What are cryptoeconomics?

The STEEM blockchain is perhaps a good illustration of a concept often referred to as “cryptoeconomics”. To understand this, it’s important to understand that each blockchain is essentially its own economic system, where the value is captured as tokens. For example, Bitcoin is the token for the Bitcoin blockchain, and Ether is the token for Ethereum. The economics behind blockchain tokens requires us to shed our understanding of how a traditional company works. A traditional company organizes value exchange between supplier (which can be itself) and consumer and captures the surplus as profit which is then distributed via cashflows out to the shareholders. It is on this expectation of future cashflows that the company is then valued. A blockchain network facilitates value exchanges directly between supplier and consumer at a cost to the network that is equivalent to the reward for mining (recording) the transaction. Because miners are paid in tokens, all of the value is paid out to the network via tokens. Tokens can also be used in exchange for services on the blockchain, so in that way, they can be like tickets to a fair. Additionally, the price of the tokens appreciates as more people buy into the limited supply (either for use or speculation); therefore, the value of the network increases when the network is expected to grow. In this way, the token can also act as shares of equity in the underlying blockchain. In essence, valuing a blockchain is more akin to valuing a monetary system (based on GDP/ economic productivity) rather than profits and cashflows.