Paper Belt on Fire: "We Have an Idea"

Balaji Srinivasan helped inspire Gibson and Strachman to nail their thesis to the door

Now, I don’t mean for this to sound like I had an “aha!” moment or anything, but by 2015 a trend had begun to emerge, and so I had written up my ideas on it to be included as a chapter in a book of academic philosophy that I assure you no one has read. (It is ranked #29,000 on Amazon’s bestseller list for political philosophy.) What did catch the attention of some geeks back then was the distillation of a key idea from the essay that I posted as my personal mission on LinkedIn, which I still hold today: 

If the Rust Belt has come to define the hollowed-out industries of the Midwest, in the next ten years the Paper Belt will come to define the paper-based industries from Washington, D.C., to Boston. In D.C., they print money, visas, and laws on paper. In Delaware, companies incorporate on paper. In NYC, they print media on paper. And in Boston, Harvard, and MIT print diplomas on paper. I am dedicated to lighting the Paper Belt on fire.

I make no apologies for this statement. Hyperbolic, to be sure, perhaps a weak match struck in the wind, but a fire has to start somewhere. The whole thing bubbled out of conversations I had with another person I met about the same time I first met Vitalik. There are only two people in this world who call me after 10 p.m.: my mom and Balaji Srinivasan

balajis.com

. If my mom calls that late, there’s trouble in the family or she wants me to recite her a poem. If Balaji calls, he’s about to light a powder-keg of iconoclastic fun underneath some dreary sacred cow. Such ideas simply cannot wait. (Quite charmingly, Balaji pronounces ideas as “idears” in his thick Plainview, Long Island, accent.) He is an idear-sparker of unyielding intellectual ferocity who looks a lot like an Indian Stanley Tucci. His mind will pour itself out in a three-minute torrent, which he’ll abruptly screech to a halt by saying, “Let me pause here to hear your thoughts.” His list of accomplishments is long for someone under forty—multiple graduate degrees from Stanford, multiple companies founded, partner at a top venture capital fund, awards from MIT—it all reminds me of those Soviet generals who’d have an outrageous raft of ribbons, medals, and chest candy pinned to their left breast. In fact, I sometimes used to tease and call him the Libertarian Lenin. It helped that he was bald. In 2013, I lived near the Presidio at the northern tip of San Francisco and Balaji lived in San Bruno, about thirty minutes south by car near the San Francisco International Airport. The only 24-hour Starbucks in town was in a desolate suburban strip mall near Balaji, so I’d drive down, we’d grab a coffee, and then we’d walk the streets of San Bruno, darkly conspiring and debating the future of technology like drunken poets arguing about art in some Parisian cafe. 

A constellation of ideas emerged from these conversations. The first was that progress in America—or the entire West for that matter—had stalled sometime around 1971.11 The Thiel stagnation thesis. The next was to track the erosion of America’s core institutions over the same time period. Sandcastles in a rising tide. To name a handful: the media, Wall Street & the Fed, non-profits, the military, the universities, NASA, the administrative alphabet soup (CIA, FDA, CDC, and the rest), Congress, academic science, and more. All of them were becoming less reliable and less trustworthy than they used to be. Our trusted third parties had become security holes, prone to insider collusion, bureaucratic bloat, cronyism, no accountability, and a proliferation of credentialed dimwits out of their depth. Since many of these institutions depend on paper and are located on the I-95 corridor running from Washington to Boston, Balaji called it the Paper Belt. Then we hypothesized a key driver for this recent history. The stagnation trap. A lack of progress was causing the decline of institutional performance. But, as those institutions became less reliable and less trustworthy, that caused progress to slow down even more. With progress faltering, institutions performed even worse and then distrust began to build even higher. The less progress we made, the worse our institutions performed; the worse our institutions performed, the less progress we made. And so it would go in a vicious circle, spinning into a crisis of authority. And yet, no one was addressing the root problem: stagnation. Instead, these two interacting trends have propelled America into a fifty-year downward spiral. It was not all bad, to be sure, but the scandals and catastrophes were becoming ubiquitous enough to trace a clear course of perilous decline. 

Take the Financial Crisis of 2007–8. On the left, the blowup is portrayed as the result of greedy bankers and unbridled, unregulated capitalism. On the right, the culprits are easy money, the implicit bailouts Wall Street counted on, and the government extending loans to people not equipped to pay them off. And there is some truth to both sides when it comes to proximate causes and a list of villains. However, what neither side really acknowledges is that the chief failure here was the failure to innovate. Starting in 1971, the American middle class had seen their paychecks begin to stagnate. That’s been relatively constant for about fifty years now. Congress, the Fed, and various presidents have felt their pain, but rather than address the problem—that Americans weren’t picking up the skills needed in the labor market—the government papered over it with the greatest expansion of credit in human history. Let them eat debt! Populist credit expansion allowed people to spend in ways far beyond what their stagnant incomes could support. Because we didn’t discover better ways to educate Americans, these people languished without the skills they needed, and without progress in science and technology, worker productivity nearly flatlined. If the advances in education and other sectors never came, the Fed and the rest of the government worked hard to generate the illusion that they did. How did the United States deal with the waning of the American Dream? It looked for ways to hide the stagnation. It took on debt, it printed money, it extended loans. Better to have citizens who feel wealthier than to actually be wealthier. The bill could be paid in a tomorrow that never comes. 

But debt-fueled consumption has a limit. True progress can never be achieved by cheap credit. Subprime borrowers were subprime because our schools educate the ignorant with ignorance. The American education system is a failure and, despite the government pouring money into schools, huge swaths of the population—especially marginalized groups—have been hit hard by the system’s inability to discover new and better ways of imparting the skills and virtues necessary to find success and fulfillment in life. In 2008, the Fed failed. Congress failed. Presidents failed. Fannie Mae and Freddie Mac failed. Wall Street took the upside and socialized the losses. No one went to jail. There is distrust all around. It’s rightly deserved, but it starts with the failure to innovate. 

Something unexplained happened in 1971, and America hasn’t been the same since. Stagnation—whatever its origin in that decade—has now spread and rotted the hull of every institution over the past fifty years. The seals have burst, and the compartments are flooding. America is coming apart—why? My money is that stagnation shapes everything: politics, culture, the national mood. All that is worst in man is exposed in the harsh floodlight of stagnation. Festering resentments erupt. We yearn for belonging and confidence. Instead, we’re dazed and broken, demoralized by addled politics and deluded by false finance. But we’re lost not because we’re polarized. We’re polarized because the fires of creation have guttered out. 

The upshot of the midnight conversations between Balaji and me was the stirring of a crusade. We needed to renew the dynamism of the West. To do it, we’d have to retire and replace the core institutions. It wasn’t going to be easy because the sclerotic corrupt institutions weren’t going away. But it was worth the fight. This whole package I dubbed the Nakamoto Consensus. I was drawing on the nature of Satoshi Nakamoto’s consensus protocol, but more symbolically, I wanted it to stand in contrast both to the Washington Consensus and the Beijing Consensus, two terms bookish pundits had been tossing around to describe the economic ideologies of the world’s two great superpowers. What they both have in common is centralized power. The Nakamoto Consensus seeks to disperse it. 

Nakamoto and Vitalik were showing the way. They were in the business of institutional demolition and renovation. As a store of value, Bitcoin was becoming a serious competitor to central banking and fiat currency, both of whose reliability and trustworthiness had been discredited by the Great Depression, the double-digit inflation of 1960–80, and the 2008 financial crisis and its sad, sorry bailouts. Ethereum was beginning to demonstrate how it could revive an ancient aspect of individualism, namely the ability to impose obligations on ourselves where none existed before. Incredibly, Vitalik’s invention could let people form contractual agreements without the law or government. For the first time, people could create unique digital assets and trade them, artifacts that no bank, corporation, or government could destroy. They could form organizations with governance structures of their own choosing. The Ethereum blockchain is so flexible that it can serve as the backend to a whole new breed of Internet services to rival those of the big tech companies. Except, in this case, the users would be rewarded and empowered. They would have both a stake and a say in the governance. There would be no man in the middle—no Facebook, no Google—to harvest data and sell it. The world could stop giving away its most precious thoughts and creations for free in exchange for likes, hearts, thumbs-up, and enraging comments.

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So, by the middle of the decade, the hopes of decentralization were in the air. We needed to raise an army to turn the tide on progress. We wanted to start a movement to repair or replace institutions. Balaji had his ideas; Danielle and I would have our own. For his part, Balaji told me about one of his heroes as a kid growing up. There was a man who was born in the southernmost region of India in 1887. Srinivasa Ramanujan. As a teenager, Ramanujan excelled in mathematics, but when he got his hands on a book that was a collection of five thousand theorems, his genius caught fire. For years he toiled on his own, reinventing mathematical concepts others had discovered in Europe but that he had never encountered before. Then he also broke new ground entirely. Eventually, he wrote letters to a few leading mathematicians in the U.K. wondering if they might guide him. Only one of them responded. In Ramanujan’s work, the great mathematician G. H. Hardy recognized some formulas as already having been discovered, but others he wrote, “seemed scarcely possible to believe.” 

Hardy brought Ramanujan to Cambridge University, where he went on to make many important contributions to the field in a short time. Balaji marveled at Ramanujan’s story; it showed genius could come from the most unexpected places in the world. With nearly 8 billion people in the world, how many Ramanujans are out there today? We were riffing one night on one of our midnight walks through San Bruno; Balaji came up with a plan that was only half-serious. Smartphones were spreading around the world, even to the poorest regions.

What if, Balaji asked, we were to broadcast simple math problems as texts out to a billion of these phones? And if someone answers the first problem correctly, then we send them a more difficult problem. And if they get that right, then we increase the difficulty again. At some point, if they’ve answered the most difficult problems, we locate this person, airlift them out from wherever they are, bring them to a school, and give them a scholarship. Balaji called this idea 1729, after a number Ramanujan made famous. It’s now the E = mc2 of India. Back in Cambridge, Ramanujan had caught tuberculosis and lay dying in bed. One day his mentor Hardy came to visit him. The taxi on the ride over had been numbered 1729. So, Hardy said to Ramanujan, my cab was 1729, a rather dull number. He hoped that such a dull number wouldn’t mean a bad omen. To which Ramanujan replied in a flash, “No, it is a very interesting number; it is the smallest number expressible as the sum of two cubes in two different ways.”15 

There must be other Ramanujans out there. There is too much talent in the world languishing in dead institutions. Balaji had 1729. Danielle and I lamented that the Thiel Fellowship was given out to only twenty people a year. In just five years, we had seen how powerful the freedom to pursue ideas could be for young people. How could we expand on it? What would it mean to replace universities with something more renegade, more decentralized? 

Balaji was too busy running two companies at that time to get started on 1729. After Coinbase went public, he came back to it in 2020. As for Satoshi Nakamoto, his apparition disappeared back into the mists. The last email he ever sent was on April 11, 2011. Despite a decade-long manhunt, no one has ever been able to find him. Today, Vitalik Buterin is a billionaire. 

Meantime, back in 2015, Danielle and I had come to an idea of our own. I’d landed on my own number that I thought expressed the spirit of the times. We’d seen the success of the early Thiel Fellows, yet the world refused to believe it. But we knew otherwise. Danielle and I were about to walk into Peter’s dining room to say the magic words: “We have an idea.”

You can buy Paper Belt on Fire here.