In 1817, the English economist David Ricardo presented his labor theory of value:

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production.

In other words, the value of an object comes from the amount of labor that went into producing it. In some cases, this insight seems pretty obvious and easy to accept. Take art, for example: an oil painting created over several years, by a skilled painter who has spent years mastering the craft of oil painting, should naturally be worth more than a doodle made by an untrained five-year-old. Other cases are more complicated. Consider ‘Orange Marilyn,’ an Andy Warhol silkscreen painting that (reportedly) sold for over $200 million in a private sale in 2018, making it one of the most expensive artworks every sold. Because the work was produced by imprinting an existing photograph, the amount of labor that went into producing it was undoubtedly much less than your average Renaissance or Impressionist painting. You could argue that additional labor indirectly contributed to this painting’s value: say, Marilyn Monroe’s acting career, Andy Warhol’s work as a cultural influencer and public figure. But even so, it’s harder to explain why this painting had so much ‘value’ based on labor alone.

With all due to respect to Mr. Ricardo, you and I both know that the modern economy isn’t just about exchanging labor for value. There’s another significant input that tends to swallow labor whole: capital. Take sharing economy services like ride-sharing, for example. Because the companies behind them (Uber, Lyft, etc.) are highly capitalized, they can afford to charge lower prices, even if it means losing money on each ride. The platform’s growing user base creates network effects, economies of scale, and (possibly) an oligopoly or even monopoly on the market for its service. A lot of value gets created, and it goes to the company’s investors: a reward for providing capital. As we all know, there’s a lot more money in providing capital than in providing labor: capital just has a certain gravity, pulling in exponentially compounding value as it is deployed. Labor doesn’t seem to have that property. And that’s one of the fundamental issues with capitalism: capital accumulates, labor doesn’t, and the result is inequality.

But what about digital labor? To be clear, I’m not talking about work in the real world that is mediated by a digital platform (i.e. driving for a ride-sharing company). I’m talking about about work within a digital world. Here’s an example: the video game Runescape. There’s a great Planet Money episode about gold farmers, players who created Runescape accounts solely to accumulate Runescape gold. Interestingly, the in-game gold can be sold for real US dollars to other Runescape players who want to avoid having to spend a bunch of time grinding for gold. For players living in Venezuela, where the national currency has experienced extreme instability in the past, gold farming in Runescape was actually a more stable source of income than working a job in the ‘real world’ with wages in the local currency.

Gold farming is an interesting example, because it’s a repetitive task: if you spend all of your in-game time killing dragons, you’ll accumulate gold at a linear rate. Add it all up, and you have a system that actually does seem to conform to a labor theory of value: time spent ‘working’ on killing dragons can be directly converted to gold. Now, most likely capital eventually plays a role (the more gold a farmer accumulates, the better weapons and equipment they can buy, the more they’ll level up, and the easier it will be to kill dragons faster and faster). But at least for a brief moment in time, the combination of a low barrier to entry (Runescape is an old game and can run on just about any computer) and very specific economic conditions created a kind of digital work where labor and value were correlated quite powerfully, and could be exchanged one for the other without the distortions of capital. The point is: digital worlds are a kind of Wild West, where the rules of late-stage capitalism don’t yet apply, and society has a window of opportunity to write new rules.

Okay, that’s fine, but it doesn’t change the fundamental disparity between capital, which is accumulative, and labor, which isn’t. However, based on the building blocks that currently exist in the crypto-economy, I think that there’s the intriguing potential for a new kind of incentive mechanism that does change this balance. Fair warning: here’s where things get sort of techno-Utopian/Crypto-Bro-y. But bear with me.

Let’s start with an example: CryptoKitties. CryptoKitties is a game where players can buy, breed, and sell virtual cats. Like Runescape, it’s a game where players can spend time playing the game, then exchange the output of that play time (digital cats) for real money (the Ethereum cryptocurrency). Silly as it might sound, there’s a lot of money in this game; these cats can trade for thousands, even millions of dollars, depending on their attributes. Unlike Runescape, though, this game is built on a blockchain. What this means is that the underlying data for the game—the cats, the currency—is all stored in a public, decentralized database, rather than being controlled by the game makers. In theory, this means that the players aren’t actually tied to the CryptoKitties platform at all. If the company that makes the game disappears, or stops working on the game, the cats will still be there. If they wanted to, the players could even pick up their cats and take them to a different game. And that’s where things get interesting.

So, going back to the title of the article: can cryptocurrencies fix capitalism? An optimistic answer goes like this: blockchains fundamentally incentivize platforms to offer ownership to their users. When the database becomes public, the platform can no longer hoard data for value, the way that a centralized internet company can. So, it has to offer users something else to make them stay. This becomes the new nexus of competition: the platform that gives the most power, the most value, the most ownership back to its users is the one that builds the network effects, and ultimately wins. A game like CryptoKitties is one example that already follows this pattern. But in the most optimistic future, this model gets extended beyond just games. Social media platforms like Facebook and Twitter are, after all, their own kind of digital world. What if a social media platform came along that put all of its data on the blockchain, and gave its users rewards for every like, repost, retweet?

Suppose the internet really does develop in this direction. The ultimate reward for participation would be ownership: not just Runescape gold, but Runescape shares. That might sound implausible, but it’s perhaps less so if we get more creative with the definition a ‘share.’ Remember, we’re not talking about centralized companies anymore. The database is public: the platform is no longer incentivized to collect data into an opaque walled garden, the way that companies like Google (recording your search history to sell ads) or Uber (recording who is a driver and who is a rider, to take a fee for connecting the two) do. Instead, the platform is more like a vending machine: you put something in, and the platform spits something out where everyone can see it. And the most successful platforms are going to be the ones that spit out something—whether it’s a crypto-token or a CryptoKitty—that has equity, that grows in value as the platform grows. In other words, the platform that allows its users to exchange labor for ownership is the one that wins.

It might sound unlikely. It might not happen; there’s a good chance that it doesn’t. But at this point in time, the important thing is that it can still happen. We’re at a moment in history where some aspects of the future look bleak, but we still have the chance to fix them. Humanity can become more united, not less. We still can reverse climate change. And we can build an internet that levels the playing field between labor and capital.

In a world of rapidly increasing economic inequality, my hope is that Web3 is a countervailing force that distributes ownership in valuable digital platforms more equally. Perhaps the decentralized ethos and in-built economic incentives of the blockchain will deliver this optimistic future. But Web3 will be built by a small population of software developers, and therein lies risk: perhaps high educational barriers to entry, combined with greed, will ultimately cause the decentralized web to be built with the same accumulative model of Web2. We’ll just have to wait and find out.

In 1817, the English economist David Ricardo presented his labor theory of value:

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production.

In other words, the value of an object comes from the amount of labor that went into producing it. In some cases, this insight seems pretty obvious and easy to accept. Take art, for example: an oil painting created over several years, by a skilled painter who has spent years mastering the craft of oil painting, should naturally be worth more than a doodle made by an untrained five-year-old. Other cases are more complicated. Consider ‘Orange Marilyn,’ an Andy Warhol silkscreen painting that (reportedly) sold for over $200 million in a private sale in 2018, making it one of the most expensive artworks every sold. Because the work was produced by imprinting an existing photograph, the amount of labor that went into producing it was undoubtedly much less than your average Renaissance or Impressionist painting. You could argue that additional labor indirectly contributed to this painting’s value: say, Marilyn Monroe’s acting career, Andy Warhol’s work as a cultural influencer and public figure. But even so, it’s harder to explain why this painting had so much ‘value’ based on labor alone.

With all due to respect to Mr. Ricardo, you and I both know that the modern economy isn’t just about exchanging labor for value. There’s another significant input that tends to swallow labor whole: capital. Take sharing economy services like ride-sharing, for example. Because the companies behind them (Uber, Lyft, etc.) are highly capitalized, they can afford to charge lower prices, even if it means losing money on each ride. The platform’s growing user base creates network effects, economies of scale, and (possibly) an oligopoly or even monopoly on the market for its service. A lot of value gets created, and it goes to the company’s investors: a reward for providing capital. As we all know, there’s a lot more money in providing capital than in providing labor: capital just has a certain gravity, pulling in exponentially compounding value as it is deployed. Labor doesn’t seem to have that property. And that’s one of the fundamental issues with capitalism: capital accumulates, labor doesn’t, and the result is inequality.

But what about digital labor? To be clear, I’m not talking about work in the real world that is mediated by a digital platform (i.e. driving for a ride-sharing company). I’m talking about about work within a digital world. Here’s an example: the video game Runescape. There’s a great Planet Money episode about gold farmers, players who created Runescape accounts solely to accumulate Runescape gold. Interestingly, the in-game gold can be sold for real US dollars to other Runescape players who want to avoid having to spend a bunch of time grinding for gold. For players living in Venezuela, where the national currency has experienced extreme instability in the past, gold farming in Runescape was actually a more stable source of income than working a job in the ‘real world’ with wages in the local currency.

Gold farming is an interesting example, because it’s a repetitive task: if you spend all of your in-game time killing dragons, you’ll accumulate gold at a linear rate. Add it all up, and you have a system that actually does seem to conform to a labor theory of value: time spent ‘working’ on killing dragons can be directly converted to gold. Now, most likely capital eventually plays a role (the more gold a farmer accumulates, the better weapons and equipment they can buy, the more they’ll level up, and the easier it will be to kill dragons faster and faster). But at least for a brief moment in time, the combination of a low barrier to entry (Runescape is an old game and can run on just about any computer) and very specific economic conditions created a kind of digital work where labor and value were correlated quite powerfully, and could be exchanged one for the other without the distortions of capital. The point is: digital worlds are a kind of Wild West, where the rules of late-stage capitalism don’t yet apply, and society has a window of opportunity to write new rules.

Okay, that’s fine, but it doesn’t change the fundamental disparity between capital, which is accumulative, and labor, which isn’t. However, based on the building blocks that currently exist in the crypto-economy, I think that there’s the intriguing potential for a new kind of incentive mechanism that does change this balance. Fair warning: here’s where things get sort of techno-Utopian/Crypto-Bro-y. But bear with me.

Let’s start with an example: CryptoKitties. CryptoKitties is a game where players can buy, breed, and sell virtual cats. Like Runescape, it’s a game where players can spend time playing the game, then exchange the output of that play time (digital cats) for real money (the Ethereum cryptocurrency). Silly as it might sound, there’s a lot of money in this game; these cats can trade for thousands, even millions of dollars, depending on their attributes. Unlike Runescape, though, this game is built on a blockchain. What this means is that the underlying data for the game—the cats, the currency—is all stored in a public, decentralized database, rather than being controlled by the game makers. In theory, this means that the players aren’t actually tied to the CryptoKitties platform at all. If the company that makes the game disappears, or stops working on the game, the cats will still be there. If they wanted to, the players could even pick up their cats and take them to a different game. And that’s where things get interesting.

So, going back to the title of the article: can cryptocurrencies fix capitalism? An optimistic answer goes like this: blockchains fundamentally incentivize platforms to offer ownership to their users. When the database becomes public, the platform can no longer hoard data for value, the way that a centralized internet company can. So, it has to offer users something else to make them stay. This becomes the new nexus of competition: the platform that gives the most power, the most value, the most ownership back to its users is the one that builds the network effects, and ultimately wins. A game like CryptoKitties is one example that already follows this pattern. But in the most optimistic future, this model gets extended beyond just games. Social media platforms like Facebook and Twitter are, after all, their own kind of digital world. What if a social media platform came along that put all of its data on the blockchain, and gave its users rewards for every like, repost, retweet?

Suppose the internet really does develop in this direction. The ultimate reward for participation would be ownership: not just Runescape gold, but Runescape shares. That might sound implausible, but it’s perhaps less so if we get more creative with the definition a ‘share.’ Remember, we’re not talking about centralized companies anymore. The database is public: the platform is no longer incentivized to collect data into an opaque walled garden, the way that companies like Google (recording your search history to sell ads) or Uber (recording who is a driver and who is a rider, to take a fee for connecting the two) do. Instead, the platform is more like a vending machine: you put something in, and the platform spits something out where everyone can see it. And the most successful platforms are going to be the ones that spit out something—whether it’s a crypto-token or a CryptoKitty—that has equity, that grows in value as the platform grows. In other words, the platform that allows its users to exchange labor for ownership is the one that wins.

It might sound unlikely. It might not happen; there’s a good chance that it doesn’t. But at this point in time, the important thing is that it can still happen. We’re at a moment in history where some aspects of the future look bleak, but we still have the chance to fix them. Humanity can become more united, not less. We still can reverse climate change. And we can build an internet that levels the playing field between labor and capital.

In a world of rapidly increasing economic inequality, my hope is that Web3 is a countervailing force that distributes ownership in valuable digital platforms more equally. Perhaps the decentralized ethos and in-built economic incentives of the blockchain will deliver this optimistic future. But Web3 will be built by a small population of software developers, and therein lies risk: perhaps high educational barriers to entry, combined with greed, will ultimately cause the decentralized web to be built with the same accumulative model of Web2. We’ll just have to wait and find out.