Vitalik Buterin, Microsoft Researcher And Harvard Economist On Crypto Funding Solution To Free-Riders Problem


Free-riders are people or businesses that profit from the under-provision of public goods. And, on top of that, “the more people [these public goods] benefit the more they will be under-provided.”

This problem of free riders has plagued the crypto space, at least, that's the contention of a new paper, written by Ethereum founder Vitalik Buterin, Microsoft researcher Glen Weyl and Ph.D. of economics at Harvard, Zoë Hitzig.

Titled “Liberal Radicalism: Formal Rules for a Society Neutral among Communities,” the method described – a system written in code – seeks to allow groups to allocate funds for the maintenance of public goods and services without becoming vulnerable to the “free-rider” problem.

Given below is the abstract of the paper.

“We propose a design for philanthropic or publicly-funded seeding to allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods. The concept extends ideas from Quadratic Voting to a funding mechanism for endogenous community formation. Individuals make public goods contributions to projects of value to them. The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received. Under the “standard model” this yields first-best public goods provision. Variations can limit the cost, help protect against collusion and aid coordination. We discuss applications to campaign finance, open source software ecosystems, news media finance and urban public projects. More broadly, we offer a resolution to the classic liberal-communitarian debate in political philosophy by providing neutral and non-authoritarian rules that nonetheless support collective organization.”

Co-author of the paper Hitzig said that interest is already building between many different groups. That currently includes about “a half dozen” cryptocurrency communities looking to potentially implement the technology, as well as “other innovators and philanthropists.”

A followup to Glen Weyl’s Radical Markets

The new paper is part of an ongoing collaboration between Buterin and Weyl since the publication of the latter's “Radical Markets” book. The duo co-authored a blog post in May, in which the authors discussed their shared interest to “harness markets and technology to radically decentralize the power of all sorts and shift our reliance from authority and to formal rules.”

Defining liberalism as the guiding principle underlying The Enlightenment era, the authors summarize the trend as, “an anti-authoritarian commitment to neutrality across ways of living and valuing.”

Expanding upon that idea, Hitzig said,

“the crisis of modern liberalism” stems from an “unhappy marriage” of capitalism and democracy that “produces frictions that make it highly inflexible, inefficient and actually fundamentally illiberal.”

Regulating The Environment

Additional to the incremental funding mechanism Liberal Radicalism proposes, there are some characteristics that the authors believe will significantly benefit the cryptocurrency ecosystem. For example, small contributions are heavily subsidized, while large contributions are not.

As such, according to the authors,

“Under the standard selfish, independent, private values, quasi-linear utility framework, our mechanism leads to the utilitarian optimal provision of a self-organizing ecosystem of public goods.”

The paper notes that this could have an immediate impact on projects like ethereum, zcash, and others that rely on non-profits to distribute funding to the development of the network.

This process of grant-making is “reasonably centralized,” according to the paper, relying on the curatorial judgment of a select group of individuals, and is therefore,

“both poorly attuned to the needs of the communities and, perhaps more importantly, antithetical to the principles of decentralized authority on which they were founded.”

While the paper anticipates creating a form of financing that better leverages the wisdom of the crowds, and align financing better with the ethos of cryptocurrency enthusiasts.

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