Rewriting the Code of Society

From Legal & Regulatory Monopoly to Pluralism

This is the first post written together with Jean Hansen from Peerbase. Jean is a very talented writer and community organizer for network state-interested groups in Brazil.

At this very moment, somewhere around the world, an arbitrary piece of code will be deployed on production, affecting the lives of thousands or even millions of users. 

The developers may know the legacy codebase well enough to be called “experts”. However, the consequences of their new deployment are guesswork.

Their code addresses a new problem, and the solution hasn’t been tested. They have to get it right the first time. All bugs will stay around for decades. 

And the bugs could even lead to life-threatening consequences.

You likely wouldn’t be too enthusiastic to be a user of such a system, right? You would stay miles away from this software and certainly look for another competitor with a more tried and tested offer.

But, what if you were unable to opt out of this system? What if you were forced to use this one application, and other developers aren’t allowed to give you an alternative?

The Monopoly on Lawmaking

This may sound like a dystopian fiction tale, but it is a pretty good analogy of how our current legal system works. It’s a group of people, typically not elected, holding a monopoly on law, i.e. writing and enforcing regulations that impact the lives of millions of people. And you are not able to opt-out or choose another service provider.

These are laws that profoundly influence the way you eat, work, and where you live. Policies that prevent minorities to make more money. Regulations that impose huge barriers to health innovations that could save millions of lives. Arbitrary rules that prevent you to invest your money. Or that shut down an entire field of research and development on clean energy. And thousands of other laws that shape the way we live, even without noticing. 

"Our entire antiquated process of adversarially writing high-stakes laws on paper at the last minute, deploying them in production to hundreds of millions of people without any testing, and then getting them interpreted in unpredictable ways by regulators and solicitors will be seen as a bizarre relic of an older time."

Balaji Srinivasan, Author of “The Network State”

And things are not getting better. There is no Operation Warpspeed for patients with neurodegenerative diseases, unbanked minorities, immigrants waiting at closed border lines, or the untold millions that can’t afford decent housing. 

Regulatory capture is rampant.

Disrupting the Legal System

The system doesn’t have to be this way. 

In fact, there is an ecosystem of thinkers and entrepreneurs who are pushing the boundaries of the current legal system, and experimenting with alternatives.

New frontiers, such as charter cities, startup societies, and internet technologies such as digital money and smart contracts, are innovating at the foundational layer of society, and bringing to life ideas that previously existed only in books and scientific papers.

Territory-based Innovation

The first important and recent frontiers are charter cities and SEZs (Special Economic Zones).

Próspera, a charter city in Honduras, has developed a unique and cutting-edge legal system based on Common Law and Ulex, an open-source legal system that combines tested and trusted rule sets from private and international organizations. In addition, the project has introduced several innovative business regulation models, such as agency competition, where the company can select under which regulatory agency, from the top 30 OECD countries, it will operate. The company also has the option of a regulatory election, where it can combine the best aspects of the laws of many jurisdictions and propose a solution.

The real innovation here is not technology or a fancy digital platform. The foundational innovation is enabling legal and regulatory pluralism.

Regulation is a pluralistic enterprise. It’s not only written laws on paper. It’s incentives, ethical norms, and lived behavior. Laws are a good way of recourse when something goes wrong, but who had the idea that there should be only one code of law?

Just as a pluralistic ecosystem of programming languages can co-exist and interoperate by voluntary adoption, so can different legal norms in one jurisdiction. 

You don’t need to understand these laws as a consumer. You need to only decide what products you like. 

The magic lies in making these laws flexible for entrepreneurs, thereby making it easier for them to develop better solutions in areas where the law is preventing them from doing so.

Prospera’s specific legal innovation is that by mandating liability insurance, they create a market for insurance companies that assess business risk. If regulation is helpful for the specific business, the insurance would mandate it in exchange for lower premiums.

Unregulated businesses will have it harder to find insurance - and voluntarily chosen regulations will be more efficient because of better incentives. The insurance company doesn’t want companies they insure to mess up, otherwise, they’d pay. But they would also want the company to operate and grow as much as possible, to get more revenue.

It’s a beautiful, emergent order solution.

Beyond Paper and Territories

In addition to charter cities and new jurisdictions, digital platforms are silently developing non-monopolistic regulatory mechanisms. In the pre-Uber era, taxi services were regulated by bureaucratic licensing processes captured by local monopolies. However, Uber introduced a five-star system that turned out a 10x improvement in the quality of the transportation service.

The rules are not tied to any jurisdiction. They live in the cloud, in the code of Uber’s servers.

Smart contracts are another example of digital law. These digital contracts are expressed as computer code, and recorded on public and decentralized blockchains, such as Ethereum and Solana. They allow two people to transact without a lawyer, arbitrator, or paper-based contract. The rules are self-executing, while transparent, auditable, and immutable.

On the Ethereum blockchain, smart contracts can have complex rules, such as holding and transferring property rights, P2P lending platforms, and organizations with shared treasury and (automated) third-party audits. 

Each one of these protocols (a combination of several smart contracts) represents the law in that environment. Anyone can verify the code and be sure that the rules will be followed, a process that is much harder to be corrupted by bad actors or abused for political goals. 

Transparency and accountability are never 100% guaranteed, but it’s easier to make progress by continuously fixing problems in a digital open-source environment. Paper-based systems with layers of bureaucracy have the opposite dynamic.

From Legal Pluralism to Economic Abundance

Governance and law are like code, they’re a virtual layer of society. It’s what enables large human civilization. It is one of the most important areas in the world where innovation is needed. It’s a bad idea to monopolize it. 

The true magic doesn’t lie in these specific new approaches. The magic lies in the very simple but powerful political idea that shifts society from legal monopoly to polycentric law.

And, in this new environment of legal competition, we’ll unleash vast economic potential: transforming scarcity and corruption into abundance and fairness.

If you want to visit some places like Roatan (Prospera) or Zanzibar (Eden) or take part in meetups discussing these ideas further. See the Infinita event calendar here.