An Ethereum-like Platform Based on Algorand?
Economics is undergoing a radical revolution, resulting in a wholesale rethinking of some of its fundamental articles of faith. The notion of the selfish economic actor, whose only desire, in life, is to maximise selfish gains, has been shown to be utterly deficient, leading to perverse economic outcomes and growing, unsustainable, unstable inequality. Books like Kate Raworth’s “Doughnut Economics” explain why the traditional model of economic incentives doesn’t produce good enough outcomes and discusses a more altruistic basis for economics that does and could.
Meanwhile, cryptoeconomics, which lies at the heart of cryptocurrencies like bitcoin and Ethereum, is baking-in discredited, disproven economic assumptions, basing proof-of-work and proof-of-stake on a set of financial incentives and disincentives. This cannot end well. Any system of incentives or disincentives invites creative methods of being gamed and subverted.
Economics is already well on the way to proving that trust doesn’t work best, this way. It’s simplistic and it invites corruption. Crytpoeconomics practitioners need to read a few current economics books, or risk the same catastrophic end-game that the globalised neoliberal capitalist system is now experiencing. Why would you build a new form of money that has this serious built-in flaw?
Rewards, recognition, loyalty and incentives systems, such as typically employed by large corporations to influence the behaviours of their employees, channel partners and customers, rarely produce the intended behaviours, frequently demotivate and repell the people they try to incentivise and are often plagued by unintended consequences. They fail because they rely on extrinsic motivations. Humans, it turns out, are motivated more strongly by intrinsic motivations. They seek meaning in how they spend their time and lives.
Blockchain relies entirely on extrinsic motivations. It also creates special actors with privileges that may act dictatorially, at least temporarily. Illegitimate, unearned privilege and parasitic rent-seeking are at the very heart of what’s wrong with real world governance. Power is relatively easily concentrated. In separating the privileges of ordinary users from those of miners, who self-select by buying superior computing resources, Bitcoin simply imports the economic elite from the existing monetary system (with all their unsavoury, misbehavioural habits) into the new cryptocurrency monetary system. Why replicate this terrible deficiency in crypocurrencies?
Being based on game theory, blockchain is based on a mechanistic, rather than humanistic, view of human actions and motivations. In common with game theory, as demonstrated when applied to strategies for the conduct of nuclear warfare, it may produce abhorrent results and impose them on horrified human beings, at some level. It’s potentially dystopian.
Another problem with Bitcoin (and consequently Ethereum) is that the process results in a tremendous waste of computation, which directly correlates to a waste of electrical energy, much of which is derived from non-renewable sources, even today. The planet loses.
Forks in the blockchain are a mathematically provable inevitability and cannot be prevented by penalties. A system that relies on penalties guarantees that the innocent will be wrongfully fined. The Casper protocol is effectively dead in the water.
There is a proposal for an incentive-less cryptocurrency, called Algorand. To my way of thinking, this approach is more in line with progressive economic thinking and therefore represents a more progressive approach to cryptoeconomics. Being incentive-less, it operates on a more altruistic basis and therefore aligns more closely with the kinds of human beings we actually are and would like to be (social, motivated by higher purposes). It doesn’t turn human beings into similar single-dimensional, selfish robots and there is no arbitrary hierarchy of power.
The controllers of the destiny of Ethereum have already come out strongly in favour of financial incentives and disincentives, flying in the face of what progressive economic theory is already amply demonstrating in the real world. I suspect their reasons for remaining wedded to an outmoded model of humanity would not stand up to the evidence available or to careful scrutiny, so it may be tantamount to governance malpractice. It’s possible to know and do better, based on evidence and data, but they stick with a dogmatic approach already falling apart in the global economy. This, to me, sounds suboptimal and almost crazy.
The problem is that Ethereum is the current most promising platform for building a new class of trustless distributed applications, according to many who are familiar with the state of the art. It has significant scalability challenges though, some of which are alleviated by Algorand.
The question arises, then, if an Ethereum-like platform could emerge, based on Algorand instead of Bitcoin’s built-in incentives. Given that Ethereum is, in essence, an abstraction layer built above bitcoin, it’s certainly possible in theory. A distributed application platform based on Algorand could be engineered. Indeed, a distributed application platform, which is crypto-currency agnostic, called Blockstack, may well fit the bill.
Whether a critical mass of developers could and would coalesce around a more progressive cryptoeconomic model remains to be seen. Distributed applications built on top of a cryptoeconomic model whose conceptions of trust and co-operation more closely model the actuality of human behaviour would seem to be a better choice than those that assume demonstrably wrong things about human motivations.
This single engineering decision could doom the entire edifice or future-proof it. It’s a crucial fork in concepts, ideas and a vision for humanity, more significant that the usual cryptocurrency blockchain forks everybody is so concerned about.
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About the author
Michael Topic is a freelance Product Manager with over thirty years experience delivering products that didn’t exist before. He welcomes contract enquiries to define new, competitive products, design them and deliver them. His speciality is software-based products.
Disclaimer
The hypothetical design ideas discussed are intended to demonstrate possibilities in product design. They are not intended to imply anything whatsoever about past or present employers, nor to infringe on any intellectual property.
About the “Possible Future Designs” Series
This occasional series of articles examines the many ways in which product management discipline can be applied to a variety of markets, to propose and examine innovative, new product opportunities.
Organisations wishing to pursue any of the ideas discussed are encouraged to contact the author to discuss potential research and development collaboration.
