The document provides an overview of a lecture on interpreting data and cryptocurrency economics. It outlines Luciano Pesci's background and credentials in economics and data science. It then provides an outline and overview of the lecture, which includes an introduction to cryptocurrency and blockchain technology, an explanation of why "tokenomics" is not the same as cryptocurrency economics, and a discussion of the next frontier for cryptocurrency economics, including ideas like product-market fit research, market and competitive intelligence, agent-based modeling, and simulation.
1. Dawn of the Data Age Lecture Series
Interpreting Data Like a Pro
2. Hi. I’m Luciano Pesci, PhD…
Founder & CEO, EMPERITAS
● Team of economists & data scientists delivering crypto economic intelligence.
Founder & Director, Utah Community Research Group, Univ. of Utah
● Teach microeconomics, data science, applied research, & American economic history.
2
3. Crypto Econ Crash Course Outline
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
3
5. What is Crypto?*
● Formal definition:
○ Crypto is an ubiquitous term for cryptocurrencies
& their related blockchain based substitutes.
● It’s mostly money (for now):
○ Unit of measure
○ Medium of exchange
○ Store of wealth
5
*Why Crypto will Kill Cash: goo.gl/9xUMrj
6. It’s Idealistic
● Built on notions of individual sovereignty in
all things, especially the control of wealth.
● Improves the world through transparency
& voluntary democratic participation.
○ Breaking down national borders and allowing for
new exchange (commodities, people & ideas).
6
7. Crypto Isn’t Tulips
7
● Performance of crypto in 2017 has been
compared to the Dutch Tulip Mania.*
○ Tulips had no meaningful impact on Dutch economy.
○ Tulips are $58M a year industry in US.**
● Crypto is different because the underlying
blockchain technology has huge utility.
○ Mostly around the nature of trust in human society.
*When 10 Tulips Cost More Than a House: goo.gl/v54wi3
**US Tulip Sales 2002-2015: goo.gl/XWMa15
8. What is Blockchain?*
● Idea born in 1991 for document control.**
○ Same year Terminator 2 was released.
○ A decentralized database (ledger).
● Credit usually given to Bitcoin. Most
blockchains are characterized by:
○ Block, hash, nodes & consensus
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*Blockchain Simply Explained: youtu.be/SSo_EIwHSd4
**Blockchain History: goo.gl/3SP4Qz
9. Revolutionize The World
9
● The power of blockchain is that it
fundamentally changes the nature of trust.
○ This is why its earliest viable use was as money.
● Decentralized systems are more flexible
& adaptive than centralized systems.
○ Both are dependent on perfect information,
but blockchain moves us closer to that goal.
10. Haters Gonna Hate
● Blockchain & crypto are early in
their individual product life cycles.*
○ This is where j-curve growth happens
on the way to broad market adoption.
● Some economists are calling for it
to be regulated out of existence.**
○ Silk Road, Terrorism, ICO Fraud, ...
10
*Product Life Cycle (00:22:03): youtu.be/G29eZIeWljc
**Stiglitz Says “Outlaw Bitcoin”: goo.gl/mn4j5a
11. Equal Comparisons?
● A zero tolerance standard for other products
used in illicit or black markets would make
a large number of verticals vanish overnight.
● FIAT (government issued paper money)
would have to be banned since 90%
of USD bills contain cocaine residue.*
11
*Cocaine Traces on US Bills: goo.gl/LMF1LQ
12. But It’s Hackable!!
● The ability to get hacked doesn’t justify
banning technology with net positive benefits.
● FIAT is constantly (hacked) counterfeited.
○ $200M (~1.6%) counterfeit USD is in circulation.
○ Superdollars are a prized export of North Korea.*
12
*Superdollars: goo.gl/jGTcEd
13. Generation Zero Crypto
● Cryptos created before 2016 are effectively
generation zero. These were mostly money.
○ Genetics type links between some (forks).
○ They inspired the next generation.
● Top 5 cryptos by market capitalization:*
○ BTC, ETH, XRP, BTH & EOS
○ Makeup 63% of ~$300B crypto market
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*Coinmarketcap (View All): goo.gl/tF6CuS
14. Forks & Exchanges
● Forks - crypto built on an existing blockchain.
○ Litecoins “soft fork” (backwards compatible).
○ ERC20 protocol has hundreds of tokens using it.*
● Exchanges - places to buy & sell tokens.
○ Similar to financial markets, but can be auctions.
■ Differ from direct or brokered trades.
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*ERC20 Tokens: goo.gl/jSxvbZ
15. Tokens Types
● Rapidly growing number of ways to
categorize blockchain-based cryptos:
○ Securities token
○ Utility token (including equity tokens)
○ Either can be “store-of-value” token
● Federal definitions of what crypto is vary
& contribute to current legal ambiguity.*
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*Differing Definitions & Regulations: goo.gl/aqMmRo
16. Wallets*
● A wallet lets you control your crypto tokens.
○ Really just comes down to access of private key.
● Since changes to the blockchain are
permanent, security is very important:
○ Hot Wallet - connected to the internet
○ Cold Wallet - not connected to the internet
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*Crypto Wallets: goo.gl/d3LY8N
17. Smart Contracts
● Functions like a legal contact but isn’t in a
human language, it’s coded (programmed).
● Highly transparent and have potential to
eliminate a huge number of legal disputes.
○ You just have to be able to read the code to
consent, then the rest happens no matter what.
17
18. Following FED Thinking
● Crypto’s monetary mentality is lessening
with the next generation of tokens.
○ But it’s still pretty bad right now.
● Some are copying FED behavior.
○ An “airdrop” is just a private sector
attempt at stimulus economics.
18
19. Generation One = Utility
● ICO’s & entrants from 2016-2018 represent
an inflection point with gen one cryptos.
○ Some are money, others have a work function.*
● Founders are pushing crypto’s legal
definitions by embracing “utility.”
○ Global participation is fueling innovation.
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*New Models of Utility Tokens: goo.gl/V2K5eg
20. A Whitepaper Manifesto
● Following Bitcoin’s example, virtually
every crypto issues a whitepaper.
○ Outlines the governance, tokenomics,
marketing strategy, tech specs, etc.
● This ecosystem is being databased.
○ ~2,000 whitepapers and climbing.*
20
*Blockchair.Whitepapers: goo.gl/ZGA782
22. Crypto Econ Crash Course Outline
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
22
24. Dawn of the Data Age Lecture Series
Interpreting Data Like a Pro
25. Hi. I’m Luciano Pesci, PhD…
Founder & CEO, EMPERITAS
● Team of economists & data scientists delivering crypto economic intelligence.
Founder & Director, Utah Community Research Group, Univ. of Utah
● Teach microeconomics, data science, applied research, & American economic history.
25
26. Crypto Econ Crash Course Outline
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
26
29. Governance
● This covers all the rules that guide the token
and any company that might exist behind it.
○ Also includes treasury & allocation details.
○ Details about consensus are important to examine.
● If the token acts as a utility token then
this also includes the full business model.
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30. A Market
● Cryptos are still a product which means they
have to find their “product-market fit.”
○ This proved key to Silicon Valley startup success.
● Best done with agile qualitative research.*
○ Certain problems (like pricing) need quantitative
research but this can also be done agilely.**
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*Agile Qualitative Research: goo.gl/Lydo6c
**Step Up Survey Research: goo.gl/rY6APv
31. Economic Model - Incentives
● The main feature of most new crypto
whitepapers is their Tokenomics.
○ These are often vague & more closely
resemble accounting summaries.
● A explanation of incentive behavior
for the token should be crystal clear.
○ Must look beyond marco supply & price.
31
32. Economic Model - Network Effects
● Another key part of any crypto’s economic
model is its token adoption strategy.
○ “Word of mouth” network effects can be proxied by NPS.*
● Network effects don’t last forever because
of the law of diminishing returns.
○ They set in as a crypto traverses its product life cycle.**
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*Net Promoter Score (00:51:54): youtu.be/SirK0SSBeZg
**Diminishing Returns (00:27:17): youtu.be/G29eZIeWljc
33. Crypto’s Diverse Humans
● Focus should be on individuals who are
going to actually use the crypto token.*
○ 1 in 5 holders brings 80% of total value.**
● Cryptos also depend to differing
degrees on other groups of humans:
○ Validators, Ambassadors, Founders, Advisors, ...
○ Spread across many national borders.
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*Data-Driven Customer Profiles: goo.gl/Z7jjNV
**Pareto Principle (00:04:16): youtu.be/pyNrxUB-tBc
34. Crypto’s Technology Stack
● Next gen crypto heavily depends on tech:
○ App/platform
○ Financial & digital marketing tools
○ Competitive & market intelligence
○ Customer experience feedback systems
● Cryptos are also being built on more complex
technology stacks, and the data is amazing.
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35. Tokenomics
● The first attempt to explain these complex
cryptocurrency systems was Tokenomics.
○ Also known as “Token Economics.”
● Relies almost exclusively on monetary &
financial market economic theory.
35
36. A Monetary Mindset
● Most gen zero & gen one cryptos are
trying to be a competitor for FIAT money.
● This has influenced what’s considered
to be the current field of Tokenomics.
○ Equation of exchange is usually the
extent of econ in crypto whitepapers.
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37. A Financial Focus
● Crypto has been compared to securities.
○ This is also where most of the regulatory
action is happening (for the moment).
● This is because people want to hold it,
which creates investment incentives.
○ Only needs a net present value greater
than FIAT for a rational flight to crypto.
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38. Tokenomics Isn’t Enough
● Tokenomics doesn’t explain the “why” behind a
crypto and is being eclipsed by crypto economics:
“Crypto economics is a way of doing incentivized
mechanism design to enable many actors to
contribute their resources to validating
transactions and securing that network...”
-Joe Lubin, Ethereum Co-Founder (at SXSW)
38
40. Crypto Econ Crash Course Outline
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
40
42. Dawn of the Data Age Lecture Series
Interpreting Data Like a Pro
43. Hi. I’m Luciano Pesci, PhD…
Founder & CEO, EMPERITAS
● Team of economists & data scientists delivering crypto economic intelligence.
Founder & Director, Utah Community Research Group, Univ. of Utah
● Teach microeconomics, data science, applied research, & American economic history.
43
44. Crypto Econ Crash Course Outline
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
44
46. Product-Market Fit Research
● Too many cryptos are being built on
untested & underdeveloped ideas.
○ No matter how passionate you are, you aren’t the
entire market. You need to talk to other people.
● There’s a specific research method
pioneered by Silicon Valley for doing this.*
○ “Get out of the building and talk to customers.”
46
*Lean Customer Discovery Research: goo.gl/1ycitk
47. Market Intelligence
● Your crypto is part of the global market
which means you’re subject to its will.
○ It can change dramatically in an instant.
● Macroeconomic forecasts should be
included in your crypto economic model.
○ Regulation “shocks” should also be tested.
47
48. Competitive Intelligence
● You don’t just compete with other cryptos.
○ If you’re a monetary crypto you’re facing down
an 800 lb gorilla known as Government.
● FIAT is modelled extensively by economists.
○ If you’re not doing the same for your token,
how can you possibly compete with them?
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49. Agents (aka Personas)
● Assessing crypto on averages alone is bad.
○ Look at measures of shape, center & spread.*
○ Track and compare all of these over time.
● Divide your humans into 5 subgroups each
represented by an archetypal agent.**
○ The Pareto group should be one of these.
○ These add incredible precision to simulations.
49
*Interpreting Data Like a Pro: goo.gl/1oCTUj
**Identifying Personas with Agile: goo.gl/qSuYVr
50. Cost Analysis
● Costs are within your control, regardless
of your crypto’s life cycle position.*
○ The more data you collect the more you control.
● This is especially important for the utility
tokens that also have to run a business.
50
*Think Like An Economist (00:24:42): youtu.be/G29eZIeWljc
51. Supply & Demand
● First place you should use microeconomics
is to model overall supply & demand:
○ Supply requires cost details &
production (technical ops) data.
○ Demand requires holder preferences
& price sensitivity data.
51
52. General Equilibrium
● Everything in the market has a natural
gravitation toward specific outcomes.
○ Price is guided by this “invisible hand.”
● If you’re collecting the right data over time
you can forecast all of these marco metrics.
○ This will help you limit speculation & velocity.*
52
*Cryptocurrencies’ Biggest Weakness: goo.gl/oR2TdR
53. Best Response & Game Theory
● With data about your crypto & competitors
you hit the next level of crypto economics.
○ This is the world of game theory.
● You can know a best response to shocks
or market changes before they happen.
○ Creates stability in your predictions of value.
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54. Simulation
● Basically the matrix but for crypto tokens.
○ Digital world represented by equations that dictate
everything, but account for randomness & shocks.
● Using rules & models built with real data you
test millions of iterations about your crypto.
○ Shows convergence to equilibrium & limits of token.
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55. Crypto’s Unified Theory
● Crypto economics provides a complete
unified theory (unlike Tokenomics).
○ It’s better for analyzing why tokens have value.
● It sees tokens as a mini crypto economy.
○ It’s the key to 2nd gen crypto success.
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57. What We Covered in this Crash Course...
● Part 1: An Intro to Crypto
● Part 2: Tokenomics isn’t Crypto Economics
● Part 3: Next Frontier for Crypto Economics
57
59. You Should Read - [Why Crypto Will Kill Cash]*
Authored by Luciano Pesci & the Emperitas crew (researchers).
Cliff Notes: Crypto fulfills all of the formal requirements of money in economics: it’s a
store of wealth, a unit of measure, and a medium of exchange. But it also does a lot
of things cash can’t (like produce amazing data). The efficiency gains of this
additional value (utility) is driving a revolutionary monetary moment.
59
*Why Crypto Will Kill Cash (and governments too): goo.gl/YLSz95
60. You Should Listen - [World-Shaking Crypto Power]*
MarketScale Podcast featuring Luciano Pesci.
Cliff Notes: Crypto took the world by storm in 2017 and early adopters (rightfully)
profited from their foresight. Now a new generation of crypto tech has emerged and
promises to move blockchain beyond monetary competitors. In the process it will
change the nature of trust & exchange, creating a better future.
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*World-Shaking Power of Cryptocurrency: goo.gl/YLSz95