tl;dr: Are there shortcomings? Yes. Can it be a better outcome? Yes.
A few weeks ago, I shared a blog post called Cryptoeconomic Governance Shortcomings where I did my best to analyze the paper Cryptoeconomics as a Limitation on Governance, by Dr. Nathan Schneider .
Turns out, I was a bit late to the party and I didn’t realize it.
The founder of Ethereum, Vitalik Buterin, had already done the job–and better, of course–in his post On Nathan Schneider on the limits of cryptoeconomics
My primary takeaway from all of this was, while Schneider’s points were good, they were limiting because they didn’t deal with the primary issue for WHY a cryptoeconomic system is necessary.
It’s to seek a “more perfect” way of protecting people from themselves and from other people because people are, well, people.
Subject to collusion, bribery and leaving others behind.
For example, as Vitalik says:
When there’s only two people, more coordination can only be good. But once there’s three people, the wrong kind of coordination can be harmful, and techniques to prevent harmful coordination (including decentralization itself) can become very valuable. And it’s this management of coordination that is the essence of “politics”.
Schneider’s primary concern, I think, is that because cryptoeconomic systems are, at their core, about exchanges of value, the risk is that every decision becomes a financial one.
Buterin points out that this provides fertile ground for observation about where the issues are with society today and then we can use that analysis to identify opportunities for improvement.
Well, if finance is optimized and structured collusion, then we can look for places where finance causes problems by using our existing economic tools to understand which mechanisms break if you introduce collusion! Unfortunately, governance by voting is a central example of this category;
I think there’s a lot of room for additional exploration here, mostly a recognition that the blockchain/crypto revolution isn’t really about the technology (as cool as that is). It’s about rewiring the “brain” of society and rebuilding the fundamental architecture of society on a new platform where more of our incentives are actually visible, or in the lingua franca of the day, “transparent.”
The only reason why political and legal systems work is that a lot of hard thinking and work has gone on behind the scenes to insulate the decision-makers from extrinsic incentives, and punish them explicitly if they are discovered to be accepting incentives from the outside.
The lack of extrinsic motivation allows the intrinsic motivation to shine through. Furthermore, the lack of transferability allows governance power to be given to specific actors whose intrinsic motivations we trust, avoiding governance power always flowing to “the highest bidder”.
Right now, we have systems (at least that those semi-function) that do a somewhat respectable job of shielding (or punishing) people from blatantly obvious extrinsic motivations.
However, we know the system is under a lot of stress…whether it’s the University of Pennsylvania hiring Biden and then having 2 administrators become ambassadors or judges who invest in companies despite the fact that they are hearing cases about those same companies. And obviously, you could write a whole blog post on lobbyists alone.
When the US was “invented” in 1776, it was a radical departure in how “governance” worked and the architectural design was to create a better system of checks and balances.
Cryptoeconomics is a natural progression, designed to create governing systems that arefor the people and protected (with the help of mathematics) by the people.
