Big Ideas in the Ethereum Ecosystem

Ethereum Founder Vitalik Buterin published a recent white paper on his website at Vitalik.ca on the topic of how to create sustainable systems to fund R&D for the Ethereum ecosystem (and digital “public goods” in the Ethereum ecosystem more generally). In his article Vitalik posits that these systems can even be used to fund public causes in the real world.

Vitalik posits that legitimacy should be the key driver for sustainable funding allocation mechanisms necessary to finance these “public goods”.

He defines legitimacy as a social technology wherein people coordinate in accepting some protocol or outcome in order to benefit from the coordination (or at least to avoid being damaged from acting inconsistently with the majority). He further indicates that legitimacy can arise from psychologically appealing factors such as the definitiveness of brute force or specific outcomes or even by intuitive factors such as fairness or participation.

The article highlights a few Ethereum R&D projects that have achieved the goal of funding R&D projects on the basis of participation legitimacy such as Gitcoin Grants. Gitcoin Grants uses quadratic funding function wherein the more people choose to donate to a particular R&D project, the more that Gitcoin contributes (in qudratic proportion to the number of people donating).

Vitalik proposes that a similar model can be deployed more broadly wherein commercial projects that devote a portion of their treasuries to public goods development can be rewarded with some sort of grant matching or public support mechanism (which he does not clearly describe).

Vitalik does seem to link this idea to non-fungible tokens (NFTs): he suggests that NFTs, because they are definitively possessed (digitally) and attached to a verifiable characteristic, can objectively demonstrate and signal to the outside world that the holder has donated to a specific cause.

Interestingly, he highlights how NFTs already have demonstrated how they can be used to raise enormous amounts of capital for artists, in exchange for which, the new owner of an NFT can signal that they are a patron of the arts and later benefit from being the legitimate owner of this status as a patron and owner of a piece of digital art and can eventually pass on this status and art to a buyer, all while the original artists automatically gets a piece of the later sale.

Vitalik suggests that creating a market for NFTs that verify that the owner has supported specific causes such as “global poverty relief, scientific research, creative arts, local journalism, open source software development, empowering marginalized communities” could raise large amounts of capital for these causes.

For me the takeaways of this article are:

1. Ethereum developers are thinking about legitimacy as a social technology and thus are signaling to the broader developer community that Ethereum values social coordination. The Ethereum ecosystem can call on this legitimacy and coordination to advance the development of the ecosystem even despite challenges like miner mutiny or misguided governmental actions.

2. The Ethereum ecosystem can coordinate the raising of large amounts of capital for digital infrastructure development, important public causes, charity, and the arts.