Innovation Requires Decentralization and a Frontier

Naval: Innovation requires a couple of things. One of the things that it seems to require is decentralization.

I don’t think it’s a coincidence that the Athenian city-states or the Italian city-states or even the United States—when it was more freeform and less federal government controlled—were hotbeds of innovation, because you had lots and lots of competition. People could switch from one state to another if their ideas weren’t welcome, and there was a robust competition of ideas.

The real diversity that matters is the diversity of ideas, not the diversity of skin color.

You also need a frontier. You need something new to explore—either an intellectual frontier or a physical frontier. We’ve occupied California. If anything, now California is the institution, the establishment. It’s no longer the front of the Wild West. Maybe we need one in space. Maybe we need intellectual ones like we have in cryptocurrencies. 

It’s the nature of the Wild West that they’re always filled with scammers; they’re always filled with crimes; they’re always filled with very strange and odd things, because they tend to attract a weird crowd. But at the same time, it is where a lot of the innovation is going on.

I see a lot of lamenting from old school scientists and entrepreneurs. “Where are the new entrepreneurs welcome?” I think Paul Graham, the Y Combinator founder, a brilliant guy, tweeted something along the lines of, “Steve Jobs… and people like him wouldn’t last a day inside the companies they created.” He’d be canceled by his own team.

But Steve Jobs today would be in crypto. He’d be in crypto with all the scammers and all the criminals and all the weirdos, but at least there he’d have a space to be weird. He’d have a place to be different. He’d have a place to try new things without having to constantly answer to someone.

There is a pendulum between centralization and decentralization.

For example, if you look at the crypto world, centralized finance ends up very ossified. You have the government and the regulators telling you exactly what you can and can’t do. You get regulatory capture, and next thing you know, Wall Street is sucking 20% of the profits out of the economy—and crypto can replace that.

So you get decentralization pressure where people can do it in a freeform, programmatic way. But then you end up with a lot more scams, fraud and losses as well.

An analogy might be that, in olden times, you worried about brigands and robbers in the forest, so you appealed to the king. The king builds a nice keep, the king mints the money. But next thing you know, the king is debasing the currency and the king is throwing people in jail. Then some people run off into the forest and they become brigands again because they want their freedom. But now, of course, they’re subject to attacks and harassment from their peers.

So there’s a natural pendulum swing that goes on in history between centralization and decentralization, and I think the arc of technology actually swung us towards centralization in the last decade.

I’m a big fan of Amazon, but it’s a very centralized entity. I think that there’s a decentralization arc that is taking place even in that industry. Things like Shopify are coming up and enabling small stores to compete. Local delivery services like DoorDash are centralized services, but they’re allowing a decentralized army of restaurants and local shops to compete against centralized services.

We’re going to see this arc go back and forth.