Blockchains as Economies

An interesting piece by Praphul Chandra on CryptoEconomics:

Once you move past the speculative pricing of cryptocurrencies and ICOs, Blockchains are fundamentally a way to create economies. The ability to create new tokens or currencies (monetary policy) and to distribute and allocate these tokens according to economic incentives (mechanism design) will lead to the creation of new forms of commerce & economies.

…The ability to use algorithms for the creation, allocation & destruction of new tokens (e.g. ERC20) allows solution (mechanism) designers to offer incentives & reward desirable behavior. The fundamental idea is not new. Alternative currencies like airline miles & loyalty points are used by enterprises to influence consumer behavior even today. What is new is the scale with which it is possible to do this with the advent of Blockchains.

…CryptoEconomies will enable us to study economies at a scale like never before. In principle, we should be able to study the impact of micro on the macro (e.g. impact of change in economic incentives on token price) at the most granular scale. Similarly, we should be able to study the impact of macro on the micro (e.g. impact of new token creation on individual behavior).

The amount of data available in a cryptoeconomy is truly astonishing. Imagine an entire economy in which every transaction is recorded and so is, in principle, every single person’s entire transaction history. New economies like this will give rise to new economics.