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Vote By Exit
The Fork Wars have given us the initial glimpse into the future of communities and software battles
One of the biggest flaws of democratic systems comes from majority rule. In a simple majority vote, the 51% can decide how to lord over the 49%. In a modern democracy, the 49% don’t have recourse to this, they just lose. But is having a 2% swing be the difference in result in a fair outcome in a winner take all scenario? Of course not, but we have tricked ourselves into thinking that democracy is inherently good all the time, so we live with the results and try again next time.
Modern states have accepted this basic premise, but as time goes on the flaws have been revealed. Any claim of fraudulent votes (which goes back way to many documented Roman times, and before), severely undermines the system. A razor-thin vote on a hot button issue is a recipe for disaster. The group that loses has no recourse except try again, but if the issue becomes life or death so to speak, then they quite literally choose violence and death. This often leads to brutal warfare, as so often seen through the American Civil War over slavery, and the American Revolution over Taxation (and firearms). Often times the guise of Democracy has been used by the majority to bludgeon the minority, the undesirables, the “radicals”. Basic Human Rights have been removed, but since it was put to a vote, we accept it. Unless otherwise don’t.
Now apply this democratic voting procedure to the Federal Reserve1. You’ll be stunned to find that we don’t even vote on monetary policy issues! This is a good thing. The United States Monetary Policy should absolutely not be run via a direct democratic voting process at a finite level. However, that doesn’t mean that Federal Reserve Policy should be disconnected from the recourse of bad decisions as it is now. We have seen them print 40% of all USD in existence in a span of 2 years. We have seen them perform Quantitative Easing, becoming an actual player in the market-disrupting a free exchange of financial items. The fundamental problem with the Federal Reserve specifically comes from their operation as the sovereign and only Monetary Policy institution in the United States. There are no other centralized banking options in the USA, there are no main alternatives as the standard of the medium of exchange. If the Fed decides to destabilize the dollar, there is no immediate recourse, no competing ideology.
If you’ve been thinking ahead, you’ve already guessed where this segues into. We have the alternatives now! Cryptocurrencies have freed us from the Central Banks of the world. No longer do users need to accept the bad policy of their leaders in order to exchange money because we can just simply not use their currency! If Bitcoin decides to change the total supply of money that gets approved, we quite simply don’t need to go along with that scheme. A network fork will result in two new networks, where each side gets their victory and their own network. Suddenly democracy has multiple winners instead of only one. This is the killer feature of decentralized digital currencies over centralized ones, we fundamentally have the ability to exit the system with which we are in.
While this logic can most importantly be applied at the protocol level with Bitcoin, Ethereum, and many other networks, it is going to become far more frequent at the project, contract, and token level. Specifically, ERC-20 tokens are far easier to copy-paste on the network as they exist within the system itself, utilizing the same resources for computation. It takes only a developer to change the name and logic with a new Discord and suddenly a new financial means of exchange is born. We have seen this most recently with the OHM Forks, various splinters/ copies of the OHM applied with alternative objectives such as TIME and KLIMA. This will soon become normal as the space continues to grow and as the system expands due to the fundamental laws of entropy. This does not mean it will be easy, as forking a community is incredibly difficult, and arguably one of the hardest parts of the operation (Thank you to @BowTiedNileCroc for retweeting this concept).
It is important to apply this evaluation pattern towards your favorite dApp project, whether a DeFi project, a game, or a governance token. The current attitudes intra blockchain are generally harmonious, as Crypto is still young and has massive growth left in terms of market cap and users. There is a notable exception for this in the Curve Wars, which are still ongoing and one of the best reads over the entire concept of software forks and competition (LINK). To summarize, multiple DeFi protocols are fighting to give the best yield return to customers in DeFi, and it is a three-headed battle right now that involves major community leaders, software forks and copies, and a battle for the yield rewards of veCRV . More reading on what veCRV is and its importance at the center of the battle, read this great summary here: LINK.
In order to protect yourself, you need to ask these questions and answer them honestly for your investment thesis and risk analysis: What happens when a founder or a team decides to change things for the worse? What happens when that governance token you own has a bad proposal approved? What is the strategy for when action needs to be taken? The Protocol/Software/Token Forks are going to happen, and you are going to need to know if the position you own needs an exit or should continue.
Information will continue to be an edge in the space and knowing the leaders and main detractors of your project are important to owning good coins. For significant positions, consider the following initial evaluation criteria:
Fundamentally understand the project goals
Know the roadmap and planned new features and if they are implemented
Know the competitors and their fundamental differences
Evaluate the developer talent and quality of work, their contracts, git repos
Find the lines of division among major project supporters
Is the community tight knit, or can it break?
Is the organization grass roots (harder to break, but easier to influence), or founder driven?
This directly correlates to why I primarily stick with ETH, BTC, and LINK as my main investments. The Blue Chips alt tokens will arrive after surviving the Fork Wars, but there will always remain the threat of a fork as long as we can vote by exit. Stay vigilant in the short to medium term.
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The process for changing the leader of the Fed is as follows: We vote for the President of the United States, who in turn we trust to appoint the Chair of the Fed. State Senators then vote to approve or disapprove the nomination, and the Chair, once approved, cannot be removed from Office until the term of the President expires. So what does this mean? The Chairman of the Federal Reserve must be appointed and approved via two mechanisms, first the winner of the Electoral College, and the Senators who won their simple majority vote in their state. Once that is done we have a new Chairman who runs the Board of Governors of the Federal Reserve.