The Economics of Digital Space
While watching an introductory economics course - Khan Academy - it becomes clear that the basis for economics is scarcity. This is highlighted and established in the first few lessons. Without scarcity there is no real need for economics. Scarcity is contrasted with "free", really meaning abundant, and these two concepts for the foundation for the subject of economics much like addition and subtraction are the foundation for math.
It becomes clear that in our post-modern economy, economics is fundamentally changing. What is abundant and what is scarce always depends on context. It seems that the contexts for what is scarce and what is abundant are changing as technology changes. Technology is creating contexts where the factors of production have been transformed, not to the point where economics no longer applies, but where the application of the principles of economics needs to be new.
Take land, one of the four factors of production (Four factors of production | AP Microeconomics | Khan Academy). Digital land, land in the metaverse, is abundant. Much like copy and paste, like any traditional digital product, there is no - to extremely low - cost to generating more of that product. Land in the metaverse is code, and that code is extremely small in size in terms of the space it would take on a hard drive. The electricity to produce the land is tiny and will be reduced further. Digital land seemingly does not come under economics. And yet land in Decentraland and The Sandbox is going for thousands and millions of dollars. Why?
Labor too. The cost of producing digital goods, articles, tweets, music, characters, contracts is being reduced. The "labor" ceases to really be labor when an algorithm is that which is working. Labor in the digital space is not what we believe it to be. Labor is becoming progressively qualitatively different for the digital resources we consume.
Capital as "something produced to produce other things" (ibid) in the age of algorithms and machine learning becomes science fiction. It would seem that so many of the start ups and successful social media companies are attempting to design capital. Facebook is not so much about production of goods but the continuous perfection of capital. The more efficient and insightful the capital, the more data collected, the better the knowledge generated. An algorithm as capital is qualitatively different from a building as capital. It is hard for me to get a handle of algorithms as capital. It's differences and the consequences of it's nature makes it hard to hold onto and pin down.
Anyone building in the crypto space is acting as an entrepreneur. We are all trying to put together the land or networks, the labor of others and our own, as well as the open source capital combined with our own. And of course the entrepreneurship as the magic sauce that will separate what we build from everyone else. And with the rise of play to earn models, DAO's, governance, the barrier between investment and entrepreneurship will gradually erode. Everyone as an entrepreneur, or everyone as a gig worker, depending on your outlook.
There seems to be a dramatic change in the context, the environment, in which we live, and this is affecting what is abundant and what is scarce. At first I was tempted to say that there needs to be an economics of abundance, that is a totally new economic paradigm for the new digital space. However, there is within the space scarcity, especially that created by cryptography and is at the heart of crypto and it's sub-fields. So no, economics still applies, however the application is changing, and new expressions of the principles are being invented. Crypto-economics, or the economics of digital space, is an emerging field that is seeking to understand a new market in a new world.