Decoupling digital commodities

Centralized networks are unlikely to produce fungible digital commodities. Their reliance on private databases coupled with users’ willingness to give away data for free creates incentives to hoard ‘branded’ data commodities and sell access to them with monopoly pricing. Today it’s the case that we deal in Facebook ads rather than attention, Uber rides rather than transportation.

Today, the entities that are responsible for overseeing the production of digital commodities also influence pricing of those commodities, creating an unfair environment for consumers

Thankfully, a significant consequence of blockchains as the internet’s new state primitive has been the emergence of true digital commodities. To date we’ve seen ‘anti-sybil’ commodities such as Bitcoin and Ethereum, and there’s evidence that liquid digital commodities will emerge in dozens or hundreds of verticals such as attention (BAT), reputation (REP), computation (GNT), and transportation (TBD).

These commodities will be fungible, tokenized, and have other novel properties that assets can acquire in the context of programmable money. Critically, they will also have properties of physical commodities that exist today.

In the same way that corn and wheat farmers don’t meaningfully impact the pricing of the commodity they grow, blockchain based commodities will be produced and priced by different sets of actors.

Like the physical commodities that predate them, blockchain-based digital commodities will be priced by diverse sets of actors with different economic interests

Blockchains will coordinate activity between commodity producers and markets. In many cases, the commodity production will be uncomplicated or passive (think about renting a CPU, generating attention as you browse the web, or giving someone a lift across town). Much of the economic heavy lifting will be executed by risk nodes and other speculators who will compete for information asymmetry with respect to these markets and reallocate resources in the process.

A frequent criticism of the role of speculation in the economy is that leveraged bets create volatility and systemic risk. The emergence of more opportunities for pricing in the economy will lead to fewer risk agents competing for the same set of opportunities. Increased margins for risk seekers will lead to less leveraged speculation as risk agents no longer have to substitute beta for alpha.

To the extent that information asymmetry can be commoditized, asymmetry ‘aggregators’ such as Numerai (NMR) will emerge. Services like Numerai will be meta AIs that co-ordinate the pricing of goods throughout the economy:

Can ‘alpha’ be commoditized? If so, information asymmetry aggregators such as Numerai will be important

Ultimately, public blockchains will produce an operating model for the economy that is superior to the walled gardens that exist today. Risk nodes of all kinds will compete to reallocate resources and produce better prices for commodity producers and consumers.