The Emerging Crypteconomy for Science and Knowledge Creation

Crypto-economic mechanisms, blockchain technology and cryptographic tokens might allow new ways to foster innovation and to organize the scientific funding processes. They could provide new ways to incentivise idea and result sharing far beyond what the Open Science movement and Web 2.0 for science have archived in the last decades.

Interesting concepts to organize open-source development and other commons are currently investigated in fore-front cryptoeconomy communities. Science as a commons could benefit from those. However, there is currently very little or one sided knowledge about blockchain and cryptoeconomy in the scientific community. The aim of this text is to start building a bridge between both worlds.

In collaboration with Dr. Shermin Voshgmir, Prof. Michael Friebe and Paul Kohlhaas.

Blockchain & Cryptoeconomy

Terms like cryptocurrency, crypto asset and tokens are very often used as synonyms. The media mostly tends to refer to these new assets as cryptocurrencies, which is often used to describe a diverse range of cryptographic tokens on the blockchain that could represent anything, ranging from classical assets to completely novel assets. Blockchain manages the token and makes it easy to send them around. The hope is that this facilitates collaboration across markets and jurisdictions and allow for more transparent, efficient and fairer interactions between market participants, at lower costs in comparison to legacy systems. Blockchain technology hereby provides an infrastructure guaranteeing publicly verifiable data.

Smart contracts as programs that run on blockchain can be used to define taxation, vesting schemes, automatic price finding mechanisms and many more currently unforseeable ‘cryptoecomomies’ around coins or tokens. All without traditional and costly trusted third parties or delaying intersections with the the legal system.

Science is about ideas, but really new ideas have a hard time

Or as Michael Polanyi put it: “Isn’t really good science not always a break with orthodoxy — and how could the orthodox then fairly assess it?”.

Let´s move beyond classical assets such as patent rights and shares of a company. Let’s imagine we publish very early stage ideas, securing them on a blockchain and create tokens to represent the ideas. These “ideas” can be novel concepts, genuine observations, micropublications, new ways of making sense of findings, new interpretations, innovative perspectives: an approach, a new way to look at things — in general those things that bring science really forward. However, scientific history shows that disruptive ideas have, for the most part, a hard time to get accepted among peers.

Figure 1 A: Today, ideas (novel observations, interpretations, scientific concepts, revolutionary findings, etc.) only spread after they are patented or published, the monetisation of an idea happens much later. Incentives in the current research systems are set so to stay put with novel ideas, at least before patent applications or publications.

Figure 1 B: Blockchain allows the immediate and bullet-proof representation of a new idea that allows the monetization (in a wider sense) right after, creating novel and interesting incentive structures and potential value flows in science investment and research money distribution, all potentially helping the wide and fast spread of ideas.

Tokenizing ideas

Tokenizing ideas mean that one can now pass on the idea tokens to labmates who add value to the idea, extend it, proof it, do science with it… Or sell the tokens to peers for funding research work.

Tokenizing of ideas would allow you to incentivize people to work on your idea based research, long before there are patent applications, authorship positions or investable companies. Tokens would give “skin in the game” for supporters early on. Later they can be exchanged to authorship positions, patent or company shares — if the idea flies.

DAOs to distribute research money and organize research

A good way to organize such token associated research would be in form of DAOs (distributed autonomous organizations) which are smart contracts that run on a blockchain, managing token issuance and token distribution with embedded governance rules (here, here, here). It sounds abstract at first read, but it is really not so much different from what happens in today’s research world with governance structures (grant committees, funders, guidelines, etc.), and defined ways to distribute the research funds.

A DAO on a blockchain would make existing processes much more effective, with no media breaches and minimal organisational overhead. Blockchain hereby provides radical transparency, with inbuilt accounting and controlling and little to no administrative costs. Reports of how the grant money was spent are created on the fly, so to say as a side effect of the provableness of blockchain systems.

Why not then trade idea tokens?

Imagine we have a dedicated token for an idea, but we do not only want to use it to distribute grant money, vote on proposals or represent future shares in patents, but why not trade it? In very early stages only very few people are likely to understand it and want a skin in the game. The idea is not far spread or even ignored, so there is no market for such idea token and hence no way to find a price for that token.

So called ‘token bonding curve’ could provide a solution (Here). Token bonding curves are automatic price finding mechanism, that determine the price of a token depending on the amount of money that has been put into the token or taken out of the token (Fig 2A). They create virtual markets and liquidity right from the beginning. Of course money put into an idea is no real indication of a commercial value of an idea. However, if one ignores a potent idea in early stages, there is a good chance that one misses out on future gains. At the moment, if paper or grant reviewers (the ‘orthodox’) reject very controversial idea based publications they loose nothing, not even reputation.

Figure 2 A: An exemplary token bonding curve implemented in e.g. a blockchain smart contract. In this case, if money is put in and tokens go out, the price for the created tokens goes up and vice versa. The token bonding curve acts as a virtual market maker.

Token bonding curves allow to design interesting economies around ideas, with radically new incentive structures. A curve that is very flat at the beginning disincentives people to steal the idea, or re-tokenize it with just minute changes, as it would be better for them to invest and popularize the original idea and cash out on the steep part of the curve (Ocean protocol white paper). An s-shaped curve could represent something like a saturation, when the idea is widespread, became common sense and accepted knowledge. More investment in this idea does not lead to a price increase (Figure 2B). In this stage, the tokens can also be transformed into shares of traditional assets such as patent applications (e.g. Molecule.to) or companies that are based around that idea (Figure 2C). Many, more things are possible (Here) and this is certainly a very interesting field to do research in .

Figure 2 B: Another token bonding curve, that could e.g. represent a saturation if the idea is widely spread and further investments do not increase the token price.

So, what are we investing in, if we buy into an idea? And more importantly, aren´t those investments not just pyramid or Ponzi schemes, because in contrast to patents or companies that are built around ideas there won’t be any income that could be distributed to investors (Here)? For everyone that cashes out on an idea token, there need to be another one who cashes in. Sure that is true and one should only buy in, if one believes that the idea will really fly and many more people will cash in. So, investing in an idea token is really investing into the believe that the idea has a potential future and at this stage the value proposition would be to invest into the undiscovered value of an idea.

Figure 2 C: At some point the ideas token can be transferred to represent classical assets such as patents or shares in a company. Overall, many more ‘economies’ could be created combining token bonding curves with traditional assets.

And after investing in the idea, every investor has an interest to share the idea as widely as possible, really hyping it, which is in stark contrast to the current science culture that incentives to stay put with patent applications and full-blown journal publications that might delay idea dissemination by years. Of course unreasonable overhyping of ideas might happen, but here we assume that real world results will correct this and it would be good to combine the ideas with old-fashioned reputation and attribution.

The vision: A scientific idea market

Figure 3: Vision of a scientific idea market — Ideas (incl. single observations) can become an investable good. In early phases the price depends on the amount of ideas tokens that are taken out of the smart contract (Image courtesy memelordz and sciencematters.io).

Summing up we can say that cryptoeconomic applications as well as tokenization of science is an emerging field, with great potential to create novel value flow and incentive structures. However, the road ahead is also full of technical, legal and organizational challenges.

Let´s be courageous enough to experiment with novel value propositions on ideas, let ideas fly high, instead of leaving them stumbling from one walled-garden to another …

Thanks go to…

The text was in parts contributed and thoroughly reviewed by Dr. Shermin Voshmgir, please check out her upcoming book on Token Economy — which will give a great overview from blockchain tech, via token concepts to novel economies (Voshmgir, S. Token Economy, O’Reilly, 2019). Serial-entrepreneur Prof. Michael Friebe contributed with his knowledge and experiences in translational research.

While the author was always excited about ‘making ideas an investable good’ and saw blockchain as a mean to perform necessary ‘high-value’ transactions at almost zero costs, he thought more of doing sort of ‘micro-ICOs’ to finance science ideas and innovative research projects than using the emerging cryptoeconomic principles such as token bonding curves. Only the interaction with Paul Kohlhaas at the Blockchain For Science Con opened up the whole picture … So big thanks goes to him and the team around the project Molecule.to.