Guest post by Michael Cooper, Mike is a Senior Social Scientist at Emergence who advises foreign assistance funders, service providers and evaluators on blockchain applications. He can be reached at firstname.lastname@example.org
Tokens Could be Our Focus
There is no real evidence base about what does and does not work for applying blockchain technology to interventions seeking social impacts. Most current blockchain interventions are driven by developers (programmers) and visionary entrepreneurs. There is little thinking in current blockchain interventions around designing for “social” impact (there is an over abundant trust in technology to achieve the outcomes and little focus on the humans interacting with the technology) and integrating relevant evidence from behavioral economics, behavior change design, human centered design, etc.
To build the needed evidence base, Monitoring, Evaluation, Research and Learning (MERL) practitioners will have to not only get to know the broad strokes of blockchain technology but the specifics of token design and tokenomics (the political economics of tokenized ecosystems). Token design could become the focal point for MERL on blockchain interventions since:
- If not all, the vast majority of blockchain interventions will involve some type of desired behavior change
- The token provides the link between the ledger (which is the blockchain) and the social ecosystem created by the token in which the behavior change is meant to happen
- Hence the token is the “nudge” meant to leverage behavior change in the social ecosystem while governing the transactions on the blockchain ledger.
(While this blog will focus on these points, it will not go into a full discussion of what tokens are and how they create ecosystems. But there are some very good resources out there that do this which you can review at your leisure and to the degree that works for you. The Complexity Institute has published a book exploring the various attributes of complexity and main themes involved with tokenomics while Outlier Ventures has published, what I consider, to be the best guidance on token design. The Outlier Ventures guidance contains many of the tools MERL practitioners will be familiar with (problem analysis, stakeholder mapping, etc.) and should be consulted.)
Hence it could be that by understanding token design and its requirements and mapping it against our current MERL thinking, tools and practices, we can develop new thinking and tools that could be the beginning point in building our much-needed evidence base.
What is a “blockchain intervention”?
As MERL practitioners we roughly define an “intervention” as a group of inputs and activities meant to leverage outcomes within a given eco-system. “Interventions” are what we are usually mandated to asses, evaluate and help improve.
When thinking about MERL and blockchain, it is useful to think of two categories of “blockchain interventions”.
1) Integrating the blockchain into MERL data collection, entry, management, analysis or dissemination practices and
2) MERL strategies for interventions using the blockchain in some way shape or form.
Here we will focus on the #2 and in so doing demonstrate that while the blockchain is an innovative, potentially disruptive technology, evaluating its applications on social outcomes is still an issue of assessing behavior change against dimensions of intervention design.
Designing for Behavior Change
We generally design interventions (programs, projects, activities) to “nudge” a certain type of behavior (stated as outcomes in a theory of change) amongst a certain population (beneficiaries, stakeholders, etc.). We often attempt to integrate mechanisms of change into our intervention design, but often do not for a variety of reasons (lack of understanding, lack of resources, lack of political will, etc.). This lack of due diligence in design is partly responsible for the lack of evidence around what works and what does not work in our current universe of interventions.
Enter blockchain technology, which as MERL practitioners, we will be responsible for assessing in the foreseeable future. Hence, we will need to determine how interventions using the blockchain attempt to nudge behavior, what behaviors they seek to nudge, amongst whom, when and how well the design of the intervention accomplishes these functions. In order to do that we will need to better understand how blockchains use tokens to nudge behavior.
The Centrality of the Token
We have all used tokens before. Stores issue coupons that can only be used at those stores, we get receipts for groceries as soon as we pay, arcades make you buy tokens instead of just using quarters. The coupons and arcade tokens can be considered utility tokens, meaning that they can only be used in a specific “ecosystem” which in this case is a store and arcade respectively. The grocery store receipt is a token because it demonstrates ownership, if you are stopped on the way out the store and you show your receipt you are demonstrating that you now have rights to ownership over the foodstuffs in your bag.
Whether you realize it or not at the time, these tokens are trying to nudge your behavior. The store gives you the coupon because the more time you spend in their store trying to redeem coupons, the greatly likelihood you will spend additional money there. The grocery store wants you to pay for all your groceries while the arcade wants you to buy more tokens than you end up using.
If needed, we could design MERL strategies to assess how well these different tokens nudged the desired behaviors. We would do this, in part, by thinking about how each token is designed relative to the behavior it wants (i.e. the value, frequency and duration of coupons, etc.).
Thinking about these ecosystems and their respective tokens will help us understand the interdependence between 1) the blockchain as a ledger that records transactions, 2) the token that captures the governance structures for how transactions are stored on the blockchain ledger as well as the incentive models for 3) the mechanisms of change in the social eco-system created by the token.
Figure #1: The inter-relationship between the blockchain (ledger), token and social eco-system
Token Design as Intervention Design
Just as we assess theories of change and their mechanisms against intervention design, we will assess blockchain based interventions against their token design in much the same way. This is because blockchain tokens capture all the design dimensions of an intervention; namely the problem to be solved, stakeholders and how they influence the problem (and thus the solution), stakeholder attributes (as mapped out in something like a stakeholder analysis), the beneficiary population, assumptions/risks, etc.
Outlier Ventures has adapted what they call a Token Utility Canvas as a milestone in their token design process. The canvas can be correlated to the various dimensions of an evaluability assessment tool (I am using the evaluability assessment tool as a demonstration of the necessary dimensions of an interventions design, meaning that the evaluability assessment tool assesses the health of all the components of an intervention design). The Token Utility Canvas is a useful milestone in the token design process that captures many of the problem diagnostic, stakeholder assessment and other due diligence tools that are familiar to MERL practitioners who have seen them used in intervention design. Hence token design could be largely thought of as intervention design and evaluated as such.
Table#1: Comparing Token Design with Dimensions of Program Design (as represented in an Evaluability Assessment)
This table is not meant to be exhaustive and not all of the fields will be explained here but in general, it could be a useful starting point in developing our own thinking and tools for this emerging space.
The Token as a Tool for Behavior Change
Coming up with a taxonomy of blockchain interventions and relevant tokens is a necessary task, but all blockchains that need to nudge behavior will have to have a token.
Consider supply chain management. Blockchains are increasingly being used as the ledger system for supply chain management. Supply chains are typically comprised of numerous actors packaging, shipping, receiving, applying quality control protocols to various goods, all with their own ledgers of the relevant goods as they snake their way through the supply chain. This leads to ample opportunities for fraud, theft and high costs associated with reconciling the different ledgers of the different actors at different points in the supply chain. Using the blockchain as the common ledger system, many of these costs are diminished as a single ledger is used with trusted data, hence transactions (shipping, receiving, repackaging, etc.) can happen more seamlessly and reconciliation costs drop.
However even in “simple” applications such as this there are behavior change implications. We still want the supply chain actors to perform their functions in a manner that adds value to the supply chain ecosystem as a whole, rewarding them for good behavior within the ecosystem and punishing for bad.
What if those shippers trying to pass on a faulty product had already deposited a certain value of currency in an escrow account (housed in a smart contract on the blockchain)? Meaning that if they are found to be attempting a prohibited behavior (passing on faulty products) they surrender a certain amount automatically from the escrow account in the blockchain smart contract. How much should be deposited in the escrow account? What is the ratio between the degree of punishment and undesired action? These are behavior questions around a mechanism of change that are dimensions of current intervention designs and will be increasingly relevant in token design.
The point of this is to demonstrate that even “benign” applications of the blockchain, like supply chain management, have behavior change implications and thus require good due diligence in token design.
There is a lot that could be said about the validation function of this process, who validates that the bad behavior has taken place and should be punished or that good behavior should be rewarded? There are lessons to be learned from results based contracting and the role of the validator in such a contracting vehicle. This “validating” function will need to be thought out in terms of what can be automated and what needs a “human touch” (and who is responsible, what methods they should use, etc.).
Implications for MERL
If tokens are fundamental to MERL strategies for blockchain interventions, there are several critical implications:
- MERL practitioners will need to be heavily integrated into the due diligence processes and tools for token design
- MERL strategies will need to be highly formative, if not developmental, in facilitating the timeliness and overall effectiveness of the feedback loops informing token design
- New thinking and tools will need to be developed to assess the relationships between blockchain governance, token design and mechanisms of change in the resulting social ecosystem.
The opportunity cost for impact and “learning” could go up the less MERL practitioners are integrated into the due diligence of token design. This is because the costs to adapt token design are relatively low compared to current social interventions, partly due to the ability to integrate automated feedback.
Blockchain based interventions present us with significant learning opportunities due to our ability to use the technology itself as a data collection/management tool in learning about what does and does not work. Feedback from an appropriate MERL strategy could inform decision making around token design that could be coded into the token on an iterative basis. For example as incentives of stakeholder’s shift (i.e. supply chain shippers incur new costs and their value proposition changes) token adaptation can respond in a timely fashion so long as the MERL feedback that informs the token design is accurate.
There is need to determine what components of these feedback loops can be completed by automated functions and what requires a “human touch”. For example, what dimensions of token design can be informed by smart infrastructure (i.e. temp gauges on shipping containers in the supply chain) versus household surveys completed by enumerators? This will be a task to complete and iteratively improve starting with initial token design and lasting through the lifecycle of the intervention. Token design dimensions, outlined in the Token Utility Canvas, and decision-making will need to result in MERL questions that are correlated to the best strategy to answer them, automated or human, much the same as we do now in current interventions.
While many of our current due diligence tools used in both intervention and evaluation design (things like stakeholder mapping, problem analysis, cost benefit analysis, value propositions, etc.), will need to be adapted to the type of relationships that are within a tokenized eco-systems. These include the relationships of influence between the social eco-system as well as the blockchain ledger itself (or more specifically the governance of that ledger) as demonstrated in figure #1.
This could be our, as MERL practitioners, biggest priority. While blockchain interventions could create incredible opportunities for social experimentation, the need for human centered due diligence (incentivizing humans for positive behavior change) in token design is critical. Over reliance on the technology to drive social outcomes is already a well evidenced opportunity cost that could be avoided with blockchain-based solutions if the gap between technologists, social scientists and practitioners can be bridged.