Introduction

Social Elements of Money

Cryptocurrencies are a prime example of the social component of money. When restricting analysis solely to technology, there is little difference between Bitcoin and Litecoin and even less so between Ethereum and Ethereum Classic. Yet, both Litecoin and Ethereum Classic maintain large market capitalizations and robust, dynamic communities as well as their own social mandates.

It can be argued that a large part of the value of a cryptocurrency is derived from its community, the way it uses the currency, and its level of engagement in the currency’s evolution. Furthering the thought, currencies such as Dash have even integrated systems directly into the protocol to engage their community in deciding what should be a priority to develop and fund.

The vast diversity of cryptocurrencies also provides evidence for their social elements. Disagreements about philosophy, monetary policy, or even just between the core developers lead to fragmentation and forks. Yet unlike their cryptocurrency counterparts, fiat currencies of superpowers tend to survive political shifts and local disagreements without a currency crisis or mass exodus.

Therefore, it seems that there are elements of legacy systems that are missing from the cryptocurrency industry. We argue — and have inculcated into the Cardano roadmap – that users of a protocol need incentives to understand the social contract behind their protocol and have the freedom to propose changes in a productive way. This freedom extends to every aspect of a value exchange system, from deciding how markets should be regulated to which projects should be funded. Yet it cannot be brokered through centralized actors nor require some special credential that could be co-opted by a well funded minority.

Cardano will implement a system of overlay protocols built on top of CSL to accommodate the needs of its users.

First, regardless of the success of a crowdsale to bootstrap development, funds will eventually dissipate. Hence, Cardano will include a decentralized trust3 funded from monotonically decreasing inflation and transaction fees.

Any user should be eligible to request funds from the trust by a ballot system and the stakeholders of CSL vote on who becomes a beneficiary. The process creates a productive feedback loop seen in other cryptocurrencies with treasury/trust systems, such as Dash, by starting a conversation about who should and should not be funded.

Funding discussions force a relation of long and short term goals, the cryptocurrency’s social contract, priorities and the belief in value creation with particular proposals. This conversation means that the community is constantly evaluating and debating its beliefs against possible roadmaps.

Second, our hope is that Cardano will eventually include a formal, blockchain based system to propose and vote on both soft and hard forks. Bitcoin with its block size debate, Ethereum with the DAO fork, and many other cryptocurrencies besides have endured long standing and, in frequent cases, unresolved arguments over the technical and moral direction of the codebase.

It can and should be argued that many of these disagreements, and the fracturing of the community that results when action is taken, are a direct result of a lack of formal processes for debating change.

Where does one go to convince Bitcoin users to adopt Segregated Witness? How should the core developers of Ethereum measure community sentiment for bailing out the DAO? If the community fractures, is the cryptocurrency damaged beyond repair?

In the worst cases, moral authority to act could simply devolve to whoever has the developers, infrastructural relationships and money, not the best wishes of the vast majority of the community. Furthermore, if a large portion of the community is inaccessible or disengaged due to bad incentives4, then how can one truly know if their acts are legitimate?

Proposed cryptocurrencies such as Tezos provide an interesting model to examine where a cryptocurrency protocol is treated like a constitution containing three sections (Transaction, Consensus and Network) with a set of formal rules and process to update the constitution. Yet there remains much work to be done with incentives and over how exactly to model and change a cryptocurrency with a formal language.

The use of formal methods, machine understandable specifications and merging a treasury with this process for financial incentives are being explored as possible avenues for inspiration. Ultimately, just the ability to propose a protocol change in a transparent, censorship free way with blockchain based voting should improve the process, even if more elegant solutions cannot be designed.


Footnotes

3: This is also known as a treasury system.

4: See rational ignorance.

Last updated: July 17, 2020 11:41 UTC

© IOHK 2015 - 2020


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