David Ritter: Free Market Economics— Blockchain vs Capitalism

David Ritter: Free Market Economics— Blockchain vs Capitalism

Aug 22nd 2018| Investment By:Sakura
Capitalism is predicated on a false notion that free markets are open to everyone.

Time:9:30 PM (Beijing Time) , July 12    9:30 AM(ET) /6:30 AM(PST) , July 12

Groups:Mars Finance Global Family

David Ritter:the CEO of Penta Global Blockchain Foundation

Vivi Lin:Mars Finance Global Partner ,General Manager of Mars Finance International Wechat Community 

Steven(Tianyuan) Wei:Finance in Miami university ,Co-founder of Sharp Eye Capital,Invest and Incubate high-quality overseas projects,Media,Exchange,Mine

Existing forms of Western style capitalism have largely eschewed 

Steven:Welcome David Ritter

Vivi:It is a very interesting topic

david ritter:Thank you very much to Mars Finance for the chance to speak on this subject today. I look forward to an interesting discussion with everyone

Vivi:Blockchain vs capitalism

david ritter:I guess I should begin speaking about the topic tonight, which is a look at free market economics in a capitalist system and comparing to the economic models emerging in blockchain

Here’s some thoughts on the topic for today:

Existing forms of Western style capitalism have largely eschewed very principles of free market economics upon which they were founded, and no longer seem capable of providing adequate opportunities for social mobility or sustainable economic growth

Vivi:In what ways they are not functioning - the western style capitalism 

Steven:David Ritter can you introduce yourself first ?

david ritter:thought you already introduced me haha

I’m the CEO of Penta. Born and raised in Colorado, USA. Early btc investor, believer in decentralized autonomous communities, and total foodie

for starters, western capitalism has resulted in extreme income inequality 

Research by Tom Hertz of American University found that children born to parents in the lower 60% of income earners in the U.S. had a less than 2% chance of ending up in the top 5% of income earners...nearly impossible!

Propagating market economics has always been a function of a political process, and that process has been irreparably corrupted by well capitalized special interests groups, that do not have the interests of average citizens at heart. Capitalism, therefore, is not based on free market economics. Rather, it is driven by concentration of capital and the pursuit thereof. Thus, overtime it is not surprising that the capitalism has trended towards intense centralization of power in a small class of ruling elite.

Steven:Let me begin our interview , are you ready?

1. Is the role of “money” different between capitalist and blockchain economic systems? @Penta CEO David Ritter

david ritter:I think it's true in most countries in the world

Vivi:David Ritter there are many books on the failure of capitalism

Inequality is growing and internet failed to solve it 

david ritter:In my view, Capitalism is predicated on a false notion that free markets are open to everyone and will determine the best ideas, business models, and talents through a magical process of free market economics, or what Schumpter called creative destruction. Question: when millions of middle class American families lost their homes in during the mortgage crisis of the Recession at the same time that banks and too-big-to-fail institutions received a bailout, where was creative destruction? Where was the invisible hand of free markets?

Vivi:Haha the visible hand is needed in this regard 

david ritter:Decentralized, community-driven economic models, such as those championed by the Blockchain Movement provide compelling ideas for how we may achieve a more efficient, more inclusive global economy. 

Blockchain platforms are experimental and many have not lived up to their promise, but I believe that economies with distributed power bases, and decision making processes that incorporate community-aligned incentive structures, bring us closer to free market economics than prevailing models of 20th century capitalism. 

great point about internet failing to solve inequality. There’s a lot to be said there. On the positive side, the internet has made important strides in bringing people and communities together around the world. 

Vivi:True.It is an ongoing journey,WIP.Are you two relate

david ritter:Yes. Many people think of blockchain as the next iteration of the internet. “internet of value” is the phrase that gets thrown around a lot.

whether social governance belongs in blockchains

Steven:2. There is a debate right now about whether social governance belongs in blockchains, or whether blockchains should be strictly technical platforms without social governance. What is your position?

david ritter:I believe that social governance can not be fully separated from blockchains. Even in POW systems, one could argue that accumulation of hashpower to increase influence is a form of social governance - those who have the hashpower make the decisions. Social governance in blockchain can be seen in two places - transaction validation through the consensus process, or making changes to the base code of the blockchain.

I am in favor of experimenting with social governance. Penta’s consensus mechanism is called DSC. Our goal with DSC is to find a balance point between efficiency and decentralized decision making.

Steven:3. Previously in this group, you compared EOS’s consensus model to trickle down economics. Can you please explain? 

david ritter:Maybe this long bear market will clean out some of the back actors 

Vivi:I had been in an argument with people talking about the very topic,yes,Hope so

david ritter:Trickle down economics is a form of supply-side economics, that traces back to the Reagan era. Basically the concept is that if you cut taxes and increase the spending capital of the wealthy, they will spend it in the economy and it will then trickle down to everyone else. This is similar, in my mind, to the supernode structure of EOS’s consensus mechanism (DPOS).  The platform releases incentive tokens to an elite group of nodes, which are then expected to maintain the economic viability of the platform. In theory, the supernodes can spend EOS tokens in the ecosystem and then they will trickle down to smaller stakeholders. However, there is no incentive for supernodes to spend their tokens in a distributed way, so it could very well lead to other concentrations of power within the ecosystem. Unfortunately, there is no evidence that trickle down theory has ever worked in the real world (especially in the long term). Income inequality in the US has increased significantly since the Reagan era.

What limitations in existing platforms

Steven:4. Penta talks about building a more inclusive, fairer blockchain ecosystem. What limitations do you see in existing platforms, and how can Penta realize this ambition?

david ritter:Thanks for the question about Penta. The goal of Penta and a lot of blockchain platforms is to become a decentralized autonomous community that is self sustaining. This is easier said than done. And one of the key questions to solve is how to develop an incentive allocation mechanism that is equitable and inclusive. 

Equitable in this sense is not about deciding how many tokens each stakeholder receives, but ensuring that everyone can have a fair opportunity to participate in the incentive allocation process. DSC grants one vote to each node that participates in consensus, regardless of how many tokens that node possesses. I will admit that DSC is not a perfect mechanism, but it is an honest effort to fix some of the problems we see in existing consensus mechanisms. We are in the process of testing and optimizing DSC right now, we hope people in the blockchain community will share insights on how we can improve consensus mechanisms. Maybe we can all one day reach consensus on consensus.

Steven:5.What are your thoughts on the current state of the crypto market?

david ritter:That it's been a rough couple of weeks for crypto haha

There’s no doubt we are experiencing a prolonged bear market. From my perspective, this is cause for reflection. I think there is an overall lack of real liquidity in the marketplace, and not a lot of new liquidity coming in.

Vivi:yes, still waiting for the next breakthrough in tech and adoption

david ritter:This suggests that most people are not yet convinced of the value of blockchain. And who can blame them? Right now, the market is full of scam coins, scam ICOs, scam projects, and scam exchanges. This is the honest truth. If we want people to take this industry seriously we have to start delivering real products that have real world value.

Good point. I think we will see more adoption when the tech shows more real world application

Vivi:exactly, well said,agreed

david ritter:For Penta, we have deployed many successful projects using permissioned blockchains. But public blockchain infrastructure is much harder from a technical standpoint. 

one really interesting and quick example is our Blockchain Rice project, which uses blockchain technology for tracing rice along its food supply chain. Bags of rice that include this technology are now sold for 3-4 times the price they were sold previously. 

Vivi:food safety is a good adoption case

david ritter:So everyday consumers can see the value proposition in blockchain. I think when they see more real world application there will be more adoption.

blockchain improve access to financial markets

Steven:6. How can blockchain improve access to financial markets?

david ritter:There are lots of answers to this question. I was just reading about the pending ETF ruling for VanEck and SolidX. One share will sell for 25 bitcoin, restricting participation to accredited investors. 

This highlights that there are often high barriers to entry to access financial markets. One place where this can be seen is in credit markets 

To relate back to our topic, in current financial markets people encounter all kinds of barriers when it comes to accessing credit. Wealthier people have more access to larger amounts of credit at lower rates, generally speaking. 

Qualifying as a lender or as a borrower are restricted by lots of regulations, and inefficiencies. 

Vivi:very true the pending ETF ruling for VanEck and SolidX. One share will sell for 25 bitcoin, restricting participation to accredited investors.–– what do you think of this rulling

david ritter:Several projects in the blockchain space are experimenting with decentralizing lending and empowering small business owners and people with little or no credit history to apply for loans. 

Penta has a project called SME Credit Chain, that we have successfully deployed. This is a permission chain project, which helps small businesses to apply for credit with legal lenders

Debt - both access to it, and ways to pay off debts in times of duress - is a major obstacle preventing people from achieving financial freedom in the US today.  I think the comment period ends on August 10, and then we’ll see the ruling. 

Steven:7. There has been a lot of criticism about cryptocurrency exchanges: that most of their trading volume is fake, that they engage in wash trading, etc. Does this challenge the notion that blockchain is closer to a free market ideal than capitalism?

david ritter:This is a great question. I agree that extreme market manipulation, whether from fake transaction volume or other means, does not reflect free market ideals. It seems to me cryptocurrency exchanges are being disrupted right now by new competing platforms.

But to be fair, there is plenty of bad behavior going on in traditional financial markets.I look forward to new concepts of exchanges, including decentralized exchanges.In addition to that, I would like to see cryptocurrencies being put to more use than just trading on an exchange. 

Vivi:what is your view on new comers like Fcoin

david ritter:I think FCoin has been very successful at disrupting the status quo in crypto exchanges. I am curious to see whether the platform can be sustainable, and whether it can generate real liquidity in the marketplace 

Steven:8 Do you think banks will disappear as a result of blockchain technology?

david ritter:No, I don’t think banks will disappear. I think they will transform.

The way banks operate is heavily influenced by the political processes that create the bank charters. 

US banks have fared quite poorly in this regard, in fact. The political history of US banks has lead to more bank crises than probably any other industrial country. 

Vivi:it is a whole social revolution

david ritter:Already we see new banks that are fully online. I believe we will see new varieties of banks emerge to suit the needs of the digital economy, but with crypto they will not be constrained by national politics. Totally a social revolution...and a financial one!

Coinbase is an interesting case study. It's a crypto exchange and fiat currency on-ramp, but it is also FDIC insured (at least for USD in your account).  

Also, traditional banks are starting to invest in crypto. Bank of America recently called my parents to say that they are investing in crypto assets

Vivi:crypto assets became a new asset class

david ritter:And maybe not just one asset class. Perhaps there are several asset classes within crypto 

Actually my parents never invested BTC or other crypto (except for Penta haha). Incidentally, my grandparents own crypto,

Vivi:haha your grandparents are ahead of the times

david ritter:So it’s not only about the generation gap when it comes to crypto. Everyone brings their own investment sensibilities

Yes they are!

a trade war underway right 

Steven:9. There is a trade war underway right now between the US and other countries. What do you think will be the outcome?

last question

david ritter:I hope there will soon be a positive solution and a resumption of amicable trade relations. There’s a point to make here about centralized governments making decisions that pick winners and losers in the economy...

Vivi:from crypto to trade wars

no permanent friends nor enemies, but interests

david ritter:Look at the effects of the trade war on the US labor market already. As a result of tariffs on imported steel, the steel industry has hired thousands of workers 

But companies that rely on cheap steel to manufacture their products are cutting jobs.Neither group of workers was involved in the decision to engage in a trade war, but both are affected by it 

So many economies are facing inward right now and implementing protectionist policies, this insular thinking at odds with the inevitable globalization of the economy embodied by blockchain 


david ritter:Thank everyone from the Mars Finance team!! It’s been a pleasure.