Ethereum Watch

As blockchain technology becomes ubiquitously integrated into the computer systems of the world, the issue of scalability consistently comes up. Prominent blockchains, like Ethereum or bitcoin, are consistently plagued by transaction backlogs. It is, unfortunately, one of the major challenges to mass adoption and conquering it will require some serious innovation.

Although the transaction backlogs of 2017 were mostly related to floods of investors partaking in the plethora of token offerings on Ethereum, the true impediment in blockchain technology might not be related to transaction throughputs at all, but instead might be the world of use cases awaiting blockchain integration.

Blockchains are not just distributed ledgers that can be plugged into existing digital infrastructure like a networked database. Blockchains have another layer of robustness: decentralized consensus. Although this is a technical feature that works digitally, the concept of consensus – indeed the word – is perhaps the fulcrum upon which the future will be leveraged.

The concept of consensus takes blockchain technology and effectively transposes it into many other sciences and humanities.

This new area of study is multidisciplinary in nature, and the number of encompassed subjects is growing. Commonly becoming called cryptoeconomics, its prominence as a field of study will be directly related to the role blockchains play in the society of the future. This is why basic cryptoeconomic principles could one day be taught in grade school as easily as its intricacies are discussed in graduate school.  

The RIAT Institute for Future Cryptoeconomics

Until cryptoeconomics earns its place inside the hedgerows and high walls of academia, the subject has been relegated to the fringes of study. If, however, you happen to be passing through Vienna, Austria, there is a place where the future of cryptoeconomics is being studied front and center.

The RIAT Institute for Future Cryptoeconomics is, like its subject matter, multidisciplinary. Part newsroom, art space, and development laboratory, RIAT is a place where people learn from one another and can play with the idea of cryptoeconomics to see how it ebbs and flows across blockchain ecosystems. Matthias Tarasiewicz is director of the institute, and he took the time to talk with ETHNews about the ins and outs of the new metasubject and the role of RIAT.  

ETHNews: What was RIAT’s first project?

Matthias Tarasiewicz: “We are an NGO, based in Vienna. We have been researching cryptocurrencies and blockchains since the very beginning, I would say. We really started to use bitcoin in 2010, coming from an art perspective. We actually had a hand in the first bitcoin art piece, which was called Bitcoin Cloud. The idea was not so much about bitcoin, but about how to work with the problem of the art market. Like cryptocurrency, the art world is an informal market that’s not really based on any real rationale. It’s absolutely insane sometimes, and basically only based on pump-and-dump situations. So we created an art piece, working with a group of participants, called Bitcoin Cloud . It’s a mining rig. It would only mine, however, if visitors would actually watch the art piece, physically look at it. Our hope was that it could extract itself from the art market and be its own economic entity.”

RIAT As A Crossroads

Although the institute welcomes abstract ideas, like Bitcoin Cloud , it takes a coin-agnostic perspective on digital currencies in order to study the overarching principles of cryptoeconomics.

To this end, Tarasiewicz organizes workshops and public events to evangelize about blockchain and attract those interested in staying for a while to perform specific research.

This is why RIAT holds around 90 percent of the blockchain meetups happening in Vienna. “We have people from a bitcoin background. NEM for example, New Economy Movement. We have people from Ethereum, Monero, Dodge Coin, all of these people are meeting in our space. We are a meta kind of space for all sorts of meetups for the crypto-community groups.”

Understanding Cryptoeconomics & Incentivization

According to Tarasiewicz, “there is a lot of speculation recently about the term cryptoeconomics. It was actually first used by Vlad Zamfir in 2014, and after that there was more use from people like Vitalik [Buterin]. Those guys basically coined this term.”

Although Satoshi Nakamoto might have invented cryptoeconomics, Etherians like Zamfir and Buterin have probably thought more about it. Ethereum’s switch to Proof-of-Stake is built around cryptoeconomic principles. Indeed, until Casper arrives, the hybrid Proof-of-Work/Proof-of-Stake consensus algorithm is also cryptoeconomic in principal. The idea is to use technology to encourage people to act virtuously, by paying them. At least, that’s where the idea starts. 

MT: “On the one hand you need to solve the Byzantine Generals Problem, on the other [you need to] to incentivize users to have the right behavior and penalize malicious behavior. Cryptoeconomics is sometimes called “reverse game theory,” by predicting … what users are going to do. Basically you are incentivizing a specific action or thing that the users should do, and disincentivising or penalizing what users shouldn’t do.

“Cryoptoeconomics has to work with actual economic incentives, monetized incentives, human incentives. It’s a very, very interesting field.”

Reverse Game Theory

Cryptoeconomics is often compared to the field of game theory, albeit “reverse” game theory, since the desired outcome must be defined before the system is designed.

MT: Since [blockchain is] working with so many different approaches to incentivisation, you generally begin with what the security of a system or the intended use for a system is. I’m always giving the example of comparing it to game theory.” 

Since game theory began its ascent to academic acceptance from a very slender starting point, people like Tarasiewicz see a correlation between cryptoeconomics’ current state and the advent of game theory as an academic discipline.

MT: “In the beginning, game theory was a very narrow field. Basically, it was like a niche. It grew to become an interdisciplinary science where there is political science, social science, philosophy, psychology, etcetera … It’s like a large, interconnected field.

“How was this [multidisciplinary approach] possible? In game theory, [it happened] by creating specific interconnections between these different sciences; by forming new terminologies; creating the translation necessary between different fields.”

Solving Academic Challenges

MT: “For example, we have the term of ‘consensus.’ This terms means entirely different things sometimes. From a technological perspective we have the consensus of a protocol, the network effect. At the same time we have the [concept of] social consensus, or democratic consensus. These terms are different, and [they] use the same word. This is a problem. One [term] is a governance issue, and one is about machines. This is something we need to fix in order to make cryptoeconomics a true academic discipline.

“You can think about cryptoeconomics on many levels. There is the cryptoeconomics of the mining process: how miners react, who is mining what? How do you get everyone to agree on hard forking? These things must be understood cryptoeconomically.

“At the same time the crypto-markets are also driven cryptoeconomically. In the near future, prediction markets, like Gnosis or Auger, will use cryptoeconomic principles to provide a level of data analytics never before possible. It is a growing field, but it’s not an academic discipline yet.”

Providing Intersectional Insights At The Speed Of Blockchain

MT: “Finally, another problem is that a lot of the research in this space is moving very fast. People are pushing out content on all kinds of platforms, some formal and some informal. It’s almost impossible to have academic rigor and long review processes at this point in development.

“This is the niche that RIAT fills. Making sure we are connecting with universities and academic institutions as much as possible, while also acknowledging that there is a lot of informal research, is our goal. We try to be on the intersection of all of these.”

ETHNews: Thanks for taking the time, Matthias!