The basis of any economic system is its ability to power itself. In physics, it’s called a Perpetuum Mobile, an endlessly self-propelling machine. Any well-designed system, be it an economic system, a company, or a living organism possesses this ability for at least a certain period of time. The longer it can self-propel the better the design. The current market economy has many flaws, the one that is becoming too obvious is its inflationary nature. Market economy prices products and services based on the perceived value. That is not the item’s real value. It’s the value that people give it to. A house worth millions does not cost millions to build, it’s the value people give it. Due to this, the capitalist system manages to create bubbles that always end the same way. This is why one of capitalism’s properties is to be self-destructive, in other words, the boom and bust cycle. It’s also the ugly label that capitalism has — the exploitation of one another. In the cycle of boom and bust, we are trying to beat each other. Consequently, somebody has to lose and therefore create the bust. Blockchain, however, is continuing to disrupt the old and well-established business models. In order for blockchain to succeed it needs to find its self-propulsion fuel. What will be the new incentive in the new economic system that is upon us? What can drive and propel the blockchain economy forward endlessly? The answer might be simple in theory.
If we look at the other side of the political and economic spectrum, we see the failure of communism. Probably one of the main reasons why communism failed was not because of the authoritarianism, oppression of its people, lack of freedom, and so on. Communists simply didn’t find the right self-propulsion fuel. The collapse of communism was caused by the mere inability to incentivize. The lack of incentive branched out into various corruptions of the system — financial corruption, irresponsibility, authoritarianism, oppression of opinions, lack of diversity, abuse of power. The communist economy was struggling to cope with consumer demand; the supply chain was disrupted most of the time throughout its existence; just like we see today in the corona world. There was no widespread acceptance of an incentive since everybody owns everything collectively. People created the incentives themselves and the ones that managed to do that have abused the system and turned it to their advantage. If you look at China as an example, it managed to remedy some of these diseases. It eradicated the corruption system with exemplary punishments. Through the market economy, it created an economic plurality. However, it still fails greatly in freedom of opinions and plurality of the political system.
In capitalism, the incentive is very simple, omnipresent, and understood by everyone. It is money. In the new blockchain economy, the idea is to decentralize, interlink, and most importantly remove the commission-based trusted 3rd parties from equations. Now, what is the blockchain incentive: a cryptocurrency that runs on blockchain technology, a central bank-issued digital currency, a blockchain-based system of claps similar to the ones here on Medium? Wouldn’t that mean that a decentralized blockchain economy is powered by the blockchain itself? Indeed. The incentive in the blockchain economy is the blockchain itself.
The creation of so many cryptocurrencies leads me to believe that monetary policy is no longer coming from the central banks. In today’s economy, private and public companies have the right to create their own fiscal policies. Meaning they budget and spend their finances freely, but they have no say as to what the monetary policy is going to be as it is dictated by the central bank. Blockchain is solving its incentivization problem its own way. It is democratizing the monetary policy. And you might be thinking that currently, it’s a complete mess with all the shit coins, altcoins, and who knows what coins. Think of democracy; isn’t that a mess with all the opinions and political parties? Or, think of all the products available on Amazon, who needs all that? If you walk into a forest, again, it’s a mess you might think, but actually, it’s a perfectly balanced and sustained ecosystem. We all remember too well when was the last time someone wanted to create a pure race and society — it didn’t end too well. I say God bless all the shit coins and the diverse system of incentives that it brings because that is the guarantee of sustainability!
The flaw of incentivization under the communists led to the creation of “under the table” barter incentives and bribery because that was what the technological and physical means allowed at its best. Today, blockchain is not constrained, blockchain is free to create whatever incentive it sees fit under whatever setup. And maybe one day even Medium will have its own ClapCoin which you can freely exchange for whatever products, services, and even other currencies.
And that is the new economic system that is upon us. It frees us from the oppression of centralized money systems.