View source for Most Cryptoeconomics Do Not Challenge Neoclassical Premises


=Discussion=

==The limited working definitions of cryptoeconomics==

By Dick Bryan, Benjamin Lee, Robert Wosnitzer, Akseli Virtanen:

"Specifically, the focus in cryptoeconomics on reducing transactions costs and creating individual incentives to operate optimally is in danger of not just neglecting wider social issues of production, distribution and consumption of goods and services, but of building a framework that actually makes impossible a systematic engagement with the wider issues.

If you google cryptoeconomy/cryptoeconomics, the sources that appear have a remarkable consistency. The various blogs/primers/newsletters start with almost the same sentence. They break the term ‘cryptoeconomics’ into its two component elements. They explain processes of cryptography with some precision, but when it comes to explaining the associate economics, the depiction is remarkably narrow. For example:

“Cryptoeconomics comes from two words: Cryptography and Economics. People tend to forget the “economics” part of this equation and that is the part that gives the blockchain its unique capabilities. . . .Like with any solid economic system, there should be incentives and rewards for people to get work done, similarly, there should be a punishment system for miners who do not act ethically or do not do a good job. We will see how the blockchain incorporates all these basic economic fundamentals.” (Ameerr Rosic’s ‘What is Cryptoeconomics: The ultimate beginners guide.)

Similarly:

“Cryptoeconomics . . . combines cryptography and economics in order to create huge decentralized peer-to-peer network. On the one side, the cryptography is what makes the peer-2-peer network secure, and on the other side, the economics is what motivates the people to participate in the network, because it gives the blockchain its unique characteristics.” (Introduction to Cryptoeconomics through Bitcoin)

The limited framing of economics is, perhaps, because the world lacks people with background in both cryptography and (a broad) economics. Cryptoeconomics is, perhaps, being frequently projected by people who are highly qualified in programming and engineering, but often self-taught in economics. We thought it was funny when Nick Szabo tweeted some time ago about economists and programmers:

“An economist or programmer who hasn’t studied much computer science, including cryptography, but guesses about it, cannot design or build a long-term successful cryptocurrency. A computer scientist and programmer who hasn’t studied much economics, but applies common sense, can.”

In a sense he is absolutely right, but then on the other hand, you do not create anything new from doxa (common sense), but just repeat the same. The idea that the economy (society) is common sense will create an economy that looks like a computer, taking the existing power structures as given. In good economics, the issue of power, and who holds it, how its use it governed, is the key issue.

And it’s not just the bloggers and tweeters who advance this simple economics. Within the academy, there is the same sort of emphasis emerging, including from qualified economists.

The MIT Cryptoeconomics Lab presents a couple of papers that centre on transaction costs and networking. For example, in “Some Simple Economics of the Blockchain” Christian Catalini and Joshua Gans contend as their central proposition:

“In the paper, we rely on economic theory to explain how two key costs affected by blockchain technology — the cost of verification of transaction attributes, and the cost of networking — change the types of transactions that can be supported in the economy.

. . . The paper focuses on two key costs that are affected by blockchain technology: the cost of verification, and the cost of networking. For markets to thrive, participants need to be able to efficiently verify and audit transaction attributes, including the credentials and reputation of the parties involved, the characteristics of the goods and services exchanged, future events that have implications for contractual arrangements, etc.”

The Cryptoeconomics research team at Berkeley is another example. Zubin Koticha, Head of Research and Development at Blockchain at Berkeley, begins his ‘Introduction to blockchain through cryptoeconomics’ like this:

“Although Bitcoin’s protocol is often explained from a technological point of view, in this series, I will convey the incentives existing at every level that allow for its various comprising parties to interact with cohesion and security. This study of the incentives that secure blockchain systems is known as cryptoeconomics.”

It is important to be clear here. Our objective is not a critique of these specific contributions: they may well be exemplary expositions within their chosen agenda. Our objective is to say that if we limit the conception of cryptoeconomics to these framings, then we can imagine and theorise cryptoeconomics only in the language and grammar of optimized individual transactions and incentives. Programmers too should understand what that means. The issues of production, distribution and consumption of goods and services — the bigger picture issues — slide off the analytical agenda. They can’t even be expressed in this grammar."
(https://medium.com/econaut/economics-back-into-cryptoeconomics-20471f5ceeea)

==The influence of Hayek==

Akseli Virtanen et al.:

"For some, this slide is most welcome, for they see the world in terms of interacting individuals and markets as both an efficient and a moral mode for individuals to engage. If we attach an economics and philosophy to it, the most obvious is Friedrich von Hayek. Hayek was a relatively marginal figure in economic theory and policy until his ideas were embraced by UK prime minister Margaret Thatcher. Hayek was an admirer of markets and prices as modes of transmitting information, arguing they generate spontaneous self-organization. He was also an advocate of limited roles of government in money creation and management, and in social policy too, citing what Milton Friedman later depicted as the ‘the tyranny of the majority’ as the danger of government interventions. In 1976 he published a book called The Denationalization of Money, arguing that governments messed up money systems when they intervene, and we would be better off with private, competitively driven monies.

There is certainly a strong tradition in the blockchain community that would confirm this Hayekian view. But it is important that we do not fall into this discourse by accident. It is not the role of this text to debate this or any specific philosophy of economics; the point is that there is a form of Hayekian economics, with its appeal to individuals and incentives, that seems to resonate with people in cryptography. But there are more complex, detailed versions of this theory that are not reducible to these populist framings. Recall in this context that while Hayek was an opponent of state money, he did not at all advocate that money should be freely issued. He believed that money should reflect, and its quantity and value should be tied to the ‘real economy’. In 1930s and 40s debates about the post WWII global monetary system, Hayek, following von Mises and others, argued against the Keynesian proposal for a state-backed global money. The alternative he supported was that the system should be backed by reserves of basic commodities (lumbar, coal, wheat, etc). This requirement seems to be ignored by many cryptoeconomic commentators who invoke the relevance of Hayek to advocate non-state ‘currencies’ without material backing. Yet, the issue of token backing is very important."
(https://medium.com/econaut/economics-back-into-cryptoeconomics-20471f5ceeea)


[[Category:Crypto Economy]]

[[Category:Articles]]