Aligning Cryptocurrency Incentives To Finance Positive Externalities

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Don Adams:

"When Bitcoin launched, people were deeply inspired by the elegant ways that this new system aligned incentives. The idea that actors pursuing their own self-interest (i.e. trying to make money) could end up behaving in ways that contributed to the overall health of the network (e.g. mining) was powerful enough to spawn a movement.

A couple of years later, the world’s first altcoin emerged and built on this innovative approach. Namecoin is a blockchain that supports domain name registration. Its `.bit` domains are relatively censorship-resistant — they can be registered through the network without the permission of any party — but they haven’t been extensively adopted by web users.

Obviously, no startup with so few users would have lasted this long. However, with miners competing to mine Namecoin blocks and speculators trading the cryptocurrency on exchanges, the system has survived for the better part of a decade. Namecoin’s longevity is possible because it was designed as a self-sustaining economy rather than trying to conform to the economic system already in place.

Not long after the launch of Namecoin, Primecoin burst onto the scene. This network’s consensus mechanism involves identifying previously unknown prime numbers, and to date, Primecoin mining has led to the discovery of nearly 32 million prime numbers! In other words, the architects of this network succeeded in building an economy around the act of finding primes.

As a CPU-mined cryptocurrency, there’s a distinct possibility that most of the mining being done on the Primecoin network is the work of botnets. Simply put, some jerk may have built malware to infect your grandma’s computer and force it to look for prime numbers. With all due respect to grandma, that is pretty awesome from the standpoint of mathematical research! We commend Primecoin on providing an outlet for such productive malfeasance.

And of course, this story would be incomplete if we didn’t mention the Folding@home project. Predating the publication of the Bitcoin whitepaper by a full eight years, this incredible effort allows everyday people to contribute spare computing power to medical research that may hold answers to questions about Alzheimer’s, some cancers, and other serious maladies.

At first, participants were asked to donate this computing power out of pure altruism. Later on, however, two teams created cryptocurrencies to reward those who take part in Folding@home: FoldingCoin, a token on the Bitcoin network; and CureCoin, the native asset of a dedicated blockchain. CureCoin & FoldingCoin successfully built a scalable economic system around an altruistic cause that allows all participants to profit accordingly to the value that they produce, as is typically seen in an efficient for-profit business models.

Folding@home has inspired other distributed computing projects as well. UC Berkeley’s BOINC platform allows computer owners to contribute processing power to a range of efforts, including the search for extraterrestrial life via SETI@home. They can even receive rewards in the form of Gridcoin. Namecoin, Primecoin, and the coins attached to the @home projects have opened up a very interesting possibility. People who don’t care at all about curing cancer, or finding aliens, or any other underlying cause, may still ‘contribute’ to progress in that field by speculating on a related cryptocurrency, pushing up its price so that other people who aren’t interested in the topic still take notice and start mining it for profit. To put it another way, these projects have successfully created economies in which every participant, acting in their own self-interest, supports a worthy mission." (