Bitcoin Technology: A Festival of the Commons

Open-source currencies create new property paradigms

Open-source technologies such as bitcoin are a combination of open-source software, common technology standards, and a participatory decentralized network. These layers create a three-tiered commons where innovation contributed by users adds to the common platform, which makes it better for everyone.

But for the last few hundred years, we have generally thought of goods as best belonging to the private domain. Consider that, in economic terms, the “tragedy of the commons” is a market-failure scenario where a shared public good is overexploited. In this scenario, each user has an incentive to maximize his or her own use until the good is depleted.

The example used to illustrate this economic theory is a grassland (a “village commons” in British English) that is unregulated and overgrazed by cattle until it deteriorates to a muddy field. The tragedy of the commons occurs when individual self-interest combined with a large economic externality (the cost to the commons) create a market failure for all.

The opposite of the tragedy of the commons is called a “comedy of the commons,” but I prefer to use the term “festival of the commons,” which conjures a better visual example: a grassland used to hold a community festival that benefits everyone. The comedy of the commons was first stipulated as an economic theory governing public goods such as knowledge, where individual use of the common good does not deplete the good but instead adds to it.

The sharing economy, which consists of open-source software (for example, Linux), participatory publishing (Wikipedia), and participatory networks (BitTorrent), creates conditions where increased participation adds to the good’s underlying value and benefits all participants. In such cases, the underlying good is knowledge, software, or a network, and its availability is not depleted by individual use.

Software applications are themselves open-sourced and add to the commons, offering new capabilities for all subsequent innovators. Enhancements to the protocol bring new features across the entire network, allowing the ecosystem to build new services around them. Finally, as more users adopt the technology and add their resources to the P2P network, the scalability and security of the entire network increases.

Open-source currencies have another layer that multiplies these underlying effects: the currency itself. Not only is the investment in infrastructure and innovation shared by all, but the shared benefit may also manifest in increased value for the common currency. Currency is the quintessential shared good, because its value correlates strongly to the economic activity that it enables. In simple terms, a currency is valuable because many people use it, and the more who use it, the more valuable it becomes. Unlike national currencies, which are generally restricted to use within a country’s borders, digital currencies like bitcoin are global and can therefore be readily adopted and used by almost any user who is part of the networked global society.

The underlying festival-of-the-commons effect created by open-source software, shared protocols, and P2P networks feeds into the value of the overlaid shared currency. While this effect may be obscured in the early stages of adoption by speculation and high volatility, in the long run, it may create a virtuous cycle of adoption and value that become a true festival of the commons.

The festival is now open. Who will join it?

Further Reading

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