Blockchain Economics

Verification - Tracking, Settling & Enforcing Transactions and Contracts

Ability to Lower Costs to Verify Transactions, Particularly Digital Assets

• Direct Costs
• Privacy and Data Leakage Costs
• Censorship Risks
• Settlement - Timeliness and Certainty of Finality
• Costs of Trust: Code & Consensus Protocol vs. Trust in Central Intermediary
• Economic Rents due to Market Power

Networking – Moving Property Rights across a Network

• Ability to Lower Costs to Develop and Operate a Network
• Tokens provide Opportunity to Pre Fund Development
• Tokens provide Incentive Mechanism During Operating Phase

Metcalfe’s Law

Blockchain vs. Internet

• Both Open protocols
• Both Transport packets of data on distributed networks: Property Rights vs. Content
• Both can have Apps built upon Protocol or Cryptocurrency level
• Both said to be Open Network Development, though centralized through groups such as ICANN or Bitcoin Core Developers
• Interoperability: A Blockchain is akin to a Private Intranet vs. the Internet
• Incentives – Registrars and Registries vs. Miners
• Origins in Relation to Governments – Founded by Government Research Projectvs vs. Came Out of Cyberpunk Libtertarian Anti-goverment sentiment
• Significant Investment – Blockchain far earlier than Internet

The Minimalists

• High Mining & Transactions Costs Inherent to Design
• Many Technical Challenges: Scalability, Performance, Privacy, Security, Interoperability & Governance
• Tokens Lack Intrinsic Value
• Volatility of Token Prices - Poor Store of Value
• Limited Adoption as a Medium of Exchange or Unit of Account
• Not accepted for Taxes or as Legal Tender - No ‘Tether’
• Having Multiple Currencies Counter to Economic History and Logic
• Token Monetary Policy in Code subject to Consensus Changes with no Central Bank
• Blockchain Applications tend towards Centralization: Mining Pools, Crypto Exchanges, Software Development, Holders & Alternative Consensus Protocols
• If Private Key is Lost or Stolen it is gone Forever
• Buterin’s Trilemma – Decentralization, Scalability and Security
• Doubt Claims of benefits of Token Economics
• No ‘Killer App’ or Production Use Enterprise App yet
• Scams, Frauds, & Manipulation on Crypto Exchanges and with ICOs
• Illicit Activities – Tax Avoidance, Drug Running, Money Laundering