One interesting example of team production with gift exchange that also includes some elements of choosing risk levels is cryptocurrency mining.
In short, cryptocurrencies are decentralized, digital mediums of exchange. They are not backed by any government. A famous example of this is Bitcoin. The way each Bitcoin is initially distributed is through mining. Mining is performing mathematical problems that prove bitcoin transactions are not fraudulent. Anyone can mine Bitcoin using their own home computers. Essentially these bitcoin miners take the place of your credit card company, in terms of tracking and okaying purchases. The first miner to solve the problem correctly is awarded bitcoin. When Bitcoin first started this worked out reasonably well, as there were fewer miners so there was a greater chance to be the 'winner'. However, as the popularity of bitcoin grew, people began to make specialized mining machines whose performance blew that of the home miners out of the water. There are commercial ventures that buy warehouse space and fill it with mining machines. (Interesting sidenote - Bitcoin mining is wildly popular in China, with over 80% of bitcoin being mined there. This is because they have cheap electricity there, a large portion of the cost of mining). This basically put those home miners out of business, as their individual computing power compared to the commercial ventures was basically nil.
This spawned something called mining pools. Individual miners team up and share their computational power. They track each person's number of calculations and then when someone in the pool 'wins' the reward is split amongst all members based on how much computing they did. This made mining a much less risky venture for those smaller miners. They now have at least some guaranteed income, though much smaller than what was possible before.
In terms of the NYT articles, I think that Bitcoin pool mining falls closely in line with both 'How to Get the Rich to Share the Marbles' and 'When a Child Thinks Life Is Unfair Use Game Theory'. Mining follows all the marble scenarios from the first article to a tee. Before pool mining was popular miners saw the work they did as their own, and when they won bitcoin they would not split the prize amongst those that worked on the same problem. Once pool mining existed people saw themselves working together to reach a goal, and as a result, they split the marbles fairly by work done. In regards to the second article, mining was fair for its whole existence. Before the invention of mining pools, mining was fair following the random dictator/auction approach. People accepted that they had their slips in the hat (amount based off of computational power) and they essentially were randomly chosen. Pools follow the tit for tat idea, in that everyone is working together and they each get fairly compensated for the amount of work they do.
I do not think that mining follows the sentiment put forward in 'The Power of Altruism'. Before pool mining, those that worked without receiving the award were not doing so out of altruism. The desire to not work altruistically is what conceived pool mining. This caused more individual miners to stick to the work and even attracted those that did not mine because of the small likelihood of winning. However, this should not be perceived as a slight against the article. For most miners, their work is economically motivated in the first place. They may have the secondary motivation of wanting a government-less currency, but moral motivations do not buy mining machines.
Now with the existence of mining pools each miner gets to choose the risk level of their work. Small miners can avoid pools and hold out hope that they may be extremely lucky and get the entirety of the reward when they solve a problem. They can also join a mining pool and work together like the big time miners but with a lesser chance of reward. Big time miners essentially operate at the same level as mining pools. They can still decrease the risk they have, though, by joining pools and getting a larger share of the pot than the small-timers that are in it.
In short, cryptocurrencies are decentralized, digital mediums of exchange. They are not backed by any government. A famous example of this is Bitcoin. The way each Bitcoin is initially distributed is through mining. Mining is performing mathematical problems that prove bitcoin transactions are not fraudulent. Anyone can mine Bitcoin using their own home computers. Essentially these bitcoin miners take the place of your credit card company, in terms of tracking and okaying purchases. The first miner to solve the problem correctly is awarded bitcoin. When Bitcoin first started this worked out reasonably well, as there were fewer miners so there was a greater chance to be the 'winner'. However, as the popularity of bitcoin grew, people began to make specialized mining machines whose performance blew that of the home miners out of the water. There are commercial ventures that buy warehouse space and fill it with mining machines. (Interesting sidenote - Bitcoin mining is wildly popular in China, with over 80% of bitcoin being mined there. This is because they have cheap electricity there, a large portion of the cost of mining). This basically put those home miners out of business, as their individual computing power compared to the commercial ventures was basically nil.
This spawned something called mining pools. Individual miners team up and share their computational power. They track each person's number of calculations and then when someone in the pool 'wins' the reward is split amongst all members based on how much computing they did. This made mining a much less risky venture for those smaller miners. They now have at least some guaranteed income, though much smaller than what was possible before.
In terms of the NYT articles, I think that Bitcoin pool mining falls closely in line with both 'How to Get the Rich to Share the Marbles' and 'When a Child Thinks Life Is Unfair Use Game Theory'. Mining follows all the marble scenarios from the first article to a tee. Before pool mining was popular miners saw the work they did as their own, and when they won bitcoin they would not split the prize amongst those that worked on the same problem. Once pool mining existed people saw themselves working together to reach a goal, and as a result, they split the marbles fairly by work done. In regards to the second article, mining was fair for its whole existence. Before the invention of mining pools, mining was fair following the random dictator/auction approach. People accepted that they had their slips in the hat (amount based off of computational power) and they essentially were randomly chosen. Pools follow the tit for tat idea, in that everyone is working together and they each get fairly compensated for the amount of work they do.
I do not think that mining follows the sentiment put forward in 'The Power of Altruism'. Before pool mining, those that worked without receiving the award were not doing so out of altruism. The desire to not work altruistically is what conceived pool mining. This caused more individual miners to stick to the work and even attracted those that did not mine because of the small likelihood of winning. However, this should not be perceived as a slight against the article. For most miners, their work is economically motivated in the first place. They may have the secondary motivation of wanting a government-less currency, but moral motivations do not buy mining machines.
Now with the existence of mining pools each miner gets to choose the risk level of their work. Small miners can avoid pools and hold out hope that they may be extremely lucky and get the entirety of the reward when they solve a problem. They can also join a mining pool and work together like the big time miners but with a lesser chance of reward. Big time miners essentially operate at the same level as mining pools. They can still decrease the risk they have, though, by joining pools and getting a larger share of the pot than the small-timers that are in it.
I confess not to understand cryptocurrency, but I want to put in some background that you should have had in your story (yet it wasn't there). The Equifax debacle created a lot of people quite afraid that their own credit card information would be compromised. Until then, I believe, people like me "trusted" that their information was safe. That trust was broken. So people who are doing electric transactions online looked for some alternative that they can take to be more secure. In other words, while your piece focused on the supply side of cryptocurrency, it should have said something about the demand side.
ReplyDeleteThere is then a very different issue that you didn't address, which is the equilibrium price for cryptocurrency should depend on supply and demand. Your story talked about ways that supply would increase, by moving from individual mining to pooled mining. Wouldn't that drive price down.... eventually?
In class last week I briefly surveyed students about whether they had credit cards (most did) and if they had tight credit limits as well (most said that was true). So their credit was rationed and they had to learn to manage in that environment. Credit rationing is a way for the lender to manage default risk in the borrower. I don't understand how cryptocurrency manages that sort of thing.
I wonder if I can give a different example, investing in a mutual fund. Many investors are told to do this so they can achieve the benefits of diversification without investing too much overall. Your use of the expression pooling suggest just this sort of benefit. But I wouldn't call buying into a mutual fund gift exchange, especially if I'm a small time investor only. The diversification benefit is largely there for other investors whether I buy into the fund or not. If that's a reasonable parallel to your example here, maybe you need to reconsider whether this is gift exchange or not.
Bitcoin can be held in a wallet, which can be more secure than credit cards depending on the type you use. At the end of it, security is more up to the user rather than some other corporation. Therefore it could be argued that bitcoin is a more secure medium of transaction.
DeleteEquilibrium price does depend on supply and demand. In the case of bitcoin supply does increase through mining, but overall this does not largely effect the actual price. Many people treat bitcoin as a stock that they invest in, and this speculation changes the price far more than the increase of supply. The volatility of bitcoin is a big problem in getting it to be a viable medium of exchange.
Loaning cryptocurrencies without fiat currency as a collateral is not something I could find any example of, so there aren't really any institutions that are risking anything that way.
In regards to your mutual fund example, I do not think the parallels are there. I may not have explained it clearly enough, but when miners use a pool they are depending upon each other to receive the award. You can think of bitcoin mining as a lottery. You can buy one lottery ticket and hope to win big, but that is unlikely. A pool is when many people buy lottery tickets together, then if one of the pool members win they will split the lottery prize amongst themselves. I think that this counts as gift exchange, since one person technically wins but they disburse the prize amongst all the pool members because of their agreed upon strategy. Please let me know if I am thinking of this the wrong way.