Prisoner’s Dilemmas: XVI – Coinbase’s Bankruptcy Policy

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Trust is one of the guiding principles of any business relationship. It is the proverbial glue that has spurred the interest in decentralized digital currency over the past decade. Most people lack the technical literacy to mine Bitcoin or navigate the complexities of blockchain transactions without a middleman, a cryptocurrency exchange. Hence the surge in the popularity of  FTXCrypto.comKraken, etc. One of the earliest entrances to the crypto exchange market, Coinbase, revealed in its first-quarter earnings report that it could hold on to user assets in the event of bankruptcy. Per Fortune:

Coinbase said in its earnings report Tuesday that it holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Yet the exchange noted that in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.

https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/

Only subverting the property rights of the investors utilizing the exchange, but it also sullies the image of one of the pioneers of this nascent investment market. In the absence of trust and reliability, there is no reason for patrons to continue doing business with Coinbase. With no guarantee that their investments are secure with the exchange, customers will seek alternative service providers. In effect, Coinbase’s own internal bankruptcy policy has created a Prisoner’s Dilemma. By implementing a policy that would not allow the user to claim their assets in the event of the firm’s financial demise, Coinbase is veering away from the interests of its customers. A foolish decision, but a defection. Patrons will reciprocate this defection by transferring their assets to either cold storage or other reputable crypto exchanges. The unfortunate consequence is that trust in the crypto community will be eroded. Cryptocurrency was founded on the principles of permissionless, immutable, and decentralized transactions and this culture will lose traction due to the infidelity of unscrupulous service providers. Especially considering the absence of trustworthy exchanges, the technical literacy required to participate in the crypto sphere is far too high for anyone without a programming or financial background. Effectively puts the whole claim of cryptocurrency being a path to financial inclusion into question. 

Prisoner’s Dilemmas-XV: Sugar Tariffs

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“..Look at the United States. There is no country in the world where the law is kept more within its proper domain—which is, to secure to everyone his liberty and his property. Therefore, there is no country in the world where social order appears to rest upon a more solid basis. Nevertheless, even in the United States, there are two questions, and only two, that from the beginning have endangered political order. And what are these two questions? That of slavery and that of tariffs; that is, precisely the only two questions in which, contrary to the general spirit of this republic, law has taken the character of a plunderer…” Frédéric Bastiat- The Law (1850).

The tendency for people to favor protectionist policies is an understandable fallacy, but a fallacy, nevertheless. Some Americans are under the erroneous assumption that they have a moral duty to keep domestic jobs from being outsourced. Much of this sentiment; was fostered by campaigns waged by organized labor throughout American history. It is difficult to tell if the buy American fallacy is the byproduct of union propaganda or an intrinsic sense of nationalism and economic jingoism. Regardless of whether the American public is receptive to their pithy buy domestic slogans, the union interests frequently get their way. The best example is the enduring specter of import tariffs that have plagued American economic policy for centuries. The earliest example is the Tariff Act of 1789, which was strongly favored by none other than Alexander Hamilton.

Arguably one of the most notable tariffs on the books is related to the importation of sugar. The tariffs placed on foreign sugar have been upheld through various laws over the years, starting from the nascent period of the republic.

“…On brown sugars, per pound, one cent. 

On loaf sugars, per pound, three cents. 

On all other sugars, per pound, one and a half cents

(Tariff Act of 1789, P. 25)..”

From a game-theoretical standpoint, consumers are the first ones to defect. If imported sugar is cheaper American consumers gravitate toward buying the less expensive Caribbean sugar. The lobbyists for the sugar industry work to pressure lawmakers into keeping import taxes on foreign sugar. The collective pressure placed on Congress to place and uphold tariffs can be considered a defection by the domestic sugar producers. Many economists and political scientists assume that the marginal increase in the cost of sugar would be negligible to an individual customer. In turn, fulfilling the enduring axiom of Public Choice theory; concentrated benefits and dispersed costs. Few households consume enough sugar to desire to change their baking and coffee flavoring habits. Although, these costs are salient to commercial confectionary producers who purchase mass quantities of sugar for domestic and international retail goods. It has led to firms relocating production facilities to countries without sugar tariffs (Life Savers plant moving to Canada, p. 4). Technically, this could be a defection, but the irony is that it undermines the moral initiative of keeping domestic jobs within the bounds of the United States. But not every company opts to move their factories abroad, another substitute for cheaper inputs. Hence, the rise of soft drink producers using high fructose corn syrup instead of cane sugar. One noteworthy example would be when Coke and Pepsi switched to using corn syrup in their sodas for the US market in the 1980s (p.5) (Mexican cola still uses real sugar). There has been much debate over whether high fructose corn syrup is more unhealthy than sugar. If it is more injurious to one’s health, then a Prisoner’s Dilemma is afoot, the suboptimal result being the American people doing unnecessary damage to their bodies merely to appease a small subset of the overall constituency.

Prisoner’s Dilemmas: XIV- Synthetic Marijuana

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The decades-long War on Drugs initiated by the Nixon administration could be a Prisoner’s Dilemma itself. Naturally, drug dealers and users will not stop their illicit activities merely because the government is cracking down on controlled substance sales. This fruitless and seemingly perpetual public health intuitive has generated a litany of negative externalities. Beyond fueling profligate government spending, it is also a quagmire that has flooded our prisons and tied up our courts (think of the US court system as commons) with individuals guilty of victimless crimes. However, one detrimental consequence that no one could have foreseen over fifty years ago was the development of gray market drugs, intoxicating compounds that are molecularly altered variants of banned illegal drugs. One particularly infamous example is synthetic cannabinoids. The active chemical of THC; is prohibited under federal law, but a slightly different derivative technically would be legal.

The attempts of eager drug users and innovative chemists to skirt US drug laws have resulted in its own Prisoner’s Dilemma. The government is the original defector by making drugs such as marijuana illegal. Individuals who enjoy the effects of cannabis do not want to stop using it just because it is Schedule I inebriant. Drug users, producers, and vendors defect by finding and creating similar substitutes for their illegal drugs of choice. In most instances, synthetic marijuana may only be a few molecules off from the real thing, but chemists have unwittingly created a more destructive recreational drug. The ingestion of synthetic cannabinoids is associated with serious physical and psychological complications never reported with the consumption of naturally occurring THC. There would have been no appetite for developing fake marijuana if state governments had started legalization and decriminalization efforts years before the “research chemical’ craze of the 2010s; this attempt to exploit legal loopholes only exacerbated the public health issues related to drug use. Fortunately, this was more problematic a decade ago; more states have legalized marijuana.

Bootleggers & Baptists-LIII: Condom Prohibition???

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Arizona senate candidate Blake Masters is signaling that he wants to double down on the rhetoric of the draft of the Dobbs decision. Per Business Insider, stated that Masters does not want to ban contraceptives outright; but believes that Griswold v. Connecticut was flawed. His response to the publication lacks any substantive explanation. He will have plenty of time on the campaign trail to elucidate his position on Griswold. When I first heard about Masters’ position, it was framed as a “condom ban”. The words of a politician tend to be hollow, but only time will tell if his policy scope will veer into prohibiting contraceptives. As we all know, like dishonesty, political figures also have a penchant for engaging in policy mission creep.

If we were to apply the Bootleggers and Baptists (1983) lens to Masters stance on Griswold, the question arises, who benefits? Masters is a Baptist for advancing the normative objective of supporting a Pro-life platform. Arguably, this hard-right political candidate is also Bootlegger for pandering to the highly religious populous right. It is entirely possible that he has gone too socially conservative.

The undisputable Bootleggers are Democratic candidates in Arizona. Why? Independent voters and moderate Republicans might be turned-off by Masters’ social policies. Especially, considering the vagueness of his explanation for wanting Griswold overturned lends itself to misinterpretation. Leading many to assume that his position is equal to a contraceptive ban. Condom bans in the works? Not 100% sure at this point, but it seems like many people are jumping the gun. In the meantime, it will make for some great political theater. For those in Texas, never fear; Ted Cruz has vigorously defended the use of prophylactics; needless to say, 2022 will make for an intriguing midterm cycle.

Bootleggers & Baptists: LII- Pro-Gun and Pro-Roe Actvists Form a Coalition

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The Dobbs draft leak has seemingly added more fuel to the abortion debate over the past week. The real point of contention stilting the embers of the current renaissance in the commentary on Roe v. Wade was the passage of the Texas Heartbeat Bill (Senate Bill 8) last year. The state legislature passed a law that would effectively operate as an informal ban that skirts judicial review; since enforcement was being handled through the deputization of private citizens. Senate Bill 8 is a spectacle of legislative ingenuity; even knowledgeable detractors must admit this point. The design of the Bill is particularly pernicious and could be manipulated for partisan retaliation. For example, last year, California Governor Gavin Newsom talked of engineering his variant of SB 8 tailored to target ghost guns and semi-automatic rifles. The only thing gun owners have going for them in defense against such an action is that the Second Amendment is an enumerated right, meaning they do not need to only rely on stare decisis.

An unlikely coalition formed in 2021 to combat the passage of Senate Bill 8. The kind of coincidental political union that only further justifies the utility of Bruce Yandle’s concept of Bootlegger and Baptist (1983) coalitions. The California-based Firearms Policy Coalition joined the Texas pro-choice faction to oppose the legislation. Even going so far as to author an amicus brief critical of SB 8. Per Statista, of the Republicans, polled 50% owned a gun; 61% lived with a gun owner. Odds are, members of the Firearms Policy Coalitions are right-wingers that would not typically work with the pro-Roe camp. The flawed structure, logic, and versatility of SB 8 could put gun rights in jeopardy. Who would be the Bootleggers and the Baptists in this scenario? Anytime there is a collaboration between different stripes of political activists, these roles are interchangeable depending on the observer’s ideological proclivities. A more even assessment would be that both merging factions are Dual Role Actors (2020). As the pro-gun and the pro-Roe camps, both are defending moral arguments but simultaneously benefit from achieving their own separate policy goals.

The Paradox of Implicit Logrolling: Bodily Integrity- Newports and Roe

The Paradox of Implicit Logrolling (Clark, 2021) demonstrates how intra-platform vote trading can lead voters to hold logically inconsistent policy positions. One example is; a Republican purporting to be Pro-life but concurrently supporting an aggressive foreign policy. In the current political climate of the United States, the topic of bodily integrity appears to be the nexus of the most salient examples of this phenomenon. After all, the genesis of this paradox came from the incongruency of Democrats favoring vaccine mandates (93 % of poll Democrats support mandates applied to private companies) and simultaneously defending Roe v. Wade from the standpoint of bodily integrity. 

However, the current trends in the Democratic party’s policy platform‘s lack of logical continuity regarding bodily integrity are evident from the policies the party has recently supported. Last week, the Biden Administration announced a plan to move forward with a national ban on mentholated cigarettes. A measure favored by 57 % of Democrats polled. The fervor of Pro-choice (predominately left-leaning voters) advocates protesting and repudiating the decision in the leaked draft of the Dobbs case. 

These examples are not intended to shame modern liberals, nor are these normative value judgments regarding their ideological positions; these examples are merely observations derived from an applied static model. The bundle of policies favored by the Republican party is also rife with logical contradictions. The DNC seems to be providing us with most of the conspicuous examples of this paradox. The fact that the Dobbs case and the menthol ban magnifies how the topic of bodily integrity causes political parties to adopt policy preferences that pose philosophical contraventions. If it is rational to assume that electing to obtain an abortion is a matter of self-ownership, then would not the same apply to an adult choosing to smoke Newports? It is perplexing how this lapse in logic eludes many folks on the left. President Biden openly spoke out on the Dobbs decision but opted to proceed with nationwide menthol prohibition. It is possible his vocal criticism of the SCOTUS draft decision is a political maneuver to curve the disappointment of the Progressive-wing of the DNC with his centrist policies. Making the correct statements on the right wedge issue can be gold in the sphere of social currency. 

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Bootleggers & Baptists- LI: The U.S. Ban on TV Cigarette Ads

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The enduring brilliance of Bruce Yandle’s concept of Bootlegger and Baptists (1983) coalition dynamics cannot be overstated. Often the policies supported by the “Baptists” end up benefiting various interest groups. The nature of this self-propelled relationship is steeped in irony. Superficially, many of the proposed initiatives would be detrimental to the interests of the “Bootleggers”, but frequently have consequences contrary to the aims of the morally motived activists. Carelessly crafted remedies to social ills can result in gapping loopholes or anti-competitive advantages to established firms producing goods that are injurious to public wellbeing.

An excellent example of this phenomenon was the FTC’s 1971 ban on televised cigarette commercials. This example seems to be timely considering the finalization of President Biden’s national prohibition on mentholated cigarettes. The impact of the 1971 advertising restrictions is detailed in Baptists, Bootleggers & Electronic Cigarettes (2016):

“….The tobacco industry was not as enamored with these regulatory initiatives as were some health-oriented groups. Congress reacted to such concerns with new legislation that weakened the FTC’s proposed label language while banning TV advertising starting in 1971.53 Far from a loss for the industry, this legislation erected a substantial entry barrier for potential competitors 54 The established brands enjoyed widespread name recognition, and new entrants would be unable to use television to establish their brands. 55 The elimination of television ads for cigarettes also brought an end to the offsetting public interest messages that attacked tobacco products and reduced cigarette company advertising costs. 56 The tobacco Bootleggers gained ground, and innovation took the back seat in what began to look like a comfortable cartel. Meanwhile, the health-care Baptists may have unwittingly cheered the new strictures that seemed to penalize bad Bootlegger behavior but actually protected their profits…” (p.325-326).

Based on the prima facie impressions of most people, it is easy to assume that the limitations on advertising would harm the tobacco industry; to a certain extent, it did. Cigarette consumption did decrease in the period after advertisements; were pulled from the airwaves. However, the magnitude of the impact is difficult to measure as other factors can also account for the lower smoking rates in the United States. This policy truly harmed the up-and-coming cigarette companies more so than the titans of the American tobacco market. Why would Marlboro need to advertise its products? The brand already had significant brand recognition by the early 1970s. Companies like Philip Morris and RJ Reynolds could comfortably rest on their laurels while the newcomers could flounder in their attempts to gain a little piece of the market share. Effectively, this ban significantly increased market concentration among the established firms.

Tribal By Combat- A Story of Transaction Costs

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Trial by combat, in the eyes of modern observers, is nothing more than a barbarous anachronism of the dark ages. In his paper, Trial By Battle (2011), Peter Leeson details the economic advantages of the judicial practice in medieval England. The two concluding paragraphs of Leeson make some profound observations regarding the societal pivot away from a violent form of legal auctions. One counteractive realization Leeson comes to suggests that we do not abandon trial by combat for moral reasons, but rather this was due to a reduction in the transaction costs of land disputes. No, we did not suddenly become enlightened.

“…Finally, trial by battle didn’t die because England became less barbaric. It died because England became a lower transaction cost economy. Just as trial by battle substituted for the Coase theorem in a world of sticky property rights, the Coase theorem substituted for trial by battle in a world with significantly more fluid property rights. In that world lower transaction costs of trade permitted markets to allocate land to higher-valuing users. It became less critical for the legal system to ensure that disputed rights’ initial allocation was efficient. Because of late twelfth-century legal reforms that unstuck land rights, the late twelfth century the judicial system could afford to move away from trial by battle and toward more ‘‘enlightened’’ trial methods, namely trial by jury. When judicial combat became an unnecessary cost, England abandoned it. 

This has important implications for how we understand the process of legal systems’ evolution. It suggests that legal systems’ evolution is less about a process whose course follows the trajectory of enlightened thinking and more about a process whose course follows the trajectory of the transaction cost of trade. When this cost rises, the relative price of relying on ‘‘sophisticated’’ judicial institutions rises too. Legal institutions become more ‘‘primitive’’ in the sense that we tolerate more costly (and less seemly) judicial procedures for identifying and allocating property to higher-valuing users. When the transaction cost of trade falls, so does the relative price of relying on ‘‘sophisticated’’ judicial institutions. The reverse happens: legal institutions become less primitive. Society acts enlightened because it has become cheaper to do so….”

As Leeson demonstrates, how the system of feudalism complicated the allocation of land rights; therefore, the institution of public combat trials helped distribute the land to the higher-valuing users. Those who spend more on champions to represent them in the contest must value the parcel of land more. How many traditions and institutions do we now consider archaic and outmoded by more efficient alternatives? Historians claim that such practices stopped due to an enlightened shift in social norms. Prima facie does seem more likely that social progress has been generated more by economic efficiency than lofty and abstract moral ideals. Who is to say that trial by combat was even uncivilized? Under certain conditions, it could be a feasible form of private dispute resolution analogous to dueling.

The Menu Board Theory of Voting

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The Menu Board Theory of Voting:

If the government is a service provider, a middleman providing goods and services to the public, the policy is nothing more than purchasing choice. Laws, regulations, government programs, infrastructure, and other services are chosen or “purchased” by voters and elected representatives. Every form of government action does incur monetary costs, as it is necessary to pay the program staff responsible for administration, implementation, and compliance. There is a direct parallel between purchasing goods on the private market and the policy selection process. But on a more abstract level, it is like a market exchange since even voters and decision-makers are making tradeoffs in this exchange for a specific policy. Therefore, providing some validation for the observation of politics being an exchange.

The one voting scenario that most proves this point is state-level referendums. The most salient issue placed on state ballots in recent years has Propositions seeking to legalize, tax, and regulation of Marijuana. Choosing to vote in favor of or against the proposition question is somewhat analogous to ordering a combo meal at a fast-food restaurant. Arguably, taxes and regulation are more features of implicit logrolling. In the form of the Marijuana legalization ballot question, they are complementary goods. Most polls indicate that the public favors regulation (especially when it comes to consumer protection), perceiving it as a necessary service necessary to be protected from delirious products. The excise taxes collected from Marijuana sales; can be used to fund other government-provided services. Few citizens are willing to challenge the veracity of sin taxes. The abolition of restrictions on Marijuana sales and consumption would be the proverbial burger, while the regulations and taxes are the fries and drink. It is important to note that a minority of (when compared to all voters) cannabis consumers and vendors will find these concessions onerous. 

What about forms of political voting that include bundled goods? The best example is an election where the constituents vote for elected officials. Each candidate (typically corresponding with an established political party) has a platform, in other words, a collection of various policies they support. The political consumer is still selecting options from the menu board, but it is more like purchasing cable television services back in the 1990s. Several packages give a different grouping of 500 channels; the patron cannot simply omit or cherry-pick the channels they want. If a voter selects a Republican candidate because they oppose gun control, they are not just selecting looser gun laws but every other policy in the candidate’s campaign platform.

Prisoner’s Dilemmas: XIII- Taxation (General)

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The fiscal policy of taxation fosters the institutional incentives for a Prisoner’s Dilemma. It is probable that most tax policies and discourses regarding the instrument for collecting public revenue devolve into a myriad of uncooperative games. Fundamentally, it is in the state’s interest to tax its citizens to accumulate funds to finance public goods and services. In contrast, it is the best interest of individual constituents and business organizations to avoid or minimize the number of taxes they are obligated to pay. This dynamic creates the institutional friction between the government and taxpayers; both coalitions generally have few incentives to compromise. Sure, purported conservatives give a tax break here and there, like liberals, they have a litany of public projects that they have a desire to fund, making taxation a necessity for their objectives. The only distinction between the two American political factions is what they prefer to squander money on and whether they provide lip service to the virtue of low taxes. 

The tension between the citizenry and the state on the issue of taxation is paradoxical. Why? Because voters demand more public goods from the government (infrastructure, social programs, defense, regulation, etc.) but simultaneously do not want to pay for it. Adding another dimension to the vast series of Prisoner Dilemmas taxation policy engenders. The state’s need to collect more taxes is propelled by the public’s demand for more public services. Public schools, courts, administrative agencies, a standing army, regulators, entitlement programs, and infrastructure are not free! There is no greater fallacy than when a naïve constituent refers to public education as free. If an individual participates in the workforce and owns any property they are paying for this service. This elementary confusion validates the logic behind the concept of dispersed costs and concentrated benefits; if there is a disconnect between taxation and spending (Fiscal Illusion) voters do not tend to consider the cost. Therefore, many people are okay will the government providing goods and services; but irrationally have a distaste for taxation. The negative perception of direct tax collection has led to the development of backdoor taxation. Manifesting in the form of helicopter money, quantitative easing, and deficit spending. Policies that only further obscure the link between government spending and the cost to the voter. 

Whether the government provides services due to voter preferences or other ulterior motives is immaterial. At the core of this conflict is contentious incompatible interests. This century-long conflict has resulted in suboptimal results for society as a whole. These consequences extend far beyond the scope of a Fortune 500 CEO’s bank account. After all, a Prisoner’s Dilemma is not complete without adverse ramifications that are avoidable through cooperative behavior. Taxation is the same as another policy prescription implementation will have a nonneutral impact on the decisions made by participants. Altering the rate of taxation does not put the game on pause but influences how various economic agents will adjust their behavior. Raising taxes has myriad adverse outcomes for the citizens of a country or dependent lower level jurisdiction (municipal or state/provincial level).

Tax policy proposals, such as Elizabeth Warren’s wealth tax, may sound reasonable for a nanosecond; but are they effective? Why not require Americans with deeper pockets to pay more taxes and take some of the stress off of the little guy? On a superficial level, this policy may appear to be equitable and even tenable; in the words of Bastiat, such a policy does not account for what is “unseen”. A feature of taxation fleshed out by Bastiat’s most proficient interpreter Henry Hazlitt:

“…This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. A particular group of bridge workers may indeed receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge, a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them that they would otherwise have spent on the things they needed most. Therefore for every public job created by the bridge project a private job has been destroyed somewhere else..” (Page 19).

Ultimately, Warren’s vision does not consider how taxation could realign the incentives of affluent Americans to invest their money elsewhere. The phenomenon of capital flight occurs when onerous taxes in one jurisdiction drives investors to invest their money in economies with less stringent taxation. Here is where Bastiat’s “unseen’ comes into focus, as what we do not see is all the new jobs firms failed due to the high taxes. The relationship between taxation and job growth is inverse, implying that high corporate taxes have a trickle-down effect that negatively impacts the average hourly employee. Beyond the consequences of employment and overall business growth, inordinately high taxes can rob government programs currently implemented. The logic of the Laffer Curve perfectly embodies the Prisoner’s Dilemma between state officials and the taxed citizens. The fallout from taxation going from an acceptable level to an oppressive one will permeate from the top-down.

Bootleggers and Baptist:L- Addendum: The Axiom of Monetary and Bank Regulation; The Fed Always Wins.

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The enduring axiom of fintech and digital asset regulations and taxes; barriers to entry benefit the legacy banking system. Because legal restrictions and taxes reduce incentives to participate in the financial services markets. There may be other parties that benefit from placing limitations on cryptocurrencies. Ultimately, the banking establishment enjoys diminution in competition. Many factions within the pro-regulation coalition, advocate for the regulation of cryptocurrencies in fintech services, often under the veil of consumer protection. For example, Elizabeth Warren likened Bitcoin to the 2008 Housing Bubble. Whether Warren stands to gain or not from regulating cryptocurrencies is immaterial; such behavior is merely doing all the dirty work for the Federal Reserve and the large banks with Fed fund accounts. That is to help mold public opinion to be receptive to crypto regulation. Ironically, she is unwittingly aiding and abetting the same banking system she purportedly to wants to reform. Most consumer protection measures pick winners and losers. Regulating crypto arguably picks the wrong set of winners that would not stand a chance of victory in the face of natural market pressures.

Degree Transfer Markets

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In most cases, college degrees act as a mechanism for credentialing; rather than necessary for obtaining occupational knowledge, why not establish degree transfer markets? Under our current institutional regimes, this suggestion may have some legal hurdles to clear, but this is nevertheless an intriguing proposal. Most degrees serve no other function than a sorting mechanism. Their utility in acquiring job skills is low. Coupled with the fact that ownership of credentials; implies that the individual holding this documentation has the right to transfer it to another person. It appears as if there may be some superficial veracity to this suggestion. The individual selling the rights to their degree would effectively be surrendering all rights and claims to it; they would not be able to list it on their resume. If a former student holding the degree is getting little use from it on the job market, they might be better off selling it to someone who would yield more benefit from the credentials. 

A hypothetical example of such a scenario would be, that Joe holds a bachelor’s degree in economics. Joe currently works as a customer service representative (a vocation that does not require a college degree). He is happy with his job; there is no advantage for him continuing to hold a degree in an unrelated field. Cindy is friends with Joe; she has a four-year degree in Sociology, but she has her eye on pursuing a graduate degree in economics. The degree may not necessarily be required depending upon the program Cindy is looking to enroll in, but it could give her an edge in the admissions process. Joe needed some extra cash and sold the rights and claims to his degree to Cindy for a mutually agreed upon price. Effectively, both Joe and Cindy are better at making the exchange. 

There are certainly some instances where the sales of credentials could be potentially problematic. Occupations requiring large amounts of prerequisite knowledge such as a doctor, buying your degree versus earning one can present some issues. Ideally, legally sanctioned occupational requirements would be eliminated, resulting in a stratified service market. Where the option of soliciting the services of uncredentialed service providers is feasible, consumers can still pay top dollar for the services of credentialed experts. In such a model, the ability to purchase your credentials could distort the value of paying more for a credentialed healthcare professional. This is a valid concern, although the market does punish businesses for providing a poor product or service. There is a potential for the market mechanism of consumer sovereignty to flesh out the truly unqualified professionals.  

Other considerations possess issues in a degree transfer market. Some people have likened a college degree to receipt, implying that the value of the degree comes from the knowledge and skills procured in the process of pursuing the degree. The facts are most college graduates are milking the signaling function of their diplomas. In effect, making the skills and information in college somewhat inconsequential, as most of their true learning occurs on the job. The lectures of a sociology professor may be engaging but bring little to the table in the realm of usable job skills. For most participants in the labor market, the receipt is what matters, not the skills or knowledge obtained from a college education. The old saying that was once a tired platitude has now become a guiding axiom of all beer-guzzling and frat house-dwelling students: “C’s get degrees”.It may be wise to adjust this informal rule to reflect current academic standards as “D’s get degrees”.

Beyond where a college degree derives its value from, there is a potential that selling degrees could further erode their purchasing power on the job market. It would not do so quantitively, compromising the value from a qualitative standpoint. Why? Because the one trusty sorting mechanism utilized by most corporate employers will be compromised. Hiring managers will dedicate much time and effort to determining whether the candidate earned or bought their education. 

Prisoner’s Dilemmas- XII: Juno, Proposition 16, and A Community Sanctioned Asset Seizure

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The decentralized governance on many cryptocurrency networks can be advantageous. Especially, when compared to the centralized authority of the legacy banking and monetary systems. There is a caveat; blockchains have well-touted advantages outside of crypto circles, but what about the design of the consensus mechanism? How transactions are validated can have a litany of ramifications rippling outside of the bounds of the DAO (Decentralized Autonomous Organization). For example, the environmental impact of proof-of-work validation, the consensus protocol used most notably by Bitcoin. Because this consensus mechanism requires several crypto miners to utilize large amounts of electricity as they race to validate the transaction on the blockchain and create a new block in the chain, Bitcoin has naturally become a target environmentalist.

One solution to the energy consumption conundrum is to shift the consensus protocol from proof-of-work mining to proof-of-stake validation. Several sources have noted that proof-of-stake consensus reduces energy consumption. In proof-of-stake blockchain operations, validating the new block by the machines of token holders, their holdings function as collateral for the ability to confirm the transaction. The validator is randomly selected based, avoiding the competition to finalize the new block. Even the popular cryptocurrency Ethereum is looking to transition to a proof-of-stake protocol. Are there any potential drawbacks to this governance model? One major issue that can arise from the proof-of-stake method of transaction consensus; is highlighted in the Juno Network’s Proposition 16 controversy.

The incident occurred back in October 2021, when the Cosmos Network launched the new token Juno. Cosmos initiated a stakedrop, similar to a cryptocurrency airdrop where coins of a new digital currency are sent to “.. wallet addresses to promote awareness of the new..” digital assets. Except, a stakedrop entails awarding individuals a sum of new tokens for holding an existing cryptocurrency on the blockchain network. At the time, Cosmos had an original coin offering, ATOM; the network matched an individual’s ATOM holdings with Juno with a ceiling of 50,000 tokens. One of the “whales” or entities that hold a large amount of ATOM on the blockchain contrived a crafty remedy to game the asset drop limitations. The “Whale” portrayed itself as but an investment group, acting as multiple individuals, and divided wallet addresses across several users and funneled it back to a single coin wallet.

The network community passed the resolution Proposition 16 purposed:

By voting yes on this proposal, you agree to reduce the gamed whale address to 50k (Whalecap set per entity before genesis).

Note: The facts are that the Juno genesis stakedrop was gamed by a single entity. Willingly or unwillingly is not relevant to this matter. The whale gamer poses a growing risk to the network and the stakedrop error may be corrected. Gamed funds were consolidated into 1 address right after genesis which proves that 1 entity had custody over all addresses (linked below). This considerably broke the stakedrop rules of having a max 50k ATOM: 50k JUNO per entity. At the time of the genesis stakedrop, there was no way for Core-1 to pro-actively counteract this behavior. If this information would have been known before launch, 51/52 of those addresses would have been removed entirely.

https://www.mintscan.io/juno/proposals/16

 Effectively, the resolution aimed to confiscate all but 50,000 tokens of the Whale’s Juno tokens. The Whale’s holding exceeding the cap has three consequences: a concentration of on-chain voting power (proof-of-stake consensus mechanism the more you hold the decision-making authority you possess), the Whale can bribe other validators on the blockchain, and this entity can wipe out all the liquidity in the exchange. This has resulted in a Prisoner’s Dilemma. Instead of negotiating a compromise, both parties acted in their interests by defecting.

 The Whale initially defected by attempting to violate the terms of the drop. The network defected by seizing the purported collectives’ coins. The results have been lackluster; this policy transgresses against one of the core pillars of blockchain currencies, the “immutability” of the blockchain. Some pundits have expressed that this move could shake the confidence of prospective investors. There is some fear that other networks adopting similar policies without any impartial due process. Madison’s “tyranny of the majority” problem assumes its most modern incarnation, perhaps? Aside from this issue, what if Whale acted as middleman holding assets for other investors? Is it just for innocent third parties to suffer? If this entity was a consortium or an investment firm, the commandeered funds did not even truly belong to the Whale.