A Cryptocurrency Can Begin to End Poverty. Now.
The author, Dr. Nicholas Adams Judge, is a cofounder of RootProject. The other cofounder is Chris Place, a Y Combinator alum. Their nonprofit’s pre-ICO just passed 162% of its goal and is open until July 28th, 2017. An easy way to understand their model is here.
Cryptocurrencies have a lot of features but their greatest promise lies in one basic fact: They allow for the creation of organically adaptive interest alignments that can be designed to maximize the output of a system.
pre-cryptocurrency system-building: a very long list of “do x, and get y” compensation rules
cryptocurrency-based system-building: A much shorter list of: “do (x = whatever you think is best) get y * (a unit of value that grows as you contribute to the system)
A cryptocurrency allows compensation to be multiplied by a unit of value that grows as contributions to the system make the system more valuable. That’s what Kik is trying to do with Kin, and it aligns the interests of Kik as an institution, developers and content creators so that they all work to better the ecosystem. Even years down the road, when the ecoysystem navigates problems no one can foresee, the same adaptive incentive system works.
One More Thing
Cryptocurrencies also give investors a pre-IPO liquid asset by which they can assess a system’s value and drive it to where they think it will be in the future. They can take a bet on a company and get out of that bet the second they see it reducing in value. That is hugely important because an asset’s market value is basically the underlying value of an asset multiplied by the risk of holding that asset. An illiquid asset — for instance, a VC’s ownership stake in an early stage company — creates huge risks, and, all else being equal, is of much less value than if the same asset were liquid.
ICOs might be a bubbly place right now because all else isn’t equal — but at some point rules and systems will be put in place to make tokens and equity easily comparable — not identical— asset classes, and VCs will at that point operate in a liquid asset class…
The bridge between ideas and reality just got a hell of a lot shorter.
Here’s Where It Gets Interesting
A system affected — partially governed by — a cryptocurrency can be as simple as a private company that builds apps and generates content — or as complex as a network of nonprofit and profit-based institutions that output public policy outcomes. Or anything in between.
Remember, we’re talking about a powerful tool to align the interests of particpants in a system. The Nobel-winning political scientist, Elinor Ostrom, helped pioneer how to do that. Eaten fish recently? You can thank her: Without her work, the institutions that keep fishermen from overfishing would have been much less effective.
There are fascinating ICOs going on right now and pioneers are, impressively, growing the cryptocurrency space to maturity at a breakneck-if-bumpy speed.
What, however, happens when experts in building real-world systems of aligned interests start designing cryptocurrency-powered systems? What happened when architects finally got to use steel?
Let me illustrate this point with a ‘minor’ example of what we’re doing at RootProject. It’s something that is mostly mentioned just in a footnote in our whitepaper. Yet if other cryptocurrency designers adopted the same plans, it would endow the entire asset class with price behavior that large, sophisticated investors love — and fast forward cryptocurrency value creation by years.
A given currency’s price will fluctuate around expected supply and demand, of course. The models used to determine if a price off its equilibrium price, where it “should” be, have a few problems. (Btw, these models are developed by two other Nobel laureates: Clive Granger and Robert Engle. The latter’s work was the topic of my doctoral dissertation.)
Those problems can be worked out if you limit the number of variables involved. It’s complex, but basically, by pledging to release data in real time, and capturing non-speculative currency demand and liquid supply in certain easy-to-understand ways, we will make the modeling process of our currency equilibrium price much easier for quantitative investors.
Unless token markets are occupied exclusively by quantitatively illiterate investors — which they’re not — this real time data + ease-of-modeling will reduce price swings in cryptocurrencies, making them more attractive to investors.
That similar pledges aren’t being made in every ICO whitepaper shows how young the space is: Entrepeneurs are needlessly excarcerbating uncertainty-derived price fluctuations in a market where the primary investor concern is the strength of price fluctuations.
Let’s return to the organic alignment of interests thing. It’s exciting because, through the design of a successful currency, groups that previously shared few or even divergent interests can see their interests strongly aligned.
The architect of the currency-supporting system from which currency’s value is based can do this through any creative, credible rules-making process. At RootProject, we’ve aligned investor’s interests with those of the very poorest.
Take a step back and appreciate the gravity of that: RootProject’s currency aligns the interests of society’s most powerful and society’s least powerful. That’s a big deal.
We do this partly through a medium term pension fund-like entity, whose sole asset is our cryptocurrency. Earnings by workers are paid in USD, but 50% of their earnings go to a medium-term pension fund whose sole asset is the cryptocurrency.
There are two other main features: First, a firm, hard cap on currency supply: There will never be more than 10 billion ROOTS, as our currency is called.
Second, a crowdfunding system that gives donors tax breaks and channels fees into currency purchases. Oh, and by the way, the people that start a crowdfunded project don’t have to do any work once its done — imagine how many more kickstarter projects there would be if, once a project was funded, the project initiatiors didn’t have to do a thing.
This is the power cryptocurrencies. Big, big assumptions about economic activity and the politics that prop it up simply don’t hold any more. If interests of society’s wealthiest and least wealthy can be materially aligned, what else can be done? What creative solutions are out there, waiting to be built?