Traditional Notion of Economics
Economics, a study of the creation, consumption, and transfer of wealth, has traditionally been the center of all micro, Institutional, and Government planning. To understand the effect of wealth, mostly in the form of money or currency, the study of economics is studied and propagated. Several hundred thousand theories since the academic revolution have been developed, each more diverse and contradictory than the other. The hope was to reach a legitimate and standardized theory on the relationship between Wealth and its effects on the economy. As centuries passed by, several schools of Economic thinking (Austrian, Keynesian, Austro-Hungarian, etc.) sprang up, each proclaiming their superiority over the others and fighting for adoption.
It is easy to perceive the number of hassles and inefficiency that comes along with the traditional economic thinking processes. For one, most economic theories lack practical understanding, some propagate the use of theories tested at a micro level be implemented on a macroeconomic scale and others are just outright personal convictions, lacking a clear and formalized Global structure.
One of the causes of inefficiencies is in the inability of mass organizations to cumulate several schools for implementation, or even use different thinking processes at different places or periods of time. The inability to experiment on a macro scale forms the root of all unsuccessful Economic policies. The economic scientists and philosophers did not traditionally have the luxury to strategically and methodically experiment their theories outside the lab, in real-world scenarios, as it was mostly unfeasible and above all, time-consuming.
Cryptographic Incentive Structure
In an era where machines and humans interact, where monetary value can be transferred instantly, where non-economic participants can be allowed to spend and consume wealth, and most importantly where assets are secured not through a centralized trust but through math, the same lines of traditional thinking might prove to be incompatible. We cannot assume the same old laws and theories, to be useful when all monetary value is digitized.
In a distributed database model, that disallows the duplication of time-stamped data, a new form of incentive structure has to be embedded. Assets that are secured through complex cryptography ensure that the incentive structure allows outside actors to use the Economic system as a choice rather than a compulsion.
For instance, a Full-node on the bitcoin client software is running the software to secure and propagate the network not because of compulsion or force, but because of incentive. They gain the mining and fee reward in exchange for work done to propagate the system. In short, a participant is paid to be a part of the system, rather than forced without choice.
In Short,
Complex Cryptography + Voluntary Economic Incentives = Cryptoeconomics
In a follow-up post, we will see more about the concept of Cryptoeconomics and how it will play a huge part in the upcoming revolution. We will touch upon upcoming practices such as the growth of experimental economics, economic systems as a choice and other interesting topics.
- SB
ReverseAcid Monthly Recap
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- ReverseAcid Monthly Recap - December 2018 (Vol 2)
- ReverseAcid Monthly Recap - January 2019 (Vol 3)
- ReverseAcid Monthly Recap - March 2019 (Volume 4)
Crypto Analysis Series
- Part 1 - Basic Attention Token and How It's Revolutionizing the Internet
- Part 2 - Golem Network Token as a Potential Giant Killer
- Part 3 - Augur and the Future of Decentralized Predictions Markets
- Part 4 - Dogecoin - Such Meme, Much Value
- Part 5 - Zilliqa
- Part 6 - IOTA
Previous Posts
- Why Do Smart Contracts Need a Blockchain
-Layer 2 Protocols: Functionality as a Mode of Micropayment - Layer 0 Protocols: The Key to Scaling Crypto for the Masses
- Diving Deeper into Zero-Knowledge Proofs (Part 2)
- Bitcoin’s Innate Problems: Volatility and Mining Centralization
- Legislation and Taxation of Cryptocurrencies - A (Very) Brief Outlook
- CME Futures and Dealing With Volatility
- Two Men on an Island - An Introduction to Zero-Knowledge Proofs and What Follows (Part - 1)
- Why Unveiling Fake Volume is Essential for Market Growth
- Understanding the Difference Between an ‘Open-Community’ and ‘Closed-Network’ Blockchain
- Operational Difficulties in Running a Cryptocurrency Exchange
- Dharma Protocol: Tokenized Debt and Funding Through Decentralized Systems
- Should Cryptocurrency Wallets be Registered with Government Authorities
- Venezuelan Economic Crisis: An Outsider's Perspective
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Thomas Carlyle called economics "the dismal science." And most other clear-eyed people nowadays will state that economics is not even a science.
Given the ways that the various schools of economic thought have contributed to the collapsing global economies, we can be certain it is not a science. It seems more like a simple trade – like an executioner or a mortician. :-)
One of my kids got a degree in economics from Yale. I think he agrees with you more than you know. Part of the problem is accurate records. Everyone is lying. When you need to qualify for a mortgage the house is worth a million. When the tax appraisal arrives you claim the same house is worth $600,000. This nonsense invades every aspect of our economies, worldwide. Black markets hide an unknown amount of activity, as well.. We need better measurement tools to even know what we are talking about.
Good point about the flexible valuation of the house. But let's not forget that it's mostly NOT the lowly homeowner who's engaging in fraud, but the banksters, the C-suite execs, and the board members.
Essentially, they engage in fraud, asset stripping, and other devious schemes. With the expected results.
I was just using an easy example everyone should be able to understand. I agree the problem is industry wide.
Yes, I understand why you used that example. I just wanted to add my 2-cents worth. Cheers!
Hello @majes.tytyty
I am in agreement with your thoughts. Traditional economic thinking lacked numerous practices that other "pure sciences" do. Experimentation, peer-reviewed arguments and an emerging consensus of opinion are just some of them.
That's where, in our opinion, cryptoeconomics will come into play. Due to the transparent and irreversible nature of the blockchain, carrying out economic experimentation on a large scale can be effective, that will help in fine-tuning the system. Another prospective use can be the allowance of choice of economic systems for people, where they can choose which economic system suits them the most, or be a part of several of them together.
Although the cryptocurrency is convenient, it is easy to encounter hackers... Although the traditional currency is inconvenient, it is difficult to encounter fraud....
When you say "Although the traditional currency is inconvenient, it is difficult to encounter fraud..." I am not sure what you mean. Our prisons are filled with thieves of all stripes. Cash brings out all sorts of scams and mayhem. Not to mention it is the tool of trade for drug dealers. While there have been some epic hacks of crypto currencies, I am not worried because a general in Nigeria has six million dollars in gold and he just needs my banking information so he can transfer it to me and I get to keep half. I just got his email today. (Just a joke friend, but you get my point.)
Over the past decades or more, QE has resulted in the printing of trillions of dollars, euros, and yen – out of thin air! Which simply means that all the money in our wallets or bank accounts are devalued, more and more and more.
That sounds like fraud to me.
As for that Nigerian gold, I too am expecting half, any day now. :-) (That makes 3 halves, but I trust the general will somehow work it out.)
I am not sure I totally agree with your thoughts, @cloudblade. In my understanding, cryptocurrency, empowered by the distributed architecture of the blockchain, proves to be one of the most resilient systems we have ever come across.
If I perceived your comment incorrectly, please do elaborate.
I am always happy to receive invitations to your posts.
This one is a little difficult for me to understand as I have no real understanding of economics. However I do know that it is a fundamental part of the modern world. And I look forward to seeing how crypto will change the way we look at the the whole monetary system in the future.
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Hello @andyjem
Thanks for the appreciation. It is our goal to provide thought-provoking discussions to people willing to have their notions challenged.
Crypto will definitely alter our everyday perception of the world. The economics behind them is one area where I felt could be transformed entirely. Just like the Internet transformed the way we communicate, cryptocurrencies will transform how we transact.
Hello friend @reverseacid, well received memo, thank you for inviting me to participate.
The economic data in relation to any type of currency or economy, are often very complex issues to understand, but you have done a great job.
Thank you for sharing this great work with us.
Hello dear friend @fucho80
The economics of cryptocurrencies, as you might have understood, is quite differnt from the traditional way we view the stream. It is quite complex and infested with flaws and issues, but not something we can't solve.
Much appreciated.
If it comes to economics... the old way, the new way, there will always be people who find a way to hack, scam, fraud, fill the pockets.
Lets hope this is a saver way and if it will also be accepted worldwide.
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Good point. Anyone who disparages cryptos for not being safe is simply being dishonest with regards to the old fiat currencies.
Hey @wakeupkitty
People find flaws in every place there is one. That's the only way we can rectify the errors and move ahead. It's like when you make software and people find bugs in it. That's the only way you will know how to make the software better.
Dear @reverseacid,
I received your memo but, there's no link so, I am doing a wild guess here. if this is not the link, then just let me know in the comment section so, I can visit it.Well, I think that cryptoeconomics is essential in the future. In the present, not just as much because, cryptos are not yet adapted by everyone. However, I think that eventually, when everyone comes around, who knows what would happen next?
Hello @nurseanne84
Thank you for pointing out our mistake. We will ensure to double check next time. Thanks for taking the effort to come here without the link. Means a lot.
Cryptoeconomics might not pose an immediate threat for now, as there are a lot more complexities we still have to overcome first. But that doesn't mean we shouldn't start planning and discussing it already. It is essential to start thinking about it so we have a good framework when it is essential.
Cheers.
The cryptocurrencies have been a defense against inflation and the poor economic system of my country. It is a feasible alternative, perhaps even a way to save money as well.
Let's remember that during a period of inflation, saving is the worst thing you can do.
Thank you for sharing, I guess your next post will better explain the Cryptoeconomics aspects.
Hey @jadams2k18
I am interested in knowing which country you are from so that I will be able to perceive your thoughts better.
And yes, our next post will try to dive deeper and challenge your notions of what the future might hold for us. Appreciate your support.
Hello again, I'm from Venezuela.
And as you must know, there is a conflict between the government and the opposition and our economy is going through a hyperinflationary period never seen before.
However, God is good and gave us the opportunity to open the doors to blockchain and cryptocurrencies. A means by which we can survive this situation.
Knock knock @reverseacid
Hope you didn't give up on Steemit yet? Didn't hear from you in a while.
Have a great weekend,
Piotr
Hello @crypto.piotr
Always love the way you're concerned about everyone here. We're sorry, friend. Last few weeks had the both pretty occupied. Both professionally and academically.
We're on track back again. Hope to keep the flow going.
Cheers and thanks for the motivation @crypto.piotr.
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Dear @reverseacid
Great to have you back buddy.
I've reached your memo but to be honest - I didn't understand that part.
Cheers, Piotr
Hello @crypto.piotr
Thanks man.
By 10k I meant Bitcoin. It's back at $10000 again with no signs of stopping there.
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Hi, this is written in such a complex context that its going over my head(: ... even then I understand your talking about miners safegaurding network with the incentives and that blockchain data that is writen in blockchain cannot be amended and its decentralised. All this is advantages of BTC.
For me I am feeling that governments control fiat money and manipulate its prices regulating its supply by printing and making laws controlling its interest rate, I really like that in BTC, Govt. can't manipulate its supply.
This article is like a thesis, I guess crypto economics is complex.
Goodday, Happy writing. I see there are articles on scaling and lightening networks and how they function, will look at that soon.
Hello @mintymile. Good to see a new comer here.
It is usually our striding goal to tone down the content as much as possible to make it understandable to all. If there's any way by which we can help.you deepen your understanding, please do feel free to reach out in the comments. Someone, if not us, will always have an answer. That's the beauty of Steemit.
We welcome you to have a look at any of our posts. I am sure you'll be pulled in by most of them.
Welcome again, to the community. Hope to see you here regularly.
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Knock knock @reverseacid
I wonder how are you buddy. Didn't hear from you in a while. I can only hope that you're well.
Have a great weekend,
Piotr
I have a request from you can you reseach and write on oracles like Chainlink. That helps in blockchains to get data outside from their blockchain, I suppose that's supper required for most blockchain technologies that are functioning as of now.
Hello again @mintymile.
I was hoping someone would reach out to clear their doubts. We'll be happy to help.you understand the protocol. Chainlink is definitely an interesting application to look into.
Meanwhile, you can have a look at our recent post Oracles and their Inherent Censorship Problem that about what you mentioned broadly.
Happy day.
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Thank you for the memo -- I did find this very interesting. Given the continued disturbances in the global economy and how helpless users of traditional currencies feel, it is at least possible that cryptoeconomics will become an alternative worth considering...
Dear @deeanndmathews
The alternatives are already being considered. It is in the past where we used to discuss a possible outcome for bitcoin and other cryptocurrencies. It seems like every day these days that we see news about a certain blockchain replacing something and adding value to the practices. Look at Ripple, Ethereum, Stellar, NEM and others that are continually moving forward with adoption.
Cheers.
Dear @reverseacid
Thanks for sharing link to your publication with me buddy. And I'm sorry that it took me so long to reply. Just very busy those days.
First of all: amazing choice of topic. Traditional Economics are definetly in serious trouble right now. And crypto will only add fuel to it's problems.
Great read. Upvote on the way.
Yours
Piotr
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