Crypto is About Recreating Cities
The complete transformation of society from physical to digital
Today, I’ll be discussing something slightly different than just markets. It is something I have been thinking a lot about. What is crypto and how will it impact the society of tomorrow?
TLDR
Cryptocurrencies allow for incentives of a community to be structure-able. Users become the owners, brand ambassadors, and employees.
Capabilities of Blockchain & Crypto
Yes, cryptocurrencies are allowing for global transaction of value and internet pictures (NFTs), but it is way more than that. Crypto is transforming how we interact with each other.
Ownership of assets is decentralized and global. Value is held by each individual with no counterparty risk. Crypto is allowing for a true sovereign individual.
But the big picture is not multiple sovereign individuals. It is about a community of sovereign individuals choosing to work with each other.
Each cryptocurrency protocol is programmatic. This allows for a community to develop a currency for the community and programmatically set incentives for the community paid through its own currency.
An Example: Gaming
Ok sorry ladies, I am going to discuss RuneScape, a medieval fantasy multiplayer online role-playing game (here).
Apparently its still a thing?? (here) RuneScape NFTs anyone?
Ok seriously though, RuneScape is such a good example, it hurts.
In the game, your player plays with others around the world. You can level up based on your activity. You can go on quest. Or you can just trade and barter with others at exchanges (swords, armor, food, etc). You choose your path.
But remember, it takes certain skills to do certain things. Maybe you have to complete a quest to be able to wear certain armor. Maybe you need a certain amount of money to buy a cloak that gives you certain powers.
The game incentives you to do certain things to get what you want.
Now imagine this combined with its own cryptocurrency. The game can set incentives such that the players in the game want to help each other, they want to increase the number of people in the community, and ultimately the incentives align such that the value of the cryptocurrency goes up.
Players become a user and owner.
This changes everything we know about society.
Where We Are Going
Chris Dixon of a16z has an incredible thread and one part of it really stands out:
Incentives are fully aligned!
Chris Dixon uses the word “networks” but I think “community” or “city” is more appropriate.
It is like a city. Let’s say the city has its own currency or token. The community of residents aka token holders can vote on governance issues. They can receive tokens for doing certain things like cleaning parts of the city, volunteering, working out, having a job, whatever it is. The community can choose to set the path it wants. Whatever it thinks will increase the value of the tokens.
Residents act like owners.
Here is the key difference than what is currently happening. Sure I can make the city a better place but cleaning my street but I don’t receive any value for my work. Only what betters me, not my neighbors. Incentives are not perfectly aligned.
Now imagine this online. You can have a Soho House like structure.
Token holders own buildings around the world. The token holders can receive tokens for doing things.
But again this is not like receiving an award for $10 for giving a referral. It is like the owner maintaining their business.
Token holders become the users, owners, brand ambassadors, and employees. Perfect alignment of the community with the community’s goals.
Imagine an artist, brand, company, or individual with a following or userbase. They can incentivize their community to make the community better.
A musical artist could give special rights to token holders such as access to concerts, previews of albums, or even a percentage of revenue from the artist’s music. The community will participate in the success of the artist. They are incentivized to make the artist successful.
Crypto allows for cities and communities to be built digitally.
A Basic Example of Aligned Incentives
This is getting a little long but below is a quick example where increasing usage of the protocol increases the value of the tokens.
A prime example of this today is on the Ethereum blockchain.
With every Ethereum transaction, there are transaction fees. And a portion of these fees are burned (aka removing the token used to pay the fees from the available supply, increasing scarcity).
Think about what this means as an Ethereum holder. The Ethereum holder wants to increase the transactions on the protocol so that the scarcity of Ethereum goes up, increasing the value of the holders’ tokens.
But transactions only occur if they are voluntary. They want to make Ethereum more useful for others, increasing network value. And according to Metcalfe’s Law, network value is exponential. Bitcoin and Ethereum prices are following Metcalfe’s Law.
We see this today with NFTs. Every NFT transaction on Ethereum has transaction costs. I, as an Ethereum holder, want more NFT projects and transactions to occur on the protocol. This will indirectly impact the value of my tokens.
Maybe you disagree with the value of NFTs but that misses the point. NFTs are the art and culture of these communities:
Legacy players in gaming get this too
Authored by Derman Capital (Twitter)