Blockchains as Economies

by  Alex Tabarrok in

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.

Comments

Analyst

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BTCUSD is under 7500. Are the whales and HODLers going to get spooked?

Someone stole TC's "personal info on the blockchain" idea ( https://www.bloomberg.com/view/articles/2018-04-27/blockchains-warrant-skepticism-but-keep-an-open-mind ): https://maxdata.io/#platform - though it's not at all obvious why a blockchain is beneficial here.

Anonymous

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I can kind of see this, but I think we should pause before we consider *lack* of privacy as a new benefit in our evolving information age.

Especially given that with micro-location tracking and data consolidation services, we might have something like it now, invisible to us. Who just made that cash purchase? Well, whose cell phone was just at that register?

clockwork_prior

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It is not your data, apparently, if Prof. Tabarrok is to be trusted.

JWatts

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"Imagine an entire economy in which not only is every transaction is recorded but so is, in principle, every single person’s entire transaction history. "

There's an implicit assumption that someone would use the cryptocurrency to perform every transaction. That seems unlikely. There are a wide variety of forms of payments and people tend to use more than 1.

Nick_L

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Its more about the use of blockchain to record and verify every transaction, rather than 'perform every transaction'. And of course, you have far more interactions than transactions. It's entirely possible for your comments on MR to become part of a blockchain. Once governments, banks and companies fully implement blockchain systems, perhaps only barter will escape scrutiny & analysis.

Anonymous

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I know this is a libertarian leaning blog, but the other approach is that we say "all actions protected by law" escape scrutiny & analysis.

We benefit from that now, with our privacy laws such as they are, and I see no reason to believe less privacy protection is better than more at this point in time.

Given the march of progress, and the ever lower cost of scrutiny & analysis, "reach" for that kind of thing is only expanding.

Scott Mauldin

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"There's an implicit assumption that someone would use the cryptocurrency to perform every transaction."

I think someone could have had the same skepticism of paper currency 400 years ago or credit cards 40 years ago. Things don't have to be universal in the economy to provide reasonably extrapolatable data about the entire economy.

clockwork_prior

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'every single person’s entire transaction history'

Social Credit - what's not to love about such recording?

Besides, cash is clearly the sort of thing that is anti-social, depriving society of the benefit of collecting all that data, and preventing the rise of new styles of economics - perhaps something called panoptics, for example?

chuck martel

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Imagine an entire economy in which not only is every transaction is recorded but so is, in principle, every single person’s entire transaction history.

Why would anyone want to imagine that? Why would anyone want the entire history of their transactions recorded by whomever for whatever purpose? People don't seem to realize or remember that no government or institution operates in perpetuity. The information stored by these bureaucracies is available to their successors, who won't have the interests of the subjects in mind, just as the businesses and governments currently in power are bent on retaining or augmenting it. Institutions should be granted the very minimum of information necessary for them to perform their most basic functions, even if it causes some level of inconvenience for the subjects and the institutions themselves.

rayward

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Tabarrok certainly knows the potential for harm that can result if all that data were controlled by authoritarians. It's not for love of freedom that Peter Thiel is investing in blockchains; indeed, most of his wealth is attributable to Facebook, which derives its enormous income by exploiting the data provided free of charge by its users. I suppose Tabarrok, and Thiel, might respond that authoritarians already control vast amounts of data, namely governments. What would lead one to believe that private parties would be less authoritarian if the private parties had control over the amount and kind of data described in this blog post. As for the data exploited by Facebook, Tabarrok has stated many times that "it's not your data". I will give Tabarrok the benefit of the doubt, and assume that he believes markets (i.e., competition among blockchains) will assure that the most secure and least exploitative will prevail. Is it naive? Or is the Libertarian-Authoritarian Axis destined to control our future?

Dallas

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See: https://www.youtube.com/watch?v=xCHab0dNnj4&t=447s for details of why this is nonsense.

Or a shorter version: https://www.youtube.com/watch?v=xXDMzSZ409w

Justin

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“in which not only is every transaction *is* recorded”

Monalisa

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There should not be much doubt over the importance of Blockchain technology, it is easily THE thing! We must make sure we are only part of the big deal and to me Blockvest is amongst those BIG deals that you wish to be part of. The biggest advantage is that it’s based upon very successful theme of Crypto currency exchange with kind of features that are not found elsewhere. Early investors are able to work out great benefit with up to 36% available!

Joe

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The part about viewing all transactions is incorrect because most transactions happen in exchanges and not on-chain so you can’t analyze them.

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