Behavioral cryptoamnesia: problems and benefits of the motivational system of the blockchain

In 2009 Satoshi Nakamoto created Bitcoin, to organize incentives in the field of computers. In 2018, we are creating a blockchain projects worth many billions of dollars, citing people according to the same principles. We believe in an efficient market and the wisdom of the masses. But what if the masses are not so smart?

Cryptoamnesia motivational system in the style of Bitcoin is a new paradigm of Economics, which has already achieved incredible results, offering the first widespread digital currency. In recent years this paradigm has become the “silver bullet”, which is used on long distances and which promises to create amazing futuristic technology thanks to the incentives in the planning and prediction (Gnosis, Augur), social networks (Steemit), in the field of reputation management and self-organization (Colony, Boardroom, Democracy.Earth), in the field data (Ocean, Numerai) and so on. However, using complex systems techniques developed for simple systems, we took the principle developed to motivate the algorithms to act according to certain rules, and applied it to people. We assumed that people will make rational decisions to commit the desired actions and all together form efficient market. But, according to behavioral Economics, the crowd has not always common sense from an economic point of view. Behavioral Economics claims that people make most of their decisions based on simple mental ligaments and General rules, which “are generally true” in standard situations, but are often completely wrong in stressful situations (e.g., while driving, voting or transactions in complex financial markets). It is a well-documented phenomenon. This article reveals the need for more detailed consideration of behavioral factors and psychology in cryptoamnesia. We believe that specialists in economic behavior of people from the sphere of public policy, behavioral economists and sociologists have to be included in development teams cryptoamnesia systems. This will ensure long term practicality, viability and success of such projects.

1. Introduction: Bitcoin, behavioral Economics and cryptoamnesia

Let’s start with the beginnings — with Bitcoins. The motivational concept of the blockchain described in the original whitepaper Bitcoin written by Satoshi Nakamoto, and perfectly studied the book and video Andreas Antonopoulos. Nakamoto used a motivational system to achieve the previously unattainable goal of creating a solid from a scientific point of view, secure and decentralized digital currency. Development Nakamoto motivates miners to secure the network, and prevents the desire of the parties to conduct illegal operations in the Protocol. Moreover, this system is rather reasonably determines the motivation of all participants — miners, users and developers that contribute to the ecosystem. Open source provides protection against organized attacks, because the participants in the system can detect this attack and go on the correct block chain. Nakamoto also found a neat solution to the classical problem of Byzantine generals in the style of theory of games: generals pay, as long as they behave honestly, but stop paying if they are caught cheating.

From a historical point of view, assumptions Nakamoto in the field of game theory is surprisingly soft. Seize control of Bitcoin is possible only if 51% of miners will jointly organize and conduct the attack. Of course, the security of Bitcoin does not depend on assumptions of “economic man”, implying that people are ruthless optimizers and ultranationaliste. The security system will remain the same, even if people are to lazy or to create groups with ill intentions. Assumptions Bitcoins more realistic and less controversial than the concept of such modern projects as Steemit or Augur. (Furthermore, the security of Bitcoins has a relatively much more powerful and mathematically proven).

Since 2009, the motivational system has become more complex. Modern blackany find new and better approaches to create a motivational framework for complex systems:

  • Zcash for and other cryptocurrencies have the same basic motivational structure as Bitcoin to Ethereum and other blackany the second generation.
  • Gnosis, Augur and other prediction markets are trying to predict the future using the mechanism of price discovery: this approach motivates users to benefit, making accurate predictions of the future and place bets based on them.
  • Steemit motivates users to publish interesting news and/or honestly assess the quality of posts by other people. Other reputation system to motivate users to raise the ranking of the participants with a good reputation, creating a blockchain-analogue of the real reputation systems. (Yet none of them proved to be effective).
  • Numerai motivates the data scientists to create good trading algorithms in the financial markets.
  • Futarchy motivates the users to provide the right solutions.
  • Ocean motivates the users to provide correct data sets, providing existing arrays added value (a combination of Numerai and Gnosis).
  • Polkadot motivates participants to make correct decisions in the network (“checking” or “reconcilers”), look for dishonest parties (“fishermen”) and decide who to trust (“references”).

Motivational systems are considered to be one of the most unique advantages of the block chain

Thus, the motivational system used today in many existing applications and is considered one of the most unique advantages of the block chain. (In other words, the unique advantage is the ability to implement an elaborate motivational system with a high degree of scalability, in equal measure, supporting small and large stimuli). This idea is evident in the thoughts of the most famous blockchain innovators. Recently in his blog, Trent Mack-Conage wrote:

“The blockchain-the community understands that blackany help to create incentives for holders of tokens. Each holder of the token puts something on the map. But the benefit you gain is actually more ambitious than just structuring incentives: this approach provides the ability to create incentives to choose from, offering participants a reward for the unit. In other words, to motivate network members into action, rewarding them with tokens. Blackany is a motivational machine.

I believe that is the superpower of the block chain. The award for the block specifies what you need from the members of the network. The question arises: what do you want from the network? This is an important conclusion: how effectively you can give this intent of the car? It’s a diabolical question. Do we really know how to create a motivational system?”

Поведенческая криптоэкономика: проблемы и преимущества мотивационной системы блокчейна
Figure 1. A qualitative graph of the dispersion of decentralized systems with a dependence on the powers of automation and the size of the space action.

2. From Satoshi to Steemit

Now let’s analyze how evolved motivational systems since the emergence of Bitcoin. The above is a high-quality two-coordinate graph of the current state of the major motivational systems.

  • Axis ability to automate (Automability) describes how much manual work is required from the (people) of participants to follow the incentives. In the case of Bitcoin decisions are made by computers, and in Steemit — people. Consider this factor in more detail. Bitcoin miners can follow the stimulus without moving a finger, just providing an honest mining on computers. Augur and Steemit based on the fact that people can make predictions, publish posts and get a reward for it. Somewhere in the middle is Polkadot and the system with proof of share ownership, in which people Fund what they believe by not taking action against the system.
  • The size of the space of the action (Size of Action Space) describes many possible actions must be performed in order to obtain the maximum reward. For Steemit this number is determined by the number of possible good posts, and in the case of Bitcoin this is only one action: “an honest mining and testing”. In the case of Numerai the size of the awards depends on the use of a good algorithm.

Motivational systems of the blockchain is necessary as experts in public policy and scientists.

Thus, we see that now the system can motivate the participants to act (e.g., writing blog articles) in the different scale.

But there is one problem, well known in cryptoamnesia faith in the power of incentives is based on the magnificent success of Bitcoin. The Bitcoin paradigm, which leads to the belief in the efficacy of the lower left side of the chart, today extended to the system top right of the graph, acquiring the same atmosphere of reliability. Systems such as Steemit located in the upper right corner of the graph, are perceived as normal cryptoamnesia system based on the blockchain. They are not distinguished from Bitcoin on any grounds, despite the fact that no one has assessed the success of their basic cryptoamnesia models over time. This situation is a lack of multidisciplinary skills that are necessary for the practical application of motivational systems. These skills include the design of mechanisms, cryptography and design, as well as behavioral Economics and Humanities, which allow to understand the complex and nuanced, counterintuitive behavior of real people. Motivational systems of the blockchain is necessary as experts in public policy, and scientists.

The difficulty is that people are not rational beings. In real life, people often deviate from optimal behavior. A classic example is the game “Ultimatum”. The player And give $100 and asked to share a portion of the amount with the player B. the Player B can accept or reject the offer. If player B “rejects” the offer, both leave with nothing. If B “adopts” a deal, gets what he suggested, and the rest of the money remains the player A. game Theory says that for player B, the most rational solution would be to take the money, even if player A will offer only $0,01. However, in real life, people usually refuse amounts less than $30. Moreover, player A usually offers at least $20-30. Thus, in the course of the experiment, both players choose very sub-optimal strategy (from the point of view of game theory). This effect can occur in such complex systems cryptoamnesia as Steemit. How to prevent the situation where an irrational motivation of behavior violates the principles on which are based cryptoamnesia system comprising such a significant component?

By applying this behavioral thinking to the axes on the chart above we can draw the following conclusions:

  • The smaller the motivational system is susceptible to automation, the more difficult it is to create, the more it depends on irrational human decisions, including the confirmation bias, error unrecoverable expenses and various kinds of group thinking.
  • The more space for action, the harder it is to optimize the system and to make the right choice. Computers can analyze large areas, though will require a lot of resources. In the case of men the situation is much worse. People hate to choose, so the more space for the search, the higher the price of cognitive consideration and worse results.

Thus, we see that in systems outside the less “risky space” (pink zone on the graph), the participants difficult to make decisions that can bring them maximum benefit. Here is the challenge for developers of systems becomes even more difficult when the parties are difficult to make a choice, developers are experiencing much more difficulties with creating a stable and predictable system. Very hard to use mechanism design to create systems that must work perfectly in “the wild”, even if all the conditions only contribute to this space the actions of individual participants is simple for analysis and optimization. If the actions of the players it is difficult to optimize if they are outside the less “risky zones” that the designers of the mechanism practically does not remain chances.

3. The creation of a sustainable motivational systems?

So, we found that the creation of cryptoamnesia complex systems is difficult and still not fully understand the task. Therefore, most likely, will appear cryptoamnesia imperfect system that will always have to improve. But what’s wrong with that? Isn’t it always worked as a technical system? From the development of fire and the invention of writing and before the creation of the state and space exploration, the creation of computers, software and the Internet — all of these projects were initially far from perfect and getting better with time.

Unfortunately, cryptocurrency and blockchain systems are not so easily amenable to iterative improvement, as other historical technology. First, after the introduction of the block chain system is difficult to change because of their very nature. Any change (e.g., fork) requires the consent of a majority of the participants, and thus for every change you will have to deal with an established belief (as it was with the famous dispute about the size of the unit of Bitcoin). Secondly, weakness, vulnerability and flaws that are always present in complex blockchain systems often do not manifest themselves until these systems have not become popular. A multi-billion dollar market cap and network effects only strengthen long-held beliefs. Every time the user community benefits from a system fault, they call this lack of “feature and not a bug”, because for that they have the motivation. This is a very known problem of public opinion, which will manage the decentralized systems as they achieved success.

Of adds fuel to the fire and the regime of exponential growth, which can hide a lot of difficulties. The behavior of the system when the token value is increasing exponentially, much less hostile and more favourable than during the stop of growth. This means that when the increase in the value of the blockchain will slow, we will see the negative effects that can create a vicious circle. And inefficient actions of the government can make this circle even more vicious…

To summarize: really good motivational system is very difficult to create, even in the best possible conditions. It is difficult to organize correct motivational system on the blockchain, in which the code is the law engraved on stone and used a huge community of pseudonymous participants. The success of Bitcoin should not inspire complacency and optimism. Our paradigm of the design of incentives needs to be well thought out, have slow growth, are constantly tested and hold the balance. If we create a wrong new economy, then, as during the recent financial crisis, the system will begin to fail and entail a cascade of consequences that will only lengthen and deepen its fall. The idea that a blockchain economy will meet the same fate as the system that they need to be replaced, is sobering: inspired by the exponential growth and rapid success, we can’t ignore the long-term failure of the model. As history shows, this can lead to market intervention by external forces (although state aid is not so likely, given the non-state nature of the blockchain).

The oracles and soothsayers of this brave new world should be cautious to accept attempts to create economies from scratch. You should learn from millions of examples from past and on historical data that tells about the rubble of failed economic systems. Blockchain systems have an unprecedented potential to solve the largest problems in the world. Creating the right incentives and changing long-held beliefs, we can make society better. Let’s not miss this opportunity.

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