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.

https://vitalik.ca/general/2018/04/20/radical_markets.html

Blockchain: The Birth of Decentralized Governance by Benito Arruñada, Luis Garicano 

Abstract

By allowing networks to split, decentralized blockchain platforms protect members against hold up, but hinder coordination, given that adaptation decisions are ultimately decentralized. The current solutions to improve coordination, based on “premining” cryptocoins, taxing members and incentivizing developers, are insufficient. For blockchain to fulfill its promise and outcompete centralized firms, it needs to develop new forms of “soft” decentralized governance (anarchic, aristocratic, democratic, and autocratic) that allow networks to avoid bad equilibria.

Keywords: blockchain, platforms, networks, hold-up, coordination, relational capital, incomplete contracts, decentralized governance

Source: Blockchain: The Birth of Decentralized Governance by Benito Arruñada, Luis Garicano :: SSRN

Digital Art as ‘Monetised Graphics’: Enforcing Intellectual Property on the Blockchain | SpringerLink

In a global economic landscape of hyper-commodification and financialisation, efforts to assimilate digital art into the high-stakes commercial art market have so far been rather unsuccessful, presumably because digital artworks cannot easily assume the status of precious object worthy of collection. This essay explores the use of blockchain technologies in attempts to create proprietary digital art markets in which uncommodifiable digital artworks are financialised as artificially scarce commodities. Using the decentralisation techniques and distributed database protocols underlying current cryptocurrency technologies, such efforts, exemplified here by the platform Monegraph, tend to be presented as concerns with the interest of digital artists and with shifting ontologies of the contemporary work of art. I challenge this characterisation, and argue, in a discussion that combines aesthetic theory, legal and philosophical theories of intellectual property, rhetorical analysis and research in the political economy of new media, that the formation of proprietary digital art markets by emerging commercial platforms such as Monegraph constitutes a worrisome amplification of long-established, on-going efforts to fence in creative expression as private property. As I argue, the combination of blockchain-based protocols with established ambitions of intellectual property policy yields hybrid conceptual-computational financial technologies (such as self-enforcing smart contracts attached to digital artefacts) that are unlikely to empower artists but which serve to financialise digital creative practices as a whole, curtailing the critical potential of the digital as an inherently dynamic and potentially uncommodifiable mode of production and artistic expression.

Source: Digital Art as ‘Monetised Graphics’: Enforcing Intellectual Property on the Blockchain | SpringerLink

Towards a Philosophy of Financial Technologies | SpringerLink

This special issue introduces the study of financial technologies and finance to the field of philosophy of technology, bringing together two different fields that have not traditionally been in dialogue. The included articles are: Digital Art as ‘Monetised Graphics’: Enforcing Intellectual Property on the Blockchain, by Martin Zeilinger; Fundamentals of Algorithmic Markets: Liquidity, Contingency, and the Incomputability of Exchange, by Laura Lotti; ‘Crises of Modernity’ Discourses and the Rise of Financial Technologies in a Contested Mechanized World, by Marinus Ossewaarde; Two Technical Images: Blockchain and High-Frequency Trading, by Diego Viana; and The Blockchain as a Narrative Technology: Investigating the Social Ontology and Normative Configurations of Cryptocurrencies, by Wessel Reijers and Mark Coeckelbergh.

Source: Towards a Philosophy of Financial Technologies | SpringerLink

Environmentalism in Cryptoanarchism: Gridcoin Case Study by Usman Chohan :: SSRN

This paper discusses the intersection of environmentalism and cryptoanarchism, in the form of Gridcoin, a cryptocurrency which aims to mitigate the environmental impact of cryptocurrency mining, through the implementation of two methods: a Proof-of-Research scheme and a Proof-of-Stake protocol. This raises questions about the need for an environment-friendly consideration of the costs of cryptocurrency mining.

Source: Environmentalism in Cryptoanarchism: Gridcoin Case Study by Usman Chohan :: SSRN

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

Ignorance, Debt and Cryptocurrencies: The Old and the New in the Law and Economics of Concurrent Currencies by Hossein Nabilou, André Prüm :: SSRN

The main contribution of this paper lies in the synthesis of information economics in finance – as related to the mechanisms of money and quasi-money creation in the banking and shadow banking sector – and the mechanism of money creation in cryptocurrency ecosystem. In particular, drawing lessons from the literature on ‘safe assets’ and building on Holmstrom’s seminal work (2015), this paper highlights striking differences in the basic information economics of cryptocurrencies as opposed to fiat currencies (including the monetary aggregates). The main finding of this paper is that, Bitcoin trumps central bank money and private and quasi-private money – created by the banking and shadow banking system – on account of its informational foundations. The superior information economics of Bitcoin, which is built on symmetric (common) knowledge as to the inner workings of Bitcoin Blockchain, as opposed to that of fiat currencies, which is built on symmetric ignorance as to the underlying collateral, would make Bitcoin a new ‘safe’ asset holding the promise of maturing into a viable store of value, a potential medium of exchange, and a unit of account. By comparing the information economics of central, commercial and shadow bank money with that of Bitcoin, we highlight important aspects of information economics of Bitcoin that would inform any pending regulatory intervention in the cryptocurrency ecosystem.

Source: Ignorance, Debt and Cryptocurrencies: The Old and the New in the Law and Economics of Concurrent Currencies by Hossein Nabilou, André Prüm :: SSRN

The Regulation of Cryptocurrencies – between a Currency and a Financial Product by Hadar Yoana Jabotinsky :: SSRN

As cryptocurrencies gain popularity, the issue of how to regulate them becomes more pressing. The attractiveness of cryptocurrencies is due in part to their decentralized, peer-to-peer structure. This makes them an alternative to national currencies which are controlled by central banks. Given that these cryptocurrencies are already replacing some of the “regular” national currencies and financial products, the question then arises: should they be regulated? And if so, how? This paper draws the legal distinction between cryptocurrencies which are in fact currency and those which are securities disguised as currency. It further suggests that in cases where a token is indeed a security, regular securities regulation should apply. In all other cases anti-fraud measures should be in place in order to protect investors. Further regulation should only be put in place if the cryptocurrency starts increasing systemic risk in the general financial system.

Source: The Regulation of Cryptocurrencies – between a Currency and a Financial Product by Hadar Yoana Jabotinsky :: SSRN