Crypto assets for liquid democracy: The future of public finance

Historically, power passes from governments to people. Democracy is the product of revolution and disruptive innovation by those who abhor the elitism of aristocracy and monarchy, fear the determination of theocracy, and see the impracticality of communism. More than ever before, governments represent fairer and trustless social contracts. How do we merge the rule of law with "code is law" and can we have both?

As we contemplate the unstoppable force of decentralization, we must recognize the following: mass communication, intercontinental travel, widespread literacy, the proliferation of the Internet, the pro-democracy movement, and the rise of independent economies.

Liquid taxation: individual control, instant gratification, real-time impact

The problem with taxes is the adversarial tension that arises between governments and voters once a year. We end up funding high-level officials whose judgment we trust less than our own. The solution is for us to monitor our social contributions in real time, on the very streets we walk, with other members of the community as co-creators at the local level. Web3 is an opportunity to make tax sense, to build a sense of community through economic power, and to enjoy paying our taxes instead of fearing the fact. Liquid taxation works as follows.

Imagine getting an estimated tax assessment at the beginning of the year based on your income and net worth. This evaluation is uploaded to your municipal crypto wallet. Throughout the year, as he sees problems to solve and causes to support, he sends whatever amount of money he thinks is worth it. If you wish, you can recruit friends to contribute with you from their tax funds. If you see something that needs attention, create a funding pool for that problem as a crowdfunding platform.

As people self-identify the problems and corresponding solutions of their own neighborhoods where they raise families and go to work, the impact is easily measurable and instantly rewarding. It creates a sense of community when local problems are handled so quickly and efficiently that they don't need to be played with at the national level. At the end of the year, each person gets a summary of how they contributed to their own economy, how much of their tax assessment was used, and what kind of community benefits they deserve. Thus, taxation is carried out in real time as a tool for liquid democracy. Localities are insulated from time lag, human error, asymmetric information, and higher-level government bureaucracy.

If you don't spend your tax assessment, the difference goes to your local government to be used at their discretion. If you spend more than you actually owe in taxes, you get a refund. If you want, you can delegate your tax spending power to a friend or family member whose judgment you trust. If all of this sounds like a decentralized autonomous organization (DAO), that's because that's one possible instance of liquid taxation.

Related: Decentralized Autonomous Organizations: Tax Considerations

Smart Contract Acquisition: Automation, Scale, Economic Efficiency

Public spending is inefficient due to bureaucratic silos. By automating the negotiation of procurement contracts between suppliers and government organizations, we can save public finances and help large companies make more money.

Help everyone proliferate effective products and services from city to city, state to state, and department to department. Smart contract acquisition can also automate and align termination and restitution conditions when something goes wrong. In the world of Web3, acquisitions will not be made through legal, political, and bureaucratic teams acting redundantly and inefficiently.

Smart contract procurement is more meritocratic and competitive than what we have today. It is also a resilience tool for public sector actors who often get less than they deserve from the private sector. In addition to this system, we can institute smart contract microbonds and municipal utility tokens that raise discretionary funds for local issues.

Related: What are smart contracts on the blockchain and how do they work?

Multi-currency monetary system: from the physical to the digital, from the national to the local

The problems with physical currency are well known. Digital currencies provide superior traceability, security, privacy, and administrative ease. The problem is that central banks issue a single currency for a diverse set of jurisdictions. Just as it makes sense for the world not to have a planetary currency, it makes sense for a nation to have a diversified set of currencies that interact between the federal, state, and city levels.

Related: From Cash to Crypto: The Cantillon Effect vs. the Nakamoto Effect

Decentralization does not mean cryptoanarchy. It means shifting power and responsibility to localities, from abstractions like federal governments to front-line agents like city governments. “Power to the people” means power to the cities. Local authorities and neighboring communities should solve their own problems instead of having to negotiate with higher levels of government and have their hands tied.

Multi-currency monetary systems have the following benefits: 1) keep value created and shared within local communities; 2) ease administrative burdens on high-level governments; 3) empowering the microcosms of a nation to relate to each other autonomously with real-time “North Star” metric problem solving; 4) make the economies of cities and states insulated from the adverse effects that rain down from national and international economies. With a physical mind, this model would be a total disaster. However, with a digital currency and smart contracts, this model is possible for the first time in history.

Civic engagement, social resilience, and economic efficiency are the foundation of the social contract in liberal democracies around the world. With the unstoppable force of Web3, we have the opportunity to make public governance and finance fair and fun for the first time ever through liquid rationing, smart contract procurement, and multi-currency monetary systems.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.