social network supply chain, this actually is I think a critical concept. People talk about a supply chain, for example, your building the iPhone and you’ve got a supply of aluminium and a supply of rare earth elements and glass and all this stuff and there’s multiple vendors for that thing and so on. If there’s a supply chain disruption, like an earthquake, and suddenly you can’t get your rare earth elements, well you better have a backup plan or else the price is going to spike. So that’s the supply chain.
A social network supply chain is something where you visualize yourself and then you visualize all the nodes around you. Here is your manager, here are your co-workers, here is this key vendor, here are these investors, here’s this customer. You actually want to look at these folks and say, “all right, which of them would go South in the event of a negative news article coming from this or that political direction.” Because that’s what a social network supply chain disruption looks like. Your manager is like, “oh, I can’t believe said that”, boom, you’re fired. Your investors are like, “oh my God, you did this!” Pulls the funding or doesn’t re-up.
Your customers, maybe like, “I can’t believe you’re associated with this” and then they’ll pull it. That’s becoming a bigger and bigger thing everywhere. The most common of course is American politics, that’s what people think of, but it’s certainly true within crypto. There are projects where, I would argue they’re technically meritorious, but because they’re on the other side of a crypto tribal divide, “oh my God, I can’t believe you tweeted positively about that or liked it” or whatever. I think crypto is actually the best place for this relative to normal politics and the reason is, crypto does give people an incentive to admit they were wrong.
Peter McCormack: But they don’t enough! I want to come to that, but we went on a tangent and do you know what was in my mind? When you were talking about geography, the thing that was going through my mind, it was almost like you were talking about a free market for geography where the currency is your belief system?
Balaji Srinivasan: Yes, that’s exactly right and I think the Tiebout model basically says, if you can find your compatriots like this and move to them and your movement cost is zero and you can work from the new place without disrupting your income and so on, then no matter how mixed up the initial world is, you will get this rapid sorting of people into the Republic of X and the town of Y and the city of Z, that reflect the respective beliefs.
It’s actually a different model for diversity. You have a thousand different micro cities, microstates etc, that are pure examples of a particular way of living. In my 2013 article, I made a table of what I called cloud formations taking physical shape and what’s a cloud formation? I defined it as a group of people who meets online and then meets up in person. Say there were strangers who met online for the first time and then they met up in person. So for example, a two person cloud formation, meeting up for a day, that’s like two people meet on LinkedIn and they come together for coffee or whatever.
What’s two people for a year, that’d be like E-harmony. Two people meet up on E-harmony and a year or even 10 years, they’re married, they’re together. What’s 100,000 people for a day? Well, that’s like some of these protests. Folks meet up online and they come together. What’s like 70,000, 100,000 people for a week? That’s Burning Man. You start to see this table of scale and duration. There’s no upper limit to the scale and duration of these cloud formations. In theory, you could take 100,000 people from the cloud and have them live together for a year or 10 years.
That’s what I call cloud cities and eventually cloud countries, will sort of distil out of the cloud into physical formation. We’re still at the early stage of that. But startups are recruiting from the internet. YCombinator is recruiting, every conference, like a Rails conference, Django conference, there’s no offline thing, there’s no store that sells you Django. You go and learn about it online and you come to the conference. So we’re already seeing this thing happening and it’s happening in many different ways. What hasn’t yet happened is for it to turn into new political units, but I think that’s where it’s ultimately going.
Peter McCormack: Do you see this as part of something that will ultimately lead to less government and potentially the demonetization of the state? Because cryptocurrencies are a natural fit within these environments. The idea of Bitcoin is that it separates the money and state, hopefully it leads to less wars, less violence. I think I heard you say, but you might’ve quoted it from the Sovereign Individual, that violence can’t solve math. So do you see this as all part of that?
Balaji Srinivasan: Yes. That quote by the way is, I think from Julian Assange, “no amount of violence can solve certain math problems”, meaning that with strong encryption, it doesn’t matter if you have an army, you just need compute to crack it and frankly, if you know the password, you can crack it or the private key rather, it’s much faster. Reverse backup to your other point.
Peter McCormack: So one of the things about Bitcoin, which draws a lot of people in is the separation of money and state. Can this take power away from the government and whether or not it can happen, a lot of Bitcoin maximalists look to a future of hyperbitcoinization, there with privacy that hopefully the state can’t tax or take your money from you and therefore you demonetize the state and you make the fiat currency of little value so they can’t buy weapons and they can’t weaponize and attack other countries.
That’s like a future desired outcome. What I’m hearing you talk about here in terms of these virtual worlds that you get to live in part of your time and potentially consider new places you’d like to live, how do you regulate that? It becomes very difficult to regulate that and do these online environments with the cross section of cryptocurrency, potentially accelerate that demonetization of the state because there’s this whole online virtual world happening, which they can’t potentially control or stop.
Balaji Srinivasan: Great question. So there’s a quote from I think Jim Barksdale in the 90s or mid 90s, it was kind of an offhand comment he made, this is the guy who worked with Mark Anderson on Netscape. He said, “the only two ways I know how to make money in business are unbundling and bundling” and it’s meant to be like a throw you for a loop kind of comment, like what is he saying? It’s extremely true and so I’ll give some examples. The MP3 unbundled albums and Spotify rebundles them in playlists.
What the internet did is unbundled news and then Twitter sort of rebundles them into feeds or hashtags or what have you, like they’re grouped again by something. You can see the same thing over and over again. You first fracture fragment the existing thing and you break that business model and then new business models form, because people sort of want some form of discovery, some form of curation etc. At first you might think, “oh I’ve just come back to the same place.” But I think of it more like a corkscrew, where lots and lots of things are cyclic.
For example, you start a company, you gain employees, you eventually create a bureaucracy and then someone leaves to go and start a company. But there’s actually progress along the Z axis. As cyclical as these things are, there’s kind of like a corkscrew, kind of phenomenon up and it’s so true for the unbundling and bundling. So the way I think about how hyperbitcoinization and so on maps to this, and I’m very sympathetic to a lot of that stuff actually and frankly, I think I was one of the earliest proponents of this stuff. I was kind of, should I say a maximalist before Bitcoin maximalism occurred? Kind of. I definitely got a lot of people into Bitcoin very early in Silicon Valley.
Peter McCormack: So you unbundled your maximalism?
Balaji Srinivasan: I called myself a Bitcoin Nationalist and I can tell you why.
Peter McCormack: Bitcoin Nationalist, that’s interesting. So someone you know very well I got on the show was Lilly. She’s a Bitcoin Rationalist. So I’ve heard recently, that I quite like, was a Bitcoin Centrist.
Balaji Srinivasan: We can get to all that, but basically let me talk about the hyperbitcoinization part first. So hyperbitcoinization, do I think it happens? Yes, in the sense of, I do believe that the short term incentives for lots of States that can print, they will print and because it keeps them in office, it’s like a way to kick the can out X number of years. So the short term incentives will lead to BTC kind of rising. It’s amazing to see the President of United States or the head of the Fed or the chair of the IMF or the head of the BIS, everybody knows about crypto, every head of every major bank. It’s one of those things where you’re accelerating and each headline, none of those things I’ve said is surprising from the 2019 contexts.
From 2013 or 2011 or 2010, that’d be mind blowing for people to actually be taking it seriously. It’s very clear to me that that’s where we’re headed. So that’s the unbundling. Governments that are not internationally competitive when it comes to their various policies or that are unwise when it comes to their monetary policy will print and they’ll go away. But not all governments are dumb because I think a very important concept is to go from the State or the government to a government. There’s 193 nation States worldwide roughly, give or take. Some of these States like Estonia, Israel, Switzerland, Singapore, and actually China are run by engineers.
Estonia’s Toomas Ilves was a Princeton computer scientist, Benjamin Netanyahu, who has a degree from MIT, Lee Hsien Loong who’s the son of Lee Kuan Yew, runs Singapore, he was a Wrangler at Cambridge, so a super smart guy. He actually posted a Sudoku solver in C++ on Facebook, which I was actually like, “hmm, that’s pretty legit!” So these are folks who think like engineers, have the training of engineers and frankly actually, China does as well. All the folks who have run the Chinese Communist Party are, like Xi Jinping I believe is a civil engineer, Hu Jintao is an electrical engineer and so on.
They really select for engineers there and that’s why, like the Great Firewall they implemented in the early 2000s as an instrument of policy seeing pretty far ahead. You might ask, “okay, well how many people in the US government even know what a firewall is?” Could they define it for you? Probably not too many. I think the prescience of that, again without endorsing it, just seeing the oppression. So that the other day Twitter stopped the Chinese government from running ads on Twitter about the Hong Kong protest, giving the Chinese government’s point of view.
They said, “oh, it’s state sponsored media, we’re not going to take ads from”, but NPR is okay, BBC is okay, they’re state sponsored, but they’re like the Western kind of state sponsored, which is okay. So I made this sort of wry comment, which is, “well, pretty smart for China to have de-platformed Twitter before Twitter de-platformed China.” They saw ahead recognizing that letting in Twitter, Facebook etc would potentially let them to get cut off by these foreign interests in the future and so they just put up the firewall, closed their ears to all the entreaties.
Zuck, a really smart guy offered to name his child after… Like would rather have Xi Jinping name his child. So all these entreaties, they just close their ears and they’re like, “nope” and they stimulated the birth of their own industry there, with the sort of farsighted nationalism, frankly. So now they’ve got WeChat and they’ve got this other stuff and the State can’t be de-platformed. So my point is, not all governments are actually dumb. Some of them are smart, some of them are run by engineers, some of them have some degree of foresight or what have you.
Those governments I think will embrace crypto in different ways. Like the Chinese government is probably going to roll out their own crypto. Now will it be a stable coin? Probably. I don’t think they want something that oscillates up and down. They’ve been working on it for many years. I’ve heard about it and stuff, who knows when they’ll actually do it, but at some point they will do it. Other smaller countries probably have established positions in BTC or something like that. I would not be surprised if sovereign funds have done so and just haven’t made a huge stink about it. So the idea that every government is going to fail simultaneously, I don’t think that’s the case.
I think especially some of the smaller polities and the big exception of China, which is the largest polity, but run by engineers, the same was that in the 20th century, the US was both really large, really rich and democratic and capitalist was an outlier of main dimensions, China is like the outlier, but for the most part, lots of small governments in this century, which are run by engineers, I think will embrace crypto and won’t die from it. So that’s kind of one aspect of it. The second aspect is, I think lots of software CEOs will eventually start becoming effectively de facto heads of state.
So that’s interesting. I’ll give you an example of this. A few years ago there was a person running a small 60 million person social network called the United Kingdom, that was really happy to do a video chat with Zuckerberg who was running a billion person social network called Facebook. I forget the exact context of it, you can Google the “Cameron Zuck” or something like that, but just the very tone of it, I was like, “wow, Cameron understood that Zuck controls distribution, that controls his re-election.”
I tweeted about this, that somebody like Zuck has really not brought the other hand out from behind his back. He has just taken incredible amounts of abuse for the past two and a half years. But just to give you a sense of the latent power he has, should he decide to use it, he can put a push notification at the top of 2 billion people’s Facebook feeds. He can make every single person there read his point of view. He could start a newspaper at Facebook that’s like Twitter moments, where basically everybody looks at it.
No one would be able to stop him from doing that and frankly, people would look at it, click at it etc. He’d employ a ton of journalists and journalists would share it. He could have stickies, there’s like a thousand things he could do, he has more distribution than any newspaper, any nation state because they actually look at it. He hasn’t done any of that.
The only thing he’s ever done to put a post to the top of the feed, is he tested out something about like Oprah’s book club and he gave some book recommendations. So that guy went to the top of the Amazon bestsellers list of course. But that’s like the only thing he’s done. Other future software CEO’s will probably more consciously think of themselves as building countries. What you can do is build a country in the cloud and then materialize it in the physical space and I think that’s actually where the future is. Go ahead.
Peter McCormack: Well, the reason I’m smirking is I wrote down quite early on when you started talking about this, “does technology have a political bias?”
Balaji Srinivasan: Ah. I would say your best software CEO is like Lee Kuan Yew. Lee Kuan Yew was ultimately a pragmatist and his metric for success was, “is what I’m doing good for Singapore? Is this good for my people?” Also of course subject to ethics, he wasn’t killing people outside or whatever. But basically was what he was doing good for Singapore? So because of that, he took policies that would be considered left, right, center, off the map or whatever. For example, Singapore’s HSA, the way their health system works, it’s both far to the left and far to the right of the American system.
So it’s far to the left of the system in that it’s a compulsory savings account. Some percentage of your check is debited to fill up this Singapore HSA and the whole compulsory aspect of it was the big thing that people fought against with Obamacare, the mandate etc. So that’s considered far left, “oh my God, compulsory deduction of X percent!” But it was also to the right, because once that money is there in your HSA, it’s like total free market capitalism. There is insurance and reimbursement and so on, it’s just like, pay cash essentially for the service.
So that combination is sort of outside of the political cone of the US and has resulted in some of the best health outcomes in the world. So that’s kind of one example of sort of pragmatism and I’d say that your best software CEO’s do stuff that’s like that. Where, is it left wing, is it right wing? Who cares, it works! Black cat, white cat, doesn’t matter if it catches mice. Another example of this actually is the whole free lunch thing at software companies.
Larry Page and Google, they were really the big pioneers of this in the late 90s, early 2000s and many people looked at it and they’re like, “these dumb SF hippies wasting money. Don’t they understand how expensive that is? They are just incinerating it.” From your kind of rigid libertarian point of view, you’d say, “well of course if you give everybody individual amounts of money, they would go and optimize because they would purchase their own food and it will satisfy their preferences more and what have you.
Somebody else buying on their behalf, if it’s public choice here, you roll all that stuff out. What actually happens though is that that central gathering place that people come each day, A, it builds a community, so people are hanging out each day. B, it saves them time, so they don’t have to go and shop for food or lunch. C, you get economies of scale, you can get sometimes better food there and D, it actually makes money for the business because people are working more hours, since they don’t have to leave and come back etc.
So it’s one of those things where actually sort of coercing people into this, actually debiting money from their paycheck to pay for these lunches and dinners, opting them into something, I shouldn’t say against their will because they’ve still chosen the job and they can still quit, that’s the macro exit. But they don’t have the micro choice as to whether to opt into this lunch or dinner. They can’t get another 50 bucks a day if they say, “I’ll never come to dinner.” That actually produced better outcomes than letting everybody have a free choice and that’s interesting because that’s against, kind of what I call dogmatic libertarian thought.
Now I think a lot of libertarian thought is very insightful. But ultimately if there’s a choice between, that versus better consequences for the people as a whole, you take the better consequences. Another example of this by the way, in early American history is Shays’ rebellion. Are you familiar? So it’s a kind of relatively obscure part of American history, but the American Revolution had just happened, there had been all this propaganda about the right of free people to dissolve their bonds from this remote entity that’s taxing us and whatever. So these farmers in I believe Western Pennsylvania, they were kind of invoking the same rhetoric and they’re like, “F the new American central government.”
They used the same rhetoric and George Washington just put down the rebellion. So you’ve never heard of Shays. So was it hypocritical? Sure. Did it like net work in some sense? Yeah, because the US became a powerful country. In a sense, that’s why there’s this saying, that revolutions are judged by their fruit. Any revolution will take extra legal mechanisms, mechanisms that cannot be justified by the law. One of the most remarkable things about history is sometimes you have order come from men with bloody swords.
You take England, you have these people with the powdered wigs, the judges and it’s all ceremonial, this whole court, but that maps all the way back to the Battle of Hastings 1066 and people just killing each other with swords and from that chaos comes order. It always means something very remarkable to me that that happens in history, because sometimes chaos just leads to more chaos and you just descend stuff. Sometimes it leads to order. So that’s I think with the right software CEO should do, obviously not kill someone with a bloody sword, but rather do things that are right for the people regardless of where it fits ideologically.
Peter McCormack: But what is right for the people, it’s their decisions? So I want to say if Twitter was run by a staunch Republican, would I be on the naughty step today? Would I have my 12 hours suspension for saying mean words? Well actually, we’re in response to somebody who’s been bullying people online, I called him a name. So I’ve had my account suspended for that.
Would that have happened if it was a Republican running Twitter and also a lot of Silicon Valley companies, a lot of the large companies, the CEOs tend to be liberals and we’ve witnessed a significant amount of de-platforming and censorship for more conservative views. I certainly recognize that and that’s what I was getting at. With technology, does it have a political bias? Does it tend to reflect the political bias of the CEO?
Balaji Srinivasan: So this is a very important area and I want to choose my words carefully on this. So are most tech CEOs Democrats? I think that’s probably true. What does that actually mean in practice? I think that even if they were staunch Republicans, the incentive structure in the short term is set up in such a way that they don’t really have a choice, because let’s suppose that there are some series of editorials that is calling for so-and-so to be de-platformed or whatever and let’s suppose they resist. Then it’ll escalate to, for example, trying to go after their investors or trying to go after their advertisers and get them to pull, because they’ve got this awful person on their platform and so on.
In the short term, essentially the incentives are to comply with the mob, because you can comply with the mob. In the long-term however, the most important swing vote in the world, I would argue, is the anti-Trump pro-crypto tech Democrat. That seems like a very arcane creature, like does that exist in the wild? It’s like this unicorn or Pegasus or whatever. But it’s actually very, very important because these are the folks who typically run these platforms. I’ll give one or two concrete examples without naming all of them, but like Dorsey. So on the one hand, Dorsey is de-platforming people today.
On the other hand, he’s a born again Bitcoin maximalist. He’s put Bitcoin into Square Cash and all this type of stuff, he understands it, he’s put this into Square crypto, he’s hired people, he’s smart enough to get that. In a different way, Zuck also recognizes how important crypto is and while I would argue with many specifics of how they rolled out Libra, I actually think his overall heart is in the right place, in the sense of, for example, this big push on privacy. I think that’s actually real. I know a lot of the people involved, and faced with the two contrary arguments being lodged against Facebook. The first was, “oh, you aren’t censoring enough.
Essentially you need filter your platform, the hate speech and this or that” and the second was, “you’re not private enough and everybody’s getting their privacy invaded, etc.” Now these are actually mutually incompatible arguments because in order to censor, you need to invade privacy because you need to track messages and so on and so forth. But it was kind of an any port in the storm, any weapon to hand, people just lobbing rocks at Facebook. So Zuck intelligently understood that these were incompatible things and you can kind of go down one road and sacrifice the other.
What he did was he said, “let’s go hard on privacy” and he actually lost people internally doing that. There were folks who wanted to actually go harder on censorship. He actually took the, what I’d call the centrist kind of view, almost like the dead centre view of, “we’re going to go hard on privacy, because we can’t do both and this is actually the long-term trend of technologies and where our incentives are, as well as what’s good for the company”, because he could see the traction of WhatsApp and Signal and crypto and all this other stuff.
So those are two examples of anti-Trump pro-crypto tech Democrats and the reason I think this is ridiculously important is in the long-term, the Blockchainfication of these platforms, both directly, in those that are funded by them and that are compliments to them, will put them in a zone where, A, they make more money, which they have to do for their shareholders and their employees and so on and B, they can’t de-platform. When you are in that zone, you actually have in a sense, both more money and more power.
Why do you have more power? Because anybody who gets to the top of one of these companies, regardless of their political views, you don’t become the CEO of a $10 billion or $100 billion dollar company by bending to the mob. You don’t like doing that. Even if in theory you agreed with them politically, you’re like a Nietzschean willpower kind of person. So why do you want like some crazy person on the internet dictating to you what your schedule is, even if you in theory agree with him, ideologically it’ll get your back up.
Peter McCormack: Why can’t you de-platform them?
Balaji Srinivasan: Why can’t you? All right, so this gets to another thing. I actually think today the de-platforming thing is something which is arguably like a right of center kind of issue. I think it’s very quickly, if not already, coming towards the center and a bipartisan issue. Do you know why?
The reason is the YouTube demonetization stuff and so on has hit lots of people, lots of false positives all over the political spectrum and eventually what’s going to happen is folks are going to turn and they’re going to realize that their passwords, their private keys in the sense of like your SSH private keys, computer scientists use this for logging into writing code and your crypto private keys are all kind of like the same thing. Ideally what happens is if you have a crypto like security model for Twitter or Facebook, you just dock your ship with them.
Peter McCormack: You’re thinking more like the Microsoft decentralized IDs, that’s going to be a potential future or the Apple…
Balaji Srinivasan: Apple Urbit. Have you not heard that?
Peter McCormack: I know the name.
Balaji Srinivasan: Yeah, so that’s worth checking out, urbit.org, it actually predates Bitcoin. It’s a pretty interesting project where… Let’s say that Urbit is almost as optimized for cryptocurrency development and Blockchain development, as Linux was for the internet. I think it still needs some folks building on it and whatnot, but it’s essentially set up to store your keys locally and to be a personal server. Not a personal client though. Like your laptop over here can serve up files, but it’s not really built to do that.
Your Urbit ship is built to be a server and it’s also built to host lots of private keys and keep them in an encrypted secure enclave like thing. Now you can imagine something where you’ve got a social network and you dock with it, in the same way that you’d put your Bitcoin into Coinbase and you can pull it out and no one can stop you or shouldn’t be able to stop you. I know Coinbase can freeze your account, but in the sense of, if you are an account in good standing, you can remove your stuff.
Peter McCormack: But even that can be debated. What is an account in good standing? So I interviewed a sex worker, she is a legal sex worker, adult actress, she makes her money in a legal way and she was de-platformed by Coinbase for being a sex worker, which is a legal job.
Balaji Srinivasan: Okay, well we can talk further about Coinbase. One of the things is Coinbase is ultimately subject to banking regulators and so there are things that you have to do to stay in good graces with them to keep the fiat rails open for 30 million users, like this account is suspicious and they won’t necessarily tell to throw them off. Sometimes they will, but they’ll basically say, “you’re spending reputation points with us to do this and if you do so then well we may keep your limits low or we may drop support for you, because then our license is in danger from the government or from the press.”
Peter McCormack: But what a strange grey area where it’s not based on fact, it’s almost like rumor.
Balaji Srinivasan: Exactly. So actually where you get to is something like… Walter Olsen has written about this, it’s sort of what I’d call decentralized censorship, because the first amendment prohibits the government from just outright censoring people. In China, they make no bones about it, and they’re very open about it. The Great Firewall exists, don’t criticize the government, it’s very open. In the US, it’s more artful and deniable. What happens is, a regulator will come and basically be like, “oh, did that so-and-so is on your platform?”
They’ll just ask that question and they’re very careful about what they put in email. They won’t say “throw them off the platform”. Then the bank will see that and they’ll be like, “oh shit” and then they will have an internal meeting and their general counsel will say, “well if we don’t de-platform this person, then we might have a legal problem with the government” and the person’s is de-platformed. Now think about what happened there.
The responsibility falls in the gap because a bank can claim quite legitimately that they were taking a risk of having all their other customers shut down by the State and the State can deny that they ever asked for a shut down, because they’re just asking questions, “do you know this guy has an account with you?” So in this fashion, it’s all set up to be deniable. In a sense, this is sort of like the art of where Western civilization is right now. You’ve had this decentralized censorship kind of regime, now against that stands crypto, which is decentralized censorship resistance and that is a real game on, civilizational battle that we’re going to be waging.
Peter McCormack: What a strange place where Coinbase is then, because it’s almost like they’re fighting the battle with the government, but they’re also defending the rights of Bitcoin and being part of the Bitcoin ecosystem. The other one I always think of though, is gab.com and I have this very strange view of gab.com.
I like Andrew Torba, I find his views on censorship very interesting, but I took a look at gab.com and it was just hate-filled, racist, sexist, homophobic and I get in this very strange world of censorship whereby I don’t think we should have censorship, but all the places where I kind of see like the resistance like Gab, is just fucking disgusting! It’s a really strange world.
Balaji Srinivasan: Well, let me give you actually… So I’ve thought about this a lot and I think there’s a historical example that I think a great deal about that brings us into, I think clarity. So in the Soviet union, in the pre Deng Xiaoping China, so 1949 to 1978, in like Mao’s China, capitalism was illegal and profit was stigmatized and because that was stigmatized, prices were broken and supply chains were broken and entrepreneurship was punishable by death. Markets as we know them didn’t exist. You couldn’t just switch a job or get a raise or make money in any normal sense. The idea of who’s like a rich person in the Soviet union, that didn’t like compute in any normal way.
You could have high status people, like a pianist or a mathematician or an Admiral or something like that, but high money people kind of didn’t really exist in the same way. So this one thing, this denial of capitalism, pathologized and broke many different aspects of society and turned into this bizarre dysfunctional state because they were in denial about this sort of necessary evil or even arguably a good, of profit. One of the consequences of this, is there are only kind of two types of people, who would be what we’d call capitalists in the Soviet union.
There were first, a very small minority of highly rational dissidents, that could be in a society and could think these thoughts that were so taboo and pathologized by the USSR. I mean, from birth you’re given all of this crap and you know that these thoughts like, “maybe profit is a good thing?” “Are you an American supporter” or in China, “are you a capitalist roader? What about our great October revolution and how many died in the great patriotic war? You hate our troops, you hate our country, everything we sacrificed for!”
Like the entire society had been based on this lie and so people got really het up about it. It wasn’t a rational argument to them, it was an emotional argument. So you have to be very hyper rational, logical person and with a ton of taste and sensitivity to consider capitalism at a distance. Then there was the other group and who the other group was? Black market guys, the true grand theft auto kind of people. So sometimes you have to interact with them to buy a tomato or something like that and yeah, in theory, you might think, “yeah, I support capitalism” and you interact with them and every bad stereotype of capitalism was actually present.
They could cut you, they could rob you, they were criminals, who were operating outside the law. Yes, they would buy and sell, but it was like every stereotype that the regime talked about, came to life, these utterly ruthless things and you’re like, “they’re not going to promote me. I guess actually the regime is right about how evil capitalism is, because all the capitalists I’m encountering are evil.” It’s actually sort of similar to the whole NRA thing. If capitalism is outlawed, only outlaws will become capitalists.
The reason I think that extended historical example is didactic, is that when there’s behavior that’s not sanctioned, it’s pushed to these extremes; a tiny group of hyper rationalists and a much larger group of basically criminals and folks who can’t keep it in their pants basically. So I think that’s sort of what happened with Gab, is you just sort of filtered for the kind of people who are censored on Twitter and a lot of them are basically batshit, like the guy who went and shot up the synagogue or whatever.
I mean these guys are actionable lunatics, they’re not like, “oh, I just made a comment, I have a political point of view.” They’re actually lunatics. So that’s unfortunately sort of like what happens when you censor capitalism, that you get lunatics being capitalist or criminals. You censor ideas and you have only lunatics espousing them, but it’s not a reflection of the merits of capitalism and not even necessarily a reflection of the merits of, I shouldn’t say all, but some of those ideas are being censored. So that’s kind of how I think about it.
Peter McCormack: Do you worry that with the growth of cryptocurrencies, and I will stick with Bitcoin, that if we have the separation of money and State, that will obviously change the structure of a country and the governance of the country, but if that doesn’t happen in somewhere like China, because it’s communist, they do have the Great Firewall, they have their restrictions in place, this could actually lead to the expansion of communism around the world.
Balaji Srinivasan: Oh, but China is not communist in any typical sense.
Peter McCormack: You know what I mean though? I think it’s communist in terms of its control of the people.
Balaji Srinivasan: Yeah, but it lets people leave the country. That I think is actually like the core kind of thing. Now to be clear, it doesn’t let them leave the country with all their money very easily and so on. It’s not as perfect as let’s say, a Switzerland or a Singapore. I shouldn’t even say perfect really, but if you know what life was like in China in the 40s, the 50s, the 60s, the early 70s, there’s a couple of references that you might post in your Twitter feed or whatever after this. There’s a great article, a short one on NPR called, “the secret document that transformed China.” I’ve tweeted it out a few times and that give a quick capsule summary. Most Westerners don’t know how China became rich, like mechanistically. Do you know?
Peter McCormack: Nope, you tell me!
Balaji Srinivasan: Okay, so roughly speaking, what happened was, under Mao first there was… So Mao’s claim to legitimacy and fame was driving out the Japanese and winning the civil war against Chiang Kai-Shek who got driven to Taiwan. Then he drove the people of China through the great leap forward, which tens of millions of people died and various propaganda campaigns.
By the mid 60s, he felt his power slipping and so he pushed this thing called the Cultural Revolution, which essentially got student activists all het up, they turn into red guards and they were told to denounce their parents, smash idols, anybody who was smart was sent to the fields because if you’re a professor, you’re clearly a criminal. This madness went on for 10 years, people’s lives, careers were destroyed, at least a million people died.
Finally by 1976, Deng Xiaoping, who had been a communist revolutionary, but he’d been purged three times and if you read about the USSR or China, you’ll hear the term “purge” a lot. You know what a good synonym for that is for a modern American? Cancelled. So when you’re cancelled, like on Twitter, boom! You don’t lose your life, liberty or property and that’s a big step up actually from where the USSR and Mao’s China were, but you do lose your future income and your current job and a lot of your status and friends. So it’s pretty bad.
Peter McCormack: Hey, I’ve lost a marketing channel today!
Balaji Srinivasan: Exactly!
Peter McCormack: I released a show today and I can’t advertise that to my 77,000 followers or whatever.
Balaji Srinivasan: So being cancelled is basically like what being purged was like. Deng Xiaoping had actually been purged, not once, not twice, but three times, literally sent to the fields. But he was so wily and so smart and so cunning and so competent, that he managed to work his way back. So by the mid 70s after Mao died, his wife and three others, the so-called Gang of Four were manoeuvring for control of China, but Deng Xiaoping out-maneuvered them and eventually basically got control of the army and whatnot and then they were actually under arrest.
Then Deng put all of his guys into positions of power and suddenly China went very quietly to the right and Deng knew that he couldn’t just make the entire country capitalists at once, because it’s the nature of like a communist revolution, like a left of center revolution is change the flag, change the Anthem, change everything, it’s year zero, start over, boom. The rice revolution that Deng did, was actually much more gradual. So for example, across the Causeway from Hong Kong, he knew Kong Kong was successful, he knew Singapore was successful, he knew Taiwan was successful.
These are Chinese ancestry people. Clearly there was nothing holding the Chinese back from building great societies. So he’s like, “okay, I’m going to set up a special economic zone across the Causeway from Hong Kong, let’s call it Shenzen. We fence it off and it’s just an experiment.” So he wasn’t trying to turn the entire country capitalist, in fact, most people weren’t even affected by this. He spent his political capital on this and of course that was like, boom! It just went vertical. Allow them to practice capitalism, you took this dead weight off their backs and it started going vertical.
With that, he used that political capital to set up three more special economic zones across the East coast seaboard and then there were 15 and by the mid 80s, China started to hum. There’s tons of other things he did, but that was the core of it. There’s a good book on this by Ezra Vogel if you want the book-length version. One of the things about this whole thing is, insofar as for example, a huge amount of American popular culture is, “the Holocaust was bad, avoid that. Nazis are bad etc.” Clearly something to avoid. A huge part of Chinese culture is, “the cultural revolution was really bad.
We want to avoid that.” That level of instability, like crazy red guards going and smashing everything, we must stop that. Anything that looks like that, stop that, nip it in the bud, order rather than chaos. So Tiananmen looked like that. It looked like the culture revolution, the student revolt. This Hong Kong thing looks like cultural revolution. So I’m not saying this is good or bad, I’m just saying where the mindset is, is they react to this stuff like Americans react to Charlottesville. You’ve got guys literally in Nazi uniform parading around, okay you’re just going to hit them with everything you’ve got.
So in the same way folks who seem to be trying to destabilize China or other things that the Hong Kong guys are doing, they’re putting up like the American flag, they’re putting up the Hong Kong flag. The other big thing in China, the legitimacy of the regime, in addition to economic growth, that’s one big pillar.
The other big legitimacy rests on throwing out the colonialists after a century of humiliations and the opium Wars and the British occupation of Hong Kong for all these years, China has stood up. For these folks to go and rouse like American flags, British flags etc, is basically like saying, “let’s colonize the country again.” Some of them, by the way, have actually come and said that. Some of these student leaders are like, “yeah, we need America to come in and physically intervene” or whatever. So those are things which, for many mainland Chinese, they’re like, “yeah, these guys are bad.”
Peter McCormack: I should have said sorry, authoritarian regimes. For all that I might hate about my government and other people might hate about the US government, that their money goes towards wars and drones and killing people and all the bullshit that happens, is there a risk if you separate money and State from these Western capitalist democracies, that you empower authoritarian regime such as Russia and China? We’re seeing right now the spread of Chinese surveillance equipment around the world…
Balaji Srinivasan: So let’s talk about that. Well first, I mean yes, spread of Chinese surveillance equipment, but we also have the NSA, which is American surveillance equipment around the world. With all the Snowden revelations, the US was basically wire-tapping everybody at all times, with the taps into Google, breaking HTTPS, taps into Facebook etc and so it’s not something that’s like… I would actually think if I’d have to bet on who was surveilling more people against their will, it’s almost certainly the American state. That’s kind of number one.
Number two is I’d say up until roughly 199, net where America intervened, it was better than the alternative. For example, South Korea is a better place to live than North Korea, Chile, a better place to live than Cuba, Iran pre-revolution a better place to live than post. West Germany, a better place to live than East Germany. Hong Kong, Taiwan and Singapore, a better place to live in mainland China and on and on. Right. So on net, America, even though it definitely did a lot of extra legal things during the time, all the CIA stuff or whatever, I’d say you could justify it by comparing it to the alternative of communism.
I’d say since that point, and this has happened gradually over the 90s and the 2000s and so on, American intervention leaves countries worse off than they were before. You may have seen with Syria, the photos before and after. It was a completely functional country, it had nice pools and resorts and so on, it really was not that bad. American intervention turned it into a free fire zone with ISIS and people killing each other left and right.
Peter McCormack: I mean, is Iraq better off?
Balaji Srinivasan: Exactly! Saddam Hussein was not the greatest guy…
Peter McCormack: Terrible guy, but he kept the population in order.
Balaji Srinivasan: The lid was on. It wasn’t ISIS with literally women dragged around as slaves and people beheaded in the street. Iraq was not a great country, but it had a functional airport and it wasn’t just mass murder and people killing each other left and right. It can be worse. So Iraq, Syria, Libya, Tunisia and you can also argue Crimea, Georgia, lots of places that the US has fomented these so-called colour revolutions are worse off than they were.
Certainly the US no longer has its own house in order. The US itself is just a freaking war zone every single day! Obviously the Twitter conflict, the shootings, the financial crisis, which is still ongoing, all types of stuff like this. So therefore I kind of think there was a period over which you could argue from roughly like 1945-1991 that American intervention was for the better on net. Since then, it has been I would argue for the worse on net.
Of course you can point to exceptions, I’m not saying it’s universal. But from just a pure result standpoint, you have to question whether or not the US is leaving these countries better off. By contrast, Chinese intervention in Africa with the belt and road and so on, you look at the before and after, things are getting built. It looks like the opposite of what happened in Syria. In Syria, things are getting destroyed.
Peter McCormack: Yes, but I do worry with the social scoring aspect of the Chinese surveillance, is that a worse Orwellian future than the NSA?
Balaji Srinivasan: So I think the biggest difference, is the Chinese system is explicit and the American system is implicit. If you’re cancelled in the American system, you still can’t get a job. It basically works like the social credit system. You’re attacked and then someone Googles your name and they see all the Google links and they can’t hire you. I’ll give like one example of this. There’s this guy, in 2013 he got attacked on Twitter, Greg Gopman, he made some dumb comment about homeless people on Facebook. Okay, dumb comment, he was a founder of a startup, so he lost his thing there.
All right, now a few years later, he got a job at Twitter as like a VR guy. Article on Tech Crunch comes out and talks about “controversial Greg Gopman hired at Twitter”. Same day, Twitter fires him! So for one comment on Facebook, which was stupid, I grant, literally this guy is being fired over and over again. He’s like living in the shadows, being purged and cancelled over and over again. He worked at homeless shelters, he did all this stuff, tried to make amends, there’s just simply no path back to him in society.
So the idea that this is something that’s unique to China, it’s not. The US system is just deniable and implicit, as opposed to explicit. That I think is the single biggest difference.
Peter McCormack: It doesn’t feel the same though. It’s like, say with my children, I don’t want their behavior to be of the threat of getting a smack. So the Chinese system is like, you’re aware now that you have a social score, you’re aware that certain behaviors are required and if you don’t follow these certain behaviors, then you won’t be able to access certain facilities, you won’t be able to get flights for example. I don’t know, it’s a very dangerous version of an Orwellian state and most countries have some version, but at least in the US it’s just your stupidity and that’s the free market of content.
Balaji Srinivasan: I want to be clear about this. I’m not saying that’s good, I think that’s bad. I do not want to have a system where someone can flip a switch and de-platform you from everything. My line of argument is really that we’re vectoring in that direction in the US and the US is not better than where the Chinese are and it falls to us, as crypto people to build a better system where you can’t be de-platformed from. So that’s my thing. Now what you might contest is one of the premises that I put out, which is the US is not better and in fact it’s becoming worse. Let me explain why.
We have the no-fly list, which you can basically be put onto without any kind of thing. We have a civil forfeiture, where the police can basically seize your assets, without any kind of due process and in fact the amount of money, the Washington Post published this a little while ago, the amount of money seized by police via civil forfeiture is now greater than the amount robbed! So the State has actually robbed more people than that! We have actually, I think you’re going to see an increasing number of folks being financially de-platformed.
Again, this is like the tip of the edge or whatever, but I saw a while back that an African American member of the Proud Boys, who I don’t endorse, but this guy lost his Chase bank account. That’s happening and that’s coming to the US. So now you’re no longer just banned from social media, your life is starting to get banned. You have folks who are being gone after for their political donations and so and so forth.
So it’s more chaotic and disorganized and decentralized, but I do think a lot of those same negative things are coming to the US. For example, a year or two ago, there was an article in the New York Times, that was almost regretting not having the Chinese Firewall in place. I think it is by Farhod Manjoo, I can find the article. But it’s basically saying, “well, if we had had something like that, then there wouldn’t be all these internet trolls and Trump wouldn’t be elected” and so on. So they were sort of pining for that.
Peter McCormack: Yeah, but this is where people in power are under threat and they take those steps to forward authoritarianism.
Balaji Srinivasan: Absolutely.
Peter McCormack: But the difference with China is the arguable levels of democracy that country has. You have re-education camps, you’ve got children being taken away from their parents for being of a minority group. It’s those types of people who have control of systems to social school you. How far do they push things?
Balaji Srinivasan: Right, and what people will retort is they’ll say, “well the US has Guantanamo Bay. It has the children in camps near the border” and so and so forth. To be clear, I’m basically arguing that I think many States are actually going to vector in this direction of speech suppression and so on.
I think China’s done it in an explicit way and the US does it in an implicit and deniable way and it’s going to vector far worse, I think over the 2020s. If we want a better system, we can’t just assume, “oh, the US is better”, I think it’s going to get far worse, it’s already vectoring bad. We have to build a better system with crypto, that’s what I’m trying to get at.
Peter McCormack: Okay, well you gave us a good segue to crypto!