Saving The Planet: Making It Profitable To Protect The Commons.
Without regulation, it is hard to avoid the abuse of a commons: whether it is water, a pasture or a forest. Even with regulation from governments there are still externalities that exist that are tough to enforce: eg, global regulation is hard, some commons are out of reach of regulation, some commons regulation could still be abused through corruption & some externalities are simply never catered for due to the cost in coordination.
Instead of trying to force actors to curb the inevitable abuse of a commons, one could instead make it profitable to protect it.
Using new forms of economic coordination afforded by blockchain technology, we can indeed make it profitable to have a valuable reputation in a particular context. In fact: it would become more profitable to protect the commons as it becomes more abused.
This would result in a balancing economic principle that self-regulates the abuse of a commons without the requirement of state-level regulation. As the ecosystem self-regulates against abuse by making it profitable to do so, the commons would have time to heal. When it does, the balance changes again towards the exploitation of the commons vs the protection of it. This interplay can be profitable and thus it is in the interest of both parties to ensure that the commons survives over time.
The premise is, is that it becomes more valuable to prove to a set of peers that one is protecting the commons when it is becoming increasingly necessary to do so in the face of abuse. This can be done for any commons or communal resources: forests, water, global warming or even a more ideological commons, like ensuring free software proliferates.
I have been accused of inventing Rube Goldberg crypto-economic schemes before. Over time, I wish to make the language clearer, but to start with concept, I will assume some knowledge about existing cryptoeconomic primitives.
This system works by combining curved token bonding towards a token-curated registry that curates entities that prove they are protecting a shared commons. As it becomes more valuable to protect the commons, it becomes more valuable to have the associated reputation of protecting it.
Those participants who act early to protect it, stand to gain the most when the reputation of being a good actor becomes more valuable. In other words: being early to protect the commons would reap the most value.
“Curved Token Bonding” works by staking a token of value (say ether) in return for a new set of tokens (say: #savewater), costed according to a curve. As more tokens are minted, the more costly it is to mint new tokens. At any time, participants can sell back their tokens on this curve and exit (reducing supply and thus reducing subsequent cost to buy in again).
Since introducing Curation Markets in earnest earlier this year, quite a few projects have started adopting some of the…medium.com
A Token-Curated Registry (TCR) is a system where participants apply to a list that is vetted by a set of token-holders according to a set of criteria. It is designed in such a way that is valuable to curators of this list to ensure that is judiciously maintained according to the criteria.
A recent crypto-economic design pattern that I’m very excited about is the Token-Curated Registry (TCR). It’s simple…medium.com
In this case, the criteria is:
“Are you actively curbing your behaviour to protect the commons?” If the applicant is successful, they acquire that reputation: being a protector of that particular commons. In practice, for the particular commons, the proofs need to be laid out in more detail.
When a commons exist, and it is abundant, there is little incentive to regulate or protect it. Any participant can freely use it without worry: the cows can graze as they wish.
At any point in time, however, a participant can stake a form of value (let’s say ether) towards an associated TCR to protecting that commons. They stake, for example, 1 ETH and get 40 #savewater tokens (cost is determined by the curve). With the 40 #savewater tokens, they can apply to the registry with sufficient proof to the peers that they are indeed helping to save water. Once accepted by the peers, they attain the reputation of being trustworthy actors.
As time goes on, and it becomes apparent that the water is being abused, the community using the water deems it more & more valuable to exclude those who are abusing the water. It thus becomes valuable to be included in this list. Not doing so will mean one is being ostracized from the community: less interaction, less trade, less access.
Thus, the meme of #savewater becomes more valuable, and it becomes more valuable to prove that one is reputable actor. As the situation becomes more dire, the value of this reputational label becomes higher. It thus incentivizes more and more participants to stop abusing the commons and rather participate in this peer-curated registry.
As new members start buying tokens on the curve and start staking their #savewater tokens towards the registry, the #savewater tokens become more and more valuable. Thus: early participants are making a profit in being good actors. They were first to recognize the potential abuse of the commons & the first to curb their behaviour and are thus being duly rewarded.
As the value of the participants are increasing, they can start removing themselves from the registry and sell back their #savewater tokens at a profit on the bonded curve (at the cost of losing the label). This natural dissolution will happen when it becomes clear that the commons are healing & the reputational label loses its value. The participants can go back to exploiting the commons vs protecting it.
This interplay will continue, ensuring that the commons self-regulates itself.
Markets For Reputation
Since this doesn’t require a specific apparatus to implement, it would even be possible to have competing labels & competing criteria, ensuring a market-based approach to reputational protection of a commons. This competitional behaviour ensure that the fittest reputational label wins, further increasing the likelihood that a protection of the commons occur.
Variations: Further Rewarding Participants
In the simplest form, participants in the registry only care about acquiring the label. The label is thus only regarded as an asset that can be relinquished for a profit when they’ve proved their value. However, using the bonded curve, the participants in the registry can also earn as beneficiaries.
Whenever a token is minted, all existing participants also get new tokens. It is thus a residual income of sorts. All new participants not only deposit ether into the pool, but also through the protocol reward all existing participants with new tokens.
It thus further incentivizes participants to be early protectors. Other variants include choosing a beneficiary vs giving it to all participants.
The Boundaries Of Commons Protection
Across the world, people are maintaining the protection of commons through various ways: governmental or not. Elinor Ostrom has done amazing research into how communities manage their communal resources to avoid the tragedy of the commons.
Four of the factors that she presents that lends itself to effective commons protection are:
- Resources with more definable boundaries are easier to preserve (eg, land).
- Dependence on the resource is important (especially in the scenarios where there is a perceptible threat: like droughts).
- The presence of a small and stable community that have a strong, thick social network.
- Community-based rules & procedures with incentives for responsible use & punishment for over-use. Particularly, non-locals can destroy this self-regulated solution.
It’s important to note here how important a community is in commons protection. In the absence of force, reputation is important to facilitate commons protection.
However, given that we can’t maintain strong relationships in a community after a certain level (eg, Dunbar’s Number), commons protection can break down since social reputation won’t suffice. It is still there, but somewhat weak. Comparing the situation to the drought in Cape Town, there is a social stigma towards wasting water. There are even jokes about not sleeping with people if you don’t see a grey water bucket in their shower. ;)
Thus there is social self-regulation occurring based on reputation, but it would not be enough alone. Governmental restrictions are thus necessary to avoid the potential lack of water in Cape Town.
My gut feeling is that this kind of self-regulating system is not sufficient for small-scale commons protection. The cost (mental, social & technical) is too much. It would be like creating a currency to keep tabs amongst your friends about who is going to buy the next round. It’s ad-hoc, and not necessarily 100% reciprocal. The ledger of IOUs is within people’s heads. It doesn’t need a physical representation.
It feels that it would be more sufficient for scales where self-organisation is needed, but there are problems in effectively coordinating to do so. When governments aren’t capable, or sufficient, or too slow, this system could suffice.
It might still be too “Rube Goldberg” and overkill to implement and practically hard to put into practice. It is reminiscent of my post on the usage of bonding curves to solve price discovery of non-rivalrous goods. Could be useful. Too complicated? Maybe.
How much should I sell my software for? How much should I sell this song for? How much is this e-book worth? This…medium.com
It also remains to be seen whether people are okay with the fact that we are essentially hijacking capitalism for protecting a commons.
Crossing the threshold from relying on social relationships to protect a commons to relying on market incentives to do so is a zero to one type of switch.
Dealing with money sometimes feels cold, un-human and deteriorates the value derived from social relationships. Collectively we might decide to avoid it.
Saving The Planet?
I know. I’m not a fan of saying that blockchains will be the panacea of saving the world & changing everything. It’s usually short-sighted and often seen as not being self-aware: hammers looking for all nails. I do enjoy these thought experiments though: precisely because it brings into question ways to design coordination schemes with unbounded sets of participants without relying on the deus ex machina of the state. As the pendulum swings to ideations that don’t require a state, we might find that middle ground: some mixture of all these things do indeed prove to be useful to our society.
I’d rather live in a world where people are getting rich from protecting the commons than seeing a world where our children won’t see anything at all. Let’s keep experimenting. Happy to hear feedback!
This idea was partly inspired by participating as a mentor & judge at the Linum Labs Ethereum hackathon in Cape Town. A team proposed a solution to the water crisis that was akin to the usage of carbon credits. Savers get more tokens. Those who wish to use more water can buy allotments from savers to dispense towards increased water usage. I wondered if it was possible to create a more generic scheme using the cryptoeconomic primitives that was available.