The Challenges of Building a “Fair” Network
What makes tokenized networks “fair”?
I’ve been thinking about how to design fair cryptonetworks. Ones that are open and that have diverse stakeholder groups where power is equally divided.
Fairness is important because history shows that ecosystems managed by a handful of gatekeepers, such as the telephone and TV networks and the Web 2.0, hinder innovation and fatten incumbent profit margins at the expense of end users. The rich get richer whilst everyone else gets locked out.
So, how do we build fair networks?
There are essentially three components. A network should:
- Be permissionless: Anyone can join and participate by earning tokens, improving the core code, or building on-top of the platform. Proof of work (POW) networks like Bitcoin and Ethereum are a good example of this; anyone with access to the right hardware can mine. Proof of stake networks (POS) are more contentious since earning tokens requires pre-owning tokens.
- Have fair token distribution: Tokens are held by a diverse group of stakeholders preventing power to accrue in the hands of a few. A New Model For Token Distribution blog post by Multicoin Capital explains why this is important and explores how to get there.
- Divide decision-making power: Power is split such that no one group of stakeholders can make changes to the protocol without the others’ buy-in. This can be managed informally (e.g. Bitcoin and Ethereum) or enabled with tokens and formal frameworks (e.g. Tezos, EOS, and DFINITY). The blog post Blockchains are not startups by Jakob Arluck from Tezos suggests an approach decentralized governance.
Achieving these three properties is challenging. Proof of work networks may be fairer when it comes to openness and token distribution but are criticized for excessive power consumption and miner “centralization.” Proof of stake networks are more environmentally friendly and better align token holder incentives but lack of objective permissionless token distribution mechanisms. There is no perfect model but it’s encouraging to see a group of innovators dedicated to building a more equitable system than what’s existed to date.
From around the web
A New Model For Token Distribution (Multicoin Capital blog) — See point 2 above.
The problem bitcoin solves (The Spectator) — Nothing new but well argued.
Transaction count is an inferior measure (Medium) by Nic Carter — Explains why using “transaction per second” is the wrong metric when comparing (crypto)currencies. Instead we should be comparing the “value flowing through the system per unit of time.”
Gavin Wood: Substrate, Polkadot and the Case for On-Chain Governance (Epicenter) — Interview of Gavin Wood, one of the Ethereum founders and creator of Polkadot. Enjoyed the part on the history of Ethereum.
A Few Thoughts on Devcon4 (Medium) — Succinct summary of Ethereum’s annual developer conference.
The Unintended Consequences of Product Design (Medium) — Lessons learnt on designing good user experiences by the founder of MyEtherWallet and MyCrypto. Post looks at tradeoffs between ease of use vs. adding security-related steps so that users don’t shoot themselves in the foot.
Generalized Mining, An Introduction & Primer (YouTube) — Presentation that looks at the role of network participants in the evolving technological landscape.
Grin Privacy Primer (Github) — Overview of privacy solutions for Grin. Grin is the first implementation of the MimbleWimble whitepaper.
Intro to Public Blockchain Scalability (Medium) by Casey Caruso — High level overview of scalability solutions.
Game of the week
Explore kingdoms with your Hedgie and dig to earn tokens along the way. Tokens can be used to shop at local and online businesses. Launching summer of 2019
Weekly newsletter published internally at Google. The views expressed are my own and do not necessarily represent the views of my employer.
