The nightmare for the U.S. financial industry is that a technology company—whether from China or a homegrown juggernaut such as Amazon.com Inc. or Facebook Inc.—replicates the success of Alipay and WeChat in America. The stakes are enormous, potentially carving away billions of dollars in annual revenue from major banks and other firms.

That threat may now be materializing. On June 18, Facebook unveiled a white paper outlining ambitious plans to create a new global cryptocurrency called Libra, to be launched in 2020. Facebook reportedly has high hopes that Libra will become the foundation for a new financial system free of control by Wall Street power brokers and central banks.

But apparently Libra will not be competing with Visa or Mastercard. In fact, the Libra Association lists those two giants among its 28 soon-to-be founding members. Others include Paypal, Stripe, Uber, Lyft and eBay. Facebook has reportedly courted dozens of financial institutions and other tech companies to join the Libra Association, an independent foundation that will contribute capital and help govern the digital currency. Entry barriers are high, with each founding member paying a minimum of $10 million to join. This gives them one vote  (or 1% of the total vote, whichever is larger)  in the Libra Association council. Members are also entitled to a share proportionate to their investment of the dividends earned from interest on the Libra reserve—the money that users will pay to acquire the Libra currency.

Needless to say, all of this has raised some eyebrows, among both financial analysts and crypto-activists. A Zero Hedge commentator calls Libra “Facebook’s Crypto Trojan Rabbit.” An article in The Financial Times’ Alphaville calls it “Blockchain, but Without the Blocks or Chain.” Economist Nouriel Roubini concurs, tweeting:

Another Zero Hedge writer calls Libra “The Dollar’s Killer App,” which threatens “not only the power of central banks but also the government’s money monopoly itself.”

From Frying Pan to Fire?

To the crypto-anarchist community, usurping the power of central banks and governments may sound like a good thing. But handing global power to the corporate-controlled Libra Association could be a greater nightmare. So argues Facebook co-founder Chris Hughes, who writes in The Financial Times:

This currency would insert a powerful new corporate layer of monetary control between central banks and individuals. Inevitably, these companies will put their private interests — profits and influence — ahead of public ones. …

The Libra Association’s goals specifically say that [they] will encourage “decentralised forms of governance.” In other words, Libra will disrupt and weaken nation states by enabling people to move out of unstable local currencies and into a currency denominated in dollars and euros and managed by corporations. …

What Libra backers are calling ‘decentralisation’ is in truth a shift of power from developing world central banks toward multinational corporations and the US Federal Reserve and the European Central Bank.

Power will shift to the Fed and ECB because the dollar and the euro will squeeze out weaker currencies in developing countries. As seen recently in Greece, the result will be to cause their governments to lose control of their currencies and their economies.

Pros and Cons

Caitlin Long, co-founder of the Wyoming Blockchain Coalition, recently agreed that Libra was a Trojan horse but predicted it would have some beneficial effects. For one, she thought it would impose discipline on the U.S. banking system by leading to populist calls to repeal its corporate subsidies. The Fed is now paying its member banks 2.35% in risk-free interest on their excess reserves, which this year is projected to total $36 billion of corporate welfare to U.S. banks—about half the sum spent on the U.S. food stamp program. If Facebook parks its entire U.S. dollar balance at the Federal Reserve through one of its bank partners, it could earn the same rate. But Long predicted that Facebook would have to pay interest to Libra users to avoid a chorus of critics, who would loudly publicize how much money Facebook and its partners were pocketing from the interest on the money users traded for their Libra currency.

But that was before the Libra white paper came out. It reveals the profits will indeed be divvied among Facebook’s Libra partners rather than shared with users. At one time, we earned interest on our deposits in government-insured banks. With Libra, we will get no interest on our money, which will be entrusted to uninsured crypto exchanges, which are coming under increasing regulatory pressure due to lack of transparency and operational irregularities.

United Kingdom economics professor Alistair Milne points to another problem with the Libra cryptocurrency: Unlike Bitcoin, it will be a “stablecoin,” whose value will be tied to a basket of fiat currencies and short-term government securities. That means it will need the backing of real money to maintain its fixed price. If reserves do not cover withdrawals, who will be responsible for compensating Libra holders? Ideally, Milne writes, reserves would be held with the central bank; but central banks will be reluctant to support a private currency.

Long also predicts that Facebook’s cryptocurrency will be a huge honeypot of data for government officials, since every transaction will be traceable. But other reviewers see this as Libra’s most fatal flaw. Facebook has been called Big Brother, the ultimate government surveillance tool. Conspiracy theorists link it to the CIA and the U.S. Department of Defense. Facebook has already demonstrated that it is an untrustworthy manager of personal data. How then can we trust it with our money?

Why Use a Cryptocurrency at All?

Why has Facebook chosen to use a cryptocurrency rather than following WeChat and AliPay in doing a global payments network in the traditional way? Yan Meng, vice president of the Chinese Software Developer Network, says Facebook’s fragmented user base across the world leaves it with no better choice than to borrow ideas from blockchain and cryptocurrency.

“Facebook just can’t do a global payments network via traditional methods, which require applying for a license and preparing foreign exchange reserves with local banking, one market after another,” Meng said. “The advantage of WeChat and AliPay is they have already gained a significant number of users from just one giant economy that accounts for 20 percent of the world’s population.” They have no need to establish their own digital currencies, which they still regard as too risky.

Meng suspects that Facebook’s long-term ambition is to become a stateless central bank that uses Libra as a base currency. He writes, “With sufficient incentives, nodes of Facebook’s Libra network would represent Facebook to push for utility in various countries for its 2.7 billion users in business, investment, trade and financial services,” which “would help complete a full digital economy empire.”

The question is whether regulators will allow that sort of competition with the central banking system. Immediately after Facebook released its Libra cryptocurrency plan, financial regulators in Europe voiced concerns over the potential danger of Facebook running a “shadow bank.” Maxine Waters, who heads the Financial Services Committee for the U.S. House of Representatives, asked Facebook to halt its development of Libra until hearings could be held. She said:

This is like starting a bank without having to go through any steps to do it. …  We can’t allow Facebook to go to Switzerland and begin to compete with the dollar without having any regulatory regime that’s dealing with them.

A Stateless Private Central Bank or a Publicly Accountable One?

Facebook may be competing with more than the dollar. Jennifer Grygiel, assistant professor of communications at Syracuse University, writes:

[It] seems that the company is not seeking to compete with Bitcoin or other cryptocurrencies. Rather, Facebook is looking to replace the existing global financial system with an all-new setup, with Libra at its center.

At least at the moment, the Libra is being designed as a form of electronic money linked to many national currencies.That has raised fears that Libra might someday be recognized as a sovereign currency, with Facebook acting as a “shadow bank” that could compete with the central banks of countries around the world.

Long thinks Bitcoin, rather than Libra, will come out the winner in all this; but Bitcoin’s blockchain model is too slow, expensive and energy intensive to replace fiat currency as a medium of exchange on a national scale. As Josh Constine writes on TechCrunch:

[E]xisting cryptocurrencies like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars. … But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well-poised to tackle this juggernaut of a problem.

For Libra to scale as a national medium of exchange, its governance had to be centralized rather than “distributed.” But Libra’s governing body is not the sort of global controller we want. Jennifer Grygiel writes:

Facebook CEO Mark Zuckerberg . . . is declaring that he wants Facebook to become a virtual nation, populated by users, powered by a self-contained economy, and headed by a CEO–Zuckerberg himself– who is not even accountable to his shareholders. . . .

In many ways the company that Mark Zuckerberg is building is beginning to look more like a Roman Empire, now with its own central bank and currency, than a corporation. The only problem is that this new nation-like platform is a controlled company and is run more like a dictatorship than a sovereign country with democratically elected leaders.

A currency intended for trade on a national—let alone international—scale needs to be not only centralized but democratized, responding to the will of the people and their elected leaders. Rather than bypassing the existing central banking structure as Facebook plans to do, several groups of economists are proposing a more egalitarian solution: nationalizing and democratizing the central bank by opening its deposit window to everyone. As explored in my latest book, “Banking on the People: Democratizing Money in the Digital Age,” these proposals could allow us all to get 2.35% on our deposits, while eliminating bank runs and banking crises, since the central bank cannot run out of funds. Profits from the public medium of exchange need to return to the public rather than enriching an unaccountable, corporate-controlled Facebook Trojan horse.

Reposted from Truthdig. Header image: Facebook CEO Mark Zuckerberg. (Mike Deeroski / Flickr)(CC BY 2.0)

The post Facebook May Pose a Greater Danger Than Wall Street appeared first on P2P Foundation.

In the wake of the 2008 financial crisis, the mysterious Satoshi Nakamoto published a revolutionary white paper that described a simple peer-to-peer electronic cash system that would later become Bitcoin. In the decade since the launch of the digital currency, the nascent blockchain technology behind Bitcoin has been heralded as having the same radical potential as the printing press or the Internet, in particular presenting extraordinary challenges to traditional banking. Yet the paper contains no reference to existing political ideas, monetary or economic knowledge. Why?

THE WHITE PAPER, with an introduction by James Bridle, situates Bitcoin within an obscure historical movement of decentralisation, powered by the ideologies of encryption, showing how blockchain is part of a wider project to redraw the maps of political possibility. Crypto-economist Jaya Klara Brekke’s guide analyses Nakamoto’s canonical text as the Rosetta Stone that reveals the far-reaching implications of decentralisation.

In this discussion held at Foyles on 4 February 2019, Jaya sits down with Ben Vickers and Paul Mason to discuss how Nakamoto’s White Paper can serve as a compass for the rapidly shifting terrain of contemporary techno-politics.

Visit Ignota Books for more information about THE WHITE PAPER.

The post Podcast of the Day: The White Paper by Satoshi Nakamoto – Jaya Klara Brekke, Ben Vickers and Paul Mason in conversation appeared first on P2P Foundation.

Written by Hank Sohota. Originally posted on Good Audience on 28th January 2019.

A viable, sustainable and scalable P2P sociopolitical economy, which embraces digital and data sovereignty for all agents, is about to emerge. One in which, as a consequence, money and intermediaries — social, political and economic — will no longer play the central, and therefore controlling, role they play today.

Let us start where Bitcoin started

Whatever socially and politically legitimised ‘flavour’ of money operates within a given community, nation or civilisation, it fundamentally shapes the economic, social, and political potential — and therefore possibilities — within those domains.

The Problem with Money

Money — by its very nature a social construct, as it fundamentally relies on people’s confidence in it — has three defining core functions. These are:

1. a store of value (i.e. sufficiently stable in value — and particularly, in people’s confidence in it — over time), which enables it to be …
2. a medium of exchange (i.e. also sufficiently saleable across scales and space), all of which enables it to be …
3. a unit of account

However, in order for money to work at scale, standardisation is also required which, in reality, inevitably means centralisation. Unfortunately, this intrinsically undermines the hardness of money (i.e. it’s ‘uninflatability’*), and the level of confidence people can have in its core functions, because decision-making shifts into the hands of the few. One cannot have sound money without reliable and consistent long-term hardness, as well as confidence-maintaining monetary policy. Regrettably, the few — or in the bygone case of a monarchy, an individual — have a long history of abusing their fiduciary responsibilities on both counts.

So, in order to solve the ‘hardness of money’ and the ‘level of confidence’ problems, we need to solve the centralisation problem, which — applied more broadly — asks:

How do we coordinate, cooperate and collaborate across space and time, at scale, without the need for intermediaries, representatives, executives or organisation-owners?

Arguably, this articulates, for some, the holy grail of anarchy (which should not be assumed to be synonymous with lawlessness, chaos or disorder).

Limitations of Bitcoin and Ethereum

Bitcoin is an attempt at solving the ‘centralisation of hard money’ problem which in the bigger picture is a good place to start. However, it does this by using a distributed ledger of hashchain blocks (giving it immutability), hard coding hardness (giving it uninflatability), and constructing a single network-wide timeline through a decentralised but not fully distributed Proof of Work (PoW) consensus mechanism (giving it ‘uncensorability’*). This provides a form of ‘trustlessness’ by trusting the network rather than any individual entity or actor. Due to its significant practical and philosophical limitations, this approach provides only a partial and impractical solution because it is not distributed enough, not fast enough, not cost effective enough, and not scalable enough. Furthermore, it could push climate change too far in the wrong direction to be worth it, due to its electrical power consumption needs. Unless of course, conversely, it turns out to be a boon for renewable forms of generating electricity by increasing the financial incentives for it, perhaps even leading to green energy infrastructure which otherwise would not be funded. Nonetheless, these shortcomings will still apply even if all the near-to-medium term solutions work out as proposed. Even so, the four key features of Bitcoin*, in its current form, namely, immutability, uninflatability, uncensorability and unconfiscatability, are an historic achievement.

Ethereum, although not necessarily trying to solve the same problem — and not necessarily doing a good job of it — is fundamentally based on the same underlying ledger technology as Bitcoin and so suffers from the same or similar limitations, even before we include its ‘centralisation of power’ issues, its shortcomings as a cryptocurrency relative to Bitcoin, the complications and disadvantages of smart contracts, and its attempt to move to a Proof of Stake (PoS) consensus mechanism*. What Ethereum has done is enable the launching of several thousand Altcoins, none of which seem to make much sense, and nor do their fundamentals give one confidence that they will ever achieve their stated goals. Given that this has taken place in a new asset class and an unregulated market, no one should be surprised by the emergence of a FOMO-FUD wild west, or the role played in it by market makers.

Mutual Self-sovereignty — the foundational core construct of a fair and just sociopolitical economy

In my view, economics should have a strong focus on thrivability in human social systems — viable, sustainable and inclusive thrivability, at scale.

Although I over-simplify, I believe that at the heart of thrivability lies a dialectic in human social systems, that of group solidarity vs. individual sovereignty (cf. the political philosophy divide of left vs. right). Both aspects of this dialectic provide tremendous benefits for the group and the individual, namely, social cohesion leading to better survival odds, but this comes at a price, namely, acquiescence, conformity and homogeneity.

However, I would suggest that solidarity and sovereignty are two sides of the same coin – they mutually and dynamically ‘co-form’ and ‘in-form’ each other, and so co-evolve symbiotically. They constitute a ‘dialectical singularity’ which is brought into ‘harmony’ through mutual self-sovereignty (cf. Yin-Yang; i.e. black and white dynamically interacting with each other at the same time, without either diminishing in identity or the two combining to become a ‘middle’ grey). In this dynamic, both social cohesion and individual sovereignty are both ‘strong and fluid’, at the same time — a concept often referenced in Daoist philosophy using the metaphor of water. I believe it is this perpetual dynamic which leads to the anti-fragility of a human social system. I further believe, it leads to the perpetual emergence of one’s sense of self and one’s sense of identity.

The mutual self-sovereignty challenge

Even solving the centralisation problem — of hard money or more broadly — would not be enough. We need to go further and address ‘the mutual self-sovereignty’ challenge, which can be thought of as:

Not only do I need a viable option of not having to participate in any particular socially mediated ‘game’ played by a particular set of rules, I also need to be able to, easily and permissionlessly, change the rules of the game (i.e. create a forked version — preferably not a sh*tty/scammy one) and invite others to play, or — just as easily and permissionlessly — be able to invent an entirely new game.

Furthermore, and equally importantly, in all such games the rules (i.e voluntary and mutually enabling constraints) must be enforceable and policed in an emergent and self-organising manner by the participants — governance of the people, by the people, for the people — and the rules must respect relativity (i.e. multiple relativistic timelines) — global consensus should not be necessary. Otherwise, we inexorably end up back at the centralisation problem.

All of which means that Bitcoin and Ethereum — specifically their underpinning blockchain technology — are not going to take us where we need to go, in order to address our most pressing global and local challenges. This is because they are not sufficiently workable and do not go far enough although they will have been critical and essential catalysts. Even those who were initially inspired by the distributed ledger technology (DLT) of Bitcoin, as a means of addressing the challenges of enabling a radically new peer-to-peer (P2P) sociopolitical economy — which motivated some in the Bitcoin and Ethereum communities — are now having to recognise, and to concede, these limitations. Hence, the sense of malaise and disillusionment among the Ethereum and Ethereum-esque developers who are not in it for the money.

Holochain and the Post-monetary Economy

Holochain, on the other hand, will take us where we need to get to. It is the first technology, in human history, which genuinely addresses the mutual self-sovereignty challenge, completely and at any scale — in fact, it is inversely scalable, its efficiency and efficacy improve as network size increases — and as an integral component of the MetaCurrency and Ceptr projects, it also pre-dates both Ethereum and Bitcoin.

Holochain provides a bio-mimicry inspired, software-based, enabling social technology — a pattern, if you will — from which can emerge anarchy — life without mass intermediation as a necessity. Thus empowering us to move to a post-monetary epoch with, for example, a multitude of asset-backed mutual credit (crypto)currencies — which on Holochain are natively inter-operable — using a much broader definition of currency (i.e. a formal symbol system for shaping, enabling, and measuring flows — e.g. of value, promises or reputation). A much more enlightened interpretation of Hayekian thinking, I would suggest, than the neo-liberalism version.

A value flow, of any kind, must first be acknowledged and recognised before it can be managed for the better — making visible only GDP-related flows has been a disaster for humanity and the planet, if not potentially catastrophic. Then, and only then, can we begin the work of reinforcing or amplifying interrelated positive flows and mitigating — hopefully eliminating — interrelated negative flows, in an emergent and self-organising way. Thus we can form the basis on which more meaningful, and more humane, wealth and prosperity can be created for the many, perhaps even, for all.

Mass Disintermediation

Despite its long history, for most people, the economic and sociopolitical revolution Holochain will induce will seem like it happened overnight. This is because it is an open source software solution taking place in a digitalised world. It can be deployed at speed, at scale, and at zero marginal cost, using the full range of computational device types from a Raspberry Pi, to a smartphone, to a tablet, or a laptop — even a server — using software development languages and tools which produce secure, compact and fast web and native apps.

The first hApp (Holochain dApp) to be built — using Rust and WASM — is Holo, an hApp for hosting hApps which includes the first ever mutual credit cryptocurrency called Holo Fuel, to reimburse Holo hosts — who with Holo, host hApps using the spare computation and storage capacity on their own devices. This enables hApps to be accessed using a standard browser — such as Holochain favoured Mozilla’s Firefox — through the web, without any change in the user experience. However, even this hosting can be avoided, since any device running Holochain is natively both a user and a host. Holo’s purpose then is to provide a bridge between the current server-based web and the potential longer term server-less — because it is peer-to-peer — Holochain alternative. Ultimately, it should be possible to integrate mesh networkingtoo, which would mean a genuinely and fully distributed internet and web.

Furthermore, Holochain’s data integrity model supports mutual self-sovereignty by having an agent-centric orientation, using sourcechains (think, agent owned hashchains), digital signatures, and validatingdistributed hash tables (think, BitTorrent and GitHub), rather than a data-centric orientation. Thus fully returning value realisation and ownership, as well as privacy and confidentiality, to those actually creating the value locallyrather than intermediaries, representatives, executives or organisation-owners, seeking to extract and monetise it.

The Ultimate Question

Once workable, practical and ubiquitous, mutual self-sovereignty — as a movement — will redefine every dimension of our lives — social, political, economic, artistic and cultural. Most profoundly, it will completely change the nature of the stories we tell ourselves and each other in order to navigate our lives, both intra and inter generationally. In doing so, along with the societal implications of advanced, model-free, deep reinforcement learning AI — not to mention Ceptr and Ceptr-based AI — we will ultimately re-conceive and therefore redefine what we believe it truly means to be human — in the 21st century.

Disclosure: I am financially and philosophically invested in Ceptr/Holochain/Holo. I have never invested in Bitcoin, any alt-coin or crypto asset.

Photo by Freddie Collins on Unsplash

Thanks for reading.

You can share this article using these links: 
Facebook | Twitter | Reddit | LinkedIn | Telegram |Email.

Further reading:

Ceptr/Holochain/Holo Whitepapers

Antonopoulos, M. (2016). The Internet of Money: A collection of talks by Andreas M. Antonopoulos: Volume 1. Merkle Bloom.

Antonopoulos, M. (2017). The Internet of Money Volume Two: A collection of talks by Andreas M. Antonopoulos. Merkle Bloom.

Ammous, S. (2018). The Bitcoin Standard: The Decentralized Alternative to Central Banking. John Wiley & Sons.

* Special thanks to Tone Vays and Murad Mahmudov for so freely sharing their intellectual musings with the public.

The post Beyond Bitcoin and Ethereum — a fairer and more just post-monetary sociopolitical economy appeared first on P2P Foundation.

That may have made it sound complicated, but it’s fairly simple. In a large group of cattle, if something startles a few of them, and they react suddenly startling others, then this pattern repeats, then you get a stampede.

Proof-of-Work or Proof-of-Stake both Centralize Power and Wealth

In Proof-of-Work, if you have more money to buy more computing power, then you can perform more hashes so that you earn more money than others, which lets you invest in more computing power, and so on.

In Proof-of-Stake, if you have more money to put at stake for your computed answers, you win more of the stakes, which lets you invest more stake, to win more stakes, and so on.

Make no mistake about it, in both cases, the rich get richer. Those with the power amplify their power.

Proof-of-Stake may solve the problem of wasting .3% of the planet’s electricity churning hashes, but it is exactly the same kind of positive feedback loop as Proof-of-Work.

If someone tells you they’re building a “decentralized” system, and it runs a consensus algorithm configured to give the people with wealth or power more wealth and power, you may as well call bullshit and walk away.

That is what nobody seems willing to see about blockchain.

In less than 10 years, bitcoin issuance and holdings became more centralized than dollars. . We get to the same imbalances faster

Positive feedback loops do happen in nature, but they typically have boundary conditions which act as a guardrail — a way to break the cycle so that it doesn’t spiral into dangerous imbalance. But what is the limit to people’s greed? Do you see any realistic way to break this cycle other than collapse of the currency itself?

A viable alternative: This is why we’ve built Holochain — a scalable and healthy alternative to blockchain based on nature’s design patterns for operating on large scales.

Reposted from Medium: https://medium.com/holochain/blockchain-blind-spots-1904d490218d

.Photo by abbyladybug

The post On the blind spots of the Blockchain appeared first on P2P Foundation.

Decentralization is the new disruption—the thing everything worth its salt (and a huge ICO) is supposed to be doing. Meanwhile, Internet progenitors like Vint Cerf, Brewster Kahle, and Tim Berners-Lee are trying to re-decentralize the Web. They respond to the rise of surveillance-based platform monopolies by simply redoubling their efforts to develop new and better decentralizing technologies. They seem not to notice the pattern: decentralized technology alone does not guarantee decentralized outcomes. When centralization arises elsewhere in an apparently decentralized system, it comes as a surprise or simply goes ignored.

Here are some traces of the persistent pattern that I’m talking about:

• The early decentralized technologies of the Internet and Web relied on key points of centralization, such as the Domain Name System (which Berners-Lee called the Internet’s “centralized Achilles’ heel by which it can all be brought down or controlled”) and the World Wide Web Consortium (which Berners-Lee has led for its entire history)
• The apparently free, participatory open-source software communities have frequently depended on the charismatic and arbitrary authority of a “benevolent dictator for life,” from Linus Torvalds of Linux (who is not always so benevolent) to Guido van Rossum of Python
• Network effects and other economies of scale have meant that most Internet traffic flows through a tiny number of enormous platforms — a phenomenon aided and exploited by a venture-capital financing regime that must be fed by a steady supply of unicorns
• The venture capital that fuels the online economy operates in highly concentrated regions of the non-virtual world, through networks that exhibit little gender or ethnic diversity, among both investors and recipients
• While crypto-networks offer some novel disintermediation, they have produced some striking new intermediaries, from the mining cartels that dominate Bitcoin and other networks to Vitalik Buterin’s sweeping charismatic authority over Ethereum governance

This pattern shows no signs of going away. But the shortcomings of the decentralizing ideal need not serve as an indictment of it. The Internet and the Web made something so centralized as Facebook possible, but they also gave rise to millions of other publishing platforms, large and small, which might not have existed otherwise. And even while the wealth and power in many crypto-networks appears to be remarkably concentrated, blockchain technology offers distinct, potentially liberating opportunities for reinventing money systems, organizations, governance, supply chains, and more. Part of what makes the allure of decentralization so compelling to so many people is that its promise is real.

Yet it turns out that decentralizing one part of a system can and will have other kinds of effects. If one’s faith in decentralization is anywhere short of fundamentalism, this need not be a bad thing. Even among those who talk the talk of decentralization, many of the best practitioners are already seeking balance — between unleashing powerful, feral decentralization and ensuring that the inevitable centralization is accountable and functional. They just don’t brag about the latter. In what remains, I will review some strategies of thought and practice for responsible decentralization.

Hat from a 2013 event sponsored by Zambia’s central government celebrating a decentralization process. Source: courtesy of Elizabeth Sperber, a political scientist at the University of Denver

First, be more specific

Political scientists talk about decentralization, too—as a design feature of government institutions. They’ve noticed a similar pattern as we find in tech. Soon after something gets decentralized, it seems to cause new forms of centralization not far away. Privatize once-public infrastructure on open markets, and soon dominant companies will grow enough to lobby their way into regulatory capture; delegate authority from a national capital to subsidiary regions, and they could have more trouble than ever keeping warlords, or multinational corporations, from consolidating power. In the context of such political systems, one scholar recommends a decentralizing remedy for the discourse of decentralization — a step, as he puts it, “beyond the centralization-centralization dichotomy.” Rather than embracing decentralization as a cure-all, policymakers can seek context-sensitive, appropriate institutional reforms according to the problem at hand. For instance, he makes a case for centralizing taxation alongside more distributed decisions about expenditures. Some forms of infrastructure lend themselves well to local or private control, while others require more centralized institutions.

Here’s a start: Try to be really, really clear about what particular features of a system a given design seeks to decentralize.

No system is simply decentralized, full-stop. We shouldn’t expect any to be. Rather than referring to TCP/IP or Bitcoin as self-evidently decentralized protocols, we might indicate more carefully what about them is decentralized, as opposed to what is not. Blockchains, for instance, enable permissionless entry, data storage, and computing, but with a propensity to concentration with respect to interfaces, governance, and wealth. Decentralizing interventions cannot expect to subdue every centralizing influence from the outside world. Proponents should be forthright about the limits of their enterprise (as Vitalik Buterin has sometimes been). They can resist overstating what their particular sort of decentralization might achieve, while pointing to how other interventions might complement their efforts.

Another approach might be to regard decentralization as a process, never a static state of being — to stick to active verbs like “decentralize” rather than the perfect-tense “decentralized,” which suggests the process is over and done, or that it ever could be.

Guidelines such as these may tempt us into a pedantic policing of language, which can lead to more harm than good, especially for those attempting not just to analyze but to build. Part of the appeal of decentralization-talk is the word’s role as a “floating signifier” capable of bearing various related meanings. Such capacious terminology isn’t just rhetoric; it can have analytical value as well. Yet people making strong claims about decentralization should be expected to make clear what distinct activities it encompasses. One way or another, decentralization must submit to specificity, or the resulting whack-a-mole centralization will forever surprise us.

A panel whose participants, at the time, represented the vast majority of the Bitcoin network’s mining power. Original source unknown

Second, find checks and balances

People enter into networks with diverse access to resources and skills. Recentralization often occurs because of imbalances of power that operate outside the given network. For instance, the rise of Facebook had to do with Mark Zuckerberg’s ingenuity and the technology of the Web, but it also had to do with Harvard University and Silicon Valley investors. Wealth in the Bitcoin network can correlate with such factors as propensity to early adoption of technology, wealth in the external economy, and proximity to low-cost electricity for mining. To counteract such concentration, the modes of decentralization can themselves be diverse. This is what political institutions have sought to do for centuries.

Those developing blockchain networks have tended to rely on rational-choice, game-theoretic models to inform their designs, such as in the discourse that has come to be known as “crypto-economics.” But relying on such models alone has been demonstrably inadequate. Already, protocol designers seem to be rediscovering notions like the separation of powers from old, institutional liberal political theory. As it works to “truly achieve decentralization,” the Civil journalism network ingeniously balances market-based governance and enforcement mechanisms with a central, mission-oriented foundation populated by elite journalists — a kind of supreme court. Colony, an Ethereum-based project “for open organizations,” balances stake-weighted and reputation-weighted power among users, so that neither factor alone dictates a user’s fate in the system. The jargon is fairly new, but the principle is old. Stake and reputation, in a sense, resemble the logic of the House of Lords and the House of Commons in British government — a balance between those who have a lot to lose and those who gain popular support.

As among those experimenting with “platform cooperativism,” protocols can also adapt lessons from the long and diverse legacy of cooperative economics. For instance, blockchain governance might balance market-based one-token-one-vote mechanisms with cooperative-like one-person-one-vote mechanisms to counteract concentrations of wealth. The developers of RChain, a computation protocol, have organized themselves in a series of cooperatives, so that the oversight of key resources is accountable to independent, member-elected boards. Even while crypto-economists adopt market-based lessons from Hayek, they can learn from the democratic economics of “common-pool resources” theorized by Elinor Ostrom and others.

Decentralizing systems should be as heterogeneous as their users. Incorporating multiple forms of decentralization, and multiple forms of participation, can enable each to check and counteract creeping centralization.

Headquarters of the Internet Archive, home of the Decentralized Web conferences: Wikimedia Commons

Third, make centralization accountable

More empowering strategies for decentralization, finally, may depend on not just noticing or squashing the emergence of centralized hierarchy, but embracing it. We should care less about whether something is centralized or decentralized than whether it is accountable. An accountable system is responsive to both the common good for participants and the needs of minorities; it sets consistent rules and can change them when they don’t meet users’ needs.

Antitrust policy is an example of centralization (through government bureaucracy) on behalf of decentralization (in private sector competition). When the government carrying out such a policy holds a democratic mandate, it can claim to be accountable, and aggressive antitrust enforcement frequently enjoys broad popularity. Such centralized government power, too, may be the only force capable of counteracting the centralized power of corporations that are less accountable to the people whose lives they affect. In ways like this, most effective forms of decentralization actually imply some form of balance between centralized and decentralized power.

While Internet discourses tend to emphasize their networks’ structural decentralization, well-centralized authorities have played critical roles in shaping those networks for the better. Internet progenitors like Vint Cerf and Tim Berners-Lee not only designed key protocols but also established multi-stakeholder organizations to govern them. Berners-Lee’s World Wide Web Consortium (W3C), for instance, has been a critical governance body for the Web’s technical standards, enabling similar user experience across servers and browsers. The W3C includes both enormously wealthy corporations and relatively low-budget advocacy organizations. Although its decisions have sometimes seemedto choose narrow business interests over the common good, these cases are noteworthy because they are more the exception than the rule. Brewster Kahle has modeled mission-grounded centralization in the design of the nonprofit Internet Archive, a piece of essential infrastructure, and has even attempted to create a cooperative credit union for the Internet. His centralizing achievements are at least as significant as his calls for decentralizing.

Blockchain protocols, similarly, have tended to spawn centralized organizations or companies to oversee their development, although in the name of decentralization their creators may regard such institutionalization as a merely temporary necessity. Crypto-enthusiasts might admit that such institutions can be a feature, not a bug, and design them accordingly. If they want to avoid a dictator for life, as in Linux, they could plan ahead for democracy, as in Debian. If they want to avoid excessive miner-power, they could develop a centralized node with the power to challenge such accretions.

The challenge that entrepreneurs undertake should be less a matter of How can I decentralize everything? than How can I make everything more accountable? Already, many people are doing this more than their decentralization rhetoric lets on; a startup’s critical stakeholders, from investors to developers, demand it. But more emphasis on the challenge of accountability, as opposed to just decentralization, could make the inevitable emergence of centralization less of a shock.

What’s so scary about trust?

In a February 2009 forum post introducing Bitcoin, Satoshi Nakamoto posited, “The root problem with conventional currency is all the trust that’s required to make it work.” This analysis, and the software accompanying it, has spurred a crusade for building “trustless” systems, in which institutional knowledge and authority can be supplanted with cryptographic software, pseudonymous markets, and game-theoretic incentives. It’s a crusade analogous to how global NGOs and financial giants advocated mechanisms to decentralize power in developing countries, so as to facilitate international investment and responsive government. Yet both crusades have produced new kinds of centralization, in some cases centralization less accountable than what came before.

For now, even the minimal electoral accountability over the despised Federal Reserve strikes me as preferable to whoever happens to be running the top Bitcoin miners.

Decentralization is not a one-way process. Decentralizing one aspect of a complex system can realign it toward complex outcomes. Tools meant to decentralize can introduce novel possibilities — even liberating ones. But they run the risk of enabling astonishingly unaccountable concentrations of power. Pursuing decentralization at the expense of all else is probably futile, and of questionable usefulness as well. The measure of a technology should be its capacity to engender more accountable forms of trust.

Learn more: ntnsndr.in/e4e

If you want to read more about the limits of decentralization, here’s a paper I’m working on about that. If you want to read about an important tradition of accountable, trust-based, cooperative business, here’s a book I just published about that.

Photo by CIFOR

The post What to do once you admit that decentralizing everything never seems to work appeared first on P2P Foundation.

Dick Bryan, Benjamin Lee, Robert Wosnitzer, Akseli Virtanen*

The mounting literature on cryptoeconomics shows an interesting but also alarming characteristic: its underlying economics is remarkably conventional and conservative.

It is surely an anomaly that many people who have gone outside the mainstream to disrupt and develop new visions of the future and economy so readily adopt the conventions of the ‘dismal science’.

The problem is that the orthodox economics blocks the real potential for cryptoeconomics and cryptographically enabled distributed economic-social system to facilitate the building of a radically alternative politics and economics.

At the core of this view are two realizations:

1. In their money role, cryptotokens can be an alternative unit of account, not just a means of exchange. They can invoke a new measure of value, not just facilitate new processes of trade. As such, they can have a ‘backing’ in the value of output they facilitate, not present as simply tools of speculative position-taking.

2. In their ownership role, they can be derivatives (purchases of risk exposure, not just asset ownership) designed so that people risk together, not individually. They can invoke collective approaches to dealing with risk and upside, not individualistic ones: they can enable risking together.

In this review we first follow the different framings of ‘economics’ and their implications to cryptoeconomics. The analysis then explores the notion of ‘fundamental value’: how it is utilised in the cryptoeconomics literature and how a different framing of ‘economics’ enables distinctive insights on how to creatively develop the idea of token value being founded in ‘fundamental value’. Our objective is to show how a critical reframing of economics enables token integrity to be explained and managed.

To help you navigate, here is the contents of what follows:

1. Which economics?

2. The limited working definitions of cryptoeconomics

3. The Hayekian turn: the integrity of market processes

4. Cryptotokens: means of exchange or units of account?

5. The valuation of cryptotokens

A. Developing the ECSA unit of account

B. A historical digression, but of some significance

6. Contemporary lessons from the historical digression

7. Once more on fundamental value: the ECSA approach

8. The derivative form: buying exposures to an exponential future and a big put

1. Which economics?

Economics is a broad and contested discipline. It is also an old one, with Adam Smith’s Wealth of Nations almost 250 years old, and Karl Marx’s economics 150 years old. Its dominant discourse is ‘neo-classical’ economics, dating from the late 19th century. It has, of course, significantly evolved over the past century, but the current dominant thought, directly based in that neo-classical turn, remains relatively coherent. It is dominated by an orthodoxy, quite unlike the rest of the social sciences that are conceived in theoretical and methodological debate.

The dominance of neoclassical economics is not unchallenged. There are criticisms from both the ‘right’, in the name of libertarianism (e.g. Hayek) and from the left (both a statist left like Keynesianism and an anti-capitalist left like Marxism). In that sense it is hardly surprising that there is no definition of ‘economics’ that is generally agreed.

Here are a couple of ‘standard’ definitions that come from the likes of Economics 101 textbooks that to some degree cover multiple positions in debates:

1. Economics is the study of allocating scarce resources between alternative uses.

This is a definition that points to price formation and decision making. It opens up agendas of optimisation. It is framed to privilege ‘microeconomics’ (the workings of particular markets), not ‘macroeconomics’ (the totality of economic processes, understood as more than the sum of market processes).

Here is another one:

2. Economics is the study of the processes of production, distribution and consumption of goods and services.

This is a definition with wider social meaning and context. It is not specifically about markets and certainly not focussed on optimisation. Its focus is the social, not the individual, and on systems. It is more likely to be historical and less mathematical than the economics created under the first definition. It implicitly acknowledges that the economic is difficult to disentangle from other facets of social life.

By contrast, the first definition isolates ‘the economic’ to a greater extent by focussing on price formation and decision making. In most of the 20th century, this was achieved by treating economic agents as autonomously rational, later enhanced by game-theoretic strategic rationality and later still challenged somewhat by propositions of ‘systematic irrationality’ (behavioural economics). These developments have enabled economics to become mathematically advanced and subjectable to formal modelling.

Both definitions have something to say to the token economy community, where we can recognize concurrently a potential epochal change in the way of doing economic activity and the new potential of mathematical modelling. But the two emphases need to be kept consciously in balance.

Perhaps this recognition is part of the success of Ethereum, where we can see each style of economic focus in play.

Ethereum inventor Vitalik Buterin, consistent with the first definition of economics, has defined cryptoeconomics as about:

• Building systems that have certain desired properties
• Using cryptography to prove properties about messages that have happened in the past
• Using economic incentives defined inside the system to encourage desired properties to hold into the future.

Ethereum developer Vlad Zamfir, embracing more the second definition (and citing Wikipedia), says that cryptoeconomics might be:

“A formal discipline that studies protocols that govern the production, distribution, and consumption of goods and services in a decentralized digital economy. Cryptoeconomics is a practical science that focuses on the design and characterization of these protocols.”

But it is apparent that, in the broad scoping of cryptoeconomics, it is the first definition that is the focus. Sometimes called ‘token engineering’, it scopes systems of incentives that can be applied to ‘rational’ agents. The cost of this framing is to both limit the social and economic significance of a cryptoeconomics, and to create greater possibility for token failure in practice.

2. The limited working definitions of cryptoeconomics

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.

3. The Hayekian turn: the integrity of market processes

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, and we consider it a little bit more below.

For the non-Hayekians, there remains the option of a tradition of neo-classical economics that embraces optimisation, transaction costs, and incentives, but also pays more attention to the limitations of market solutions. A significant number of Nobel Prizes for Economic Science in the past 30 years have been awarded for engagement with these sorts of problems. It all points to the proposition that markets do not work in a simple, idealised way.

Neoclassical economists identify two broad limitations of market solutions. One is ‘imperfect markets’, where the capacity to secure forms of control over a market generate returns above the norm. Historically, this issue has focussed on the inefficiencies of monopolies and oligopolies. More recently, attention has been paid to asymmetrical information, and especially the fact that sellers generally know more about a commodity than buyers. (Joel Monegro’s ‘Fat Protocols’ is in this tradition, engaging what sorts of control at what point of the stack/value chain generate best long-term returns.)

The other factor in the neo-classical approach is the condition of ‘market failure’: where markets cannot effectively allocate prices because collateral costs and benefits are not borne by individual producers and traders. Hence there is in neo-classical economics greater engagement with the roles of government in overcoming market failure than is found in Hayek, albeit that there is also debate whether the cure is worse than the disease. Whether the computational systems built on smart contracts can significantly diminish market failure stands as a moot point.

There is one more recent points of challenge to neo-classical economics that is relevant to cryptoeconomics. It is work brought to prominence by Michel Callon and, in English and in relation to finance by Donald MacKenzie who describe economic models as ‘performative’: essentially that they make the world, they don’t describe it. This approach casts economics as a prescriptive discipline, operating in the domain of ‘ought’ statements, rather than ‘is’ statements. It warrants mentioning here because it already hints at the potentiality of cryptoeconomics: when used more radically (not only to repeat the most orthodox economic beliefs), as we try to show below, cryptoeconomics opens to us economy itself as design space. We need to recognize the complexity of social and economic dynamics in token design, and make sure that the ‘social’ receives as much analytical attention as the formal, technical issues. If we design ‘ought’ systems that understate the complexity of the social, or do not understand their effects, it is likely that governance processes will be inadequate.

Much of the rest of economics covers a wider range of views, but a smaller number of economists. But it is here that the broader, more cultural and socio-historical questions come to the fore.

We want to focus on two broader issues, still very ‘economic’ in framing, that maybe are sufficient to capture the flavour of these broader agendas. They both appeal to broader social perspectives in cryptoeconomic analysis, but embody rather different political agendas.

One comes from treating cryptotokens as not just a new means of exchange (the transaction view) but also a new unit of account (a production and distribution view); the other is played out through debates about the valuation of cryptotokens.

4. Cryptotokens: means of exchange or units of account?

Going back to our definitions of economics, the first one — about optimization, incentives and transaction costs — conceives of tokens as either means of exchange or, in the case of utility tokens, types of commodity futures contracts (rights to future conversion into commodities).

They are that, but they also are more than that, when framed in the context of the second definition of economics. From the perspective of the second definition we can see cryptotokens as providing the possibility for new units of account, and hence new ways to measure the economy.

In the first definition, the answer to the question ‘what counts’ in the economy is answered by reference to the discipline of market calculus. In the second definition, what gets counted as ‘production’ and ‘consumption’ is more open ended. What is counted — and what is valued — opens as a design question.

It has been well established that market criteria are blind to some critical economic processes. Roughly (for it is complex to specify) anything not produced for sale is systematically excluded.

In the mainstream capitalist world of fiat currencies, incorporating these excluded forms of production and consumption has been a virtually insurmountable challenge. There we see the dominance of a culture of production for profit and a history of data collection based on that principle. Beneficial things that do not make revenue are difficult to measure and hence to incorporate.

Of course we are not the first to recognise this limitation. The neglect of household production, both nurturing activities in the home and the economic activities of peasant economies, are widely-recognised limitations. And within neo-classical economics there is debate about how far into wider social analysis the notion of externalities extends (and how they might be priced). In a similar vein, the appeal of ideas like ‘triple-bottom-line accounting’ and ‘ethical investing’ also embrace alternative visions of counting. But, and this is critical, they all presume the ontological primacy of profit-centred measurement: they are critiques of and qualifiers to that system and rarely present alternative modes of calculation.

Cryptotokens enable us to re-open this measurement question. Cryptotokens as means of exchange enable us to trade in new ways. Cryptotokens as new units of account enable us to measure output (what is value and how is it produced) in new ways.

This points us already to one of our key insights, to which we will return a little bit later: we already know that the next value production layer — of the era of decentralized open source data — has to do with governance (more welcoming and better governed crypto networks will be valued at a premium due to their reliability of social inclusion in the decision making process), but also with ways of belonging, ways of sharing stakes, risks, upside. The organization of ‘risking together’ — or what we call an economic space — becomes now the actual value creation layer: it is a new value form which is very different to the commodity form as a basic economic cell of society which makes social relations between people (for capital is a social relation) appear as just relations between things. Basically, you will compete now with different community-economy-governances. This — explicitly relational, social logic of this new value form — is precisely what we try to capture by talking about it as a network derivative below. And it is to express such social-economic organizations that we are working on the Space organizational grammar and development environment (See the ECSA Tech Stack below).

The challenge in the cryptoeconomy is to open discussion about how we understand and measure this broader conception of ‘production’ and ‘consumption’, consistent with our aspiration of incubating not just in new ways of organizing, but also the production of new things and new (social, political, aesthetic, organizational, environmental…) relations.

But it is critical here that this imagining of new ways of doing economy and economics is not just fuzzy and feelgood: we need ways to measure and to socially validate these new horizons. It means that we cannot, in the first instance, reduce all forms of production to a monetary price. We can treat monetary price as one index of measurement (for a price is merely an index since the base unit of measure is arbitrary with respect to the thing being measured), but we will need other indices of production too, targeting measurement of the different ways in which goods, services and intangibles get acknowledged socially — or, become socially quantifiable, as Gabriel Tarde, one of the maybe most relevant economic thinkers for crypto, originally put it. Think of measurements of replication, imitation, iteration, social inclusion and recommendation.

In cryptoeconomics, especially where the focus is on wider social agendas, questions of what to measure and how to measure opens up a critical research agenda which will require ongoing attention and resource allocation. It is readily apparent, even in the mainstream of economics and accounting, that the valuation of ‘intangible assets’ is a critical problem. It always has been a problem, for such assets can’t be measured like plant and equipment and real estate, but as intangible capital (brands, intellectual property, etc) are now the overwhelming proportion of the assets of the world’s largest companies (Facebook, Apple, etc.), the lack of appropriate tools for valuation has emerged as a conspicuous accounting problem.

Most of the assets inside cryptoeconomics are also likely to be predominantly ‘intangibles’, so the problem is shared. The difference is that new tokens open up possibilities for new codes and agendas —new grammars — of measurement. It is quite conceivable that research on measurement in relation to crypto units of account may turn out to be invaluable to mainstream accounting too. (See Valuation Crisis and Crypto Economy)

Developing alternative measures are not a simple processes, and there are certainly challenges, most notably of measurement across indices and dealing with gaming of the measurement system. But we believe these challenges are significant and definitely worth taking up. It is important that resources are put into exploring new measurement agendas.

5. The valuation of cryptotokens

This issue is of importance because it gets to the heart of the question: can markets effectively price tokens as more than speculative objects? This was certainly an issue for popular debate in late 2017 when the price of bitcoin spiked. In this context, prominent crypto investor Fred Wilson said:

“In times like this, I like to turn to the fundamentals to figure out where things stand and how I should behave. . . You need to have some fundamental theory of value and then apply it rigorously.”

For those who believe that markets create spontaneous order, the search for something ’fundamental’ is a non-question: price captures all information, it is an expression of supply and demand and finds its own level. So the very act of posing the question of an ‘underlying’ or ‘fundamental’ value is to move outside the Hayekian view. It is to suggest that there is and can be a value to cryptotokens beyond current price. It takes us beyond that first definition of economics in terms of markets and incentives and into some wider, social and historical issues of economics. (See Valuation crisis and crypto economy; and Whose stability? Reframing stability in the crypto economy)

The issue under consideration here is not whether the measurement of ‘fundamentals’ is a good guide to trading strategy in cryptomarkets. (There is a standard debate in trading strategy about fundamentals VS. technical analysis of patterns of price movements. Warren Buffet stands out as an advocate of fundamentals analysis.) Nor is it about developing the capacity to forecast an income and expenditure model for the future, important though this is. (See for example, Brett Winton, How to Value a Crypto Asset — A Model)

The issue here is how we might measure the crypto economy if not by current token price. It matters because fundamental value points to the longer-term viability of a token and the activities that underlie it and potentially gives tokens an integrity which will be recognised in wider capital markets.

Fundamental value is not simply a long-term average price around which the spot price varies. It is a value that can be measured by criteria which link to the capacity of an asset to produce new value. In neoclassical, equilibrium theory, the ‘efficient markets hypothesis’ postulates that long-term market price will spontaneously gravitate to the valuation of this capacity to generate new (future) value. But it is only a view specific to the discourse of neoclassical economics.

The challenge of fundamental value is to find a mode in which to measure the current value of an asset, especially when that value requires projection of the future. It was once a relatively straightforward calculation: a staple (and stable) measure of accounting, when manufacturing industry was the ‘model’ corporation, and capital was physical (factory sites, machinery, stock). It has become a more challenging issue for accounting since corporate assets became increasingly intangible — intellectual property, brands, goodwill, etc. Some leading accountants claim that the profession is in a crisis because of an incapacity to measure the value of intangible assets.(See Valuation crisis and crypto economy)

So we should recognise that, in a cryptotoken context, the idea of calculating a fundamental value is experimental. We should also be aware that there is a propensity in cryptoeconomics to engage valuation via an over-simplified interpretation of what a token actually is and can do. That is, there may be consensus that tokens are complex, hybrid, novel things. But in the complexity of the valuation process, there is a proclivity to treat them as one thing; in particular as money or as equity, and especially the former.

Some of the debate here occurs via analogy. For example, it can be argued bitcoin could do the credit card provisioning of Mastercard or Visa, so we could estimate a corporate value for bitcoin based on the value of these companies. (See critical evaluation of this by Andy Kessler, The Bitcoin Valuation Bubble, Wall St Journal, August 27, 2017). But that doesn’t really work, because analogies don’t hold. We can’t claim the crypto economy to be different, yet benchmark its value to assets and processes we seek to disrupt.

Another approach, we think laudable in its desire to capture cryptotokens as derivatives (see more below), contends that the Black Scholes options pricing model can be adapted to explain token values. (See J. Antos and R. McCreanor ‘An Efficient-Markets Valuation Framework for Cryptoassets using Black-Scholes Option Theory’)

The essence of this proposition is that cryptotokens hold exposure to a future of potentially such monumental significance, so that cryptoassets themselves are call options on the utility value of what that cryptoasset might someday provision. Volatility of token values may then be seen as an efficient reflection of a rational estimation of the probability of realising some real utility value of a future — perhaps distant future — product that results from current cryptoassets.

Framed within the efficient markets hypothesis (Eugene Fama), this approach does bear the critical proposition that ‘efficient’ outcomes are a reflection of some ‘fundamental value’. But outside that assumption it is not really persuasive as an explanation of fundamental values. However, valuable in its approach is that it focuses on changes in estimated variables, not on the static value of underlying assets. In this way the approach does capture a derivative dimension in valuation (an issue addressed shortly more below).

Some innovative agendas of measurement are coming via the old quantity theory of money proposition, expressed as ‘the equation of exchange’. The formula states:

MV=PQ

where M = the quantity of money in circulation,

V = its velocity of circulation of money,

P = the general price level in the economy and

Q = the quantity of goods and services sold in the economy.

It is worth spending a little time giving context to this formula, both because of its application in the existing literature on cryptoasset valuation and because it is where ECSA too looks to frame fundamental value, albeit in a way different from current debates.

The equation MV = PQ comes from a long economic lineage, mostly identified with 18th century Scottish philosopher David Hume. It presents the ‘real economy’ on the right hand side and its money equivalent on the left hand side. Its lineage is long, but its functionality in economics is challenged (e.g. is it merely an identity; can it be read causally and if so from right to left as well as left to right?). In late 20th century policy application it has been used to focus on the relationship of M and P, and to argue that states should be passive in economic management, creating just enough money to keep prices stable (with V constant, money supply should expand in proportion to Q) . It became popular in the 1970s economics of Milton Friedman (broadly aligned to Hayek). It was called ‘monetarism’ and contended that state fiscal and monetary expansion were not solving recession, but causing inflation.

Monetarism became central bank policy orthodoxy in many Anglo countries for just a brief period in the early 1980s, expressed as ‘money supply targeting’. It was quickly abandoned and one of the reasons, with new significance for the world of cryptotokens, was that the state’s various definitions of money (cash, trading bank deposits, etc.) moved in different directions: there was no single state money to be targeted. More recently, the non-inflationary impact of US quantitative easing (so far) may be some further indication of the practical limits of the equation in state policy formation. QE also raises the challenge that the equation may only work for goods and services outputs and prices, but not for financial assets. Indeed, it is ambiguous as to which side of the equation liquid financial assets should be located: are they commodities (RHS) or money (LHS)?

With that brief background, let’s take a quick look to the use of the quantity theory of money in cryptotoken valuation.

The initial figure of note here is Chris Burniske, who observes that tokens have both asset and money attributes and are currencies in the context of the programs they support. But in that role they don’t generate cash flow, so they can be valued by discounted future value but not a discounting related to cash flows but to a projected future fundamental value. So the analysis turns to utility values (Cryptoasset Valuations).

For this purpose Chris re-defines the variables of the equation:

M = size of the asset base

V = velocity of the asset’s circulation

P = price of the digital resource being provisioned (note: not the price of crypto assets)

Q = quantity of the digital resource being provisioned (note: not the quantity of crypto assets.

He then solves for M, which enables an individual token valuation.

This is indeed a novel approach and for a reason opened up a significant debate. But it does have some problems:

• It finishes up displacing the valuation problem from the token to the valuation of digital resources being provisioned, and the ambiguity of how that is being measured.
• Moving V to the RHS so as to solve for M turns the equation from being a logical identity (that money values equal commodity values) into a historical proposition of individual variable valuation. (If, for example, velocity doubles, it doesn’t thereby halve the size of the asset base.)
• In wider discussion there is recognition of the problematic valuation of V (actually, it is the volatility of V). There is a literature addressing the question of velocity. There are debates here, but, as summarised by Alex Evans, its common proposition is that:

“tokens that are not store-of-value assets will generally suffer from high velocity at scale as users avoid holding the asset for meaningful periods of time, suppressing ultimate value.”

A problem with the valuation literature seems to be that it conflates the equity dimension and the monetary dimension of tokens. The focus on the fact that (a) tokens will be turned over rapidly because they are not a good store of investor value is different from the issue of (b) tokens turning over in their use as a means of exchange inside projects/businesses. The latter matters, the former does not. To give attention to the former would be like saying the turnover of corporate equities impacts the long-term price of corporate equities. The point: We need to re-think the meaning of velocity in a token world. The underlying issue here is that tokens blur the categories of equity and money, and the velocities of these attributes have different drivers.

We are interested in this approach and its criticisms not for the purpose of disproving the approach — for probably any proposal in this domain is somewhat easy to critique. The point is that cryptoaccounting, like mainstream accounting, simply doesn’t have good tools to measure in this domain. But it is an area where we should explore, and it requires creativity, such as shown by Burniske and the debate to which his work has given rise. Indeed, we are thinking that the novelty of cryptoassets gives us opportunities to invent valuation procedures that could well be actually of benefit to the mainstream accounting profession.

We have been working intensively on the ECSA token valuation system, as it could be posed as an engagement with this debate, returning to the original meaning of

MV=PQ

as the depiction of an economy which balances the ‘monetary side’ of an economy (MV) with the so-called ‘real economy side’ (PQ). From an ECSA perspective, the measurement process means that P is too limited a category. We want to treat price as just one index of ‘value’ measurement amongst a range. So we respecify:

MV= I(1-x)Q

where

M = the quantity of tokens issued in the new economic space (ECSA bootstrapped ecosystem of new value forms)

V = the velocity of circulation of tokens within new economic space (ECSA bootstrapped ecosystem of new value forms)

I(1-x) is the range of indices of valuation, of which price is just one

Q is the quantity of output (tangible and intangible) produced in the new economic space (ECSA bootstrapped ecosystem of new value forms).

If we measure the new economic space (ECSA bootstrapped economy) in the way described, we can make a simple use of this formula, or at least the underlying sentiment, both economic and social. For ECSA itself, this mode of measurement gives a means to define both fundamental value and set some governance agendas.

As an identity, the LHS and RHS are always equal.The monetary policy position of ECSA is that the RHS (the total value of output within new economic space/ECSA bootstrapped ecosystem) will drive the LHS (token issuance qualified by velocity). In the distributed system of offers and matches ECSA is building, we will be able to develop significant data sets of M (distributed token issuance) V (where we can distinguish clearly between offers that are about acquisition of inputs for production and those used for mere token exchange), and we will develop empirical measurement to calculate I(1-x) and P. We think that in the offer based new economic space token issuance can be governed in a distributed way to ensure MV=IQ, and the economy can be run on non-inflationary tokens. The key here is to concurrently have internal ‘working tokens’ and ‘market token’ traded on the capital market. The equation of exchange should only apply to the internal ‘working token’, not the ‘capital market token’, for it is the internal token which articulates with production and distribution. (We will return to the issue how the capital market token and the value graph and its working tokens are bridged in the next texts of this series.)

A question is, of course, how do we reduce I to a single index number? The answer has two layers. One is that once we reach critical mass of offers and matchings market processes will themselves drive valuation. The second layer is that these same offers and acceptance will generate significant data which can then be transformed into indices for valuing goods and services (outputs and performances). How these indices will be compiled is one of our most interesting research areas at the moment — it will come out of an empirical processing of large data; it cannot be known a priori; nor should it be presume to be fixed in value.

There are some elements in this proposition that warrant further explanation. They will be taken up in a later section, but in the current context the critical point is that we believe that big data generated by agent offers and acceptances provide a critical information source for framing fundamental within a (broadly) MV=PQ framework.

‘Big data’ are in contemporary society often readily depicted, and rightly so, as socially intrusive and manipulative. But we think that in a token economy context of transparency and decentralized open source data, they are critical for organization and inclusiveness. And even further, without a reliable runtime and a grammar that can help us navigate and operate this space, and build knowledge derivatives (indexes) of it, we are today without politics, economics, incapable of speaking, of grasping, and intervening in processes and future of our life. This is the technology development task we are taking on in ECSA (See the ECSA Tech Stack).

We’ve always been impressed by Galileo Galilei, Leonardo da Vinci and other renaissance scientists who invented the experiments and instruments to navigate, understand and measure the newly opening space-time reality — the microscopes and telescopes to reveal micro- and macrocosms, inclinometers to determine latitudes, thermoscopes to show change of temperature, barometers to reveal atmospheric pressure, nautical instruments, experimental methods to understand invisible phenomena, velocity, acceleration, gravity— we will need to do the same now for the new economic space-time. Just like the birth of perspective in art, we will introduce perspective in economy. It will be a renaissaince.

We will return to the fundamental value issue shortly, for the issue of whichfundamental value is to be indexed in terms of the measuring role, and governance role, is called on to play within a token system. The focus is therefore on the requirements of the new economic space, but we get there in a way with ramifications for wider token systems.

6. Developing the ECSA unit of account

Part A: A historical digression, but of some significance

The problem of our radical measurement proposal is that all the language of money, markets, prices and profit is dominated by a grammar that equates money with the state, markets with a profit-centred mode of calculation and profit as a surplus defined by reference to extraction of individual benefit. Cryptoeconomics has been strong in challenging the first of these, but less effective in the latter ones. But they need to be challenged too.

John Maynard Keynes, the economist most associated with the principles of state issuance and management of fiat money in advanced capitalist economies, said in his 1930 Treatise on Money:

“The age of chartalist or State money was reached when the State claimed the right to declare what thing should answer as money to the current money of account — when it claimed the right not only to enforce the dictionary but also to write the dictionary. Today all civilised money is, beyond possibility of dispute, chartalist.”

Ninety years on, cryptotokens are the counterfactual to this proposition, but Keynes’ proposition about the State writing the dictionary is right. Part of cryptoeconomics is to challenge the dictionary: to open up new ways of thinking money and price.

That challenge is broad, but in this context, let us go to Keynes and Hayek, and read them via the innovation of cryptotokens. The object is quite specific: to note how certain of their categories that are now assumed ‘theoretical’, indeed axiomatic (the ‘dictionary’), are actually historically specific and contingent and should be challenged in the light of cryptotoken development. Moreover, within each of these significant economists, we can find the derivative dimension that is repressed in the interests of conveying a culture of theoretical certainty.

We start with Keynes.

His central proposition, conceived in the years either side of the Great Depression, want that nation states must manage national economies for markets will not gravitate to full employment stability. Central here is the idea that the state defines money and closely manages the financial system. In Chapter 17 of the General Theory he challenged his own premise and introduced the hypothetical idea that money may not be unique in its economic characteristics:

“The money-rate of interest — we may remind the reader — is nothing more than the percentage excess of a sum of money contracted for forward delivery, e.g. a year hence, over what we may call the “spot” or cash price of the sum thus contracted for forward delivery. …Thus for every durable commodity we have a rate of interest in terms of itself, — a wheat-rate of interest, a copper-rate of interest, a house-rate of interest, even a steel-plant-rate of interest.… Money is the greatest of the own-rates of interest (as we may call them) which rules the roost.”

Keynes, in essence, depicts money as the greatest own interest rate because (a) it does not itself produce a use value (like say wheat or copper) so it does not get diverted to those uses (it is exclusively ‘money’); (b) there is no issue of wastage (c) it is the most liquid asset, and (d) its quantum is managed.

Two things are interesting here. First, these criteria identified by Keynes as integral to the ‘greatness’ of (state) money do not persuasively apply today: indeed all financial derivatives have the liquidity and fungibility of state money, and cryptytokens are not constrained by nation- (or group-of-nation-) specific acceptability.

Second, Keynes uses the language now associated with derivatives to depict the rate of interest. Money is the underlying of which interest is the derivative. And for Keynes, money is axiomatically state money. Cryprotokens are in this context a put option on the state: the right to sell out of the state’s unit of account.

For Hayek, the origins of his thinking on the social and economic virtues of market processes comes from an early to mid 20th century debate with advocates of Soviet-inspired and other variants of central planning. It is known as the Socialist Calculation Debate. Hayek, following von Mises, argued that central planning, even at its best, has a range of insensitivities to detail: it can only work with highly aggregated, and outdated, data and impose these generalized decisions on individuals. The market, on the other hand, runs by processing decentralized information. It can synthesise complex forms of social and economic information into a single index, enabling economic relations to be conducted in simple and orderly processes.

It is worth quoting Hayek at some length, because what he says resonates with the capacities of a cryptoeconomy:

“It is in this connection that what I have called the “economic calculus” proper helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system. Even the single controlling mind [the central planner], in possession of all the data for some small, self-contained economic system, would not — every time some small adjustment in the allocation of resources had to be made — go explicitly through all the relations between ends and means which might possibly be affected. It is indeed the great contribution of the pure logic of choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or “values,” or “marginal rates of substitution”), i.e., by attaching to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure. In any small change he will have to consider only these quantitative indices (or “values”) in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle ab initio or without needing at any stage to survey it at once in all its ramifications.

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan.”

So price is the condensation of a multiplicity of determinations (to borrow from Althusser). The market can incorporate and process all different forms of information (create knowledge) to create spontaneous order.

“The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the price movement.”

F.A. Hayek, ‘The Use of Knowledge in Society’, American Economic Review. XXXV, №4. 1945, pp. 519–30.

This 1940s advocacy of ‘the market’ may stand strong as an alternative to 1940s central planning, but 70 years on the argument is and should be different. There are now ‘big data’, access to vast amounts of information to inform individual decisions, and computational capacities to process this information instantly. The ‘imperative’ to have complex variables reduced to ‘price’ no longer holds. Decentralized decision making does not have to articulate simply via price formation in markets. Indeed, one potential of cryptomarkets is to challenge the use of Hayekian price as the decentralized object of calculation.

Hayek says price embodies complex information — it creates knowledge of society — and its great functionality is that it is a simple representation of that complexity. Blockchain and cryptotokens present us with other ways of processing complex information. To get to this 21st century engagement, we can frame Hayek’s analysis in the context of risk and derivatives. There are two dimensions here.

• In the era of blockchain and big data, and in the language of Gilles Deleuze, we can dividuate knowledge: break it down into its underlying, determining elements (that Hayek thought were too complex to code), but without necessarily aspiring to see those elements combined so as to ontologically privilege the totalised category of ‘knowledge’. Knowledge is a synthetic asset; an assembly of information. Its purpose does not have to be the formation of market price.
• It follows that, in the era of derivatives, we can think of price as itself a derivative on those underlying forms of information of which price is said to be the condensate. In Hayek’s analysis of ‘The Price System as a Mechanism for Using Knowledge’, ‘price’ is really the strike price on the option on a synthetic asset called ‘knowledge’. (Individuals in this framing hold out-of-the-money options where they are priced out of the market and the return on in-the-money options is what neoclassical economists call the ‘consumer or producer surplus’.)

It follows that if Hayek’s approach can now be framed as an excessive reduction of information to a single, totalising unit of measure (‘price’), we can ask what are the key dividuated forms of information for which price represents a derivative exposure? And once we identify what they are, we can ask how are they important beyond being the ‘underlyers’ of price? How are they important in their own right as knowledge and as social indicators for decision-making?

The significance of these forays into Keynes and Hayek is profound: more so than might at first appear.

For Hayek, if it is possible to deconstruct the information behind price, why is it assumed that the objective of this information is the formation of prices rather than some other unit of measure? We can open up radically different social modes of calculation.

For Keynes, if money is a derivative exposure to the state, we might ask what cryptotokens might be a derivative of? What social and economic modes of organization may be available here?

To take on this significance, we need to back up a bit: to challenge the dictionary. Price is no more than an index: it measures relative values (between products; over time). But it gets treated socially as an absolute social measure. This is central to the idea of trust in a (fiat) money system. But the absolute measure is a social construct, and it can be changed: Francs to Euros; ‘old’ British pounds to ‘new’ (decimal) pounds. The appearance of cryptocurrencies, offering potential for so many different benchmarks for valuation, makes that social construction stark.

So why is ‘price’ currently the privileged index of valuation? Why do we not use (for example) sociality (social impact) as the privileged index of valuation? Or environmental impact?

The answer is that price is a measure that expresses the social and cultural values of a capitalist society. In using price as the privileged measure we assume that (a) production for the market is valued over production for direct use (for the latter generates no price) and (b) we assume that profit is embedded within price (people take things to market so as to make a profit). In a capitalist society, those priorities seem appropriate: they capture the values of that society.

The above is no doubt something of an overstatement. There has long been critique of GDP data, for example because they are not adequately measuring the environment, or commodity output is not a measure of ‘happiness’. Exactly what sorts of indices we might adopt is not the specific issue here. It is that for a measure to be not just an idealised alternative to GDP but a living indicator to be used in economic management, it has to have a material grounding in social organization: GDP as we now know it rules as an aggregate measure in a society that privileges production for profit.

Part B: Contemporary lessons from the historical digression

In an economy not driven by profit, but by a different framing of social contribution, we need different modes of measurement. If we stay with GDP-like measures, but add qualifiers (like pricing the environment or pricing care) we have to convert these qualifiers to profit-centred criteria, and then seek to justify their lack of profitability in terms of some unspecified social good. In this framing, non-profitable social goods are inevitably depicted as ‘concessions’ (virtuous loss-makers). We want to frame them not as concessions but as a purpose of doing economic activity. That framing requires the de-throning of profit as ruling the discourse of economic analysis. It is just a perspective — a very restricted perspective — on value.

We think we can borrow from a Hayekian method to re-think different measures made possible by the creation of tokens as units of account.Price, in its abstracted meaning, is valuation of something (output) by means of an index. So instead of allocating the generic word ‘price’ to our current (and Hayek’s preferred) index of measurement, let’s call that measure ‘profit price’, signalling the epistemological foundation of the index: it is just a profit-centred perspective on value.

But cryptoeconomics provides a means to measure also in terms of post-capitalist values — in terms of future value forms. And ‘profit price’ is not the index that best captures these value forms and their production. On the contrary, it has rather become a drag to their production. This is perhaps one of the most difficult things to understand about the transformation we are in: when capital becomes ‘intangible’ information and knowledge there is an irreversible change in the nature of itself. It does no longer follow the same laws, it does not behave in the same way, it does not produce and capture value anymore in the same way.

Think of knowledge. How and where does knowledge get its value? How does knowledge become valuable? How does the value of knowledge appreciate? The value of knowledge appreciates (a) if it is used in multiple ways, that multiple ways of using it are invented: if it is shared, adopted, repeated, imitated, copied; which means that it is always a collective and social process; (b) if it gets subjectively interpreted, accepted, “owned” and invested into; there is nothing more valuable than a knowledge producer who “owns” the production, is capable in sharing in its risks and puts herself at stake in the production; (c) if its producers ‘risk together’, if they self-regulate continuously the relations of its production, share its risks, stakes, upside. These key features of knowledge production — ability to multiply ways of use, ability to interpret and give subjective meanings, ability to self-regulate and continuously modify relationships between actors in its production — are precisely something that the old value production did not have. It is a different grammar where value gets created by (a) sharing, copying and inventing multiple uses (VS. restricting use by proprietary ownership); (b) many interpretations, iterations, variations, “owners” (VS. hiding the source code); (c ) collective self-organization, self-governance and right to fork (VS. external organization and control).

Would it not make sense that perhaps another kind an on index, say a ‘sociality’ index (‘sociality price’) would better capture such value production, and markets could value in terms of sociality price rather than profit price. (The objective here is not to give precision to a sociality index — or indices — it is just to frame the credibility of their existence as a social alternative, a different perspective on value.)

Fanciful, many will say! Hayek would have us believe, and many passively accept, that profit price is ‘natural’ and society spontaneously gravitates to an order around the calculation of profit price. Sociality price does not exist, and it would be a complete overturning of social norms to engage it.

So how do you compile a sociality index that is socially recognised and used?

First, we should recognise that Hayek’s notion that price formation in markets is a spontaneous order which happens to society is simply wrong. As Karl Polanyi puts it in the context of the socialist calculation debate: markets were planned; planning wasn’t!

Hayek himself highlights just how much complex and decentralized information goes into compiling price as an index. It’s about costs and market power, regulations, etc. on the cost side and tastes, income, etc. on the demand side. They are different for every individual, for every commodity, and at every point in time. But, and here Hayek is right in relation to current social relations, our society does, in general, bring it all together to create prices and orderly markets.

We respond that this is not a natural order, but a socially organized order. Building alternative sociality indices, and having people value by reference to sociality price, involves a massive cultural as well as economic shift. It would be about production for value rather than production for profit. The key metrics would have to shift from conditions for profitability to conditions for valuable. It is no more or less logically feasible than valuing in terms of profit price.

Cryptotokens provides us with an opportunity to experiment for example with a sociality index of price: indeed to develop multiple indices of valuation that reflect different social priorities the way that profit price reflects capitalism’s priorities. And if total income is determined by payments for contribution for sociality, we have the conditions for a different measure of value, for a different value calculus.

We are thinking to begin to trial this system. To quote ECSA developers:

“Think of the token as a propositional force, a sparkle of potentiality. It is a multi-dimensional docking port that can germinate new forms of relations and value sharing. The token is an occurrence, a virtual (time) crystal expecting its transductive associated milieu. It is an instance of value capture, but only insofar as it acts, simultaneously, as a fugitive relay of anarchic shares collectively modulating and amplifying values. Conceiving of tokens as speculative pragmatic relays is a way of entertaining them as generator of collective effervescence.”

(Erik Bordeleau et al. at the Economic Space Agency “We don’t know yet what a token can do”; see also “On intensive self-issuance”, Economic Space Agency in MoneyLab Reader, pp. 232–233)

7. Once more on fundamental value: the ECSA approach

‘Fundamental value’ is critical in cryptoeconomics for the simple reason that, in economic terms, it is the first benchmark of good governance. That is, it provides the framework so that the integrity of a token on issue is to be found in the system of production that it enables. So there must be a clearly-stated relationship between token issuance and the level of production.

But that relationship is historically specific, and we need to recognise that old notions of ‘fundamental value’ may have to adapt, and not just in the context of cryptotokens, but emphatically in their context.

So what are the hallmarks of the traditional notion of fundamental value? It is that there can be an ‘underlying’ measure outside of (beneath) the vicissitudes of market exchange. Adam Smith called it ‘natural price’; Marx sought a unit of value in socially necessary labour time. Accountancy sought fundamental value in the long-term productive value of the various assets of the corporation, as distinct from stock price. In each of these cases ‘intangible capital’ breaks the modes of fundamental value measurement. That is important as intangible capital becomes increasingly prevalent on corporate balance sheets, and it is clearly central to cryproeconomies.

But more broadly, as the nature of capital changes, so the mode of its measurement changes. If we look at the way financial markets have developed over the last 60 years to explain value — using tools like CAPM, VaR, EMH and Black Scholes — we can see that practical valuation has gone ‘inside’ the market: the idea that ‘real value’ exists outside market transactions is no longer a reflection of how valuation actually occurs.

What it signals is that ‘fundamental value’ has been shifting from stock measures (hours of embedded labour time; machinery and factory sites) to flow measures: from measures ‘outside’ the market to ways of re-interpreting data generated within markets.

A flows approach to fundamental value focusses on sources and uses rather than the valuation of stocks (assets, portfolios, warehouses).

Professor Perry Mehrling, one of the key critics of modern finance in the light of the global financial crisis, quotes Hyman Minsky that “the cash flow approach looks at all units — be they households, corporations, state and municipal governments, or even national governments — as if they were banks.” Cash flows have their uses and sources, and “for each agent, every use has a corresponding source and vice versa” and “each agent’s use is some other agent’s source, and vice versa.” If one thinks of agents as banks then all their assets and liabilities are intertwined. Whatever assets a bank has (i.e. cash) comes from elsewhere, as of course its liabilities are also “social”. In a stock version of fundamental, what is valued is assumed social because what is valued is the product of past social processes. Here, in measuring flows, we are focussing on the social-in-process.

This approach resonates directly with the interoperability grammar of offers and acceptances undertaken by agents on a blockchain. It suggests a new mode of framing fundamental value; one that is appropriate to the new form of economic interaction generated in a cryptoeconomy.

The MV=PQ approach to fundamental value must sit under this framing. This identity is one critical perspective on fundamental value.

ECSA thinks that this framing sets the conditions on which ECSA must build its diagnostic tools and indeed its units of account (for there need not be just one, albeit that there will be commensuration between units, but they may be non-tokenised). We can draw from Hayek the idea that transactional data embody complex, detailed information, from which indices can be compiled: indices that will give access to ‘underlying’ trends and can be compiled in ways to perform the function of units of account.

But, and this is critical, these indices cannot be pre-defined nor locked in: they are themselves to be produced as a recursive exercise of data analysis, and as the data evolve, and as techniques of data analysis evolve, so the (synthetic) indices of fundamental value must evolve. The indices must be in harmony with underlying market processes; not stand in contradistinction.

In an MV=PQ framing, we have to build data from agents’ offers and matches to compile a way to measure Q and V, and ultimately thereby stabilise the relationship between M and P. They must emerge from the interrogation of data, and suit the specific purposes of the new economic spaces bootstrapped by ECSA. And those indices must be allowed to evolve over time, both by processes of refinement as data get richer and processes of transformation as notions of social value evolve within the new economic space.

This on-going process of developing indices will be one of the critical performances of ECSA. It is critical to the integrity of new economic spaces, but we aspire also that it will be part of a wider social project to re-think value. We are familiar with the extensive ‘alternative’ measurement work around the world — in development studies, in human capacity measures, in health, in care, in the environment. We believe that ECSA’s indexing project can be part of this wider agenda; indeed framed within a token economy there will be new ways for this project to develop.

8. The derivative form: buying exposures to an exponential future and a big put

The above suggests to us that tokens in cryptoeconomics, and certainly in the new economic space, take the form of derivatives. We mean this not just in the sense that the purchase of an ECSA token in the capital market is a derivative, in the same way that company stocks are derivatives (exposure to company performance, without ownership of the underlying).

The proposition is deeper — in part material, but in part also symbolic .

First the material expression. There is a widespread embrace from the cryptoeconomic community of the issue of a transformative potential: tokens give exposure to an unverified but exponential future. The various indices that ECSA will compile are themselves derivative formulations, in the sense that movements in indices will determine individual token values as they exchange with other tokens and with ECSA’s mutual stakeholding fund. The purchase of tokens is thereby the acquisition of an exposure to these indices. The indices themselves are measures of the performance of economic spaces. So a token is an exposure to an index which is itself a representation of economic performances by token-issuing economic spaces.

Second, symbolically, the crypto economy involves taking risk positions on the established capitalist economy, its calculation of value, and the economic (and political) power structure around it.

• Those of us engaged in building (and analysing) cryptoeconomics and holding a long position on its potential.
• Those state regulators/commentators who decry the potential of crypto economies are using their regulatory and media power to short us.
• Those who diversify from the conventional capital market and capitalist economy and invest in ECSA are taking a short position of capitalist systems of value calculation. Borrowing the great insight of ECSA Advisor prof. Robert Meister of UCSC, we offer them a ‘big put’, a capacity to short capitalism.

In the words of ECSA Advisor, NYU professor Robert Wosnitzer:

“If the current system/structure of capital “shorts” the qualitative dimensions of life and society, and/or the externalized costs of production (i.e., businesses “put” the costs of, say, pollution onto society), through going “long” the current system of production and circulation, then ECSA is going long the qualitative/intangible dimensions and shorting the current system.

Said differently, a put option “puts” back the cost of the spread between the current value of something and its strike price to a counterparty in equity options, or in the case of bonds that carry a put, the right to “put” back the par value at a specific moment. This “put” option also carries the logic of securitization — that is to say, the rationale and need to securitize mortgages is due to the fact that homeowners have a “put” option that they can exercise at any time, thereby rendering the cash flows unpredictable and therefore not suitable for investment and reducing liquidity. By securitizing mortgages, the “put” option is mitigated as the risk is spread across multiple mortgages in the pool, and then tranching allows for even more precise predictability. So the “put” option has always carried some threat to the current system of capital relations, and the need for securitization arose largely to address this “threat.” Of course, the put option in mortgages has been largely reduced to interest rate sensitivities (and hence the need for strong central banking operations), whilst ignoring the real, material social contexts that often drive interest rates — unemployment, price increases by producers, health care costs, etc. etc.”

And the politics is clear:

Creating “alternative” economic spaces allows the owners of tokens to own an option that could, under certain conditions, “put” back the cost of an externality to the owners of the means of production which created the externality (or injustice, if you will). It’s a long, directional play (buying a put) that is the dialectical opposition to the long, directional play of existing capital relations.

Yet there is currently no derivative product that recognises the significance of this insight, and enables it to be ‘played out’ financially, in a way that don’t express simply via the volatility of token values themselves.

ECSA is currently exploring ways we might engage this logic, for example by securitizing a certain part of revenue (perhaps a world-first collateralized equity note?), with the possibility of both hedging that revenue (both in quantity and currency) and also providing a liquid market tool to attract short positions on ECSA, but in a way that diverts this shorting activity from the ECSA token itself.

It must be emphasised that this is a strategy currently at the stage of exploration only, as part of engaging in a process of discovery of what cryptotokens might become. It is raised here simply to indicate the kind of exploration we feel need to emerge.

The ECSA team will be again at NYU during the last week of September to carry on the work in the next series of Cryptoeconomic working sessions.

If you made it this far, and are interested in joining the work, let us know!

Credits:

Big thanks for comments and discussions on earlier drafts by Johnny Antos, Chris Burniske, Eden Dhaliwal, Anesu Machoko, Jessa Walden and some anonymous contributors. Thanks also to all participants at the Cryptoeconomics Working Sessions at NYU/Stern, Stockholm School of Economics and GCAS. ECSA team working on our cryptoeconomics project — Jonathan Beller, Erik Bordeleau, Fabian Bruder, Pekko Koskinen, Jorge Lopez, Joel Mason, Tere Vaden — rocks.

Dick Bryan, is a prof. (emer.) of Political Economy (University of Sydney) and Chief Economist at Economic Space Agency. He is one of the key theorists of the derivative value form, and the author of Risking Together and Capitalism with Derivatives (together with Mike Rafferty).

Benjamin Lee is a prof. of Anthropology and Philosophy (The New School, NYC) and Advisor to Economic Space Agency. The author of Derivatives and the Wealth of Societies. Co-organizer of the Volatility Working Group.

Robert Wosnitzer is a prof. at New York University/Stern Business School and Advisor to Economic Space Agency. Credit instruments, derivatives, and cultures of finance specialist. Former debt instruments and options trader at Lehman Brothers and Wells Fargo Capital Markets.

Akseli Virtanen, PhD, is a political economist, the author of Arbitrary Power. A Critique of Biopolitical Economy and Economy and Social Theory (Vol 1–3, with Risto Heiskala), Co-founder at Economic Space Agency, and at the decentralized hedge fund Robin Hood Minor Asset Management. Currently visiting researcher at Standford University.

Photo by rutty

The post Economics back into Cryptoeconomics appeared first on P2P Foundation.

As the decentralisation movement grows, I consider the characteristics of decentralisation, what decentralisation is a tactic for, why and what work still needs to happen to re-decentralize the digital world.

Decentralisation has gone mainstream

Between Tim Berners-Lee raising the call to arms to re-decentralize the web, Mozilla, Internet Archive and other institutions pledging support, to the incredible financial success of blockchain and cryptocurrency projects — decentralisation is increasingly sexy.

(If you haven’t seen the hype, some of the mainstream coverage includes the New Yorker covering ‘the mission’ in 2013 to the Guardian calling decentralisation ‘the next big step’ earlier this month and Make Use Of wondering if blockchains are the answer).

Yet, what does decentralisation actually mean? Does it only apply to technology or is governance more important? Who gets to call themselves decentralised and does it matter?

The number of times I’ve heard ‘it’s decentralised’ as a reason to use or move to a particular application or platform recently, is impressive. All kinds of crypto/blockchain companies are branding themselves as ‘decentralised’ — every day there’s a new decentralised social network, decentralised file storage solution, decentralised identity app, decentralised syncing, contract management, health data sharing, dating service, avocado delivery — all decentralised! As if decentralisation is something wonderful and worthwhile in and of itself. Yet, when I ask ‘why does that matter?’ or ‘how are you decentralised?’ the answers tend to be very different and even inconsistent with the actual business proposition people are working on. How did we get here and what’s beyond the hype?

Decentralisation means different things to different people. When Francis and I picked Redecentralize to name our decentralisation-promoting side project 6 years ago, it was precisely because we cared about a number of things: privacy, competition and resilience. It wasn’t just about one solution (such as encryption) that we wanted to promote, it was a set of values: freedom, autonomy, collaboration, experimentation. Those values were tied up to the original spirit of the open web and net — the sense of freedom and possibility that we wanted to remind people of, and protect.

As decentralisation becomes more popular, those values and goals are getting lost as the community fractures into various roles. We need a way to distinguish and assess decentralisation meaningfully.

First, what does decentralisation actually mean?

At its most basic level, it is a distinction between a centralised hub and spoke model and a distributed connected network:

I drew this myself. You’re welcome.

Some people distinguish between ‘decentralised’ and ‘distributed’ — I’m talking about the general idea of decentralisation that encompasses distributed, federated and decentralised systems. This post is about the characteristics of decentralisation and the outcomes and implications of those characteristics rather than the specific configuration. (For more discussion on types of decentralisation, Vitalik wrote a great post on ‘the meaning of decentralisation’ last year).

While the diagrams are a simplification, they do immediately suggest certain characteristics. The centralised system on the left obviously has one much more important or powerful node — the middle one. All the other nodes depend on it to reach each other. It will know about all communication in the network. It’s a central point of failure and a central point of control. If you contrast this with the diagram on the right — which nodes are more important there? It’s hard to tell. Most nodes have multiple routes to other nodes. It seems like a more resilient system, but it’s harder to know how you can quickly make sure all nodes have the same information at once.

What we need is a more formal way to assess if something counts as ‘decentralised’.

Characterististics of decentralisation

The key characteristic I propose is that a system is decentralised to the extent it distributes power. Specifically, the distribution of control, knowledge and capability between many users. What does this look like?

Control is about ensuring user choice — adapting to user preferences and giving users decision making power. It’s fundamentally about autonomy. Decentralised control looks like end-users having a choice between service providers and not being forced into accepting terms and conditions that exploit them due to a lack of alternatives (see Facebook). This also looks like users having the freedom to adapt and customise the products and services they use to their specific needs. It looks like being able to opt out of targeted advertising or choosing to store your data locally. It looks like having applications that don’t require an internet connection to work.

Knowledge is about access to data and information. Knowledge distribution avoids information asymmetry and helps people recognise dependencies and the consequences of their choices. Decentralised knowledge looks like users having local copies of their data, being able to export data or choose to store the authoritative copy of their data locally. It looks like users understanding how the services they use actually work and their business models (for example whether it is advertising based, personalised advertising, selling your profile and preferences to external advertisers, something else etc). It looks like users being able to have private conversations and share photos securely with end-to-end encryption where the content of communication cannot be accessed or deleted by external organisations. It can look like the company providing the service not knowing or storing the metadata of who contacts who and when.

Capability is about infrastructure — the storage, processing and computation power needed to run systems and services. In a centralised model these are either all in the same place or in a small number of places controlled by one company. This creates a central point of failure both in the event of natural disasters (hurricanes, floods, earthquakes) and attacks (whether virtual such as data breaches, data taps, denial of services attacks, or physical destruction and manipulation). Centralisation often means that people’s data, which we rely on and want to protect (such as our conversations, photos and work), can be compromised or even lost. Privacy can be easier to compromise in central systems. A decentralised approach tends to be more resilient, but also offers greater control and knowledge distribution. It looks like apps which work offline, users being able to communicate, collaborate or share data across devices without mobile networks or wifi through peer-to-peer networks or user data federating across a network (e.g. mastodon.social).

Why decentralise?

Importantly, decentralisation in and of itself is neither good or bad. It depends on the context and what is being decentralised. Decentralisation can bring new capabilities, privacy and flexibility or surveillance, inefficiency and waste. How and why it is done, matters.

Not all things need decentralising. Unlike some, I don’t think code should be law. I like the law. It has been iterated on and developed and tested over thousands of years by millions of people. I would trust British Law above even a dozen smart contract developers. (Disclaimer: I’ve worked in tech for over 10 years, but never in law).

Institutions have value and not all expertise can or should be replaced by an immutable list and algorithmic consensus. However, in many other aspects, we desperately need to redecentralise and serve people, not corporations, much better. Even so, simply decentralising in some fashion does not magically bring about utopia. Much of the rhetoric of blockchain and other ‘decentralisation’ startups offer no plausible way from where we are today to the autonomous secure empowered world of decentralisation via their service or application. Let’s be intentional and clear about what changes we want to realise and what exactly it might take to get there. If you’re not building all of it, then be clear on what else will need to happen. We will most likely succeed as an ecosystem, not as one ‘killer app’.

This brings me back to how and why decentralisation is done, matters. And for me, the meaning and value of decentralisation is closely related to the purpose and expected outcomes of it. That means understanding the problem, articulating an alternative and roadmap for how we get there and testing the roadmap and showing it’s better by tracking the impact.

Everybody in the decentralisation space needs to do this.

Understanding the problem

Centralised systems lead to increasingly monotonous and unaccountable power. Over time this encourages exploitation and disinterest in user needs. Take Facebook for example, a platform that on the face of it is designed to help people digitally connect with their friends and family — share photos, talk, organise events and keep in touch. If my needs were a genuine priority then I should be able to share and showcase my photos from flickr or talk to my friends using my favourite app (such as telegram, signal or wire) — which would be most convenient for me. If Facebook cared about connecting people, it would not have dropped xmpp support — an open instant messaging protocol that allowed people to choose their own interface (mine was pidgin!) and from one place and talk to anyone using gchat, facebook, AIM, msn or jabber. Instead, Facebook’s interface and functionality is optimised around keeping me scrolling and in-app as long as possible since their business model depends on selling my attention.

Amazon has become a near monopoly for buying things online with their brand recognition, efficiencies of scale and great customer service. As real-world bookshops close down and everyone else sells on amazon marketplace, few have the infrastructure, supply chains, funds or brand to be able to compete any more. When there are no alternatives, why be cheaper? Why have great customer service? Users have little choice or control and Bezos (the owner of Amazon) is the richest person on the planet. Instead of thousands of independent flourishing businesses, we have one very very very rich man.

Centralisation makes it easy to undermine privacy and use personal information in ways individuals cannot control. As the Snowden revelations showed us, Governments tap network cables and can curtail freedom of speech. Digital monopolies now hold unbelievable amounts of data on us which can be used to manipulate us into spending money, but potentially also to impersonate, blackmail or silence.

An alternative

Keeping power accountable requires alternative competing sources of power which are independent. This could be government, assuming government is there to represent the interests of the many above the few. It could be alternative companies and services. It could be many people choosing together.

An alternative, decentralised world is one of:

• Choice, diversity and competition — where many different business models and structures co-exist beyond the ‘winner takes all’ surveillance capitalism model (which depends on closed networks which don’t integrate or talk to each other). Centralised models, especially with data selling / advertising business models, have been deeply explored and within any new vertical often one or two winners take all and price out new competitors. This is uninspiring compared to the wealth of innovation that might be possible with local organisations tailoring their offering to particular sectors, cultures, interests and preferences. The same open source software can be provided in different configurations and alternative service standards to fit different user needs, budget and cultural context. It’s a world where providing ethical and environmentally friendly products and delivery services is possible and discoverable.
• Resilience — where our valuable data and services are persistent and safe from companies being bought, new management decisions, natural disaster or hacking. No more losing your journal or portfolio gallery when a company is bought up by a monopoly.
• Autonomy and privacy — where we control what kinds of terms and conditions we’re willing to agree to. A world where people can opt out of data sharing or choose to pay for their social network — choosing security and no adverts while still being able to communicate with friends using different providers. A world where end-to-end encryption works seamlessly.

How do we make it happen?

We all can contribute!

At Redecentralize.org we’re encouraging viable alternatives that work together (‘small pieces loosely joined’). This means ensuring that decentralised products and services are usable and work well with other privacy preserving user centered services and products. A key goal of redecentralize is to promote decentralised projects and platforms and bring people working in this space together through events and discussion forums.

Secondly, open protocols and regulation that incentivises or enforces their use is vital. The beginnings of this already exist in the data portability requirements of GDPR. Open protocols allow for collaboration between different and competing products and services, giving the user maximum flexibility and control without losing access to others in their network. The forced exclusion of closed proprietary protocols over network type services (such as social networks or marketplaces like amazon, airbnb, uber) has led to monopolies and lack of innovation and should be consigned to history.

Lastly we all have a role to play to disrupt the surveillance capitalism business model by choosing with our wallets and spending money on respectful software. A promising path may be to have payment built into how things work (cryptocurrency style) so that when you use IPFS and help store content you collect Filecoin you can then spend on the applications and services you value.

Conclusion

Decentralisation in and of itself, is unlikely to achieve all the outcomes that many people in the decentralisation movement care about. Yet it does offer a powerful way to tackle the problems of digital monopolies, growing inequality and loss of autonomy in our societies. Decentralisation incentivises power to be distributed across users. It’s an alternative infrastructure and way of being that creates space for autonomy, collaboration and local control. So, let’s be explicit about the change we want to see and test the impact.

Decentralised governance (knowledge and control in this model) is vital and must be considered alongside infrastructure and capacity. Let’s assess projects on all three characteristics of decentralisation and treat technology as a powerful tool to get us to a better world, but by no means the only intervention needed!

Can I get involved?

Yes of course. Join the discussion list and come chat on the #redecentralize matrix channel. We’re about to start fundraising —shout if you’d like to sponsor our work or come contribute!

Photo by Thomas Hawk

The post There’s more to decentralisation than blockchains and bitcoin appeared first on P2P Foundation.

To understand them and what they’re fighting for, it’s important to understand the system they’re challenging.

Our money system is underpinned by national central banks and treasuries that issue foundational “base” money. This includes the physical cash in our wallets and also reserves, the special forms of digital money that commercial banks hold in their central bank accounts, which are inaccessible to us.

These commercial banks then boost the money supply by issuing a second layer of money on top of the central bank money layer, through a process called credit creation of money (sometimes called “fractional reserve banking”) to create commercial bank money, which we see as bank deposits in our bank accounts.

The details are subtle and complex ― especially at the international level ― but the interaction of these players issuing money and taking it out of circulation makes the money supply expand and contract as if it were breathing. Monetary reform groups target different elements of this. Here are five of them.

1. Government Money Warriors

Stephanie Kelton, professor of public policy and economics at Stony Brook University, is one of the leading lights of modern monetary theory.

We say that the sun rises, but in reality the sun stays fixed and the illusion of sunrise is created by the Earth turning. Modern monetary theory argues that a similar delusion occurs in our thinking about government money ― we often claim that a federal government “raises money” through taxation and then spends it, but actually it is government institutions that originally issue money by spending it into existence and then withdrawing it from circulation by demanding it back in taxation. If the government issues money, then why would it have to raise money by asking for it back?

The idea that a federal government can run out of money like an ordinary household or business is an illusion, argue advocates of modern monetary theory. A government can only run out of money if it either does not issue its own sovereign currency (like the European nations, which have opted for the euro) or if an artificial political limit has been placed on how much money it can issue. In the latter situation, governments must first recall money via tax (and other means) before reissuing it elsewhere.

This is why modern monetary theory advocates are incredulous about conservatives who want to block spending on education and health care by saying we don’t have the money to pay for it. “Governments with monopoly control over their currency can always pay for their policy priorities,” says Pavlina Tcherneva, an economics professor at the Levy Economics Institute at New York’s Bard College.

Under modern monetary theory, if there are unemployed people who want to work and material resources for them to work with, a federal government can issue new money without causing inflation because the increase in money supply will be met with an increase in production. “The goal is to use the public purse to serve the broad public interest without accelerating inflation,” said Stephanie Kelton, professor of public policy and economics at Stony Brook University and former senior adviser to Sen. Bernie Sanders (I-Vt.).

2. Bank Money Reformers

Bank money reformers want to target the powers of commercial banks to create money.

Other reformers target the commercial bank money system. They argue it creates economic instability, over-indebtedness and concentration of power in the hands of banks ― the very banks that led us into the 2008 financial crisis.

Bank money reform groups include the American Monetary Institute, Positive Money, and the International Movement for Monetary Reform.

Commercial banks create new money when they issue loans. The moderate wing of the bank reform movement argues that, because the government grants them this privilege, banks should be subject to greater democratic scrutiny over their lending. The hard-line wing believes bank creation of money should be banned altogether.

The movement to curtail bank money is politically more diverse than modern monetary theory; it’s been supported by certain libertarians, including the late economist Murray Rothbard, neoclassical economists such as Irving Fisher, as well as left-wing proponents, such as the U.K.’s Green Party, which believes bank money-creation leads to environmental crises and corporate domination.

Their prescriptions are not uniform: Positive Money, a research and campaigning organization in Britain, calls for the power to create money to be granted exclusively to a democratic, accountable and transparent public body, creating a “sovereign money” system in which we might all have our own accounts at the central bank. This is distinguished from full-reserve banking, which would require your bank to have the reserves to fully back your account.

3. Cryptocurrency Crusaders

The Bitcoin logo on display at the Consensus 2018 blockchain technology conference in New York City on May 16.

Cryptocurrency crusaders not only reject both national and bank money systems, but also reject the entire concept of credit money (money that is “created from nothing” through law or social agreement), calling for it to be replaced with “commodity money” (money that is “created from something” through production). They have inherited the baton from “goldbugs,” who called for gold to be money.

The movement, which began with Bitcoin, argues that the best money system is one that’s outside of human politics. This comes from a philosophical tradition that says systems should be governed by the boundaries of God, physics or math, rather than laws set by politicians. With gold, for example, these natural boundaries would be geology: how much gold can be found and extracted. In Bitcoin’s case, the boundary comes from the fact that the digital system sets a hard limit on how much digital money can be issued and then forces participants to “mine” it as if it were a commodity.

Because Bitcoin hard-liners believe true money is a limited-supply good that must be extracted through production, they claim that fiat money ― created by banks or countries ― is artificial or deceitful money under the control of corrupt powers. There’s a puritanical edge to these cryptocurrency crusaders, who mistrust human institutions and trust in an abstract ‘godlike’ order of mathematics and markets.

While theories like MMT hinge on collective human political institutions, crypto crusaders see politics as foolish. This distrustful attitude shows: The movement sometimes seems as much at war with itself as with the fiat money system, with bitter in-fights between supporters of different crypto-tokens.

They are, however, the richest of all monetary reformers, with many crypto users having ironically become millionaires in the fiat currency they claim to dislike so much.

4. The Localists

A note worth 10 Brixton pounds, an alternative currency in London, is illustrated with an image of David Bowie.

There’s a whole history of alternative non-government money prior to cryptocurrency. These original alternative currency variants include mutual credit systems, timebanks (where time is used to measure how many credits you earn), local community currencies, such as the U.K.-based Brixton pound, and systems like the Swiss Wir, a currency used between businesses.

The tradition is also skeptical of large-scale government-bank money systems, but rather than calling for them to be replaced by a robotic algorithm, they believe small-scale communities should take control to issue money locally.

Unlike cryptocurrency advocates, they have no problem with money being “created out of nothing.” Rather they have a problem with who gets to do that and at what scale. They believe large-scale systems alienate people and dissolve close-knit communities.

A mutual credit system like Sardex in Sardinia, for example, does not reject the idea of money expanding and contracting, but it brings together an island community to decide on what terms that occurs.

While the other movements are outspoken, local complementary currency enthusiasts are often humble and below-the-radar, working for low pay to build resilient community structures.

“Local currencies change how money is issued,” says Duncan McCann of the New Economics Foundation, “how it circulates and what it can be spent on in order to re-localize economies, encourage environmental behaviour, and promote small businesses.”

The crypto-credit alliance looks to merge older, alternative currency systems with blockchain technology.

5. The Crypto-Credit Alliance: Mutual credit meets blockchain technology

This is the least-known or developed of the movements, but is perhaps the most exciting. Nascent initiatives, such as Trustlines, Holochain, Sikoba, Waba and Defterhane, seek to hybridize older alternative currency systems like mutual credit with the blockchain architectures that underpin cryptocurrencies. They share common ground with both modern monetary theorists, who also see commodity money as regressive, and cryptocurrency advocates, who wish to bypass the government.

Cryptocurrency unleashed a lot of creativity, but much has been wasted on toxic speculation. On the other hand, localist mutual credit movements have powerful ideas but often struggle to get heard or to spread. Crypto-credit innovators are exploring the creative possibilities of merging these two to solve flaws in both.

Originally published in the Huffington Post

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In the meantime, the token economy has exploded, and despite its many faults and weaknesses, it has brought open and contributive accounting to the mainstream as a practice, via programmable tokens that are divided up exactly as the open source communities decide. We have moved from an economy based on capitalist enterprises, which extracted all the surplus value from the developers, to an eco-system in which contributory competency networks, prepare white papers, crowdfund through tokens, and distribute the value much more widely amongst the contributors.

While much remains to be done, this is a major milestone in showing a possible future of or work and reward systems. The two following extracts bring testimonies about how the ‘developer working class’ is looking at these advances.

The question now is, can other sections of workers, those that do not belong to the aristocracy of labor that do software work, also learn and benefit from these new systems, and a second question is, We will be working on these very questions this summer and publish a report about it.

(excerpted from): How App Tokens Changed the Life of the Developer Working Class

Richard Burton: A month of work for the protocol (Ethereum) has completely changed my life. I am free to travel the world and work on whatever I want. It is hard to overstate the mental freedom afforded by having a cash buffer and not having to work all the time to make ends meet. It has had a profound effect on my mental health and freed me up to do the best work of my life. The people who built this protocol took a chance on me and I am incredibly grateful.

Vitalik and his team gave birth to a protocol that over 7,000 people committed to. They effectively held an IPO for their protocol at the start of the project. Since then, thousands more have got involved by trading Ether, writing code, and helping the protocol to flourish.

– “Bitcoin is not just a protocol or money, it’s a new business model for Open Source Software. Prior to Bitcoin, you had to raise money, write software, distribute your product, build a business model, and work towards liquidity. Angels, VCs, salespeople and bankers guided you the entire way, through a maze of tolls and controls.”

Naval Ravikant saw this coming months before the Ether sale. The coins that protocols distribute to contributors are like shares in a company. The key difference is that these shares are not locked up by startup founders and venture capitalists.

There are a thousand nightmarish stories about startup employees not being able to afford to exercise their stock options and missing out on millions of dollars. Alex MacCaw and I wrote about this problem in 2013 after seeing many of our friends go through the stressful process of trying to borrow money to buy the stock they had earnt.

The current stock option system is totally broken. It forces people to stay at companies longer than they want to in the hope that a liquidity event is just around the corner.

App Coins are totally different from stock options. I was paid for my month’s work and I was rewarded for my belief in the protocol at an early stage. There was no cliff, no vesting schedule, no liquidation preferences, no VC ratchets, no exercise window, just coins. I helped the Ethereum team when they had no money and they rewarded me for that.

The moment I decided to move on to a freelance job, I was free to do so. I didn’t have to stick around in the hope that I would make some huge pile of money in the future.

This model is going to completely change the war for talent. If you’re a smart engineer, you can go and join a rocketship startup and work crazy hours. Alternatively, you can head over to Thailand, live cheaply, and work for App Coins.

Protocol creators need your help: They need people to write clear documentation, teachers to help people learn, designers to work on the user interfaces, customer support staff to handle the swelling inboxes, investors to raise capital, and a whole range of other talent to help them build a successful protocol. It doesn’t matter if you don’t write code—you can still contribute.

Protocols will follow the startup power law: millions will be started and only a few hundred will change the world forever.

In the future, billions of people will be working for a protocol. They will define themselves by the protocols they work for and how much they can contribute.

Protocolism might be the solution we need. It harnesses human ingenuity and distributes the benefits far and wide. It can help us build an economy for the 99%.

When a startup succeeds, a handful of people get insanely wealthy. When a protocol succeeds, thousands of people profit. In the future, the great protocols could lift millions of people out of poverty.

(excerpted from): Decentralization as a Means for Developers and other Stakeholders to Take Back Control from Centralized Platforms

Chris Dixon: Let’s look at the problems with centralized platforms. Centralized platforms follow a predictable life cycle. When they start out, they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects. As platforms move up the adoption S-curve, their power over users and 3rd parties steadily grows.

When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. The easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits. Historical examples of this are Microsoft vs Netscape, Google vs Yelp, Facebook vs Zynga, and Twitter vs its 3rd-party clients. Operating systems like iOS and Android have behaved better, although still take a healthy 30% tax, reject apps for seemingly arbitrary reasons, and subsume the functionality of 3rd-party apps at will.

For 3rd parties, this transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms. We now have decades of evidence that doing so will end in disappointment. In addition, users give up privacy, control of their data, and become vulnerable to security breaches. These problems with centralized platforms will likely become even more pronounced in the future.

Cryptonetworks are networks built on top of the internet that 1) use consensus mechanisms such as blockchains to maintain and update state, 2) use cryptocurrencies (coins/tokens) to incentivize consensus participants (miners/validators) and other network participants. Some cryptonetworks, such as Ethereum, are general programming platforms that can be used for almost any purpose. Other cryptonetworks are special purpose, for example Bitcoin is intended primarily for storing value, Golem for performing computations, and Filecoin for decentralized file storage.

Early internet protocols were technical specifications created by working groups or non-profit organizations that relied on the alignment of interests in the internet community to gain adoption. This method worked well during the very early stages of the internet but since the early 1990s very few new protocols have gained widespread adoption. Cryptonetworks fix these problems by providing economics incentives to developers, maintainers, and other network participants in the form of tokens. They are also much more technically robust. For example, they are able to keep state and do arbitrary transformations on that state, something past protocols could never do.

Cryptonetworks use multiple mechanisms to ensure that they stay neutral as they grow, preventing the bait-and-switch of centralized platforms. First, the contract between cryptonetworks and their participants is enforced in open source code. Second, they are kept in check through mechanisms for “voice” and “exit.” Participants are given voice through community governance, both “on chain” (via the protocol) and “off chain” (via the social structures around the protocol). Participants can exit either by leaving the network and selling their coins, or in the extreme case by forking the protocol.

In short, cryptonetworks align network participants to work together toward a common goal — the growth of the network and the appreciation of the token. This alignment is one of the main reasons Bitcoin continues to defy skeptics and flourish, even while new cryptonetworks like Ethereum have grown alongside it.

Photo by Marco Verch

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We said this at the very beginning from bitcoin: it represents the first socially sovereign currency at scale, and moreover it is strongly based on open source / commons dynamics through its open code. But that social sovereignty is immediately and very strongly embedded in another principle: that of the sovereignity and independence of the corporate class from any form of social and political regulation. It’s a declaration of independence from the market sector, which sees itself as society, since for the propertarians, the market IS civil society, and society is simply the sum of atomistic relations of individuals. If we want to make crypto innovation work for society as a whole, which is the whole that actually co-produces individuals and needs its own care, then the powerful but suppressed principles of social sovereignty must be literated from market totalitarian thinking and practice. This critique also applies to the blockchain. Yes, we can tweak design of the blockchain to serve the needs of the commons, just as we used the experience of corporate platforms to build platform cooperatives as an alternative.

Sarah Manski complexifies this basic dualism into five potential scenarios of the future, which are all already present in seed form in the design itself of the blockchain; the scenario of libertarian individualism, the scenario of corporate sovereignity the scenario of governmental control, but also crucially, the blockchain can also be adapted to cooperative sovereignty, through its potential as a major tool for building a global technological commonwealth.

No Gods, No Masters, No Coders? The Future of Sovereignty in a Blockchain World.  Law Critique (2018)

Authors: Sarah Manski and Ben Manski (Published on Academia.edu)

Individual Sovereignty

The technical politics of the Bitcoin blockchain are often described as libertarian in part because the design choices of this first blockchain emphasize the technology’s tendencies toward liquidity and decentralization. The builders of blockchain technology emerged from the self-identified cypherpunk movement of cryptologists and coders; Satoshi Nakamoto was a member.

As Nakamoto wrote in an email to early collaborator Hal Finney, ‘It’s very attractive to the libertarian viewpoint if we can explain it properly’ (Nakamoto 2008b).

Back when Satoshi had first launched the software, his writings were drily focused on the technical specifications of the programming. But after the first few weeks, Satoshi began emphasizing the broader ideological motivations for the software to help win over a broader audience. (Popper 2015 p. 30) Those economic libertarians who identify as ‘Ancap’ (or ‘anarcho-capitalist’) claim society best facilitates individual will in a free-market economy free from regulation by states or large corporations. The discourse of Bitcoin enthusiasts is revealing: the use of the term ‘mining’ to describe blockchain maintenance and ‘coin’ to describe a chain of digital signatures speaks to their fondness for gold. At the same time, libertarians generally share a faith in progressive technological determinism, believing that society can be improved and that social relationships and institutions can function more effectively through the use of new technological tools. Blockchain forms, such as Bitcoin, institutionalize this ideal by enabling a form of trustless direct exchange among individual property owners. Applications such as uPort ID seek to wrest control of personal data from major corporations and governments, as well as to provide privacy protections to individuals (ConsenSys 2015). Evidence is widespread and multiplying of efforts by technologists to use blockchain technology to challenge existing hierarchical institutional forms with peer-to-peer networks. It seems questionable, however, whether large numbers of people — as citizens, consumers, producers, etc. — will embrace a total shift from regulatory oversight toward a disaggregated society of autonomous individuals picking and choosing between peer-to-peer legal codes of arbitration and enforcement of agreements.

Popular Sovereignty

After more than two centuries of building a world beyond capitalist logics, the cooperative movement is well positioned to make the most of blockchain’s tendencies toward globality, liquidity, permanence, decentralization and future focus. Through these, blockchain is beginning to convert the long standing vision of a popular ‘cooperative commonwealth’ into the actual construction of a ‘global technological commonwealth’ enacted through the use of advanced exchange, communication, and governance technologies (Manski 2017). There are many current examples of applications that make the global decentralized exercise of a popular sovereignty possible. Blockchain for Change has developed Fummi, an application that uses blockchain’s immutability and globality to store digital identities for those lacking permanent homes (Schiller 2017). Applications that make use of blockchain’s tendency toward future focus (Aitken 2017)—via the utility of stored autonomous self-reinforcing agency (SASRA) to handle contract administration and management — can be found in the development of AgriLedger for agricultural cooperatives (Hammerich 2018) and of the Pylon Network for energy cooperatives (Klenergy 2017).

Decentralized commons-based currencies such as Duniter and Faircoin (Bauwens 2018) are now in use; these have been coded to reduce inequality via pro-vision of a Universal Dividend (also known as Basic Income) and other features. And emerging on the horizon are a series of next generation technology platforms designed to bypass bottlenecks and inequalities contained within current block-chain architectures; the most notable of these is Holochain (Brock and Harris-Braun 2017).We think blockchain is a powerful tool for the cooperative movement in its quest for economic democracy because many of blockchain’s tendencies toward globality, permanence, decentralization and future focus move parallel to ongoing cooperative projects. Additionally, we see in the distributed and secure structure of block-chain a limited safeguard against suppression should capitalist states move against blockchain-based pro-democracy initiatives.

Activist use of simple virtual private network (VPN) or Proxy systems to access blockchain applications is much less vulnerable to state attack than has proven the case for many centralized and ‘above ground’ social movement organizations. To the extent that the construction of a global technological commonwealth faces obstacles, these lie not in the tendencies of blockchain technology but instead in the somewhat insular path dependencies of the cooperative movement itself. We are uncertain as to whether democratizers will prove capable of creating a culture sufficiently open, user-friendly, expansionist, and politically ambitious to maximize the possibilities offered by blockchain.

Technological Sovereignty

Technocracies are characterized by powerful actors and institutions able to maintain unequal positions of power through their use and control of technical knowledge. In tending toward ethereality, blockchains favour those with superior technological knowledge and positionality. Blockchain coders enjoy a comparative advantage over lay users because in calibrating blockchain over multiple prototype iterations, coders establish a lasting frame of reference through which they imagine alternatives and make design choices. This agency can be used toward different ends—as a means of resistance to capitalism, or as a means to personal profit, or as path to power consolidation. Notably, the early days of blockchain coding have seen an organizational commitment to open source. Open source code is co-created in a cooperative manner and appears to be dominating the core development of blockchain. This may be true because blockchain coding is more demanding than other types of programming and because group participation in creating blockchain-based applications is inherently more purposive than individual participation in development. As blockchain applications become more lucrative, however, we are witnessing a growing cast of corporate in-house blockchain developers and blockchain developer billionaires. At least one tendency of blockchain technology — future focus — may be leading toward a sovereignty not of technologists but of the technology itself. The development of SASRA could enable the creation of blockchain businesses that run themselves with distributed and decentralized profits, management, and services. These independent DAOs (decentralized autonomous organizations), would automatically leverage manifold smart contracts, thereby eliminating the lawyers, accountants and bureaucrats whose job it is to confirm the trustworthiness and legal standing of contracts between parties (Dew 2015). One example is Colony (Rea et al. 2018), which is testing a decentralized platform for work collaboration. Overall — whether in the technology or the technologists, or in service of democracy, capital, or self — we see little question but that blockchain technology tends in every way toward some form of technological sovereignty.

Corporate Sovereignty

With their abilities to mobilize unmatched financial resources, major corporations are exploiting blockchain’s tendencies toward verifiability, globality, liquidity, permanence, and future focus to forcibly adapt the technology to their own purposes. For example, Kodak, Amazon, Facebook and other corporations have identified the potential benefits of creating their own platform cryptocurrencies. Blockchain cryptocurrencies can include smart contracts that automatically dole out the company’s currency as a reward for developers who build apps on its platform or users who engage in desired behaviour. This kind of corporate ‘token economy’ has the flavour of a traditional company town; in this case the owner of the online space is the sovereign. And corporations are extraordinarily bad sovereigns (Lessig 2006). Indeed, already functioning corporate sovereignties such as Google claim and expand their exclusive sovereign territory by absorbing existing spaces (Bratton 2016 p. 144). The introduction of blockchain’s powers of verifiability and permanence could further the degree of data granularity captured and monetized by these corporate platforms. All of this has the immediate effect of strengthening hierarchies, centralizing power, exacerbating inequality, and generally weakening democ-racy. Furthermore, as some of the most advantaged players in the world system, corporations enjoy a significant head start in the race to program their logics into mainstream blockchain applications, as well as the capacity to enact state policies that block new applications threatening future disintermediation. Where the environmental economics literature describes ‘technology forcing’ as technological development driven by regulatory pressure, we see a similar process underway in the corporatization of blockchain toward the ends of corporate sovereignty.”

Techno-totalitarian State Sovereignty

Many have claimed that blockchain technology will inevitably weaken the nation state, and in the final analysis, it may. Yet at the moment, national and transnational state institutions are actively working to support and regulate favoured types of block-chain activity and otherwise, where blockchain applications are disfavoured, ‘to regu-late it out of existence’ (Nicolaci da Costa 2018). They are going about this by criminally investigating initial coin offering (or ‘ICOs’) (De 2018), demanding currency exchanges turn over user information (Paul 2018), enacting capital gains taxes on cryptocurrency trades (Bernard 2018), criminalizing non-state cryptocurrencies (Iyer and Anand 2018), and more. At the same time, major powers such as China, Russia, Japan, and the United States, as well as regional technology leaders like Uruguay, Estonia, Slovenia, and Kenya—as well as subsidiary states—are all jockeying for comparative strategic advantage in the development and deployment of new blockchain technologies (Tapscott and Tapscott 2016).Such interventions signal the possibilities for states to expand their reach. In block-chain’s tendencies toward verifiability, globality, permanence, and future focus, state actors are finding greater capacities to intervene globally in the daily lives of individuals. These expanded capacities are making possible the emergence of new technologi-cal totalitarian forms of state sovereignty. To begin with, states cannot easily control what they cannot measure, and a blockchain-enabled Internet of Things (IoT) amplified by artificial intelligence furthers the degree with which states can monitor the material and social world. The rapidly expanding IoT is expected to more than triple in size by 2020 to nearly 21 billion devices (Stravridis and Weinstein 2016). When there is a tiny blockchain-connected chip embedded in each material object with which we interact, state institutions will assuredly seek to monitor and discipline the personal, political, and economic activities of the many. This prediction should not be controversial. Political parties in power regularly use targeted voter suppression technologies to gain partisan political advantage (Palast 2000; Norris 2014; Simon 2016). Police forces use technology to engage in ‘predictive policing’ that disproportionately targets communities of colour (Jouvenal 2016; Winston 2018). State welfare agencies use technology to track and restrict how food assistance money is spent or pension fraud or error (Templeton 2016; UK Government Chief Scientific Adviser 2016). The Chinese state is moving to a whole new level of state control with the creation of a national reputation system ranking individuals based on their economic and social status (Chinese State Council 2014). Altogether, recent history gives us reason to expect that state interventions into the development of blockchain technology are more likely to lead in a totalitarian rather than democratizing direction.

No Gods No Masters No Coders the Future shared by P2P Foundation on Scribd

Photo by Okinawa Soba (Rob)

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