Daily Balajisms – Digitally-native vs scanner version
Analog regulators are lost in a digital world. Their half-measures are making our systems fragile.
At the beginning of the year 2023, FDIC, the US bank regulator, issued a curious statement that banks should restrict their use of “open, public and decentralized protocols”. Caitlin Long thought this was a typo and the statement meant to include “blockchain protocols” instead.
But then she realized that maybe the regulator in fact wanted to warn banks against being too tech-forward in general and discourage them from using internet. This is a great example of how technologically conservative the current US administration is.
Internet banking is a scanner version of digitalization. Half-measures are making the current fractional reserve banking system even more fragile. It was not prepared for digital bank runs and the likes of Silicon Valley Bank and Credit Suisse experiencing a sudden digital death, going from one to zero. SVB saw 42 billion dollars of withdrawals within hours.
Analog regulators are lost in the digital world. The old establishment wants to return to analog banking, when bank runs were much slower and one could instruct bank tellers to count money twice. They want to freeze the analog world of their youth in amber.
Balaji Srinivasan often talks about three stages of digitalization – first is the analog/physical version, then there is an intermediate stage of a scanner version, and finally a digitally-native version.
He gives an example that explains the failure of fintech companies like Robinhood to process payments during the Gamestop stonks saga. There was no conspiracy, the issue was an antiquated and decades long backend of traditional banks.
Neobanks and fintech startups give an impression of seamless payments and very friendly UX. But the antiquated backend fails them, once there are unusual workloads.
Balaji says that it is like if once you send an email through Gmail, the email was printed out and sent via the Pony Express to be delivered in days to the final destination, scanned and then put online. Email is not fungible, but money is. So, the transaction appears on the frontend to be credited right away, while the fintech company awaits the actual payment to be settled on the backend.
Balaji mentions MOOC courses as a scanner version of digitizing education. The online tests and recorded lectures are put online, but they have analog equivalents.
What could be a digitally-native form of education? It would probably involve some crypto-tasking and crypto-credentials – people earning while learning in a very gradual and collaborative way with spaced repetition.
There are six-year-old Indian coding influencers on Replit now, which is a glimpse of the future to come.
The digitally-native education would include the interaction of AI, Crypto and Social, as the three most important technologies according to Balaji.
Bitcoin is a digitally-native form of money without a physical equivalent. Its main use case is digital gold. But bitcoin has many other technical and social qualities/innovations, and can be thought of as a power-projection tool, money battery and virtual oil.
Dollar, as the global reserve fiat currency, is also a technology platform, but it is stuck in a scanner stage of digitalization. We can say the same about Estonia, a country that embraced digitalization very early, back in the 1990s.
We have created tech companies and cryptocurrencies; can we create crypto countries? Asks Balaji. The digitally-native forms of online identities, memetic tribes, crypto-passports, boosted by AR glasses, will over time lead to digitally-native nation building and crypto countries.