Who are the free riders in crypto?

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Have you heard of free riders? You can read a definition of the term here.

Vitalik Buterin, the ethereum founder, Microsoft researcher Glen Weyl and Ph.D. of economics at Harvard, Zoë Hitzig have just written a paper on the topic and how free riders are affecting the cryptocurrency ecosystem, according to a report by Coindesk.

The study by Buterin & Co describes free riders as “ people or businesses that profit from the under-provision of public goods.” And, in addition to that it says, “the more people [these public goods] benefit the more they will be under-provided.”

The problem it seems is that whilst free rider activity isn’t confined to the crypto space, in the crypto sector they create “harmful incentives for the funding of blockchain projects.”

Buterin & Co’s paper, “Liberal Radicalism: Formal Rules for a Society Neutral among Communities,” seeks to allow groups to allocate funds for the maintenance of public goods and services without becoming vulnerable to the “free rider” problem. What they are suggesting is a system that is close to Quadratic Voting, which is a form of stake-based voting championed by Weyl in a recent book, “Radical Markets.”

While Quadratic Voting allows participants to vote with crypto tokens according to how much they care about an issue, Liberal Radicalism (LR) takes the same concept and expands on it to include how communities contribute to public goods, such as software development, cryptocurrencies and journalism.

Liberal Radicalism has come to the fore in the crypto community due to what Zoe Hitzig describes as a crisis within liberalism. She said: “These tensions are increasingly manifesting in discontent with existing liberal democratic systems and the rise of authoritarian populist alternatives on both the left and right.” What the authors of the paper are looking for is a more cooperative society. The paper states: “”Under the standard selfish, independent, private values, quasi-linear utility framework, our mechanism leads to the utilitarian optimal provision of a self-organizing ecosystem of public goods.”

They believe that a move towards LR could have a significant impact “on projects like ethereum, zcash and other projects that rely on non-profits to distribute funding to the development of the network.”

Basically, LR hopes to create a form of financing that better leverages the wisdom of the crowds, and align financing better with the ethos of cryptocurrency enthusiasts.

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