The contract between us and the authorities

The social contract is a social model that usually concerns the legitimacy of the authority of the state over the individual. Social contract arguments typically posit that individuals have consented, either explicitly or tacitly, to surrender some of their freedoms and submit to the authority in exchange for protection of their remaining rights or maintenance of the social order. The social contract can be perceived as a kind of agreement between the ruled and their rulers, defining the rights and duties of each.

The theory says that people live together in society in accordance with an agreement that establishes moral and political rules of behavior. It is generally believed that if people live according to a social contract then they can live morally and rationally by their own choices respecting the rights of others. The necessary prerequisite is that the social contract is accepted by the majority. The majority will naturally follow the social contract if it is moral, rational, and beneficial. The social contract is basically a set of rules and conditions that are either explicit or implicit. An example of an explicit social contract can be the laws that can be controlled and enforced by governments. The implicit social contract is an expected behavior based on morality, fairness, and common sense. In general, it does not matter whether the social contract is explicit or implicit. It provides a valuable framework that allows us to live in harmony.

The existence of a social contract alone will not ensure prosperity and justice for all. The social contract can look very different in different countries. In some places, people may be more satisfied with the laws and rights of the authorities, in others less so. The social contract does not necessarily work well, and authorities may abuse their position and rights or neglect their duties. The balance between rights and duties may be disturbed or unequally distributed in favor of authority.

Social contract theory can help us understand why we often willingly or unwillingly allow our governments to have so much control over our lives. We give authorities big power in exchange for protection. The social contract is about trust. Authorities tacitly assume and trust citizens that most of their business or social relationships will work well and according to rules, whether implicit or explicit. However, conflicts and disputes occur all the time, and citizens trust authorities to resolve disputes fairly. The legal system is the authority that has the right to investigate, resolve and even punish the potential culprit. Authorities are thus in the position of protectors of the law, and thus of the social contract.

The social contract is extremely important for society as it sets the rules of the game in society. Ideally, citizens are familiar with the rules or the rules are intuitive enough in a given cultural context. The rules must apply equally to all. If this is not the case, there is tension and nervousness in society because there is low trust in the legal system and justice. One cannot trust the other, nor can one rely on authority. Chaos in society can lead to riots and revolutions. Let’s add that social contract theory has been a useful tool for justifying political revolutions when governments fail to do their jobs or prove to be incompetent. When the government fails to secure the natural rights of citizens or satisfy the best interests of society, citizens can withdraw their obligation to obey, or change the leadership through elections.

If there is major unrest or even revolution, it must lead to a redefinition of the social contract. Some new rules of the game must be defined and agreed upon by the majority. Unless a new agreement emerges, the riots will not stop.

How social contract works in the real world

The social contract increases trust in society. Individuals can be more confident about their rights and their enforceability. This is very important in business relations. Believing that authority can be relied upon increases people’s confidence and allows them to venture into more risky business. Business is generally better done in a stable environment than where there is uncertainty. For example, if business partners do not know each other, they may enter into a contract with each other. The contract defines the rights and obligations of both partners and the legal system resolves any conflicts. So, when two partners do not agree mutually on how to resolve a conflict, a trusted third party gets involved to do that for them. Each of the business partners can turn to the legal system and seek redress. As we explained above, authorities act as protectors of the social contract.

The social contract is also important in terms of copyright protection. If you are an artist, you need to be paid fairly for your works. If, for example, an artist’s songs were played on the radio for free without permission and the radio station did not pay the artist, that would not be fair to the artist. The artist needs a third party to set things right. Thanks to the social contract, everyone knows that it is illegal and criminal to steal someone else’s work and profit from it. If everyone knows that the controlling bodies work well, no one will commit copyright infringement on a large scale. Most people know what is morally decent behavior towards those around them. If there is an infringement, there must be reliable authorities to deal with the problem in a standard way. The law must be applied to everyone equally. Morality alone cannot work well in society. A socially accepted authority and the legal system are necessary.

In some cases, it is necessary to punish people not only financially but also with imprisonment. Here, too, society must have clear rules, processes, and laws. People who have been harmed by crime cannot enforce the law themselves, because they might make mistakes and commit crimes themselves.

In conflict resolution and law enforcement, the rights of citizens may collide with the rights of authorities. If there is a suspicion that someone has committed a crime, there must be a way to investigate the case discreetly. Often the right to privacy may be violated. Investigators can monitor the financial flows of criminals and even have their bank accounts frozen. Money can then be returned to the rightful owners. Is it okay to violate privacy rights to seek redress? The views of individuals will be subjective and we would probably not reach a clear conclusion. In our view, the right to invasion of privacy and the seizure of property is necessary in some cases. It is generally better for society to have a trusted authority do this than for people to enforce the law themselves.

Conflict and crime will always occur in society. So the authorities need the right to invade privacy and seize property. Even if they use it in a small number of cases, in most states citizens grant authorities this right. It is a part of the social contract.

Banks also operate under a social contract. A bank can only act within the confines of the law of the land. A commercial bank is a powerful entity that has rights regarding its own business. If the bank breaks the law, it will be punished. Banks have no obligation, nor is it in their commercial interest, to provide a bank account to all citizens and people living in a given country. No one can force a bank to open a branch in a poor country and provide a bank account to the people. From a moral point of view, some people might see this as a benefit to society, but it is not part of the social contract. The laws of countries often regulate the conditions for the establishment of a bank. So opening a new bank and increasing competition is not very easy.

How to empower individuals

People are not yet very aware that blockchain is a fundamental technology that will force a redefinition of the social contract between citizens and authorities. This can take many forms, from a gradual change in the social contract and redefined rules between citizens and authorities to revolutions that force change. Fortunately, for the time being, it seems that the change will be rather gradual and without revolution. This is only a good thing.

Cardano will allow the people to take control of their own destiny. This means that people can rely more on technology and thus will have less need for authorities and institutions. At the level of the social contract, this means that particular entities will put certain rights back into the hands of the citizens and relinquish them to some extent themselves. In the beginning, it is enough for entities to allow people to take their destiny into their own hands and not insist on their exclusive position. This means allowing people to use Cardano and other digital technologies.

People need various institutions as third-party trusted agents and protectors of the social contract. If Cardano is able to assume these functions to some extent and people adopt them, the power and position of the institutions will be weakened. This may require a reworking of some laws and a redefinition of the rights and duties of the various institutions. This is feasible.

However, this is only feasible on the basis of social demand for a redefinition of the social contract. Without demand from citizens, we can only see regulations that may ultimately throw a spanner in the works of the technological revolution. People must explicitly express their desire to use blockchain technology with all that it brings to them and what it takes away from institutions and possibly authorities. The social contract must reckon with blockchain and its possibilities, and authorities will have to learn to exist with it.

Cardano is inherently a global scalable network that will gradually become a natural part of the Internet and thus the new world infrastructure. This infrastructure has no central owner. The state will therefore not be the one to own the technology and define the conditions of use. Neither the state nor the institutions will be able to arbitrarily infringe the privacy of citizens. Every person in the world, including all citizens of states, can freely choose to use this infrastructure. This means, for example, that banks will no longer be able to decide in which country they operate and to whom they open a bank account. People will be able to create their own wallets and interact freely with the whole world. Even in countries where most people have not had a bank account.

People can build their decentralized global identity on the Cardano network. They can still have a national identity, but they will also be global citizens. The identity will allow them to establish business and social relationships remotely and fully online. Once someone makes a decentralized bank, literally the whole world can start using it without permission. But people will be able to lend money directly to each other without having to use a bank or other expensive and inefficient intermediaries. Peer-to-peer money lending on a global scale will be a reality.

The Internet is generally about connecting people. Cardano can become a trusted layer of the Internet. It fits nicely into the context of the social contract. As we have said, the social contract is about an agreement between the state and, through it, between institutions and citizens. The agreement is about the rules, overseeing compliance with them, and, where appropriate, the right to resolve disputes.

Cardano will allow defining rules in financial and social relations. Thanks to the automatic execution of smart contracts, a smooth business process can be ensured. This does not necessarily mean that the smart contract is 100% right in all cases and that the contract decision written in the blockchain correlates with reality. The legal system will still be in play. Most business transactions will run smoothly, as it is in the interest of both partners. Decentralized technologies can only replace a certain part of a social contract, not the whole thing. This is amply sufficient for a fundamental change in society. Smart contract functionality and social contract abilities are not mutually exclusive. They can work nicely together.

Even with a basic blockchain transaction from Alice to Bob, we are unable to ensure consistency between the digital and physical worlds. Once one party promises something and fails to deliver after the transaction is sent, the counterparty does not consider the transaction valid. The transaction is only valid from a blockchain perspective. In the physical world, a transaction may not be valid. It may be necessary to involve the legal system. Note that what must happen is what would have happened even if the regular banking system had been used. The defrauded counterparty is unable to force the bank to reverse the transaction. The bank is not in a position to handle the case. In the case of blockchain, no one is in a position to arrange a remedy and cancel a transaction once it has been written. The immutability of the blockchain prevents this. So only someone in the physical world has to force the fraudster to send a new transaction or force him to fulfill an obligation.

Blockchain is just a technology and as such can be abused. Any technology can be abused if used properly. The social contract is there to punish abuse and repair the damage. People cannot start using blockchain and abandon the social contract. The only option is to adopt the technology and modify the social contract. Whether modifying the social contract will result in fundamental change at the level of governments and the weakening of states is a big unknown for now.

Can we have decentralized institutions?

As long as it is in line with the social contract and we accept that the legal system will deal with any irregularities as an authority of last resort, there is no problem. There will certainly be new questions. For example, who is responsible for the decentralized service. Anyone can run a service anonymously. If there is some abuse, the legal system may want to arrange for redress, but may not be able to find the authors of the service. It may even be inherently difficult to stop such a service. What should we do if there is a fraudulent service that cannot be stopped? Perhaps the only thing the authorities can do is warn people not to use the service. Or they can build a similar decentralized service themselves and claim authorship. Such a service could be more transparent, open, and fair, while still under the control of the authority. Is that what we want? We don’t need to look for all the answers. This will be part of the redefinition of the social contract. People need to be given more freedom in what services they can use and what services they can stop using.

The banking business is likely to be disrupted first. Everything to do with holding funds, lending money, or insurance may be largely automated. Let’s not forget that the technological revolution is not just about blockchain, but also about the associated infrastructure. Oracles and sensors will help smart contracts to observe events taking place in the physical world. The use of technology does not mean that humans will not be needed in various processes. For example, expert opinion or risk estimation can still be left to humans. However, in some cases, we can replace humans with artificial intelligence. Artificial intelligence can be more unbiased compared to humans. Could you one day get a loan just by talking to an AI on the phone? It’s entirely possible.

People need to get something from Cardano that gives them a strong reason to adopt and use it. The reasons will vary across countries and may include but are not limited to, the following: to enable them to open a financial account, to send cheap transactions across the world, to take out a loan, or to ensure their assets. The reasons may be more complex. For example, the ability to offer and sell your products on a global market without an intermediary. To simplify or reduce communication with institutions. It may come as a surprise to Westerners that one reason may be to own their digital identity for the first time in their lives. It is not usual in many developing countries. People from Western countries are more likely to appreciate a greater right to privacy or more competition in the lending sector. To what extent it will be possible to decentralize the function of institutions is now a question. For the moment, it is necessary to offer an alternative and give people the opportunity to use it. The next step may be some form of adoption at the institutional level. The more successful the alternative is, the more it will force institutions to use it and improve their services.

One of the problems of the current social contract is the complexity and excessive bureaucracy in many processes of daily life. Blockchain technology can simplify processes and facilitate understanding on some levels. It is not always necessary to consult a simple loan with a lawyer just because a contract has 10 pages of text. If you take a loan from a bank, the bank often has many more rights than you do and is more covered against risk. Simplification and more competition can bring about concrete changes for the better.

People themselves must want to be empowered

The level of disruption will only depend on how much people themselves want it. Without adoption, the great revolution will be a long time coming. Cryptocurrencies are something that can disrupt the sovereignty and functioning of states. People who start using cryptocurrencies will one day be able to do without the authorities and institutions of the state. Not fully, as their obligations as citizens to states will still apply. The demand for changes in the social contract is necessary. The stronger our voice, the better chance we have of success. Even if the world starts using one global decentralized currency, the functions of states and their social contractions cannot be replaced. More likely, however, is that states will retain some control over their national currencies.

Cardano has the potential to be one of the projects that will push for big changes in society. However, people need to know what benefits the technology can bring them, and they need to tell themselves that they want to use it legally and in line with local law. People in developing countries will gradually adopt the technology on their own without the involvement of governments. It may be that some states will start to promote it themselves. If the technology is banned, there could be some major resistance. In the world, it is not often that technology is banned. However, some limitations can be observed in states with dictatorships. No technology to date has had the potential to disrupt literally everything we are used to today.

Wise leaders will not prevent the adoption of technologies that can significantly improve the functioning of states and, by extension, the world. We need to look for ways that will allow us to adopt technology in a way that will increase social welfare. The participation of states in the revolution will be necessary and ultimately beneficial. The legal system cannot be fully replaced, and we will need it for the smooth use of blockchain technology.


In the past, the Internet has enabled us to improve our lives in terms of the availability and accessibility of information. This too has had its problems. As a result, however, some entities have had to change the structure of their business. Thanks to the Internet, many new companies have been created that today rule the world of the Internet. These IT giants have enormous power today, and it is difficult for states to tame internationally operating companies. Many people trust these companies, but their trust is being abused. Cardano, or blockchain technology in general, will bring a new wave of technological disruption on the trust level. This can in the long run help solve the problems we have today. The technological revolution will sooner or later force a redefinition of the social contract. It happened in the case of the internet and now it will happen again because of blockchain. It will give people more control over their lives and thus more power.

Technology is just a tool. It has to be picked up by people. The revolution must take place at the social level. Technology alone will not bring about change in society for us. Everyone who installs a blockchain wallet is a new freedom fighter.