Public goods

What are public goods:
summary of GCC's Web3 Ecology of Public Goods studyOriginal : ZHThis article discusses the concept and importance of public goods in the era of Web3 and how it differs from traditional economics.The article points out that in Web3, open source public goods will give rise to new business models, and emphasizes the importance of donating and commercializing public goods to maximize the overall benefits to society.It also mentions that in the era of Web3, products that are more strongly connected to their users are more advantageous, and therefore public goods need to be non-exclusive and non-competitive.
——Generated by ChatGPTAbstract: - In traditional Western economic theory, public goods need to be non-excludable and non-rivalrous; excludability means that a good is not conducive to being used by many people at the same time; and rivalry means that after a good has been used, the quantity and quality of the good available to others declines (is consumed).In addition to non-exclusivity and non-competitiveness, public goods should also have positive externalities, which means that a good brings benefits to the public without charging an equivalent price.Regarding the theory of public goods determination, Vitalik proposed the "revenue-evil curve", which measures how much the commercialization/monetization of a public good can harm its positive externalities; according to this theory, the public good that needs the most donations is free open-source software, and the one that needs the least donations is the seller of general merchandise;In fact, the biggest purpose of public goods donation is to achieve "Pareto optimality" as far as possible, in which the interests of the society as a whole or the industry as a whole are maximized, and in order to promote this state, it is necessary to donate a moderate amount to the suppliers of public goods or allow them to be monetized/commercialized moderately, which can make the interests of the suppliers and the demanders to reach the maximum degree of win-win situation.-Build a product in Web2, must be through the product, data, technology, etc. to establish barriers, so that it obtains a high degree of exclusivity and competitiveness. while the product logic of Web3 is the exact opposite, must be connected to the user is strong enough in order to make the product more advantageous, so it must be non-exclusive and non-competitive enough, that is to say, the open source of the public goods will give rise to a new business model of Web3 products, the main idea is open rather than closed.Text: Public goods, or public goods, are a classic concept in Western economics relating to the overall welfare of society and the marketplace; from a macro perspective, blockchain has brought about a new kind of production relationship in which "public goods" take on a significance that would not otherwise be present in traditional economics; and from a micro perspective, many of the underlying facilities of Web3, such as the public chain and the smart contract, have been created to have the important characteristics of public goods due to their decentralized concepts.Summarizing the above two points, it is necessary to clarify the concept of public goods in the context of web3, and there are more and more related researches on Web3 public goods.However, in order to clarify the concept of public goods, two problems need to be solved first:First, with the rapid development of productivity, the world economic system has changed dramatically from the time when Western economics was established, so that the definitions of public goods of that time are no longer fully applicable today, and need to be updated and modernized;Secondly, Web3 has made a revolutionary breakthrough in the traditional economic system by removing the need to be careful and trustworthy, which has led to the emergence of a large number of new economic actors and behaviors, and in this context, the way in which public goods are determined is also a topic of discussion.In this paper, we will summarize the 76-page "Web3 Public Goods Growth Study" by Ray and Tiao of LXDAO, Twone of Uncommons, and Hazel and Yuxin of GCC in the form of a summary of the study, and briefly introduce the core content and theoretical framework of the study below.In summary, GCC's report explains how to determine Web3 public goods from the definition of public goods, analyzes the current state of Web3 public goods, and looks forward to the future development and challenges of Web3 public goods, which is one of the most valuable references in the current research on Web3 public goods, and a rare treasure for the Chinese-speaking world, where the ecosystem of public goods is relatively weak.(It is noted that the study contains many research insights on public goods from GCC and LXDAO members, which can be an important guide for GCC and LXDAO's donation or incubation behavior.)Introduction to the basic concepts of public goods1.Traditional economic definitions of public goodsIn the Web3 Public Goods Ecology Research Report, considering the significance of the definition of public goods to the Web3 builders, a synthesis of the various concepts led to two reference points being given for public goods: increasing marginal returns and positive externalities.2.1 Increasing marginal returnsThis is a more complex reference point, and the original Report was limited in its energy and did not spend much space expanding on it, but mentioned the definition of public goods in "A Flexible Design for Funding Public Goods," co-authored by Vitalik Buterin, Zo¨e Hitzig, and E. Glen Weyl:By "public goods" we refer to any activity with increasing returns in the sense that the socially efficient price to charge for the activity (marginal cost) is significantly below the average cost of creating the good.The article has many connections to the rise of public goods funding in Ether; among other things, the authors of the article do not use a non-exclusive and non-competitive framework, but instead use the ⽭-shield between the increasing returns of an item and the maginal cost to define public goods, which become much more broadly defined.Due to the complexity of this point of reference, this article is limited to space and will not be described separately here; if interested, you can read the original Report from GCC and LXDAO.2.2 Positive externalities"Externality" is a very important concept in economics that refers to the impact of economic activity on third parties that is not captured in the price/value exchange.For example, if a paper mill causes health hazards to nearby residents by discharging water, but does not compensate the residents or pay taxes to take responsibility for it, which creates a negative impact on a third party but does not compensate for it, the paper mill is said to have created a "negative externality" on society; whereas, if a person who pays for a vaccination not only protects himself from the risk of contagion but also reduces the risk of infection for those who have not been vaccinated but does not charge him or her, which creates a positive impact on a third party but does not ask for a return, the person who has been vaccinated is said to have created a "positive externality" on society.A public good is something that doesn't charge anything to the user and doesn't restrict anyone from using it, yet it brings a benefit to society (an economic benefit rather than an accounting benefit), and together with the additional rewards that technological advances such as the blockchain bring to society, we can define it: we say that an activity is a public good if it brings a certain amount of positive externality.3. Pareto optimizationPareto optimality is an ideal state of resource allocation, a state in which society maximizes its overall returns given its current productivity. at this point, no amount of adjustments to the parameters/internal structure of society will make it better, except for advances in productivity, which is an idealized social state.Public goods are closely related to the benefits of society as a whole, and Pareto optimization is an important criterion for the benefits of society as a whole, so this concept is more critical to understanding the content of the later, we will cite an example of the details here.The biggest obstacle to understanding Pareto optimality is that we seem to feel in society that the lower the price of a good, the greater the benefit to individuals in society, and thus the overall benefit to society as a whole, but in reality, this low level of prices is far from Pareto optimal because the economic roles in society can be divided into producers (supply) and consumers (demand), and the low price ignores the benefit to the producers.Conversely, high prices do not work, and only the "right price" is the key to Pareto optimization, as illustrated by a simple supply and demand curve:(Supply and demand curves in microeconomics)Suppose a society has only one good, and the price of that good represents the price level of the whole society. figure 1 shows the supply and demand curves for that good. at price P = 5, suppliers are willing to supply 5 goods, consumers are willing to buy 5 goods, and supply and demand are in perfect equilibrium;If the price is lowered to P=2, it may seem that the price is lowered and the level of social returns is raised, but according to the supply curve, the producer will only sell 2 goods in order not to lose money, and the consumer, although he wants to buy 8 goods, can only buy 2 because there are only 2. At this time, the surplus production raw materials are not adopted in time, which results in wastage, and the overall returns of the society are instead declined;The same is true if the price is raised to P=7. So, P=5 is the "right price", the price that makes society Pareto-optimal, and beyond which, no matter what changes are made, society as a whole can never be better off.Public goods are free, so their price must be lower than the "appropriate price", that is, free public goods for society is not the highest benefit, at least need certain measures, so that the public goods provider to obtain a certain amount of income, in order to better promote the sustainable development of public goods, to enhance the overall benefits of society.The significance of public goods for Web3Web3 has a reshaping significance for the network and digital assets in the new era, and the concepts of public chain and smart contract have the attributes of public goods, which not only provide the foundation for the Web3 ecosystem, but also give it a deep humanistic and technological significance.1. Public goods provide de-trustingTrust has always been a scarce resource, and even more so in the digital Internet era; in the Web2 world, economic agents, both online and offline, had to form a relationship of trust to enter into a transaction, often at great cost, while in the Web3 ecosystem, public goods such as public chains and smart contracts are based on the blockchain technology, where every transaction and every execution of a smart contract is recorded on the blockchain, which is viewable by anyone and can be verified by any person, thus eliminating the process of forming trust prior to the transaction, which is one of the major significance of the blockchain technology: the de-trusting of transactions. this de-trusting of transactions based on transparency and immutability has led to a greater development of public goods in the Web3 ecosystem.2. Public goods enable license-free access to Web3Resources and services in the Web2 world are often subject to access restrictions, while in the Web3 world, public goods ensure that everyone has equal access to resources and services. on the one hand, this license-free is through smart contracts, dividing the approval and verification rights from the centralized institutions, making the network more decentralized, and guaranteeing the security of the Web3 ecosystem; on the other hand, the license-free makes it possible for any person to participate in the Web3 ecosystem and ensures that the openness and inclusiveness of the public goods of the Web3 is ensured, which, in turn, facilitates the development of the Web3 ecosystem.3. Complexity of public goodsIn addition to these positive aspects, the public goods ecosystem of Web3 has taken on an unprecedented complexity, not only due to technological advances, but also due to the decentralization, openness, and global nature of Web3, which is reflected in the following aspects:(1) Transformation between various types of goods: In the Web3 world, Token, smart contract, DAO, DApps and other digital assets and services can be transformed and invoked among each other, which can be categorized as public goods, and the transformation between them not only brings more flexibility and opportunities, but also complex risks and challenges to the Web3 world.(2) Incomplete decentralization: decentralization is one of the core features of Web3 in theory, but in real practice, Web3 organizations are often not decentralized, but polycentric. this incomplete decentralization, while providing a certain degree of flexibility and freedom for public goods, also makes the coordinated allocation of resources more complex, which is the challenge of public goods and also its charm.(3) Diversity and Interoperability: Different public chains, DApps, and Token make the Web3 ecosystem full of diversity, and at the same time, it also brings the challenge of interoperability, which is an urgent problem to be solved to ensure smooth interaction and collaboration among different public goods, and to avoid the "silo effect" and fragmentation of Web3 public goods.4. Monetization of public goods (income evil curve)The Inbound Evil Curve is a research methodology and tool proposed by Vitalik Buterin (2022) for analyzing the potential harm to public goods from different monetization/commercialization strategies.This results in a benefit to the owner of the public good, but reduces the benefit to society as a whole through the loss of the positive externality. the degree of this tendency to benefit oneself to the detriment of the public good is described as the "degree of wickedness" in the revenue wickedness curve. the revenue wickedness curve gives us a completely new way of looking at public goods, and is perhaps better suited to Web3. the revenue wickedness curves for the six examples shown in Figure 1 are illustrated in Figure 3.4.ChallengesVitalik ButerinDefiEthereumAs mentioned at the beginning of this paper, as productivity and relations of production evolve, the definition of public goods should also evolve with the times.To study the ecology of public goods in Web3, it is important to first clarify the definition of public goods from beginning to end.Mancunian's Principles of Economics (Micro Part) represents traditional western economics.In this book, all goods are categorized into private goods, club resources, public goods and public resources according to whether they are exclusive and competitive or not.Therefore, first of all, we need to introduce what is exclusivity and competitiveness.Exclusivity: when an item is used, it has the property of preventing other subjects from using it (similar to locks in operating systems and databases).Competitiveness: the property of an object, when used by one subject, to reduce the quantity and quality of its use by other subjects (being consumed).For example, any one of the goods in the shopping mall, you buy it, you have all the rights to use it, and exclude others from using it, this is exclusivity; picking the total amount of fruit in the garden is limited, you pick away, although other people can continue to pick the rest of the fruit, but the total amount of fruit can be picked will become less, you pick some more, other people can only be picked some less, so there is a competition between the pickers, this is the competitive relationship.According to the presence or absence of these two properties, commodities have been divided into four categories in traditional economics:It can be seen here that the traditional Western economics definition of public goods is that they are non-exclusive and non-competitive. but with the development of productivity and globalization, there are two problems with this definition:First, a change in the reference standard leads to a transformation between contradictory opposites, such as a country's national defense, which is non-exclusive for that country and exclusive for other countries.Second, whether goods are exclusive and competitive is not a simple dichotomy, but rather a two-dimensional "broad spectrum" between private and public goods (as in figure I).In the picture above, Alice has 1,000 ETH to sell, Bob runs an airline and sells tickets, Charlie builds bridges and collects tolls, David releases a podcast, Eve releases a song, and Fred invents a better cryptography algorithm.These six examples cannot be categorized according to a simple and crude dualism of presence or absence of exclusivity and competition, but are distributed in the coordinate system according to different strengths of exclusivity and competition (with Charlie being the most unusual, as the competition of the bridge he built is unclear and positively correlates with the degree of road congestion).xa0 Clearly, xa0traditional dualisms cannot effectively categorize them to determine which ones belong to the public good.2.Development of the understanding of public goodsThe above definition of public goods in traditional economics is insufficient, and many economists have tried to improve it, but it has the limitations of the times and may be mutually exclusive. of course, this is not the problem of economists, any "absolute truth" will be weakened to relative truth with the development of the world. as for the public goods, we need to find the definition and scope suitable for the current times, in order to have a guiding significance for our practical behavior.According to the previous definition, public goods have positive externalities, i.e., they have a positive impact on society that is not reflected in the price, so monetization/commercialization of public goods is to cut down on this positive externality by charging a fee for the positive impacts they cause.The vertical coordinate Evil in the graph is the degree of evil. from Figure 3, it can be seen that although the degree of evil is the degree of tendency to obtain personal benefits, due to the different attributes of the goods owned by the six individuals, they elevate the degree of evil, which leads to the ultimate acquisition of different real personal benefits, which is analyzed as follows:Alice: the higher the level of evil the higher the pending order price, the higher the pending order price the fewer buyers, and the point of highest actual income is instead the point of lowest level of evil, i.e. selling ETH at market price.Bob: The lowest point of the degree of evil is the market price of selling air tickets. if you want to make a quick profit and dump air tickets at a low price, you will make Bob's own revenue decrease, and many people who have urgent demand for air tickets may not be able to grab them, which is far from Pareto optimality; if you want to raise the price to get more revenue, you will still be far from Pareto optimality, and the degree of evil in the second half of the curve is even super-linear.Charlie: If the bridge road is soothing, any toll behavior will hinder many people in need and bring negative benefits to the society, and the higher the degree of evil, the more benefits Charlie himself gets; if the bridge road is congested, appropriate tolls will ease the congestion, and too high or too low tolls will make the overall benefits to the society lower..