Mechanism Design 101

Sam Williams, founder and CEO of decentralized storage system Arweave, gives an overview of “Mechanism Design,” a field of study that has become newly relevant with the development of Bitcoin and subsequent blockchains that require carefully designed incentives for network participants. Williams uses examples to show that economic incentives, when designed properly, can persuade self-interested people to exhibit useful behaviors at fair market value with minimal central planning. This provides a new tool to bootstrap decentralized networks. He cautions, however, that poorly conceived incentive systems can overpower moral frameworks in ways that can be dangerous. This could be harmful, he says, in decentralized protocols, since self-executing code may not easily be altered to curtail unintended consequences. Williams closes with a case study of his company, Arweave, and the way it created an endowment-style financial incentive system to build a platform where data can be secured forever. This kind of model opens the door to new kinds of community-owned networks that can’t be manipulated by central owners.

Andreessen Horowitz’s Crypto Startup School brought together 45 participants from around the U.S. and overseas in a seven-week course to learn how to build crypto companies. Andreessen Horowitz is partnering with TechCrunch to release the online version of the course over the next few weeks.

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