Let’s imagine you want to build from scratch an economic ecosystem, where people have to interact with each other by using common resources and the whole system must sustain itself and not go to complete chaos within the first year of its existence. What should you do? Of course, you are based on the proven global economic theories and their authors. If you ever wondered if is there really anything behind blockchain, this article is for you.
We’ll be using our Noah blockchain as an example. It’s a dPoS system, where users delegate their coins to nodes of their choice and receive in exchange a reward from them for block generation. In a few words, there’s a lot of economic interactions between participants, and we’re gonna highlight what the fathers of the economy would say about it.
Adam Smith and his invisible hand
What does a Scottish man, who lived in the 18th century, have to do with a decentralized Noah network? The thing is, he would be glad to see one more demonstration of how his theory works in practice. In his work “The wealth of nations” he defined many terms: the value of products, inflation, and explained how markets self-regulate. Adam was the first to tell us that “the real value of everything is the toil and trouble of acquiring it”, it’s not how much delight it gives us. That means that we can value any item by the amount of work and resources that we spent to produce it.
Also, he explained how the price of every asset, for example of a crypto token (he didn’t write about crypto tokens though, but he could), is defined by the balance of buyers and sellers, or supply and demand. If supply is greater than demand, then the price of a crypto token will be falling. If demand is greater than supply, for example, when tokens can be used to stake, and most of them are already staked, there’s nobody willing to sell, and the price increases.
Blockchain networks, such as the Noah project, are regulated according to these rules. People don’t spend electricity to produce blocks as Bitcoin miners do, but the network delegates still have to provide powerful nodes for the needs of the network and have to own a large stack of tokens to be elected as delegates. In exchange, they receive a reward – a payment for their resources, in the form of newly minted additional tokens and fees. The creation of new tokens serves as inflation for all other participants, increasing the supply of Noah tokens. Delegates, at the same time, should be happy – they don’t lose anything to inflation, they are at advantage, and they also get fees that can be sold on the market. Thus the theory by Adam Smith works flawlessly in the Noah ecosystem.
Hayek vs government
Friedrich August von Hayek was another economist who could like blockchain economy if he lived in modern days. This man could be one of the most fierce blockchain enthusiasts, bombarding Twitter with his thoughts about the government stealing people’s money, and eclipsing Nassim Taleb’s media popularity. In other words, he was against the government, he was a libertarian.
Hayek supposed that a government can’t be allowed to plan the economy, because it doesn’t have enough info – too many things going on at the same time make the economy unpredictable. It’s possible to regulate it by injecting and taking liquidity from the banks and financing various social spheres, but it’s impossible to plan it from A to B. Hayek proved it by outliving the Soviet Union – he died in 1992, after making sure that the planning economy doesn’t work.
The Noah blockchain also doesn’t try to regulate how its users deal and communicate in the network. It simply lets the community self-regulate, as a free market, and this strategy works flawlessly. Hayek would have liked it if he would see this economy.
Friedman approves increasing the supply
The shape of the world economy is heavily influenced by the theories of Milton Friedman. He created monetarism – the idea, that the money supply increase, coupled with productivity increase is good for the economy, and the US government actively followed his recipe. He was an advisor to Ronald Reagan and Margaret Thatcher – a worthy accomplishment by itself! His books were published even in the communist states, who were usually unfriendly to the ideology of damned capitalism.
What would Friedman say about blockchain? In general, it also follows his theory – the supply of tokens steadily increases, but the number of users, decentralized applications and overall usage, which is equal to productivity, also grows. That means that the demand for Noah token should grow too, and the supply increase should fulfill that demand.
The blockchain technology exists only for a decade, but it has already proved its reliability and the fact that it represents a viable economic ecosystem for its users. The explanation is simple: the creator of the first blockchain, Satoshi, heavily studied not only math, cryptography, and coding, but also the modern economic theories. We, at the Noah Foundation, try to follow his ideas, and the ideas of the most influential economists of modern history – Smith, Hayek, Milton, and many others, to build an ecosystem for everyone’s use. Only the network that can sustain itself in the long run without any external regulation can be successful. And we’re building such kind of a system.
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