Reciprocal Stakeholding: A New Economic Networking Primitive
By Jorge López & Akseli Virtanen, July 2023
[ This week we were talking at the ETH BCN. Here is the thinking related to our presentation — why we think the inevitable future of blockchain space is an inter-blockchain economic grammar as “Layer 1”. We would especially like to thank the ECSA Labs crew Michele Ionio, Rüzgar Imski, Pablo Somonte Ruano, Daniel Shimbaum and Aleksa Stojanovik for making everything happen at the backend. You rock. Thank you to ETH BCN for the invitation and to the extended EthicHub team for the discussions, the vibe and the generosity! ]
Blockchain’s narrative VS. blockchain’s technical reality
There is a contradiction between blockchain aspirations as a discourse and blockchain implementations as a technology.
From a technological perspective, despite the narrative of decentralization being one of its core values, a blockchain is a singular ledger. Albeit it is a decentralized network at the physical layer, it is logically centralized. Anything built on the “top”, is inherently centralized and is bound to scale poorly.
From a grammar perspective, there is a strong monetary logic embedded in the ledger operations that are limited to “mint” and “transfer” performed by this central issuing agent. This has limited the ledger expressivity at the logical level, effectively rendering it “unaware” of others “like itself”.
From a financial perspective, it is not surprising that many of the instruments and supposed innovations in the blockchain space are still operating under a capitalist logic (repeating its profit driven structures), even though their aspirations resonate strongly with postcapitalism. They often mostly replicate and reimplement our current capitalist financial instruments and institutions.
From an economic perspective, this kind of blockchain centralizes economic power, strongly resonating with capitalism’s view of money as the main form of value, and inequality creating logic.
From a social perspective, blockchain has espoused trustlessness as core feature, occluding the importance of social trust, in economic networks, and even becoming blind to the social trust endowed to its own developers, formal verifiers and technical people, whom the majority of non-technical users rely upon to trust the technology. This not only becomes fertile ground for other centralized entities like exchanges, to provide the social trust that is needed at the economic layer, bringing with them capitalistic ethos and economic logics. There are multiple narratives around blockchain that are centered on collaboration, but true collaboration presupposes trust. Yet in the attempt of blockchain to remove vulnerability at the technical level, end up simply hiding the trust dimension. This often obfuscates who is really governing these systems, for example, the developers. Security is fundamentally a social issue, not a technical one, and has strong economic associations.
Finally, there is a tension between the need for multiple measures of value, as many networks are experimenting with them through their tokenomics, and the inevitable pull back by the force of the almighty dollar: the eventual singular measure of value.
As stakeholders in the blockchain discourse we experience a cognitive dissonance between the potential and narrative of blockchain, and its current technological and social reality.
However, this paradox and contradiction creates a creative tension that has been driving the discourse and its technology offerings forward, as we attempt to resolve these issues in different ways.
In the blockchain ecosystem, now there are a myriad of blockchain offerings. Echoing the need for economic heterogeneity. Yet our economic incentives force blockchains to be driven by capitalist economic logic in order to succeed, implying economic centralization. Each blockchain offering must aim to be the winning one in order to be investable. It is also clear that such a logic is contrary to the core ethos of blockchain, decentralization. To “decentralize everything” we need a different economic logic. One that would render blockchains economically interoperable and mutually reinforcing.
A wide array of offerings for interoperability have been created, with varying amounts of success and adoption, but they have fallen short of creating a collaborative multi-blockchain ecosystem. We believe that the reason for this is that blockchain’s original ledger grammar, narrating only coins and transfers, fails to acknowledge other agents with the capacity to issue assets and not only hold them.
An expanded accounting ledger grammar creates economic interoperability as “Layer 1”
We need to delve deeper into the nature of accounting and its primitives prior to the emergence of blockchain ledger. Accounting can be understood as the oldest formal distributed computation protocol in existence. Even if its computation has been simple arithmetic, and its substrate has long been an army of accountants inscribing on sheets of paper, it is a formal, commonly used practice all over the world, and backbone of our economic and organizational infrastructure. If we understand accounting as a formal protocol, we realize that this is exactly the economic interoperability protocol we need to create inter-blockchain collaboration, and upon which to build a new kind of economic incentives that promote ecosystemic integration as an explicit strategy.
From accounting we can learn a more robust ledger manipulation grammar — than just “mint” and “transfer” — where in addition we can “issue”, “credit”, “debit”. Where rather than coins, the ledgers always encode assets and liabilities, and thus, social relations. (See the entry Accounting in the ECSA Glossary).
An expanded accounting grammar would enable blockchain agents to recognize each other. A ledger protocol that recognizes from the get go the existence of other ledgers of other economic agents with the same capacities, going beyond a subject-object relationship (i.e., not only with the capacity to “hold”).
We propose that in order to truly share this ledger and its narrative-inscribing power, as an ecosystem, we must adopt an expanded set of accounting protocols. With this set of protocols we can create an ecosystemic economic logic: interoperability and integration at the economic layer.
Sharing an expanded grammar, enables us to create an economic logic that can be applied across blockchains, or more specifically, across economic agents; with a set of incentives that fosters collaboration across the ecosystem, rather than only competition and repetition. An expanded ledger grammar that enables us to keep record and recognize more abstract value forms.
Postcapitalism requires this expanded set of accounting protocols, or in other words, economic protocols that form a unified economic network. Once blockchains can recognize each other’s assets and liabilities, through an accounting protocol, we can create an ecosystem-wide economic strategy that is based on collaboration.
A new economic networking primitive: reciprocal stakeholding
To create a diverse, mutually reinforcing economic network, we need a new economic networking primitive: reciprocal stake holding. This becomes the financial link connecting blockchains, and economic agents.
Reciprocal staking relationships involve simultaneous (1) equity exchange, (2) bilateral credit, and (3) co-performance agreements. It is a new kind of economic transaction. Economic agents are taking a risk together on a shared economic goal to increase their value, aligning their performances, while simultaneously creating endogenous network liquidity to sustain their economic activities. We have described this logic in detail in the ECSA economic paper Protocols for Postcapitalist Expression (Minor Compositions, 2023). This model reduces the need for external liquidity, and with that, the power of a capitalist economic logic, allowing the blockchain space to explore new value forms and measurements. Importantly, it creates and amplifies trust to collaborate in a fully distributed way. Even though we need our infrastructure to be trustworthy, the desire for true decentralization and the need for safety must be grounded on acknowledging, understanding and nurturing trust.
The inevitable future of blockchain space: an inter-blockchain economic system that fosters integration and collaboration
We think all of this is pointing to an unavoidable outcome: a postcapitalist decentralized economic architecture. One that is fully distributed, much more expressive, and enabling us to devise postcapitalist financial instruments and institutions. An inter-blockchain economic system that fosters integration and collaboration.
That is the core ethos of postcapitalism. Interoperability, collaboration, distribution, accessibility and economic expressivity. Where every economic agent will be able not only to hold a third party created assets, but to issue them directly.
This is the inevitable future of blockchain space, where all agents in the network are not just wallet holders, but issuers of financial instruments. It creates an economic communications network where agents have equal economic expressivity rights. This is a new economic medium; the economic media we have been talking about.
Here are the slides Navigating towards postcapitalism we used in ETH BNC; and here is the opening key note recording.
See also our preparatory notes for the talks: An Expanded Ledger Grammar for Encoding and Communicating Our Economic Realities.
Jorge Lopez is a distributed protocol architect and Akseli Virtanen a political economist. They are both members of the Economic Space Agency and authors of the Protocols for Postcapitalist Expression (New York: Minor Compositions, 2023), together with Dick Bryan.
