Cryptoeconomics is a multidisciplinary approach to the study of Distributed Ledger Technologies (DLT). Cryptoeconomics has enabled the creation of entirely new economic entities that are virtual and decentralized and that are maintained through a combination of:

  • Cryptography
  • Economics
  • Social consensus

An underlying assumption behind cryptoeconomics is that both realized costs and benefits as well as the potential for future costs and benefits can incentivize actors to utilize, secure and develop the network.

The principles of most cryptoeconomic structures include:

  • Explicit mechanism design can result in implicit economic incentives
  • Maximise the cost of any potential attack vector
  • Design protocols that make it as easy as possible to identify bad actors
  • Censorship should be disincentivized and attackers should not be able to block the chain from continuing to operate
  • Minimal synchronicity assumptions across the network
  • Economies of scale should be avoided in public blockchains but design for oligopolistic behaviour using cooperative game theory
  • Decentralized networks should be able to recover and regenerate after failure of all but one node

Cryptoeconomics at its best embeds incentive structures into everything (transactions, computation, prediction, power, etc) that can unite a range of actors:

  • Who don’t trust each other
  • Who may have different objectives
  • Who are potentially adversaries
  • Who may wish to attack the network

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