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  <front>
    <journal-meta>
      <journal-id>authorea</journal-id>
      <publisher>
        <publisher-name>Authorea</publisher-name>
      </publisher>
    </journal-meta>
    <article-meta>
      <article-id pub-id-type="doi">10.22541/au.151979285.51792474</article-id>
      <title-group>
        <article-title>Crypto Economy Complexity</article-title>
      </title-group>
      <contrib-group>
        <contrib contrib-type="author" corresp="yes">
          <name>
            <surname>Venegas</surname>
            <given-names>Percy</given-names>
          </name>
          <address>
            <institution>Economy Monitor</institution>
          </address>
        </contrib>
      </contrib-group>
      <pub-date date-type="preprint" publication-format="electronic">
        <day>28</day>
        <month>2</month>
        <year>2018</year>
      </pub-date>
      <self-uri xlink:href="https://doi.org/10.22541/au.151979285.51792474">This preprint is available at https://doi.org/10.22541/au.151979285.51792474</self-uri>
      <abstract abstract-type="abstract">
        <p>We demonstrate that attention flows manifest knowledge, and the distance
(similarity) between crypto economies has predictive power to understand
whether a fork or fierce competition within the same token space will be
a destructive force or not. When dealing with hundreds of currencies and
thousands of tokens investors have to face a very practical constraint:
attention quickly becomes a scarce resource. To understand the role of
attention in trustless markets we use Coase’s theorem. For the theorem
to hold, the conditions that the crypto communities that will split
should meet are: (i)Well defined property rights: the crypto investor
owns his attention; (ii) Information symmetry: it is reasonable to
assume that up to the moment of the hard fork market participants are at
a level ground in terms of shared knowledge. Specialization (who becomes
the expert on each new digital asset) will come later; (iii) Low
transaction costs: Just before the chains split there is no significant
cost in switching attention. Other factors (such as mining
profitability) will play a role after the fact, and any previous
conditions (e.g. options sold on the future new assets) are mainly
speculative. The condition of symmetry refers to the “common
knowledge” available at t-1 where all that people know is the existing
asset. Information asymmetries do exist at the micro level -we cannot
assume full efficiency because transaction costs are really never zero.
Say’s Law states that at the macro level, aggregate production
inevitably creates an equal aggregate demand. Since a fork is really an
event at the macroeconomic level (in this case, the economy of bitcoin
cash vs the economy of bitcoin), the aggregate demand for output is
determined by the aggregate supply of output — there is a supply of
attention before there was demand for attention. The Economic Complexity
Index (ECI) introduced by Hidalgo and Hausmann allows to predicting
future economic growth by looking at the production characteristics of
the economy as a whole, rather than as the sum of its parts i.e. the
present information content of the economy is a predictor of future
growth. Say’s Law and the ECI approach are about aggregation of
dispersed resources, and that’s what makes those relevant to the study
of decentralized systems. While economic complexity is measured by the
mix of products that countries are able to make, crypto economy
complexity depends on the remixing of activities. Some services are
complex because few crypto economies consume them, and the crypto
economies that consume those tend to be more diversified. We should
differentiate between the structure of output (off-chain events) vs
aggregated output (on-chain, strictly transactional events). It can be
demonstrated that crypto economies tend to converge to the level of
economic output that can be supported by the know-how that is embedded
in their economy — and is manifested by attention flows. Therefore, it
is likely that a crypto economy complexity is a driver of prosperity
when complexity is greater than what we would expect, at a given level
of investment return. As members of the community specialize in
different aspects of the economy, the structure of the network itself
becomes an expression of the composition of attention output. We use
genetic programming to find drivers — in other words, to learn the
rankings. Such a ranking score function has the form, returns_tokenA
&gt; returns_tokenB = f (sources_tokenA &gt;
sources_tokenB). Ultimately, the degree of complexity is an issue of
trust or lack thereof, and that is what the flow of attention and its
conversion into transactional events reveal.</p>
      </abstract>
      <kwd-group kwd-group-type="author-created">
        <kwd>bitcoin</kwd>
        <kwd>blockchain</kwd>
        <kwd>cryptocurrency</kwd>
        <kwd>economic complexity</kwd>
        <kwd>trust</kwd>
      </kwd-group>
    </article-meta>
  </front>
</article>
