What’s Our Focus, and What’s to Come?
The crypto industry has been booming over the last few months as we continue this upward swing in adoption; and the proliferation of cryptocurrencies and DApps has been hastening at a dizzying pace.
While the markets continue to erupt, we have to remain focused on the key aspects of our future tokenized economy that will allow us to create this enlightened, alternative financial system more efficiently; while garnering the knowledge to realize the best economic and social second order effects that will come about from this seemingly unlimited access to capital.
1) Incentives & Mechanism Design
See our last article on these topics here. Expect a lot of great strides this year with the creation of various new tokenization models, community incentive structures, and numerous fresh ways to engineer your token with regards to current scalability limitations.
The initial testnet contract for Casper (written in Vyper) went live right before the New Year. With the launch of this test network we’ll likely see a lot of excitement and developer interest build around how staking will affect market prices; as well as how developers can best implement staking in their products (i.e. the creation of staking pools).
We will also likely continue to see more staking-focused ERC20 assets like SpankChain and OmiseGO as an intelligible and economically-efficient way to bootstrap, maintain, and incentivize new types of monetary networks built atop Ethereum.
2) Theory of Money
Crypto is forcing us to fundamentally question what money is (and what it should be). Cryptoassets will greatly contribute to our understanding of monetary systems and how we can use programmatic incentives and decentralized structures to mobilize money in new and exciting ways.
Crypto also allows us to study currency competition (explained here). Internal to crypto, bitcoin maximalists have created a monetary framework for the bitcoin economy from an Austrian perspective. E.g. See Ammous https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2832769 & https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2832751.
There will be alternatives to this theory developed in 2018 that include more optimistic perspectives on alternative cryptoassets. One such strand could come from demands for valuation precision, MV = PT and theory of exchange.
Academic monetary economists are becoming increasingly interested as well, e.g. Journal of monetary economics is now publishing crypto analyses https://www.sciencedirect.com/science/article/pii/S0304393217301666 is indicative of the increasing intersection between traditional monetary economics and crypto. Expect to see more of these ideas explored in detail in 2018.
Tech shifts bring new conceptions of where and how value accrues. E.g. VC/Internet brought about a better conception of ‘unit economics’, forcing theorists to create bottom-up models for valuation http://aswathdamodaran.blogspot.com/2017/06/usersubscriber-economics-alternative.html.
Those same theorists are now saying that non-cash-flow-generating assets are not to be examined with traditional valuation http://aswathdamodaran.blogspot.com/2017/10/the-bitcoin-boom-asset-currency.html. We are in the extremely early days and all results from valuation work like Burniske’s will have to be seen as preliminary, but this area will evolve a lot in 2018 (see also our recent post on Value, Velocity, and Monetary theory for Cryptoassets).
4) Behavioral Finance & Asset Prices
No matter who you ask in crypto, everyone has a list of a couple dozen projects that they believe to be overvalued. It is apparent that some level of irrational exuberance is present; which in the future should serve as a case study in asset bubbles (especially for more centralized assets that are only masquerading as the future of digital money).
We know that current prevailing sentiment and marketing/exposure to new markets plays a key role in the adoption and growth of new assets; but what we don’t yet know is how sentiment and marketing will be limited or affected by local governments as adoption continues to outpace financial sensibility, and the ability for regulators to regulate as they do now with legacy financial institutions and middle-men.
Crypto continues to be one of the most provocative and mentally stimulating advents in recent history; let’s hope we all continue investing and learning pragmatically.
5) Social Impact of Tokenization Structures
Lastly, we will see the creation of new and novel systematic methodologies for harnessing these new financial ecosystems to more proficiently apply capital and human interaction, with the help of networked incentives.
Tools and technologies like geospatial Proof-of-Location from companies like FOAM will allow us to finally incentivize human interaction and commerce in many innovative new ways; such as incentivizing commerce/infrastructure development or merchant activity in dormant areas of a urban landscape; or powering autonomous networks that can create urban-like services for more rural locations (i.e. the creation of mesh internet networks in rural areas where previously it was not economically viable for an ISP to run fiber or provide internet).
We will also see the growth of more Patreon-like models from developers of applications such as StakeTree and Cent allowing for you to contribute and financially support indviduals and organizations in a simple manner, while allowing them to make an income, and continuing to provide some service or act for themselves or a community.
A Fun Year Awaits
We believe 2018 will be a very exciting and education-focused year for cryptocurrency adoption and growth. With scalability coming in the near-future with the assistance of generalized state-channels, Plasma, sharding, and mobile Ethereum DApp browsers like CipherBrowser, we will finally be able to experiment more aggressively with powerful new ways to reach and assist more people financially than ever before.