random cryptocurrency / cryptoeconomics thoughts 4

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.

2018 for crypto is often discussed in terms that echo, extend or reprise the memes and themes that inflected 2017. Having encountered those effects, causes and contours through the course of 2017, it seems counter-logical to expect that 2018 will be a faithful replay of those same effects in 2018 — why would crypto 2018 be limited to only those causes and effects that mutely repeat 2017 again; has crypto run out of new ideas? In Extremistan domains, it is normally an error to expect the future to be a faithful echo of the past. Crypto is an Extremistan world, dominated by unforeseeable causes that exhibit multi-sigma, fat tail Swans, whether White or Black. Chartists will refute this by showing you Bitcoin’s multi-year price chart with a log scale, as it shows a linear upward sloping line that offers evidence for continued telegraphable predictability. Chartists kinda want tomorrow to be an analogue of today.
Crypto will go either go exponential (J curve, hyperbola) again, else it will go to zero — Extremistan logic says it seems least likely that it will just passively follow a predictable log upward sloping line. Crypto will ingest all human social economic interaction, else we will deprecate it to near zero. The internet did the same: it started from zero, went J curve, then went J curve again — today, everything exists on the internet, all business is e-business, all humans exist in cyberspace. Barbell, winner takes all, White Swan, convexity.
This suggests that planet earth will either unleash new and previously unseen drama onto its crypto efforts in 2018 and 2019, else crypto will begin its fall to zero and will struggle all year. It falls to dreamers, futurists and investment analysts to model and extrapolate these possible future pathings. Or just hopeful crypto investors. For the anxious viewer, this quiet bifurcation will cause confusion: things will be quiet for a while, then large jumps/dislocations (earthquakes) will occur: the signal will be bursty, peaky rather than continuous, and most viewers will confuse periods of ‘sideways quiet’ with ‘crypto’s gone dead’.
Crypto needs to contemplate likely-inevitable “walls of worry” as 2018 unfolds, or in subsequent timeframes.

The aspect of mechanism design that needs to be highlighted for the cryptoeconomics context is that of anticensorship. A good cryptocoin is not so much just a 21st century go-go version of a dollar bill — more than that, as a primary aspect, a cryptocurrency is an external expression of the mental concept of anticensorship. Whilst mechanism design should inform and serve as an input ingredient to the edifice of cryptoeconomics, the end state that we need from our adventure into cryptocurrency is, above all, anticensorship. Utility function (quality of ‘mechanism design’) alone is not sufficient. Cryptocurrency is not just the race to design a better mousetrap: cryptocurrency is a monument we build to ourselves to show how much we value our own self-primacy and the censorship-free expression of that. (For our crypto purpose here), censorship is The State telling The Individual what’s to be what, or else. Cryptocurrency’s (antifragile) ability to avoid, delete, bypass and render harmless the (censoring) actions of The State is a sovereign utility value of crypto to us. Mechanism Design is a means to that end. Crypto is of course about solving the confluence challenges posed by incentives, consensus and Byzantine action. The question is what higher context gives those efforts their value and importance: the answer is the social and personal utility that blockchain and crypto gives us around money and wealth in a censorship-free manner. Who amongst us wants their wealth censorable (controlled, directed, taxed) by external actors? Anticensorship is the context that fuels the efforts now being expended writing crypto codebases as being better mechanisms than fiat currency and banking.
Mechanism design, like much of the canon of economics, presumes actors are rational, will act along a rational basis. Crypto kills (or recasts) rationality in that sense, as anticensorship is the higher goal and something’s gotta give. Expect crypto participants and cryptocodebases to act against their otherwise ‘rational economic interests’ in some cases — these may only be edge or corner cases, true. Money, fiat currency, economic relations had — prior to Satoshi — always been about the mental conversation that one tribe of humans attempts to force onto another. Cryptocurrency recasts that conversation by introducing distributed, decentralised consensus into the engine room. Society will now have to learn how to conduct economic mental relations between tribes in a new, opt in, way — the old world, coercive approach to intertribal economic relations will no longer suffice. Money used to be the way I could virtually ‘force’ you to do something I wanted you to do, without actually physically forcing you: if I/we made the incentive large enough/impactful, then I/we could know in advance, with high confidence level, that you would cave in and comply. At a societal level, money (largely via debt) was the way the tribe made communal decisions about what to spend tribal wealth (resources, skill, time) on, then ‘encourage’ (read: compel) workers to do those things — politicians spent your tax dollars on wars you didn’t want and sent you the bill for the overage/vig (whoops, my bad, sorry!). Money was the way we tokenised our tribal thoughts about those decisions — we mentally asked our self what we wanted/we asked the tribe what it wanted, then we used dollar bills, taxes, lending laws and threats of jailtime to make those things happen. Cryptocurrency and cryptoeconomics, via Nakamoto consensus (distributed trust, noncoercive), now recast/remake/redefine that mental conversation. The new mental conversation will not so much be: “how do I make the other guy give me what I want, else I’ll get my captured Senator to pass laws and then sue him”, to instead be: “the other guy has complete decisional control over his private key, so how do I ask nicely and hope he’s willing to share with me a little?”. Humans understand how to use a stick to hit the other guy if he fails to comply; we’re not so good at asking nicely then hoping the other guy agrees. Crypto will highlight this to us. Cryptocurrency and cryptoeconomics is being birthed in the coming age of endless availability: AI’s, robots, drones and 3D printing will automate/ supercharge many previously-manual processes. The ‘rational economics’ thinking of the 20th century’s scarcity and ‘supply/demand curve’ models will not apply, or as strongly/in the same old ways. In a world where resources are automatically made and supplied for us by clever software, what then do we need money for, what changes? The signalling, allocation and throttling functions that money used to serve wither away, to be replaced by the new cryptoeconomics contours that unfold. The devs and codebase and AI’s will flex and pivot as they work to keep up with those shifting cryptoeconomics sands. Cryptocurrency built a trillion dollar reality: no one planned it, no one controlled it, no one directed it, there was no master plan, no authority. There was no Marshall Plan, no Bretton Woods. Because of those aspects of crypto, the human race can henceforth never again use those excuses as reasons why things can’t be done. Rather, crypto shows that perhaps its realities are the only ways by which anything useful will get built from here on. Crypto assumes that some actors within it and some of its users are Byzantine, and it designs its organs with that factor in mind — it expects interference from the very actors who ought not be cutting their own throats. Crypto is not fragile because the actors within it are occasionally Byzantine — crypto expects them to be so, is antifragile/robust to that and this is a key reason crypto does so well. It may be the case that anything new and large and complex attempted by humanity in coming years/decades can, will or is more likely to achieve strong robust outcomes only if it follows the tenets that crypto’s developmental path has shown us, along with its inherent Byzantine assumption. The specific ‘new idea’ of cryptoeconomics and cryptocurrencies is that it’s not enough just to ‘nudge’ [behavioural economics] entities into not being malicious (e.g. PoW), further, that it’s not enough even to punish [game theory] them for malicious attempts (e.g. slashing); the ‘new idea’ is to make the self-cost + the damage to the item being attacked so asymmetrically high compared to the possible payoff to be gained that the malicious act becomes logically and practically insensible to pull off, a complete calculus fail –the payoff is asymmetrically punitive to both sides, not just one. If every time you tried to rob a bank, you not only got caught, fine and jailed for life, but that the bank and its cash disappeared in a puff of smoke as you attacked it, then what would your incentive be to make the attempt (assumes non — pathological reasons)? A well designed cryptocoin/ cryptoeconomics is the paradoxically curious animal that is simultaneously a socially friendly (open sourced) money that anyone can own and control (decentralised, anyone can be a full peer), whilst being one that collapses to zero were you to attempt to overpower it + it simultaneously chops off your arms in the attempt.
This ‘new idea’ of cryptoeconomics and cryptocurrencies leads to a proposed new heuristic to describe the logic of such crypto-attacks:
• Your attempted attack will fail, up to some threshold (34% attack, 51% attack)
• You are free to attempt an attack (crypto is open sourced, decentralised, p2p), but as punishment you will lose your stake at risk and/or the cost-to-you of mounting your attack
• If you succeed in an attack, the degree to which your attack succeeds will paradoxically cause the prize to diminish in value by the same quantum or more [where Attacker = single or coordinated group of attackers]
This ‘new idea’ of cryptoeconomics and cryptocurrencies may be the first instance of such a mechanism in an economic/social domain, and may, once knowledge of this aspect has rippled out further, come to be the heuristic that informs the defence posture of all such future systems/designs. Such “new idea” asymmetrical retaliation might start to infuse all complex system designs that need protective capability/robustness/antifragility against attackers. The intuition may be a heuristic:

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.