The Evolution of Emergent Institutions

Evolving Institutions with Interoperability, Privacy, and Identity

In a previous post, we went over the concepts surrounding the emergent governance processes present in the communities and expansion of major crypto-assets like Bitcoin, Ethereum, and ZCash. It is of utmost importance that when designing and analyzing decentralized systems, one understands functionally the concept of emergence. Maintaining complex systems of varying stakeholders can be difficult with so many moving parts, personalities, and communities, so it is essential that incentives work correctly from the ground up.

Forms of governance inevitably change and evolve, especially at scale. However, the static institutions that comprise robust governance (specifically in crypto) must be resilient, and able to adapt to perturbations. Whether that is through the direct will of a collective body of legal persons, or through the actions of other emergent processes, adaptivity and liveness through various forms of rigor determines a system’s future lifecycle. This path dependency is crucial, as the present state of the system, and its past, are what help a complex system to be less chaotic over time as it weathers the stresses of the market.

Hayek, for instance, was interested in showing that institutions need not be designed in order to be effective. Institutions such as language and free markets are effective even when they are not under direct authoritative control. They arise naturally, emerging in response to common human problems, and have a tendency to self-optimize (for example, languages add vocabulary to communicate new ideas, and markets identify new situations which in exchange enhances welfare). He called these kinds of institutions “spontaneous order” and contrasted them with centralized government institutions that try to design complex systems in detail and from the top down. Governments, he rightly argued, do not integrate information as well as spontaneously ordered systems.

But there are two ways of looking at institutions. One way is to look at individual institutions, such as the Spanish language or the Australian government. A second way is to look at classes of institutions, such as “language”, and “government”. Every “class” of institutions looks like a case of spontaneous order: After all, government as such seems to repeatedly “spontaneously” arise in human society, just like markets and language. Conversely, individual instances of the same spontaneously-arising classes of institutions can be quite fragile, and often fail spectacularly to integrate necessary information. For example, even if language as such lasts forever, particular languages routinely evolve something entirely different, or else pass from use. Likewise, spontaneously arising governments, markets, and economies frequently fail to integrate needed information, resulting in their own collapse.

That’s why we think the Hayekian worry about centralization, planning, and non-spontaneous order really hinges on the concept of authority. By concentrating authority over a complex system in some person or persons, institutions involving authority (not only governments) can create a sort of information-bandwidth choke-point — leaving an otherwise stable system gasping for spontaneity so it may evolve.

Authority is a form of spontaneous order. We won’t get rid of it, because it solves coordination problems. But we can restructure it, in making it more information-rich and legitimate. Blockchain systems promise to enable this by making authority more shared and participatory. Here are a few criteria for the emergence of healthy, flexible authority in emergent blockchain-based institutions:


  1. Systems aren’t fully participatory / legitimate / responsive if they aren’t democratic.

  2. Democratic systems allow people to form rich, responsible identities by giving them participation in power.

  3. But democratic functioning depends upon (among other things), privacy:

Democratic systems permit authority to be legitimized by the active input and consent of the governed. But, of course, democratic mechanisms can be information-rich or information-poor. Voting processes that distort or compress information from voters do a worse job at this than processes that transmit high-resolution information and encourage maximally active participation from a greater majority of those actively being governed.


  1. People cannot vote in a democratic system unless they know that other participants are real, unique, and accountable. But it is insufficient.

  2. Power should be shared socially, not only resting with the individual

Traditionally, we think of the individual as a unit/agent inside a democratic systems. This is not a bad place to start, but it is increasingly important to consider groups and networks as having their own kinds of interests and being unique constituents of sound democratic processes. The simplest way of understanding why is simply to acknowledge that in many cases individuals do not really act as individuals. They make their decisions under the influence of social pressures, they have genuine concern and empathy for others, and they may even collude. All of these are cases where voters are not specifically “thinking for themselves”. Democratic systems need to acknowledge these non-individual interests and make political decisions about whether they should have a seat at the table, and why.

Hard Privacy

Privacy enables people to vote privately, thus exercising their judgment in steering institutions without being influenced by others. This is important because where there is collusion and pressure, we aren’t getting the full sum of all participants’ intellectual contribution or political honesty. Privacy also enables the kind of important activity that takes place within democratically governed institutions. For example, people may wish to transact or converse anonymously. These things should be possible. And, in an information rich democracy, people have to be able to feel safe so they may eventually converge on a solution, or organize to take action against a tyrannical force.

Related to identity, privacy is a necessary but insufficient tool to incentivize voters to “think for themselves”. After all, where there is collusion or pressure, voting processes aren’t really enjoying the full benefit of the participants’ participation. Privacy makes collusion and pressure harder to orchestrate at scale, curbing the efforts of malicious parties by making identity verification to punish less likely.


In order to build these kinds of rich emergent institutions, we need architectures that allow people to verify certain aspects of their identities (while obscuring others), dynamically and flexibly. This is necessary to verify key facts such as voting eligibility and uniqueness, without revealing other aspects of identity that we desire to keep private. That means a lot of important institutional activities will need to take place in zero-knowledge black boxes, and it is likely that independent identity protocols will need to evolve to allow identity information from one system to port over to another.

The extensibility and generality of a rich democratic system enables and sustains the growth of spontaneous emergence, allowing a system to socially evolve to more greatly benefit the needs of those acting as free citizens.

Fig. 1: The many pillars that make up a truly sound institution that must stand strong amongst the presence of a fair democracy.

Institutional Evolution

Over time, our conceptions of identity in a democratic system will continue to evolve. The hastening pace of technology assures that sound governmental systems focused on fair participation and outreach will never remain static for long. Cryptographic assurances of privacy and democracy allow for continued innovation and reinvention of what it means to be a free citizen in a functioning democracy. Though you may be able to grant others access, or insights into your collective identity and political perspective, our unique digital identities deserve their own rights and protections against undue influence.

Services such as Facebook, Twitter, and LinkedIn are prime examples of centralized institutions that individuals presently permit to influence their democratic experience. We trade them information for access to their platforms, sometimes at the expense of subtle but important personal freedoms.

The importance of privacy in a centralized world of permission-less digital authority must not be understated. The growth and expansion of machine-learning and A.I. related tools will make it more difficult to rein in and protect the integrity of your own digital identity. Keeping your data away from the hands of unwanted institutions that may seek to influence your future freedoms is extremely important in maintaining personal sovereignty. That means strong privacy is a must when constructing systems that will expand spontaneously overtime. As the evolution of institutions continues, their need to directly harbor your data publicly, without your permission, should slowly perish.

Your personally identifiable data points hold value and power. Strong privacy assures that both individuals and groups can retain control of their identities, making them productive and empowered members of a fair society.

By: Steven McKie and Matthew Prewitt