random cryptocurrency / cryptoeconomics thoughts #2
The below is ungroomed, thinking out loud, a collection of thought bubbles written as a messy tangle and has not been processed for concision/to make it easier to read. Patience and indulgence is required. There is not a sequential flow, paragraphs are ordered randomly. No effort was made to format for easier reading/viewing.
Continued growth in relevance / efficacy of DLT, blockchain and cryptocurrency ecologies depends to some arguable degree on ability for the cryptocurrency field and projects within it to be ‘gaming proof’ and/or ‘capture proof’: proof/robust/antifragile against being gamed by free riders, gamed by contrary outcome seekers, gamed by malicious/pernicious actors, captured by rent seekers, captured by power imbalances, captured/gamed by asymmetrical imbalances, captured/gamed by falling self-victim to perverse goals that can be manipulated/exploited by motivated parties.
What is meant herein by the terms ‘gaming’ and ‘capture’: • ‘gaming’ refers to how sufficiently motivated participants or external actors can swamp/overload, exploit, take advantage, corrupt, pollute, sidestep, diminish the otherwise natural working, flow and limits of a cryptocoin/project, along game theoretic lines (e.g. exploiting the greed motive by giving free forked coinz), perhaps for excess gain or perhaps to gain outsize social/political/aspirational outcomes. E.g. Bitcoin is at risk of being ‘gamed’ by the Chinese miners exerting or exploiting their possible outsize (51% attack, 34% partitioning) posture, so as to achieve excess fiscal rent or excess power over the natural functioning’s decisional path (e.g. miners not adopting SegWit2X). Gaming implies that some participants gain privileged or excess outcomes they otherwise didn’t earn/deserve, at a detrimental cost to the remainder of participants. • ‘capture’ refers to how natural positive loops can become entrapped, ensnared, exploited, handcuffed or seduced against their own best intentions whether overtly or covertly, by sufficiently clever, capable or resourced actors who in some sense are passively hostile in the way or desire they have towards to victim system. The notion is that the coin cannot ‘fight off’ the capture attempt. E.g. Goldman Sachs ‘capturing’ the legislative or regulatory process addressing Wall St and financial market ecosystem so as to advantage Goldman Sachs more so than otherwise was intended. An aspect of ‘capture’ is that the victim may find itself incapable or unwilling to escape the capture if it is not robust or principled enough even when it is fully aware of the capture being in effect. Capture implies the coin project may be aware of the capture but unwilling, unable or precluded from responding. E.g. Bitcoin miners may have captured Satoshi’s original vision but the millions of coin owners are now too apathetic to care. Coin projects already hard code (perhaps onchain, perhaps in their codebase) or soft code (via off chain governance forums, or perhaps by forking e.g. EthClassic, BitcoinCash) their cryptoeconomic beliefs and their desires to be robust against gaming and capture. Coinz can/do/might take steps to preclude, protect against or minimise capturing and gaming that might face them during their progress as projects. We discover these anti-gaming / anti-capture aspects when we first encounter a given coin and start to examine its constitution and ecosystem: who governs the coin, what power do the miners exert, how smart/well-structured is the consensus mechanism, etc. We perhaps start a running total in our heads as we learn more of the coin and its design/rules, and match its feature set against our mental ‘must have’ lists. Like when we buy a car or plan a holiday, there are certain important ‘must have’ criteria front and centre in our minds, and then we allow data to stream in, adding up until we reach a threshold or quotient and decide then the coin is ‘good enough’. There does not seem to be a formally defined set of terms that describe, dimension or predict the zoo of capture and gaming efforts that probably affect or that could probably affect cryptocurrency projects. Individual projects and their spiritual leaders, such as Vitalik Buterin, often speak or write about the steps they have taken to ward off gaming or capture efforts. This is a ‘best effort’ approach, not a formalised defence. Buyer beware is the operant maxim.
Does there exist a list of defined aspects that a given cryptocoin must have, so that it can be objectively said to be, for instance, 80% anti-capturable or 90% anti-gameable? The field of cryptoeconomics is new and so not a well defined one, and there appears to be no formalised ontology of terms, principles, practices and knowledge bases to offer a reliable science to describe, bound and normalise the concepts that make up anti-capturability or anti-gameability.
Cryptocoin projects may be the first instance of a shift to ‘hard’ encode what had previously been unwritten knowledge about how humans respond to incentives and disincentives/penalties — mechanism design in the flesh. A robust cryptocoin consensus mechanism, for instance, not only provides incentives for nodes to do their proof of work/proof of stake effort, but the coin’s consensus protocol also likely provides strong and/or hard disincentives and/or penalties for not honouring the network/the coin’s economics. For instance Ethereum’s proposed Casper Proof of Stake mechanism is likely to ‘slash’ (destroy) bonded ethers for validators who attempt to be, or prove to be, pernicious as they attempt do their validating work. The concept is that if you do something useful, you should be incentivised and rewarded for doing so, and if you are deliberately pernicious you should lose some or all of a stake and/or your standing as a validator. The difference in crypto versus old world examples is that in crypto, the reward/penalty regime is explicitly encoded into the underlying system itself, e.g. as Casper’s rules/codebase. In old world examples, you have to hope that a policeman or regulator bestirs itself, goes and catches the transgressor, brings them to a court and that the lawyers reliably sort it out in your favour. In crypto, the underlying codebase itself and the daily operation of the coin and network inherently do the policing and enforcement as a fundamental and indivisible part of its functioning. The consensus protocols have a view of what is useful and what is to be rejected/punished, and the consensus protocols hard code this as an unavoidable part of their existence/functioning. Users of the coin/network can thus be assured that the rules are known and invariably enforced equally to all participants without favour. Users of the coin/network also essentially opt in and accept these hard coded rules. This basis shifts the focus from national or state political election cycles to cryptocoin governance systems — if you want the rules to change, you have to gather up votes from stakeholders and get the dev’s to encode the changes you seek. A central attribute is symmetry: the balancing of incentives and disincentives. Cryptocurrency may be first time in the history of human affairs that intuitions about how humans respond to incentives and disincentives ( a la behavioural economics) get hard-coded into a primary currency as represented by an instantiated cryptocurrency codebase/blockchain. Coin dev’s are essentially ‘hard-coding’ their chosen/preferred behavioural economics principles into the consensus mechanisms and codebase that instantiate and serve all our cryptocoins. The choices and preferences that dev teams hard-code into a cryptocurrency essentially act to ‘lock in’ the intuitions to the code’s operation. A dev team may decide to reward miners or stakers or their own treasury. The dev team may decide to punish pernicious validators. The dev team may decide that inflation or deflation is a good thing and code that in to the supply mechanics of their coin. Users, by default, could be said to opt-in to those choices the dev team made. Hard forks, for example Ethereum Classic from Ethereum, and Bitcoin Cash from Bitcoin, could be said to show detraction from the antecedent coin’s cryptoeconomics: don’t like the way Bitcoin limits blocks to 1MB size? Then fork off to Bitcoin Cash and change that limit and the economic impact it entails.
This immediately suggests that a viable cryptocoin ought/should have a codebase where future changes in such crypto-economics preferences and intuitions can be retro-fitted / soft-forked into the codebase whilst the coin is live, whilst its blockchain is in production. A corollary to an assertion of the hypothesis — that cryptocurrencies may be the most significant example yet of the firmest and most deliberate codified usage and employment of behavioural economics principles, mechanism design and game theory concepts — is the notion that perhaps not all cryptoeconomics will be due to, or powered off, the employment and corporealisation of those same aspects from those canons. Humans might still seek to infest the cryptocodebase and consensus mechanisms of cryptocoinz with concepts, provisions and/or ideas that are antithetical or extraneous to orthodox cryptoeconomical formulations (as the superset that includes behavioural economics, mechanism design and game theory concepts). Humans may want to deliberately and purposefully infect the otherwise pure expression of cryptoeconomical formulations with other (externalising) flavours, taints or hobbles. For example, perhaps we may want a staking algorithm that in some edge or corner cases does not slash the bonded validator’s stake even though they have done something Byzantine to the blockchain. As Vitalik Buterin said in a video interview: “…economic incentives are not the only thing that motivates people, [however] they are a very large thing that motivates people…” This gives rise to the idea that perhaps we need to plan ahead to decide to what degree cryptoeconomics — as embodied and exemplified by the moment-to-moment natural calculation models that a running production p2p cryptocoin executes via its codebase — is the only set of ideas that sets the boundary for the coinz’ economic (cryptoeconomic) action. Humans perhaps get now to decide when to defer to the natural constraints that cryptoeconomical rules impose, and when to abrogate them and impose other rules as overrides or exception cases. This is tantamount to humans making conscious choices as to when they behave and when they can misbehave, in a game theory and behavioural economics (=cryptoeconomic) sense. Humans brains go chemically funny when they get an easy hit of cash — the machinery of the human brain has a special response when it anticipates easy sex or easy money is about to happen to it. The decision-making area of the brain, the D2 family of receptors, the mesolimbic pathway, cells in the ventral tegmental area. So as an ICO, a project or a coin exchange gathers easy money and in a large lump/short time, the insiders/proprietors get a chemical hit in their brains that in some cases makes them contemplate strange acts (e.g. exit scam). Hence why we will continue to see ‘exit scams’; too much easy dopamine can tempt these recipients into unsocial, ‘exit scam’-style behaviours. The proprietors aren’t doing anything strange — it is unremarkable that large amounts of quick, life changing cash might cause otherwise law abiding proprietors to turn atypically into exit scam villains. The rest of us get the same type and qty of brain buzz mesolimbic phasic dopamine when easy sex, gambling wins or luscious food looms into our grasp. In other words, we should expect that outsize ICO riches will cause otherwise-saintly people to turn into exit scammers. This is not to pardon them their sin, but we ought not be surprised by the occurrence. Before VMware, mainstream Operating Systems (OS’s), such as Apple’s OSs, Linux, Windows, in many cases were run on single hardware bases and had exclusive control of that hardware base system. VMware came along and virtualised that access, via an interposed software layer called a hypervisor. This allowed the hardware to run the hypervisor and then virtualise the OS’s on top — a VMware server could now run multiple instances of Windows, Linux and other guest OS’s, simultaneously, ‘sandboxed’ from each other.
It seems suggestable that someday someone might invent an equivalent, VMware-like hypervisor that virtualises blockchain node clients, and allows a single hardware platform (a PC, a laptop, a mobile phone, an iPad) to run multiple instances of virtualised blockchain node client instances, simultaneously side-by-side. You will now tell me Cosmos and Polkadot and AION are already set to do this, and/or that atomic swaps will give similar outcomes. The aspect that may change or re-path those efforts is the idea that the emergence of hypervisors played a role in making Amazon AWS and Microsoft Azure possible. Similarly, we may need a ‘cryptocoin node hypervisor’ before we see new crpytoecologies unleashed a la AWS, perhaps different to those of promised by IBC’s and/or atomic swaps: crypto node clients all running (via a crypto hypervisor) virtualised inside one common systems environment, sharing processes/resources/privileges that are useful at the node/user level. The intuition is that perhaps this will unlock some cryptoeconomic value that might not be otherwise harvested. A simplistic view of evolutionary fitness would suggest that only the individual’s survival is important, therefore altruistic behaviour is contra-indicated. Yet organisms are capable of non-selfish behaviour, particularly at the higher end of the complexity scale of organisms.
For crypto to survive beyond a ‘Neanderthal’ phase, its seems indicated that crypto projects will need to make provision for aspects of their operation beyond their own internal ‘selfish gene’ needs. Projects like Dfinity, Decred, Tezos and Aragon show awareness of the notion that participants and stakeholders will seek to change the layout of the airplane whilst it is in flight and they are inside it. Crypto is programmable money; perhaps we need a new evolutionary version of onchain governance, that itself allows self-directed evolution, a recursive loop of governance mechanisms/organisms. Stability, stable coinz and volatility: attempts to equate cryptocurrencies to a stable peg or stable (external) underlying seem doomed to failure. The world tried to peg its major currencies (e.g. USD) to physical assets such as gold for decades/centuries, before Nixon finally removed the peg between the US and gold in 1971, essentially putting a final knife into the concept: if trillions of dollars, decades of time and the combined might of the world’s economics brains and governments can’t make the peg work, what makes crypto stablecoin investors think they know something better? The probable ‘logic trap’ in effect here is that trying to peg ever-changing human cryptoeconomic mental tropes to an external (fixed) reference is tantamount to thinking you’ve invented a perpetual motion machine: the second law of thermodynamics will defeat any such attempt.
Crypto, by its nature, demands to be free from external pegs that attempt to solidify, freeze or handcuff human thoughts about economic value — and perhaps we ought take steps to ensure it remains free not pegged. Crypto, as a fundamental part of its hoped-for natural operation, will seek to remain volatile, relative and free to track our shifts in cryptoeconomic thinking: that’s a feature, not a bug. The world tried to hold itself to the Gold Standard, and found out that it’s not a workable mechanism/is gameable/is incomplete. Humans change their choices and preferences and a cryptocoin ecology will do well to always accommodate such shifts. Money is a socially-constructed phenomenon: humans decide and agree to what they will value, so a viable cryptocurrency will need to chase that circus, and not attempt to lead it. If ‘stablecoin thinking’ tries to tell crypto what to do, this is tantamount to censorship — good luck with that. In case it needs restating: these (volatility/non fiat restrained, ability for cryptocodebase to morph, censorship resistance) after all were many of the reasons why cryptocurrency came about, to supplant overtake and relegate fiat currency/fractional reserve banking/classical economics shortcomings. To the extent that stablecoin = censorship of crypto’s desires and needs, then stablecoin will lose out. AI is eating whole industries. Self-driving cars are just the vanguard: soon, many human professions will get swallowed by recursively-powered AI’s that self-referentially improve themselves and are just nakedly better than humans at the given task set. Some crypto team will soon succeed at getting an AI to rewrite the codebase of a cryptocoin so that it recursively self-improves according to its own internal refactoring of the end-goal design principles that we seed the project with, its economic principles. Humans will not cope well with the idea that the AI can learn and improve a given mechanism better than we can, rendering us passive viewers from the sideline. Crypto is testing the mettle of financial market regulators. Crypto is testing the tolerance level of central bankers. Crypto is usurping the role of brokers and exchanges to be exclusive market makers. Crypto is poking holes in legal barriers, borders, jurisdictions. Crypto nations might one day replace existing states. It may well be that the role that crypto ends up occupying is being our collective ‘yoyo probe’, that the cryptocommunity flicks out at different legacy institutions and societal structures to test where they are weak and ripe for disintermediation, disruption or wholesale replacement. Crypto may be our loyal servant that we use to broach, wound and kill off old-world/legacy answers. Financial Repression in old world economics leads to the effect where authorities impose policy structures that produce an imbalance that results in penalisation of one class of participant versus another class of participant, typically zero sum. The defining version of Financial Repression is where interest rates are set too low thus unduly punishing savers (bond holders) and excessively rewarding borrowers.
It could be argued that the crypto space has seen its own version of Financial Repression for instance in the form of Bitcoin mining fees. Fees take too much money from participants (you and me) and forcefully give that excess money to miners. Arguably, Satoshi knowingly or unwittingly imposed Financial Repression on all Bitcoin customers. Was it the desired goal by Satoshi that miners should end up extracting billion dollar excess paydays, with cost borne by naïve participants?
The question arises as to whether crypto dev teams — driven under instruction from stakeholders — should take steps to preclude, limit or control such Financial Repression effects. There may be a taxonomy of Financial Repressions: there may be some effects that we want, some we will tolerate for our own well-being, and some that we should guard against. The point may seem obvious in the whole, the value case here may be in the nuances of how this is examined for edge or corner cases. Should we let coinz decide organically who bears the externalisation cost, or should we decide ex ante? To what degree should we act beforehand to preclude externalisation effects arising that then have to be parcelled out somehow, and thus avoid the problem in the first place? To what degree should the assigned value we impart to a cryptocurrency be from its endogenous aspects — its digital scarcity, censorship resistance, immutability, BFT, network effects/Metcalfe’s Law — and to what degree should the value assigned a cryptocurrency be by our fiat expressed, collective/social, edict. Does it makes sense that we should trust the untamed, free acting animus spirit of the crypto marketspace alone to set the value? Or should we not allow the murmur of the market to reign free, and instead we should socially decide the float point? Crypto, when left free and unsullied, is a ‘creative destruction’ engine of the finest degree — should we mutely accept whatever end charms and way markers it brings to us as it evolves, adapts and survives along its genetic development curve? That path will be stochastic as dev teams learn and grow over time (sharding, state channels, DAGs) so we should expect a random walk, the question is to what degree we stand by or to what degree we occasionally nudge, intervene and/or redirect that random walk. In a principled attempt to offer improvement, there is a line of thought that states: “we need a set of market-based mechanisms that transform the self-serving behaviour of autonomous agents into system-wide outcomes that benefit the majority of individuals, society and the planet.” ref: https://evonomics.com/new-invisible-hand-conversation-peter-barnes-david-sloan-wilson/ The poison here that awaits us if we swallow is the notion that we are smarter than autonomous agents who can find their own way forward under given constraints, that we as human overlords of the market have some God-like superior intuitions. Market purity has again and again shown that it can unleash fantastic new ideas and systems, yet somehow we return to our narcissistic comfort blanket that we know better because we’re smarter via some unspoken, unquantified qualia. The critique of market based action, the Invisible Hand and its ‘laissez faire’ handmaiden is that it has repeatedly shown itself to be not willing to self-regulate in required/healthy/altruistic ways. This is a Tragedy Of The Commons issue: someone should ‘do the right thing’ for the collective’s continued self-health but each individual participant would be penalised, not rewarded, for doing so. Crypto’s magic is it’s ‘wild child’ nature, the rebellious teenager who wants to figure it out them self, untrammelled, no matter what. Should we attempt to haircut the teenager, mid-rebellion? Competition, prices-as-signal, invisible hand, creative destruction, laissez faire: are these alone sufficient to ensure desired end state outcomes by crypto? Would it serve our higher interests to instantiate a smart token that represents today the stake of the invisible future party there: the interests of future, unborn actors? Laissez faire capitalism champions the now at the expense of the future, and thus externalises cost onto future, as yet unborn, bagholders. A smart token to track, enshrine and price signal those future stakers’ entitlements is perhaps a remedy. Should altruism be tokenised so? Property rights = incentives and disincentives. Behavioural economics seems to cement and keep safe the idea that property rights remain a core way that the human brain enacts its choices as to incentive seeking preferences. In a world where autonomous agents and AI’s have their own stash of ethers that they own — much the same as how a company is regarded at law to be a natural person in some aspects — then should such autonomous agents be supported to decide their own incentive preferences? If you like owning boats and houses but your blockchain-driven AI agent who has power of attorney instead prefers bottles of wine or fine art, then who prevails? Even though assets and wealth are socially-constructed phenomena, and we humans get to decide always what ‘has value’, it may be the case that letting AI’s decide what ‘has value’ instead is a useful function to ensure crypto’s float to their needed level. Do we need a new, crypto-skewed, sense of what are property rights, who has them and how? Bitcoin and Ethereum might become avatars, persons, who have rights at law, who should be allowed to vote, who should be allowed to buy a house or marry. As avatars, are they private citizens or ‘common property’ entities?
This suggests that someone now needs to run around and inventory/catalogue every entity that exists in your backyard, your state, your continent, and then database those into a catalogue of legal entities. Every butterfly and rock becomes a person at a law. Every rock can own its own cryptocoinz and vote those into its respective governance loop. Your rock can write a smart contract with you that benefits it if you renege. Your rock can establish a will for its estate. Your rock can charge you for its services. Your rock can choose which neighbourhood it wants to move to. Should the rock itself have the rights, or should the human guardian/s on its behalf? I suspect each such blockchain-represented rock will get an AI that acts as its guardian. Encoded properly, coin codebases themselves will wrestle with and work out a solution to the above hypotheticals: ethers, humans and rocks will each have a smart contract/avatar that exists in the EVM and the codelogic itself will mediate the roles and interests so as to achieve workable functional balance. At least that’s my hope….. Disclaimers: just my ideas about possible scenarios for near-term future. This is not investment advice. I’m ego-driven, clueless and biased, so do your own thinking. I’m not qualified, I have no special privileged position to drive my insight, I’m a nobody, is what you should assume about me and what I say here. My ZenCash address = znk9GjfbzRHwDiMWmq2xeTi5FNkgnzQXthg