Cryptoeconomics of Public vs Private Networks


I’ve been thinking a lot about attacks for cryptoeconomic systems, and it seems like there’s consistently an order of magnitude more attacks (at the cryptoeconomic level, not security/privacy) for public systems. When all information is public knowledge influence and manipulation through signaling or coercion become significant factors. While the base layer protocols are cryptoeconomically secure, the applications and platforms built on top of the base layer, or even applications and services related to the blockchain that aren’t on the blockchain at all (I’m looking at you marketing/advertising), are bottlenecks where censorship and permission allow for walled gardens and regulatory influence. These are also the layers where 99% of people actually engage with and use applications.

Think about the internet: all of the protocols themselves are relatively ok, and for a while the web promised the same goals of permission-less innovation and decentralization that we love talking about, but it’s the applications built on top of those protocols that captured all the value and hold all the power. While the protocol might not censor emails, Gmail certainly can. While Ethereum might not censor a tx, Coinbase certainly can. Most users don’t care, but the promise of cryptoeconomics (in my mind) is to create positive sum incentive systems where users of the system are rewarded for contributing to that system (and punished for not). This really isn’t possible if all data is publicly available and 2nd layer solutions and on/off ramp services can influence and censor access for their own interests rather than the interests of the on-chain communities.

I’ve been thinking about this, a lot, and would love to jam if anyone agrees, disagrees, or is excited about emerging technologies like ZK-crypto, STARKS, dandelion routing, etc… that can help prevent corporate capture on public blockchains :slight_smile:


While the protocol might not censor emails, Gmail certainly can.

Absolutely agree. This is why I think it is extremely important that the cultural movement of decentralization remains strong as long as possible. The foundational technology we build now will have a large impact on what grows out of it. For instance, developing a good decentralized private key management system will be critical if we want to prevent large entities from having outsized control over our identities. This is why V is quite into social recovery of private keys instead of trusting large central authorities (which I admit I was a fan of for quite some time :sweat_smile:)

There are a number of areas in which protocol engineers that are (a bit) ideologically motivated can have an oversized impact right for just this reason. A random list of things I see right now are: 1) p2p messaging, 2) anonymizing tech, 3) mesh networks, 4) private key management, 5) p2p proof-of-human verification. (Note that there’s no way to know if any or all of this tech will even be good for humanity, but for some reason it still seems interesting)

So yes! Let’s prevent perverse incentives from growing out of this decentralization movement… it would be nice to actually have made a positive impact in the world after-all :stuck_out_tongue:


Areas in which protocol engineers can have an oversized impact:

I thought that’s what Whisper was doing, but everytime I check back they’re made ~0 progress (at least from what I can tell) :confused: Do you know if anyone’s actually using that protocol, if there are better alternatives, or if I just suck at research and it’s a flourishing vibrant community that’s evading mere muggles such as myself?

So much to unpack here… but everyone I talk to who even mildly cares thinks about privacy things of it as a “nice to have” vs a necessary component of practical censorship resistance. It’s like global warming where any one thing usually isn’t that noticable, but as data grows and grows it can be aggregated and analyzed and used to nudge behavior in very real ways.
Also, when you look at it from a game theoretic perspective security and privacy require more work for developers to learn about and implement, more effort/education for end users, and it (generally) reduces the amount of social connectivity or economic rent either can extract from a platform/service. It’s not exactly a winning strategy Maybe that’s just because we’ve spent 100X more resources building and using insecure protocols, but even still it seems like the incentives just aren’t there. It’s almost like a prisoner’s dillema where, unless you’re in a niche field, if you take the time to implement strong privacy and security your competitors will probably build their stuff faster and make more money doing it.
The struggle is real. Curious to hear your thoughts on incentives for privacy and how to help people see the larger game of how it impacts platforms as a whole and deteriorates censorship resistance vs narrow speed ups or profits today.

I honestly don’t know much about these other than that they’re rad af. I did reach out to the Mustekala guys though after seeing Péter Szilágyi’s presentation on data leaks in Ethereum nodes. They straight up told me that they are implementing 0 protections against data leaks and it’s not a priority because it’s not a priority for Ethereum as a platform… :confused:

When you say, “This is why V is quite into social recovery of private keys”, who is V?

Like Trustlines? It’s honestly one of my favorite projects and I kept trying to brainstorm ideas to make p2p social graphs that organically grow rich data communities via sharing access to things like with friends of friends on FB, reputation by vouching for people like on LinkedIn, or believably weighted voting like Bridgewater and Colony are doing, but Trustlines seems very focused on the currency aspect of “community money” the last time I checked.

Dude… don’t even get me started with all the ways you can attack this stuff. It’s honestly really scary and I wish more people would listen to Vlad or the people who failed in web 1 and 2. There’s so much room for good but 10X more room for manipulation, cartels, and extraction of economic/technical rent.

Yes! That’s why I care so much about cryptoeconomics, because if we can figure out a generalizable framework that works, then communties can start to create and cultivate value within their networks (like a community garden) vs on someone else’s platform (like a serf). Hopefully cryptoeconomic networks will be an evolution of human cooperation that allows us to not only create value but avoid needless disputes and competitions. Positive sum > zero sum :slight_smile: