Cryptoeconomics and Monetary Theory
This discussion follows the cryptoeconomics article published by Josh Stark https://medium.com/l4-media/making-sense-of-cryptoeconomics-5edea77e4e8d and the plethora of material published regarding cryptoeconomics https://medium.com/tag/cryptoeconomics.
If you polled most individuals, they likely would not know how the current monetary system in the United States started. For the most part, the education system focuses on the founding of our government. It does not fully explain the evolution of the monetary system to our youth, likely due to the perceived lack of value. But the similarities and differences between the two should be analyzed and discussed. Both are extremely important in our society and we trust them as stable institutions. But it’s the monetary system that fails the complexity test and does not seem built for future generations in comparison to our governance system.
It can be said for any organization — the quality of the underpinning system determines its longevity. Engineers can appreciate this, and strive to build systems that last, whether electrical, software, civil, etc.
Human beings are a great example of a well built system, built up of many subsystems that have served us well for centuries. It is made up of a circulatory system, nervous system, digestive system, and so on. If one of these systems stop, there is a good chance the body will be crippled or die. The same can be said for government or monetary systems. The creator holds to the key to its success.
For our government system, we started out with a revolution that declared a mission statement. It took years for the constitution to be developed after the declaration of independence, including a 114 day constitutional convention. That system was not invented, rather it was a composition of other systems that had been tried before and tested for their effectiveness. The founding fathers had the foresight to put all of those concepts together to build a complex system that we all believe in will work in perpetuity. It is the trust in that longevity that keeps us living here today.
Bringing this back to the monetary system, you would expect the same level of thought and consideration to be applied in a system we arguably use more often. But that is not the case. These systems have been written and re-written several times in rushed response to economic crises. At the same time the constitution has existed, we have re-written our monetary system 7 times. It really strikes to ground the question, should you have faith in such a system that has only been in existence for such short time and was only intended to solve a problem in 1913? The world looks very different compared to that time, yet we are reluctant to change our system for fear that it will disrupt prosperity or upset the current beneficiaries (banks and central institutions).
It is my belief that we are approaching a revolution in the monetary system, driven not by government, but by the collective. The Bitcoin whitepaper has lead the revolution, declaring independence from the current system. And this movement is now starting to take hold, with many projects and community interest catching fire. But the full potential of the new system will take some time. It would be premature to assume that the Bitcoin system, as constructed, is sustainable long term or capable of resolving all required aspects.
Which is why the development in the blockchain space, specifically Ethereum, is so interesting. It is here that the Bitcoin declaration gets turned into a constitutional system. Thousands of experts are working on separate but connected areas that could develop all of these required aspects. Not just debt repayments as envisioned by the federal reserve system, but all sorts of new possibilities. Smart contracts to remove trusted intermediaries, peer to peer marketplaces for decentralized and permissionless transfer of assets based on prerequisites, and general incentive alignment to encourage or discourage behaviors. All of the protocols being built to support these aspects are table stakes for the next monetary system to develop. It is upon that foundation that a monetary system will derive true value to the end user across multiple dimensions for years to come.
Those that have researched different protocols come to appreciate the foundational underpinnings of these projects. Many are simply abstractions of the possible, but have considered a world that looks much different than the world we live in today. Distinctly digital? Yes. Democratic? To varying degrees. Multi-planetary? Maybe. The key is to consider alternative scenarios and inject cryptoeconomic systems (and subsystems) in those environments. Something that our current monetary system failed to do in prior iterations.
