How permissionless systems work and where access fails

Some public blockchains are designed for permissionless participation.

They let developers deploy applications that a user can call through a wallet, subject to network fees, contract rules, interfaces, assets, and local law.

These apps are built directly on a blockchain and use its settlement layer to perform functions that would otherwise live in centralized databases and cloud services.

They can be anything from a messaging service to a trading platform.

New economies

As of late 2021, there were thousands of apps built across dozens of blockchains, and many prominent applications were associated with DeFi, NFTs, or DAOs.

Some apps hold billions of dollars of user deposits and pay yield on them, while others are built purely to serve as infrastructure, such as bridges between blockchains.

Projects such as RabbitHole, then an on-chain credentialing service, illustrated how the model was spreading into digital fashion, science funding, and other specialized communities. This was a late-2021 observation, not a claim about their current status.

The visible interface can resemble a regular website. The material difference is that some state and execution occur on a shared blockchain rather than only in the operator's private database.

DeFi: decentralized finance

DeFi is a movement of software developers and financial engineers who are building permissionless and interoperable economic systems on top of blockchains.

The stated goal is to increase financial access while reducing some counterparty and account-opening risks. Smart-contract, oracle, governance, liquidity, and interface risks remain.

Much of the engineering culture is open source, which can make code easier to inspect and reuse. Open code does not by itself make a protocol safe, and the comparison with traditional finance depends on the product and institution.

Permissionless is a spectrum, though: many of these systems keep admin keys that can upgrade contracts, frontends that can block users, and governance concentrated in a few large token holders.

NFTs: non-fungible tokens

Non-fungible tokens have distinct identifiers under standards such as ERC-721. They can represent ownership records, access rights, or references to media. The token is distinct even when several tokens point to the same media or belong to one edition. Fungible assets work differently: one unit is intended to be interchangeable with another unit of the same asset.

DAOs: decentralized autonomous organizations

DAOs are an experiment in social governance structures. They often aim for a more distributed approach to treasury and community decisions, though token ownership, delegation, voter turnout, and admin keys can concentrate practical control.

Each DAO serves a different purpose and has its own internal processes.

DAO functions range from voting on protocol updates to pooling funds for a shared objective. KrauseDAO, which I joined, was a highly speculative example organized around trying to buy an NBA team.

Some DAOs let token holders or delegates submit proposals for a vote. Others restrict proposal creation or use off-chain signaling.

DAOs may vote on how treasury funds are managed, which NFT or tokens are invested into, roles and responsibilities within the DAO, and how to handle any internal conflicts that arise.

Trustlessness

Most bank and payment transactions depend on an institution accepting the account, transaction, and jurisdiction. Permissionless protocols move some of that decision-making into public rules that do not require an account-opening approval.

In a barter network, you act within a P2P (peer-to-peer) framework with no central intermediary.

The analogy to barter is limited. DeFi protocols can match or pool digital assets without a conventional broker, but users still depend on software, networks, pricing mechanisms, and the legal status of any off-chain claim.

Technical and institutional constraints

Regulatory uncertainty and counterparty risk

In TradFi, your location may restrict you from accessing certain services, like crypto derivatives in the USA. US crypto traders are given a different opportunity than non-US crypto traders, and the reasons behind that are nuanced.

In 2021, overlapping US agency mandates and limited crypto-specific rules made classification and registration questions difficult to predict. Exchanges responded by limiting derivatives and some token listings for US customers.

Those restrictions reduced the products available to US investors, while also limiting exposure to some unregistered or high-risk derivatives. A futures-based Bitcoin exchange-traded fund tracks futures contracts rather than spot Bitcoin, so its returns can differ from the spot market.

Regulatory uncertainty can also influence where companies hire and incorporate, although taxes, capital, customers, immigration, and local talent also affect those decisions.

This relocation in response to law is often called jurisdictional arbitrage. It is one possible second-order effect of policy uncertainty.

Reserve currencies

The global monetary system is inconsistent. Reserve systems have changed over time, but they do not follow a fixed centuries-long schedule.

Billionaire investor and Bitcoin advocate Ray Dalio, among others, theorizes that the USD's current reserve status is declining and that other currencies will rise in global prominence.

While compelling, this theory conflicts with other geopolitical commentators, such as Peter Zeihan, who argues that falling populations and supply chain issues will halt the advancements of many emerging markets over the next century.

Zeihan argues that demographic decline and supply-chain fragmentation weaken the case for many emerging markets. Both are forecasts built on contestable assumptions, not settled conclusions.

Permissionless systems still depend on institutions

People and companies gained new ways to control blockchain keys and coordinate shared treasuries.

NFTs and DAOs overlap with DeFi but support different experiments. By late 2021, that meant artists selling directly to collectors, games issuing tradable items, and internet groups pooling capital under shared rules. Whether those experiments displace the incumbent versions of art markets, gaming, and governance is still an open question.

For a narrower examination of exchanges, lending, stablecoins, and protocol risk in the same period, read DeFi Essentials.