Why are things designed in a certain way, basically so we can take the predetermined paths that benefit both the person & the final product. This includes how the paths are shown & followed usually decided by good & bad behaviour rewards.

So, what drives people to act in certain ways, rewards; as humans we tend to run away from pain & towards what brings us pleasure, on most occasions anyway. Unless you’re a gamer in which case you’ll get crushed by the same boss for hours for a tiny release of dopamine when it’s defeated… #EldenRing

Although rewards can vary in structure & importance, I like to think of 3 main areas;

• Mental rewards via dopamine
• Economic rewards via money
• Intimacy or social rewards via attention or recognition

If you can mix these in the right way, you become the alchemist of incentives.

Incentive Design

So as we covered Incentive Design is all about the mechanisms or design to get people and/or machines to behave in a certain way, that we want in exchange for a reward of some kind.

There are many kinds of incentives across crypto, communities via DAO’s, art via NFT’s and governance via creating & publishing proposals as well as part by voting.

The most well knows would be the design with BTC using POW consensus, where the incentive of participating in the network by validating transactions as a miner, means that you are providing a service by not only validating & acting as a pool of validators but also by securing the network due to size/volume of participants & computing power so the reward is monetary in the form of receiving 6.25 BTC (currently) once a block has been successfully mined and also the transaction fee 0.25 BTC (currently), check this out live on this dashboard.

Similarly to that ETH, if we think about the incoming use of POS also rewards miners with ETH. However, the difference is that with POS you would put up a stake into a validator pool, for which you’d be awarded with ETH via new issuance as well as miner/validator tips.

For both of these cases, it’s important to also know how bad actors are disincentivised from … doing bad things? So for BTC the costs of running a POW mining set-up costs are pretty high with the chances of success being relatively low, so this means that as the network & security grows the more money would be needed to successfully perform bad actions against the network, specifically thinking of a 51% attack which would mean a massive amount of money & computing power being invested. As for ETH, with POS, the disincentivisation of bad actors is mainly by the high cost of staking, as putting up 32 ETH to join the cool kids club of validators will cost a pretty penny and with that the possibility of part of your stake being removed (slashing) if you’ve been found by the network to have been a bad actor… Again, all this would be very expensive & highly risky.

The main reason to think about incentive design is that if done efficiently, then it will help with both the product/project/idea, just like we’ve seen with Bitcoin and its increase not just in size but by adoption across noobs, normies & big bad institutions alike including;

• Adoption, if the incentives make sense financially & socially, more people will be attracted.
• Growth, not just in terms of participants but in mindshare and awareness.
• Security, the more participants the larger the network so the harder it might be to attack.
• Active participants, in a sense have skin in the game, either mentally due to researching/studying, emotionally as they’ve formed a bond with the group/community, or economically since they have used resources to build mining rigs or staked resources into the project and it can also be a mix of all of the above.
• Assuming the incentives are designed smoothly there would be less need for direct management and more time to focus on the product & improvements to continue striding forwards.

So the question is how to incentivise someone or a group of people to act in the greater good of the product, without being forceful or at the detriment of the overall group for the gain of a smaller group…