#CryptoExplained: The Future of Finance is Free, Open, and Permissionless

A free, open, and permissionless financial system is already possible. Yes, anyone, anywhere in the world can create a ‘bank account’ on Ethereum and Bitcoin, instantly, without any complex paperwork, and with no minimum balance. This is possible today, and the same service is available to someone in Haiti, Somalia, and New York. 

What does free, open, and permissionless mean? It means that money, access, reputation, skin color, social standing, gender, etc, cannot prevent you from participating in the financial system. Email is a great example of a free, open, and permissionless system. Email has been around for more than 20 years and for the most part has been free, open, and permissionless. Anyone anywhere in the world can get an email account at no cost, instantly, and without any complex KYC procedures. 

Because of this, Email changed the way the world operates. It allowed people to communicate globally, freely and without censorship. It allowed diverse groups of people to form online and collaborate in ways previously not possible. It allowed bright intelligent students from Ethiopia who could never meet someone from Boston or California, to correspond and work with the best and brightest faculty at MIT and Stanford. This was something considered impossible only 50 years ago.

A free, open, and permissionless financial system is still believed to be impossible. But this archaic belief is being disproved right now, with every Bitcoin and Ethereum transaction. And it is already changing the world. As a result, folks who are ahead of the adoption curve are already calling the current financial system TradFi (traditional finance) and the new financial system DeFi (decentralized finance).

Photo: Wikimedia Commons CC-BY-3.0

At the moment, this free, open, and permissionless financial system is primarily being used by the early adopters. The technology adoption curve is a well-known pattern of adoption of new technologies, and crypto is at the moment transitioning from the early adopter stage to the early majority stage. However, at this point in the cycle, most new technologies face many hurdles and this transition is often called the chasm. 

Overcoming the chasm is necessary for the success of a new technology. The biggest barrier to the adoption of a free, open, and permissionless financial system is regulation.

Anachronistic Regulators

Regulators seem unable to keep up with this rapidly changing world. Regulators consistently struggle with creating laws around new technologies like AI and blockchain because the training for regulators is anachronistic. Most legal education and theory is based on precedents from the era of wooden ships. 

To address this, new and much-needed initiatives like Tanvi Ratna’s Policy 4.0 think tank are helping regulators navigate a world where technology is rapidly redefining society. 

But is this enough? Because at the crux of it, crypto could potentially do away with the need for regulators entirely. Will the regulatory industry accept that they may no longer be needed?

Code is law

Immutable decentralized code agreed to by consensus could be the new legal framework of the future. DAO’s and other smart contract-based organizations on Ethereum are already demonstrating that you can organize large groups of people around common goals enforced by code and not lawyers or the state. Ethereum’s Proof stake incentivizes good behavior in large groups through economic rewards and penalties instead of police action. 

The future of finance is free, open, and permissionless thanks to immutable code that is law. It would be an ideal and incredible outcome if this could also lead to a world where legal systems become lighter and more streamlined. Maybe, a free, open and permissionless financial system could lead to a free, open, and permissionless legal system.