Peter Thiel’s Virtualization Talk

At ACC, Peter Thiel, ex-CEO of PayPal, talked about the trend towards virtual value. The content was largely anti-foundational, with him noting that you can view everything in terms of bits or atoms. That the atoms of a human are cycled out every 6 months but we still interpret each other as the same person. He also discussed the possibility for the virtual sphere to escape the control of existing temporal powers (e.g. government). He noted that more than 40% of the worlds wealth is now stored in tax havens like the Switzerland or the Caymen Islands. He was hopeful that the financial system could achieve complete independence and that perhaps other virtual systems would follow, and begged three really important questions:

  1. What exactly does virtualization mean?
  2. Is it really possible?
  3. Do we want it (for some definition of “we”)?

On the definitional front, it is seems really hard to differentiate it from religion. At the extreme, it is really hard to tell the difference between Transhumanist claims that one’s “mind” persists after uploading to some network based virtual reality haven even as the body is left to die. And Christian claims about a soul going to heaven after the body dies.
A Transhumanist might respond by claiming that they can communicate with the uploaded entity and that uploaded entity is responding. Pre-Christian animists used to make these sorts of claims as well.

But, if we were to stipulate nonetheless that the difference really is about some way in which participation in a virtual world actually does have an effect on real world behavior, then the question is simply how vulnerable those participants are to temporal power. For example, if one spends all of one’s time in virtual estate in Second Life, then perhaps one cares little about one’s real (world) estate. If one really enjoys virtual sex, perhaps one has less need to fetishize the physical version. If one spends all of one’s time zoned out on heroin (or lotus eating!)…. And perhaps suicide bombing becomes completely reasonable to those not concerned about death.

But, let us exclude real-world ascetisism as a model for temporal invulnerability for the moment and assume that virtual world participants have real world desires that can be in conflict with those of others… Now we have the premise of traditional economics, unlimited wants and FINITE means.

So, here, virtualization means simply some form of collaboration in order to achieve real world gains. What is appealing here is that no participant is harmed by these gains. An economist would refer to these gains as Pareto improvements. So now it looks like virtualization is simply communication infrastructure for various forms of social arrangements to achieve real world ends!

On the possibility front, there is no question that the world is non-zero-sum so virtualization in that sense is possible, but the original question was whether it is possible to have a financial system that operates outside the grip of temporal power. Let’s talk about desirability and then return to this possibility question…

It is obviously the case that “we” for any definition of “we” want highly efficient communication infrastructure. The open question is whether we want it for “them” when “their” interests are in conflict with ours. For example urban existence is already very virtual. We participate in a virtual world called “money and contracts” to get off the farm and maximize one’s options for physical intercourse. On the other hand, we want to prevent terrorists from using these same networks to destroy this urban existence we hold dear. The result is another virtual world called “government” that interferes in the “money and contracts” world to protect “us” from “them.”

From running PayPal, Peter knows better than most that, as another PayPal founder puts it “Fraud is not a percentage!” Economists may recognize this as a modern restatement of Gresham’s Law: “Bad money drives good money out of circulation.” In the case of PayPal, this means all sorts of fraud protection measures that added substantial friction to PayPal’s ideal virtual economy. Notably these fraud protection measures included resort to the use of real world enforcement mechanisms to protect the interest of PayPal’s virtual customers. But this property is not unique to PayPal. The existence of any virtual world depends on real world institutions to which they will therefore inevitably pay dues/taxes/etc and around which they will need to organize. Note, this fact is a consequence of the finite means issue above it is not particular to any given virtual structure and to use a very different sort of example, it why the terrorists are forced to defend Fallujah (follow this link it is really good on this issue!).

To put it all really simply, a virtual world can be independent of the real world if and only if is a quasi-religion. If it is not a quasi-religion, it will necessarily be subject to real world constraints and be dependent on real world insitiutions for continued operation.


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