On Radical Markets

Another Kind of Radical Market

The book as a whole tends to focus on centralized reforms that could be implemented on an economy from the top down, even if their intended long-term effect is to push more decision-making power to individuals. The proposals involve large-scale restructurings of how property rights work, how voting works, how immigration and antitrust law works, and how individuals see their relationship with property, money, prices and society. But there is also the potential to use economics and game theory to come up with decentralized economic institutions that could be adopted by smaller groups of people at a time.

Perhaps the most famous examples of decentralized institutions from game theory and economics land are (i) assurance contracts, and (ii) prediction markets. An assurance contract is a system where some public good is funded by giving anyone the opportunity to pledge money, and only collecting the pledges if the total amount pledged exceeds some threshold. This ensures that people can donate money knowing that either they will get their money back or there actually will be enough to achieve some objective. A possible extension of this concept is Alex Tabarrok’s dominant assurance contracts, where an entrepreneur offers to refund participants more than 100% of their deposits if a given assurance contract does not raise enough money.

Prediction markets allow people to bet on the probability that events will happen, potentially even conditional on some action being taken (“I bet $20 that unemployment will go down if candidate X wins the election”); there are techniques for people interested in the information to subsidize the markets. Any attempt to manipulate the probability that a prediction market shows simply creates an opportunity for people to earn free money (yes I know, risk aversion and capital efficiency etc etc; still close to free) by betting against the manipulator.

Posner and Weyl do give one example of what I would call a decentralized institution: a game for choosing who gets an asset in the event of a divorce or a company splitting in half, where both sides provide their own valuation, the person with the higher valuation gets the item, but they must then give an amount equal to half the average of the two valuations to the loser. There’s some economic reasoning by which this solution, while not perfect, is still close to mathematically optimal.

One particular category of decentralized institutions I’ve been interested in is improving incentivization for content posting and content curation in social media. Some ideas that I have had include:

  • Proof of stake conditional hashcash(when you send someone an email, you give them the opportunity to burn $0.5 of your money if they think it’s spam)
  • Prediction markets for content curation(use prediction markets to predict the results of a moderation vote on content, thereby encouraging a market of fast content pre-moderators while penalizing manipulative pre-moderation)
  • Conditional payments for paywalled content (after you pay for a piece of downloadable content and view it, you can decide after the fact if payments should go to the author or to proportionately refund previous readers)

And ideas I have had in other contexts:

Twitter scammers: can prediction markets incentivize an autonomous swarm of human and AI-driven moderators to flag these posts and warn users not to send them ether within a few seconds of the post being made? And could such a system be generalized to the entire internet, where these is no single centralized moderator that can easily take posts down?Some ideas others have had for decentralized institutions in general include:

I would be interested in hearing Posner and Weyl’s opinion on these kinds of “radical markets”, that groups of people can spin up and start using by themselves without requiring potentially contentious society-wide changes to political and property rights. Could decentralized institutions like these be used to solve the key defining challenges of the twenty first century: promoting beneficial scientific progress, developing informational public goods, reducing global wealth inequality, and the big meta-problem behind fake news, government-driven and corporate-driven social media censorship, and regulation of cryptocurrency products: how do we do quality assurance in an open society?

All in all, I highly recommend Radical Markets(and by the way I also recommend Eliezer Yudkowsky’s Inadequate Equilibria) to anyone interested in these kinds of issues, and look forward to seeing the discussion that the book generates.


Blockchain Protocol Analysis and Security Engineering 2017 | Cyber Initiative

The conference will explore the use of formal methods, empirical analysis, and risk modeling to better understand security and systemic risk in blockchain protocols.  The conference aims to foster multidisciplinary collaboration among practitioners and researchers in blockchain protocols, distributed systems, cryptography, computer security, and risk management.

Source: Blockchain Protocol Analysis and Security Engineering 2017 | Cyber Initiative

Market Structure in Bitcoin Mining by June Ma, Joshua S. Gans, Rabee Tourky :: SSRN


We analyze the Bitcoin protocol for electronic peer-to-peer payments and the operations that support the “blockchain” that underpins it. It is shown that the protocol maps formally into a dynamic game that is an extension of standard models of R&D racing. The model provides a technical foundation for any economic analysis of ‘proof-of-work’ protocols. Using the model, we demonstrate that free entry is solely responsible for determining resource usage by the system for a given reward to mining. The endogenous level of computational difficulty built into the Bitcoin protocol does not mitigate this usage and serves only to determine the time taken to process transactions. Regulating market structure will mitigate resource use highlighting the importance of identifying the benefits of competition for the operation of the blockchain.

Keywords: bitcoin, blockchain, racing, mining, competition, free entry

Source: Market Structure in Bitcoin Mining by June Ma, Joshua S. Gans, Rabee Tourky :: SSRN

Did Bitcoin just prove it can’t scale? | Hacker News

If proof of stake proves itself to actually work, Bitcoin will adopt it. Migrating a 200 billion dollar network to an untested PoW proposal would be irresponsible.Arbitrarily increasing blocksize without addressing propagation delay and centralization impacts is also irresponsible.Bitcoin has been tirelessly working on the scaling problem in a responsible way. SegWit will allow up to 12t/s. Mimble Wimble and Schnorr Signatures will further compress transaction size and increase t/s to roughly 20t/s. All this without increasing propagation delay (increasing blocksize).Lightning network further reduces the number of onchain transactions necessary.Rootstock adds ethereum compatible smart contracts to bitcoin as a side chain.All these technologies responsibly scale Bitcoin. Your comment implies Bitcoin is stagnant which to me implies you don’t know what you’re talking about.reply PaulRobinson 1 day ago [-]PoS will never be adopted by Bitcoin. The mining pools that have invested in PoW won’t allow it.Every attempt to date to improve transaction rates on BTC have been hampered by a small group of developers who have a vested interest in it not scaling for reasons explained here: https://www.reddit.com/r/BitcoinMarkets/comments/6rxw7k/info…Bitcoin won’t get any of the improvements you hope it will because there is too much money vested in keeping it exactly how it is today.

Source: Did Bitcoin just prove it can’t scale? | Hacker News

P2Pmodels: Blockchain Orgs for the Collaborative Economy

P2P Models is a large research project to build Blockchain-powered organizations which are decentralized, democratic and distribute their profits, in order to boost a new type of Collaborative Economy. The project has three legs:Infrastructure: Provide a software framework to build decentralized infrastructure for Collaborative Economy organizations that do not depend on central authorities.Governance: Enable democratic-by-design models of governance for communities, whose rules are, at least partially, encoded in the software to ensure higher levels of equality.Economy: Enable value distribution models which are interoperable across organizations, improving the economic sustainability of both contributors and organizations.

Source: P2Pmodels: Blockchain Orgs for the Collaborative Economy

Ads don’t work so websites are using your electricity to pay the bills | Technology | The Guardian

With the continuing collapse in online advertising revenues, websites are turning to other methods to pay their hosting bills – including using visitors’ computers and phones to mine cryptocurrency.It’s a controversial practice, with some likening it to running malware on visitor’s computers, but it is a potentially lucrative endeavour for websites. The downside is that at best it slows down visitors’ machines, and at worst it can also drain their batteries or send their electricity bills soaring.BitTorrent search engine The Pirate Bay, and US video streaming service Showtime, are two sites that were discovered to be sending mining code to users. The former owned up, posting in mid-September that the code was “just a test” and that the experiment was being done with a view to removing all adverts from the site.

Source: Ads don’t work so websites are using your electricity to pay the bills | Technology | The Guardian

A New Approach to Consensus: Swirlds HashGraph — SAMMANTICS

As many people here know, my interest in consensus mechanisms runs far and wide.  In the KPMG research report I co-authored “Consensus: Immutable Agreement for the Internet of Value”, many consensus mechanisms were discussed. In Appendix 3 of the paper, many of the major players in the space discussed their consensus methodologies.  One consensus mechanism which wasn’t in the paper was the Swirlds Hashgraph Consensus Algorithm. That whitepaper is a great read and this consensus mechanism holds quite a lot of promise.  I have had many discussions with its creator, Leemon Baird and this blog post comes from conversations, questions and emails about the topic.  Also at the end of the blog I asked Leemon to fill out the consensus questionnaire from the KPMG report and he graciously did. His answers appear at the end of this post.

Source: A New Approach to Consensus: Swirlds HashGraph — SAMMANTICS