One of my favorite ways to think about the Ethereum network is in terms of an organizational engine. By creating tokens and protocols, we can make rules anyone can follow to achieve a specific purpose. And what happens when a protocol achieves its goals? Value is created.
This dynamic is different from what can be experienced at a scale in traditional economic systems. Unlike publicly traded companies, incentives are an intrinsic part of the product. You don’t expect to earn AMZN stock when purchasing something, but LooksRare will make you a shareholder just for using their products.
Another important fact of crypto economies is that the energy cost of value creation is greatly reduced on-chain. Let’s take NFTs as an example: In the physical world, creating 10,000 pieces of art and distributing them worldwide would have so many overhead energy costs related to production and distribution that it would make the whole project unviable. Moreover, maintaining a custody chain and verifying each asset would take an army of people to accomplish.
When detractors criticize the energy cost of the operation of blockchain networks, they fail to acknowledge that the infrastructure it creates reduces the cost required to operate a business globally by removing intermediaries. They also fail to recognize that value can be created on-chain without extracting raw materials to turn them into products. If more value is created on-chain, there will be less need to exploit the environment for financial gain.
The fundamental shift in value distribution, which allows more users to capture the value created by fulfilling the protocol’s goals, enables us to think about systems of abundance rather than scarcity.
Traditional economic systems are built upon the idea of scarcity. This means that resources, such as money or land, are assumed to be in limited supply and, therefore, valuable. As a result, value is created by securing these scarce resources, which often leads to unequal distribution of wealth and opportunity. However, the emergence of blockchain technology has opened up new possibilities for economic models based on abundance. By tokenizing assets and establishing smart contracts, users can now access digital economies where ownership is open and secure, meaning that anyone with access to the internet can benefit from creating opportunities for value creation. Thanks to blockchain-based solutions, we no longer rely solely on outdated economic models relying on scarcity; instead, we can explore more equitable and sustainable alternatives enabled by abundance-based thinking.
It is important to recognize that the traditional conception of post-scarcity economics centers on the availability of goods and services in abundance. However, post-scarcity truly comes about through abundant opportunities for value generation. This could be realized through blockchain technology, which opens up pathways for anyone with access to the internet to capitalize on new opportunities for value creation. These include peer-to-peer networks enabling decentralized value exchange, tokenizing assets to open up new markets, and smart contracts allowing for automatic and secure execution of agreements. The potential these solutions provide can transform traditional scarcity-based economic systems into something more equitable and sustainable – a true post-scarcity economy.
Building a Crypto Perpetual Motion Machine
"Oh ye seekers after perpetual motion, how many vain chimeras have you pursued? Go and take your place with the alchemists."
— Leonardo da Vinci, 1494
Perpetual motion is the motion of bodies that continues forever in an unperturbed system. A perpetual motion machine is a hypothetical machine that can work infinitely without an external energy source. This machine is impossible, as it would violate either the first or second law of thermodynamics.
Luckily, we're dealing with the laws of crypto-economics, not thermodynamics. The behavior of monetary systems can be modeled using Physic's first principles, and its immaterial nature allows for the creation of systems that go beyond the constraints of the physical world. However, the laws of thermodynamics offer a glimpse of what is required to create an infinitely sustainable monetary system, which is a perpetual motion machine.
The first law describes the conservation of energy states, postulating that the total energy of an isolated system (for which energy and matter transfer through the system boundary are not possible) is constant; energy can be transformed from one form to another but can be neither created nor destroyed.
The second law may be formulated by the observation that the entropy of isolated systems left to spontaneous evolution cannot decrease, as they always arrive at a state of thermodynamic equilibrium where the entropy is highest at the given internal energy.
Money is a form of Energy
In physics, energy is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work. Energy is a conserved quantity; the law of conservation of energy states that energy can be converted in form but not created or destroyed. Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes. In other words, both money and energy can be described as a quantitative property that is transferred in exchange for work. Unlike energy, however, money can be created and destroyed. Which is the first key we need to create a perpetual motion machine
Can Entropy be Reduced?
“THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER.”
Entropy is a scientific concept and a measurable physical property most commonly associated with a state of disorder, randomness, or uncertainty. In the physical world, the overall entropy always increases: things tend to go from a state of order to disorder if left unchecked. Although the total entropy of the universe cannot ever decrease, energy (read: money) can be spent to fight off entropy locally. That’s why we eat food in order and reduce our body entropy by repairing and replacing cells. Ultimately, however, in the physical world, entropy always wins.
Entropy Reduction = Value Creation
Imagine you could deploy custom laws of physics. That’s what solidity is like. If entropy is a measure of uncertainty, smart contracts are anti-entropy devices, for they describe deterministic functions that organize energy(read: money). For example, The UniSwap smart contracts organize thousands of pairs from hundreds of thousands of users to allow atomic swaps between any asset pair. The fact that UniSwap is deployed in the network reduces the total entropy and increases the value of everything within.
Mutual Aid Systems of Abundance
The sea can be a daunting place, especially when you’re rowing solo. Battling against the waves and making little headway can be exhausting, leaving you helpless and alone. But then, one day, hope appears as a ship that stops nearby, allowing you to board. Not only are you given all the basic survival needs onboard, but in exchange for your help as part of the crew, you are taken to the other side of the sea safely and securely. This is what mutual aid looks like coming together with strangers to help each other in times of need without an expectation of repayment -- just an understanding that we are all in this together and need each other to make it through.
Mutual aid is a practice that has been around for centuries, from early Indigenous cultures to modern communities. One example is the Incan Allyu system, which was used as a form of survival and community bonding among the people of Peru during the 16th century. This system relied on cooperation between members of different villages to pool resources and survive. People would help each other with labor and resources, from food production and trading to providing shelter during times of need. This practice allowed villagers to move forward together, recognizing their interconnectedness and working collaboratively for greater success for all. Today's mutual aid groups draw inspiration from these examples to create sustainable models of collaboration that foster community building and resilience.
With a post-scarcity economy, the concept of mutual aid goes beyond the traditional definition of people coming together to provide resources and support in times of need. Instead, it can be seen as a system of abundance fueled by protocols. Crypto economies use protocols as their basic organizational structure, where value is created through achieving goals and then distributed amongst participants. Mutual aid in this context is not an emergency fallback mechanism but rather the foundation for new models of cooperation and collaboration that allow us to create wealth without relying on scarcity or competition. This mutual aid can help us build greater economic equality and empower communities to thrive.
Despite the potential of mutual aid in a post-scarcity economy, protocols cancan must fulfill their purpose and create value for the system to remain sustainable. If not, users can quickly slip back into resource scarcity and competition as the underlying dynamic. To ensure this doesn't happen, protocols must find ways to achieve their goals and generate lasting value. This requires thoughtful design of incentives, governance models, and social systems that promote collaboration and mutually beneficial outcomes over the competition. Creating an environment where everyone has something to gain from participating in a protocol makes value creation possible and desirable.
Designing protocols for mutual aid in a post-scarcity economy requires careful thought and consideration. For users to trust the system and contribute their energy, they need to understand the protocol's purpose and how it will benefit them. There also needs to be different roles that users can take on, such as stakers or miners, who can receive rewards for their participation. Finally, a fair and transparent value distribution should be implemented so that users don't feel they are being taken advantage of or treated unfairly. Creating these systems is critical for achieving true abundance in crypto economies.