The Incentive Revolution
Everything comes down to incentives. Cryptocurrencies and web3 enable new incentive structures. Welcome to the incentive revolution.
The cryptocurrency and blockchain industry is enormous and broad. It is snowballing, and it is attracting talent from around the world. Why?
Why is this industry so interesting? What makes it so powerful? Why should you be excited about cryptocurrencies, blockchain, and web3?
One of the most exciting things about crypto/web3 is what we can refer to as the Incentive Revolution.
Incentives, the motivations to (or not to) do something, are the core driving force of so much that happens in the world. Everything comes down to incentives. The new incentive structures enabled by cryptocurrencies/web3 are fascinating.
Tokenomics is a relatively new term that now refers to the economic structures of tokens. Blockchains like Ethereum enable the creation of tokens that can be exchanged and traded. There has been an eruption of new tokens created (Click here to understand the different kinds of tokens/cryptocurrencies).
Thousands of tokens have been made, and it is incredibly interesting to see how companies can create micro-economies in their products. They can use tokens to incentivize users, reward early adopters and employees and create governance structures for the company.
The fact that companies can issue tokens means that it is possible to make regular people, like you and me, into owners or investors from day 1. This would be like Uber giving shares in the company to the first 10 000 drivers and riders.
This reward for taking risks is a tool to align incentives. People who are investors will be advocates for the company or product. They will promote it to their friends and family. They will defend it when it gets attacked. They are incentivized to want the company to grow and succeed.
Tokens can be a useful and powerful incentive tool. It comes with risk and reward, and great thought and care should be given when figuring out how to use tokens. The incentive will shape the outcome.
Another example of the shift in incentives caused by web3 and crypto is the move to decentralization.
Decentralization lies at the heart of crypto/blockchain/web3 innovation. Decentralization means that there isn't one person or entity which controls the network.
Think about the internet. The internet is decentralized — it is an open piece of infrastructure that allows anyone, anywhere, to read from it, write to it or build on it. This is incredibly powerful for many reasons, and I want to focus on the fact that anyone can build on the internet.
When Twitter and Facebook were first created, they had open APIs. An API is a technical term that refers to code that allows developers to use someone else's underlying infrastructure or data. This means that any developer could use data from Facebook or Twitter to create a new product like a game, social app, or advertising platform. Facebook and Twitter allowed these kinds of apps to be built. After a while, they decided to close their API, and they effectively destroyed the businesses that had been built on top of them.
This shift from an open API to a closed API means that these companies own their users' data and the underlying platform. Thanks to decentralization, all the data, and code that powers applications on the blockchain is open and accessible by anyone. The rules which govern these decentralized protocols are set and will not change. This enables people to build with confidence on top of them.
Decentralization creates a new dynamic — one where companies do not own the data or platform. The incentives structures are shifting with this new dynamic because companies can no longer capture all the value from user/customer data. Users are not locked into one platform and the code which powers the platform is open-source. This creates more competition, transparency, and, most importantly, more innovation.
When anyone, anywhere can build and innovate, magic is created. The most curious minds, the most talented people, and the most brilliant builders flock to decentralized systems like the internet and blockchains. The speed and quality of innovation can not be matched by centralized entities.
These examples of changes in incentive structures are two of many enabled by crypto/web3. There are all kinds of interesting things we can do with programmable money and I am so excited and interested to see how this industry moves forward.
