Funding the Evolution of Blockchains – Fred Ehrsam – Medium

Coinbase cofounder Fred Ehrsam’s post, Funding the Evolution of Blockchains:

Ethereum is starting to suffer from a tragedy of the commons problem: while lots of people own ETH and would benefit from Ethereum improving, the economic reward for any single individual improving it is low.

Ehrsam looks at how to give incentive to developers to continue to work on core protocols, like Ether, when launching new tokens is more lucrative:

The lack of incentives to work on core protocols is reflected in the large number of people working on Etheruem tokens vs. the small number working on Ethereum itself.

And he projects there are significant improvements that can be made:

Improvements to these protocols would create massive amounts of value. For example, let’s say someone or a group of people implemented an Ethereum scaling solution like sharding or Plasma. Each of these improvements would likely increase the value of Ethereum by over 10%, creating roughly $3 billion in value at current Ether prices.

One possible solution he proposes is inflation funding:

Inflation funding is where things get interesting. It allows economic rewards that are otherwise unthinkable. Remember, if Ether holders believed an upgrade (ex: sharding) would make the price go up by >10%, they’d be happy to pay close to 10% of their tokens for it. That means Ethereum could crowdfund a $3bn feature bounty by inflating the number of ETH by 10% and pay the newly created tokens to the creator(s) of the upgrade.

Ehrsam points out that protocols that offer good incentives will become stronger over time, thus making it important to build that in correctly from the beginning.

So, perhaps the highest leverage thing protocol designers can do is think about how to engineer the evolutionary characteristics of their blockchains — specifically, the economic incentives for anyone to come along and improve them. The best engineered organisms can outpace others, even if they start smaller or later.

This can be the biggest step function change in the rate of innovation in the blockchain space if implemented well. By harnessing their decentralized nature they can evolve faster than a centralized organization ever could.

Would it be possible to use a built-in sink to create an incentivization pool to reward developers that enhance the protocol – or even are most active users of the token?


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