10 New Crypto-Economic Discoveries
Some Brand New Forms of Value & Utility For The IoT Era
In the past few years, I have had the privilege of working with some outstanding software developers, logistics professionals and blockchain experts on a variety of fronts.
Without doubt, personally discovering these new economic occurrences on the emergent Internet of Things economy has been the most exciting thing I have experienced in my time working in Blockchain. You can consider the following 10 new crypto-economic discoveries the beginning of a new updated IoT economic glossary then:
1. Value Coeval
The Value Coeval refers to the value configuration of the Blockchain. A value configuration is what its name implies — it is the way that value is put together within an operating context. In 1985, Michael Porter, the business academic, identified the value chain as a way in which an organisation in a supply chain built value over and above the cost of manufacturing in the form of its brand’s goodwill. This mark-up is what he referred to as an organisation’s competitive advantage. In 1999, Stabell and Fjelstad, two Norwegian economists, surmised that beyond value chains, there existed value shops, which are firms such as medical practices and consulting companies, and value networks, such as Skype or WeChat. In the former, knowledge was the competency that was being leveraged, whereas the latter leveraged the value of every customer. A Value Coeval is an equivalency of these three configurations. On the Blockchain, knowledge, supply chain functions (mining) and network value all exist simultaneously, creating an enormously faster efficiency in operating power. This is because the Blockchain has a configuration of coeval value.
2. Synthetic Utility
In finance, synthetic value is a type of monetary worth that is somehow artificial in construct such as is the case with many derivatives products for example, which are created from what is pretty much nothing other than man-made value constructs. Synthetic utility is similar — it is not core utility, which is what a commodity or product is used for principally (e.g. payment) but some other form of functionality that gives it an additional utility-value construct. An example of this is where a smart contract is configured to hold value for a period of time, after which period a token can be used to exchange for the value inside the smart contract, or to mine it directly. Although in one sense the token is “paying” for the value stored inside the smart contract, this payment is derivative of a form of manipulated utility designed to enhance the appeal of the tokens.
3. Digital Paper
Digital coins are units of blocks produced in the process of a piece of mining hardware or software interacting with a distributed ledger technology. They are used for making payments primarily across the internet. In the case of smart Blockchains, where tokens manufacturing is enabled, these tokens can be given a form of synthetic utility in the form of being programmed so that they harbour the value originally used for making payment for the token, for which the token eventually re-exchanges.
Eg:
This re-exchange resembles the way in which British banks issued “paper” notes or drafts against coinage or metal in the 17th century and thus we call smart contracts that are programmed for re-exchange not digital tokens but digital paper. Many DAPPs today use digital paper software builds in order to recreate a form of synthetic utility which allows players to “win” large pools of money.
4. Powercoins
Stablecoins are digital coins or tokens that are programmed somehow to remain stable, or which are manually fixed at a specific price point for an extended period of time irrespective of market conditions. Powercoins are the opposite type of innovation: their (usually smart contract) programming is geared around making them increase in value at rates that are more aggressive than the market average overall, whatever the market conditions.
Eg:
The first form of Powercoins to appear on the market were tokens released in about early 2018, and many DAPPs use Powercoin programming today in order to create value propositions that makes the games on which the smart contracts run enticing to players from a potential returns standpoint.
5. Synthchain
Where a network of smart contracts is involved in producing a specified game experience or investment outcome, this construct is called a Synthetic Blockchain, or Synthchain. Synthchains are so-called because their relationship to value mirrors the relationship that Blockchains have to payment utility; specifically, where Blockchains reorganise utility within a unit of payment currency (value), Synthchains extract the value from this core utility and store it, and in so doing they apply synthetic utility to it, either in the form of making tokens that are digital notes or powercoins, for example. In so doing, Synthchains redistribute the value within the payment utility created by the digital ledger technology running on the Blockchain.
6. Valuechain
A Valuechain is a hypothetical Blockchain with a crosschain functionality wherein the core unit of currency is backed by external cross-chain cryptocurrencies for which it can be exchanged in the form of synthetic utility at any time:
In a Valuechain, Informants are programs that inform the miners on the Blockchain of the algorithm update post-swap. Synthchain has 2 functions: function one is an external program that translates the amount of currency swapped and received; function 2 is an external program that collects the units of currency taxed and makes a synthetic equivalent on the Blockchain1 that can then be cashed in. Then once cashed it is added to the pool of “taxed assets” for redistribution upon cashing in currency. This currency therefore is the only currency that is not synthetic in the pool. The aim is that the synthetic and the real currencies look and feel equivalent and that the two chains feel like one.
7. Currency Dimensions
Within currencies, including investment products such as securities, value is split between 5 different possible gradients. These value-utility gradients are called currency dimensions, and each harnesses a separate place for an investment product:
The reason that securities regulators have such a hard time placing cryptocurrency investments in their financial regulations today is largely a result of currency dimensionality. Whereas securities are 3D investments, those being Utility/Value, cryptos are for the most part 4D in construct, that being Value/Utility. Between the two products the difference is in the emphasis of value prioritisation over functionality. Smart Blockchains such as Ethereum give ruse to another two dimensions of Utility-value with the occurrence of synthetic utility:
8. The Bipolar Equilibrium
The bipolar market, and by association, the bipolar market equilibrium, is the state of alignment between two thinking worlds: one which is thinking naturally, which is to say where human beings are doing the thinking, and the other, which is artificially thinking, where machines or technology is doing the thinking. What is the difference between a natural thinking process and an artificial thinking process? In defining his concept of reflexivity, George Soros breaks down the process of natural thinking into two aspects: the cognitive function and the manipulative function. The cognitive function is the function that processes information in order to determine the reality of a situation; conversely, the manipulative function is one that interprets information in order to make use of it to achieve a personal advantage of some kind. Where the manipulative function and the cognitive function of the thinker are at odds, this is what Soros refers to as a negative feedback loop (a value corrective event); where the manipulative function and the cognitive function of the thinker are aligned however, there is a positive feedback loop. The latter type of loop, argues Soros, allows market events to go on for much longer periods of time than economists assume is necessarily the case. The bipolar market theory — and by association, the concept of bipolar equilibrium — assumes that Soros’ Theory of Reflexivity is the actual state of reality in economics. In other words, it does not follow the standard economic definition of market equilibrium. Bipolar market theory asks: what happens when bipolar thinking states are applied to markets? Which is to say; what happens to market prices and economic reality when the natural thinking world is annexed by one in which artificial thinkers are present? In Bipolar Markets, we get one of two possible outcomes: either we get the outcome of an ultra-positive feedback loop, or we get the outcome of a positive-negative or a negative-positive feedback loop. Note that, unlike in a reflexive market, what is not possible in a Bipolar Market is to ever have a purely positive feedback loop or a purely negative feedback loop. This is an entirely new concept in and of itself — and in turn, this leads us to thinking about and behaving very differently in markets where there is a substantial amount of bipolarity present. Simply; in markets where bipolarity is the major source of dominant behaviour, simple equilibrium economics doesn’t work, since the situation is to some extent, always fundamentally one of reflexivity. Which is to say, the natural state of bipolar markets is reflexive. This is the case with cryptocurrency markets where the Blockchain interposes itself as a very crude artificial thinker, bifurcating the natural market equilibrium inherent in supply-demand economics.
9. Gross Decentralised Product
Gross Decentralised Product is an occurrence in cryptocurrency markets and represents the gross value of goods and services produced by a cryptocurrency community during a particular annual cycle. Many mistakenly assume that cryptocurrencies hold market capitalisations, when in reality they merely reflect the gross decentralised products of their community economies, in much the same way that Fiat currencies reflect the GDP quotas of their national domestic economies.
10. Z-Efficiency
In classical economics, the efficiency of operations of monopolies that is usually lost as a result of their incumbent status is referred to as x-efficiency. Y-efficiency is the efficiency of profitable exploitation of markets of monopolies that is usually lost as a result of their incumbent status. In digital currency markets, z-efficiency is the efficiency of leading digital currency trading pairs on a technological basis that is usually lost as a result of their incumbent status. The theory of z-efficiency postulates that just as for x- and y- efficiency reductions in the case of monopolies in a given sector, so in digital currencies there is a loss in innovation efficiency that occurs with respect to the technology underlying digital assets once a digital asset becomes a major trading pair. The loss in z-efficiency is the result of the market incumbent status leading to an over-trading or inappropriately high trading frequency of the incumbent digital currency pair, reducing incentive for technological improvement. As a result, such pairs are more likely to have substantial network problems / clogged networks and / or to make less technological breakthroughs which have a net value addictive effect on the Blockchain as a system. In its place is substituted financial value of the digital currency unit via means of a combined hyper-inflation and hyper-deflation effect. The result is to combine the side-effects of x- and y-inefficiency and compound them whereupon substantial systemic value erosion eventually occurs. This is the case with Bitcoin and Ethereum; despite a core development team going back 9 years, Bitcoin’s team has still not added anything in core Blockchain innovation since the date of Satoshi’s original White Paper. Similarly, Ethereum has yet to make any of the sort of breakthroughs that competitors such as NEO, ICON etc. are proposing to despite its inordinate market share and the foundation’s capitalisation.
A more in-depth discussion of these and other discoveries are available in The Decentralisation Trilogy, a series of three books I have written about Blockchain available on Kindle.
