The Tragedy of the Commons is a well-established socio-economic theory. The theory refers to the hypothetical example of shared grazing land, or "the commons." William Forster Lloyd argues people act in their self-interest. This leads to depletion or spoiling the common. Ecological "tragedy" scenarios such as overfishing often reference the theory.
Two primary solutions to this theory are regulation and private ownership. Regulation provides rules, checks, and measures on the resource. Private ownership gives one party self-interest in maintaining the resource.
Both approaches have their limitations. Regulation can never be perfect. Whole mini-economies can spring up around loopholes and be manipulating the system. Examples are often called "perverse incentives."1
Private ownership simplifies things but also restricts the scope of protection. The private owner will act against spoiling the "common." But could also levy a cost to cross the land. Or they could repurpose the land for personal gain but against the interests of the broader area.
In a previous article, I discussed the possibility of price manipulation of tokens. Ownership in the token makes you self-interested in the success of the token. In many ways, this is both a bug and a feature.
Nothing is original. These models exist in the guise of clubs, co-ops, and other sharing models. Arguably everything through to time-shares, open source2 and Tenancy in Common (TIC).
Tokens present a new way to codify and scale these models. Tokens are a versatile instrument. A token could represent everything from a piece of land, a bit of compute time to a piece of gold.
In the most novel forms, it could represent some unique combination of these. Some of the more promising concrete examples are around liquidity and arbitrage. Or providing hedge opportunities at a fine-grain.
Whilst versatile, the Blockchain is strict in being quasi-immutable3. It has one of the same core issues as regulation; Getting the rules right requires a lot of foresight.
A fishery is an oft-cited example of the tragedy of the commons. Examples cite the productive loss of fisheries due to overfishing. In some cases, these were systemic collapses.
Turning the fishery into a token allows broader benefit. You can own some level of output as a fisher. Or as a consumer. It can benefit infrastructure such as ports or markets. All parties can invest (or hedge) against the token and profit from its sustainable use. The trick is structuring the token for the broadest, shared benefit.
That's a simple example. More complex implementations could combine tokens from distinct fisheries or primary producers. Or you could include broader parts of the supply chain.
To the "you're reinventing money" pundits - you're right. These concepts are well-established in systems of company ownership, bonds, futures or insurance. That's not the trick. In this case, tokens atomize these concepts and recombine them.
This recombination is quite complex, and possibly quite naive. It's true it will take a while for those models to shake out. If at all. I remain a skeptic, deep down. That said, the potential upside is significant. The downside? Well, we go back to the ways we've always done it.
We've not even started to test the limits yet. Tokens have a potential for complex infrastructure, research, and communities. Even cities or beyond. Perhaps even creative arts, social media.
There is a whole raft of new applications yet to emerge. The question today is how we spot the good ones.