Incentivized Crypto-Economics

by | Jun 12, 2020 | Industry | 0 comments

Commonly referenced as behavioural economics, the concept has deep roots in the blockchain through the form of validating proof of work but may have even further-reaching opportunities to overcome the common bias (affect hereticsanchored biasambiguity effect, and decision fatigue) we see in traditional economic activities. Recently seen in social media platforms, such as SeemitIndorseSapienSteem, and SocialX the decentralized nature of the crypto-economy will further the nature of monetary incentives, but also shine a light on non-monetary incentives that will come as an effect from anonymity and herd mentality.

Mechanism Design

The overlying concept informing behavioural economics is the mechanism design. Seen in game theory, the mechanism design takes an objective first approach to designing incentives toward desired objectives. The mechanism design becomes a problem within networks with decentralized systems begin exhibiting increasingly lower levels of decentralization; primarily seen in permissioned blockchain platforms such as Libra and Monero.

These types of platforms provide insight into two additional theories in behavioural economics that need to be considered as incentivization in the crypto-economy evolves.

Tit For Tat

Known as the strategy where an individual follows a course of action consistent with their opponent’s previous turn. Recently seen in April between leadership at Steem, accounts were frozen exemplifying the dangers inherent to the delegated proof-of-stake concepts seen within many blockchains.

The greatest dangers come with leaders or owners of centralized power enacting the self-fulfilling prophecy of common human behaviours, enacting a tit for tat based on their counterparty’s action. Although the concept ensures proof for validation to overcome fraudulent activity, it serves other challenges between stakeholders within permissioned blockchain platforms that inherently display less decentralized ownership and rulemaking.

Nudge Theory

Recognized as the concept of altering people’s behaviour in a predictable without forbidding any options or significantly changing incentives, nudges have the ability to change consumer behaviours in a positive way. Recently being piloted in Belfast, nudges are being used in the form of digital currencies to boost economies, meet goals, and help citizens become healthier. Within the decentralized nature of most open blockchains, this theory may have an ability to create common consensus among groups experiencing challenges seen in the tit for tat strategies.

Decentralized Services

Ultimately exploring the growth of decentralized services being created, platforms with the underlying technology create the foundational ability to interact on open-source networks needed to decentralize economic activity; overcoming common biases and inefficiencies currently being experienced.

For one example breaching the investment banking ecosystem, visit Tokenizer to explore decentralized platforms that overcome the traditional mechanism design seen throughout centralized forms of finance.

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