The Future of Blockchain Needs Economics

A Marketplace in Hong Kong

A Marketplace in Hong Kong

The cryptocurrency industry has been talking about 2018 as the year of rising decentralized blockchain platforms. These platforms broadly fall under two categories: 1) technologies that scale rapid, secure, and cheap asset transactions — for instance Lightning Network, Stellar, and 0x; and 2) technologies that enable tools and modules for people to easily write contracts — for instance REQ, LINK, and various technologies that facilitate Ethereum dApps.

To see these platforms live up to their promise, we’ll have to build structures on top of them. The future will have to see the design of new decentralized markets that can build upon these platforms to tap into existing allocative inefficiencies, and empower people to coordinate with each other with incentives aligned across time.

A subfield of economics, applied market design, can help! In the past, successfully designed markets — for instance, Hal Varian’s work with Google on ad auctions and Al Roth’s residency matching program — were key to making systems profitable. Here are some examples of ways we can use economics to solve problems through blockchain tech.

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