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Foundations of Cryptoeconomic Systems in a Nutshell

Summary, Recap & Outlook

  • The term “Cryptoeconomics” is underdefined possibly because it is often used in different contexts, which contributes to regular breakdowns in communication. We provide a multiscale definition of the term that builds on the assumption that these systems are in fact:
  • Complex socio-economic systems that have properties such as emergence, nonlinearity, adaptation, spontaneous order, and feedback loops that require, amongst others:
  • Interdisciplinary research and development, where each discipline deals with the question of resource allocation in these socio-economic networks from a different perspective.
  • Institutional economics is a subset of economics that intersects with political science, sociology, history, management science and cybernetics which studies the role of formal or informal — and public or private institutions– that are represented by a set of rules, norms, procedure, convention, arrangement, traditions or customs to steersocioeconomic interactions. Governments, markets, firms, physical infrastructure, and even social patterns such as marriage are institutions. We describe how cryptoeconomic networks enable more fluid organizations to formalize over the Internet — around a specificeconomic, political, or social purpose — commonly referred to as a “Decentralized Autonomous Organizations”or “DAOs” .
  • In the paper we also give a multiscale perspective on these cryptoeconomic systems dividing them in to a micro, meso and macro level where we explain that microeconomic foundations and macroeconomic context together form the basis of a multi-scale model required to capture interscale effects common in complex economic systems.
Multi-Scale Feedback Loop: Source:
  • Cryptoeconomic networks like the Bitcoin network furthermore need a network science perspective, as they consist of three interconnected networks: (i) the computation and communication network comprised of nodes that leverage a peer-to-peer protocol to validate transactions by mining new blocks, (ii) the financial network comprised of Bitcoin addresses which may sign transactions and transfer funds, and the (iii) the off-chain socioeconomic network representing people and organizations that control the tokens in the financial network and operate those nodes in the computation and communication network. The size of these networks and their interconnectedness adds to the layers of complexity of the systems they respresent.
  • We explain why the economics perspective in cryptoeconomics is still underdeveloped. Analyzing existing research on the “evolution of cooperation”, for example, we conclude that the assumptions on the behavior of cryptoeconoic systems’ agents, on which current consensus protocols build, are too simplistic and fail to represent the current state of research on cooperative behavior in multi-agent networks.
  • Last but not least we describe Tokens as atomic unit of system state that can make all socio-economic activities visible. We provide a classification into (a) simple token systems, and (b) complex token systems and assume that the speed with which cryptoeconomic systems and their tokenized applications are being deployed, is an indicator for the pervasiveness of the technology and its applications and are the basis for the steering of these data-driven economies.
Mutiscale & Multiperspective of the definition of the term “Cryptoeconomics”, Source:
  • Purpose-driven tokens
  • Data driven economic systems
  • Incomplete Contracts
  • Ethics and governance of decision algorithms in social systems
  • Cyberphysical systems engineering
  • Computational social science

Challenges writing this paper

Given the fact that cryptoeconomics is an interdisciplinary science our greatest challenge when writing this paper was language and context, especially since we tried to write this paper for a wide array of disciplines. How to provide a breadth and depth of the field in a few pages without seeming to shallow? How to find a common language, without having to define every single term? How to not state the obvious for people from certain disciplines while providing enough context and explanation to readers from other disciplines?

Before the paper

This paper is an output of a heuristic and exploratory research phase that I started early 2018 when we launched the Research Institut for Cryptoeconomics together with Alfred Taudes at the Vienna University of Economics. It also builds on 3 years of activities at BlockchainHub in Berlin. The paper is furthermore a synthesis of Michael’s activities building and applied research company Blockscience and all his prior research activities.

Further Resading



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Shermin Voshmgir

Author of ‘Token Economy’ Founder @tokenkitchen @blockchainhub & @crypto3conomics// Artist