Cryptoeconomics Research Lab
Bridging the gap between startups & academia
I was recently appointed director of the Research Institute for Cryptoeconomics, a newly formed interdisciplinary research lab at the Vienna University of Economics. Our aim is to coordinate research activities of different departments: information systems, cryptography, economics, finance, law and business, while closely working together with crypto startups and established companies who are driving many of the developments.
This endeavour is a continuation of my activities at BlockchainHub which I started back in 2015 in Berlin. Research activities that we started around multiple grass root working groups, can now shift to academic researchers who should have much more time and resources to explore many of the questions that we identified over the past 3 years.
BlockchainHub’s challenges
Back at the Blockchainhub, our biggest problem was that most members of our working groups were practitioners — lawyers, developers, founders — running their own companies and crypto projects . While many of them had a strong academic backgrounds, and were good at defining the necessary research questions at hand — like for example legal aspects of blockchains, smart contracts and tokens, crypto-governance, identity, mechanism design question, as well questions around many industry verticals — they did not have time for in depth research. Most of the members of our working groups were busy with their day to day operations.
Why were these working group comprised of practitioners in the first place? Because most academic departments — even many computer science departments— did not have blockchain on their radar yet. Bitcoin, Blockchain and beyond are innovations that have mostly sprung out of the Internet, less out of academia. The children of the Internet revolution used all Web2 tools they could get to collaboratively research and develop first the Bitcoin blockchain, and everything that followed ever since. They did not wait for an academic peer review process to greenlight Satoshi’s Bitcoin white paper, nor the Ethereum White Paper, Yellow Paper and the likes .
To be fair though, the crypto community did built on decades of academic research in cryptography, P2P network and economics. Also, back in 2009 the stakes were not high. Bitcoin was an experiment that very few people thought would pan out to the scales of today. If there was a problem in the protocol, or if the network got clogged and transaction fees spiked, nobody would seriously lose money, and the network would not get clogged in the first place as very few crypto anarchists and early adopters where playing around with the tech anyways.
Today, a multi billion EUR Industry has vested interests in the outcomes of crypto projects. The Bitcoin game has become very real, and the stakes have become high. A lot of current projects are research-intensive, but cryptoeconomics in itself is a new line of research that Satoshi started.
State of Cryptoeconomics
Cryptoeconomics is the combination of cryptography and economics to create robust decentralized P2P networks. While cryptography is used to perserve privacy and transparency at the same time, economic incentives are used to encourage desired behaviour of network actors who do not trust or know each other, nor have any legally binding agreements with each other.
Bitcoin can be seen as the first real world application of cryptoeconomics and the Bitcoin network resulted from a marriage of both academic and industry methods and principles. While Satoshi built on a lot of academic research, it required hands on open source R&D efforts to get it off the ground. With more and more offsprings and mutations of Bitcoin being developed each day, there is a big know how gap between the R&D needs of these new crypto projects, and the vast intellectual resources in the academic word who could help contribute to many of these projects.
The thing is that cryptoeconomics as a science is still in a fetal stages, research question are not well defined yet. We will therefore need the full force of our academic institutions to help with fundamental research to (a) map research areas, and (b) actually conduct research in various types of domains, often combining domains that have previously little or no relation with each other:
- Cryptography
We need cryptography experts to deploy more privacy preserving cryptography like multi party computation mostly known as zero knowledge proof crypto, that allow us to run big data and complex applications while maintaining the privacy of each individual. We also need to develop quantum computer resilient cryptography (even though expert opinion on this matter seem to vary). All of which state of the art blockchains that have derived from Bitcoin do yet not offer. Alternative cryptographic methods could also allow for new levels of scalability and types of consensus like Hashgraph, DFINITY’s use of treshold and ring signatures, or IOTA’s tangles and ternary cryptography endeavours. Furthermore, cryptographers will also need to develop new solutions that we do not know we need yet to help develop alternative consensus mechanisms like PoS and other protocol design improvements to current state of the art cryptoeconomic solutions. - Economics
On a native blockchain level, research around alternative consensus mechanisms to PoW is still very young. Furthermore, mechanism design of application tokens has not been researched at all, we have little to no best practices, and still lack good modelling and forecasting tools. Today this kind of mechanism is researched by computer scientists, not economists, however economists have a lot of knowledge in that field that could benefit people developing algorithmic game theory, algorithmic mechanism design, and multi-agent systems. These disciplines allow to design good consensus protocols alternative crypto-economic/crypto-governance systems. While aspects of these questions were traditionally developed in economics departments, some argue that they are now better-researched in computer science departments. I do not fully agree. Most researchers who have the domain knowledge in economics, have very little knowledge of blockchain and derived tech, but will need to work closely with engineers to develop better mechanism design. To understand these systems in the real world we will need to work closely with public policy experts — either from economics departments, or various governance departments. - Regulatory, Governance and Public Policy
Apart from relatively mundane, yet very important regulatory questions like — what law applies in a P2P network of computers, the legal status of ledger entries and smart contracts, privacy by design, and various tax related questions — a completely new set of governance related questions needs to be researched. The discussion of on-chain vs. off-chain governance or how to deal with edge cases, transaction censorship, as well as questions around current state of the art consensus algorithms that are plutocratic rather than democratic, and favour those who have more economic power. These techno-legal and techno-philosophical questions are highly interrelated can only be resolved in an interdisciplinary fashion. Currently, those academics who have the domain knowledge in social sciences and the law, have still very little knowledge of the blockchain and derived tech. - Decentralized Applications
One of the most interesting shifts will result from a new concept of data ownership in distributed ledger technologies due to the open nature of data, which will reverse the relationship of marketers and customers to curation markets and attention tokens. Data valuation research and pricing of individual attention will need new metrics and tools. Other areas of research will stem from the disruptive potential of smart contracts, like customer relationship management, loyalty programs, billing and reporting model, new funding mechanisms. Standardization efforts across the supply chain for smart contracts to allow compliance and reporting by design, at even less transaction costs than as the next level of automation, as well as questions around smart contract security and the intersection with other emerging technologies like Machine Learning, AI, IoT, Vr/AR, 3Dprinting… just to name a few selected research questions.
Challenge in Academia
The biggest challenge for me, in my new role as the director of this research institution, is how to bridge that gap between the intellectual potential of a strong academic world and the highly accelerated R&D happening in the startup word, a gap that is growing as the world moves faster and faster.
While university researchers have a a lot of time for research (apart from teaching of course), they are often (a) far from the real world applications, and (b) bound to their academics KPIs that incentives them to regularly publish in specific high reputation academic journals and conferences. This quality assurance and content display mechanism called peer reviewed publishing was very necessary and useful in the past, but has become extremely slow and somewhat outdated ever since the emergence of the internet, which now allows much more decentralized and crowdsourced communication with faster feedback loops.
While a quality peer review process is absolutely necessary for scientific research, the current form and lengthy cycles, are based on processes that made sense in a pre-internet era when the only place to meet where conferences, and the only place to read was a journal. With the emergence of the Internet however, we now have alternative content display and communication mechanisms that are more agile. Academia should therefore learn to also value contributions that derive from more agile formats, not necessarily only through peer reviewed publications. Among others, we can learn a lot from how the crypto community has emerged.
Agile forms of R&D
Back in 2015, When I first learned about Bitcoin and Blockchain, and started to attend crypto meetups in Berlin, I was surprised by the type of people that were attending these meetups: I saw a high density of former university researchers driving these meetups, mingling with developers and enthusiasts from all over the world trying to share ideas and experiences to build a decentralised protocols. It was very academic and intellectual, but still super hands on.
Many people building these protocols had PhDs, but instead of exchanging their research through a time consuming, bureaucratic and outdated peer review publishing process, they were sharing their research over the internet, communicating through github, reddit and twitter, getting immediate feedback from their peers though online swarm review, and going into hands on implementation within a few days or weeks instead of waiting for an academic peer review process that would have taken them 9 to 18 months. And the analog place to meet each other and talk about it face to face was not a conference but rather a meetup, where they could communicate their new protocol ideas to whoever was interested and wanted to contribute to the discussion. These meetups were and still are called out rather spontaneously (unlike like academic conferences that are planned months in advance) and anyone can attend. They are free and permissionless, and are a place where you can have a drink with likes of Gavin Wood, Vitalik Buterin and Andreas Antonopoulos. These meetups are agile new formats, which make coordination more flexible, fluid and less institutional. Don’t be fooled though, these people also attend conferences, unlike academia, where people still very much depends on one formal only: well established high reputation conferences.
How do we bridge the gap
When I agreed to take the new job in Vienna, I thought that given my background in both worlds, this challenge would be a piece of cake for me. Well, turns out it isn’t.
First of all, there is the problem of getting academics to attend meetups, which we have somewhat resolved by hosting these meetups at the university, open to everyone, but calling them “research seminar” while advertising it over social media. I’d like to call it university 2.0 and this got us 400 people to our first #cryptomonday. In fact so many people had registered, we had to upgrade our event from a 180 to a 400 pax location. Pics and videos here. Furthermore we are planning to host a series of crypto events on campus to bring innovation to the doorsteps of academia. Coming up next: Token Summit on April 16, ARTIS launch event on April 11.
However, the second problem is somewhat more challenging. How do we reconcile the need for quality peer review, with the antiquated mechanisms of academics publishing process, and the realities of an Internet driven world where people have moved beyond publishing in printed journals and for high level intellectual interchange?
The problems are of course ridgid KPIs for researchers and universities alike, who are being rated by the number of journals and conferences they publish in. Challenging that system will be a tough sell if it does not come out of academia itself. This is why — together with Blockchain for Science — we are co-organizing SPON2018 — a scientific publishing on the Blockchain un-conference that aims to find hands on solutions to these problems, and get the academic community to hop on and take collaborative action.
Another problem remains unresolved. While I am successful at bringing research question from the crypto startups to university researchers, some researchers are finding it difficult to work on those questions, because (1) researchers of certain domains like economics, law and political science don’t know enough about blockchain yet, (2) they have difficulties translating applied research questions to a paper they would have to write so they can maintain their academic reputation and credit score. Challenge (1) will be resolved with time as people will understand the technology better, challenge (2) needs structural change.
Conclusion
The internet revolution of the early 1990s has only just reached it’s inflection point. The biggest fundamental shift is yet to come, when Blockchain and derived technologies start to interrelate with other emerging technologies like AI, IoT, VR, AR, 3D printing. Whether or not state of the art academic institutions survive that shift will well depend on how fast we can adapt to it. There are interesting opportunities on the road ahead, and if we do it right, we could redefine academia using these emerging technologies to our advantage. I am fairly positive that we can find ways to bridge the gap. However, universities need to rethink their incentive mechanisms and related bureaucratic process for research and teaching alike, and they need to rethink fast. I hope that our research lab can contribute to developing new peer review publishing tools and also work on emerging university curricula that reflect the potential of all these new technologies.
Thanks to Tom Fuerstner, Elad Verbin, Anish Mohammed, and Alfred Taudes for your input!
