An Introduction to Etica: A new blockchain for funding open-source medical research

I am not a developer or affiliated with the Etica project, I am just somebody who is excited about it. I have been doing some reading on Etica, watched the video, and even read through the whitepaper, and so I wanted to share some of the things I've learned and help break down some of the tech. It's quite possible I got some things wrong, so please chime in with any corrections. My goal here is to outline how Etica works and start discussion as to whether it's a good idea for funding medical research or not.

First things first, what is Etica?

Etica is a blockchain and platform for funding medical research proposals. It also incentivizes those who evaluate proposals and vote on them or otherwise participate in Etica. They maintain that this can fundamentally change how scientific research is incentivized, opening a new world of patent-free, open medical research. At the high level, people submit proposals for funding to the Etica network, which are voted on by their users. These proposals are funded by a 2.5% inflation of the network's currency (Etica), much like many governments fund themselves and their initiatives through inflation via their central bank. The difference here is that the monetary policy (rate of inflation) is pre-determined and fixed, and its distribution is decided by network participants.

Etica runs a clone of the Ethereum Classic blockchain, which uses proof-of-work to mint coins and secure the network. These coins are called ETI (Etica). The Etica blockchain also supports smart contracts so in theory it could provide an ecosystem for scientific tools based on smart contracts etc.

How does Etica fund research?

Researchers submit proposals for funding which are voted on by Etica users. Proposals are grouped by disease and compete against other proposals for that same disease. Proposals which receive a sufficient vote will be minted new coins as part of Etica's approximately 2% built-in currency supply inflation. Proposals can be requests for funding, results of research, or really anything else you can think of, the community decides what should be funded and when.

What gives Etica value? If we fund researchers with Etica, they will sell it to fund their research, creating sell pressure, where is the buy pressure? Who will use Etica?

The buy pressure for Etica comes from two places: people wanting to help direct large amounts of research funding and people wanting to apply for funding. Applying for funding requires you have some Etica first. And if you want a say in how Etica is distributed, the more Etica you buy, the larger say you have. Who wants to influence which research gets funding? Individual people who are passionate about research, of course, as well as researchers making their own proposals, organizations focused on researching a particular disease, academic institutions, people or their loved ones who are effected by a disease, private industry who would benefit by more foundational research being done on a disease (for example a company who makes pipettes or PCR tests that would be used in researching/treating it), governments of regions hit hard by a particular disease, etc. In this way, Etica can bring together all stakeholders in the medical research process. Medical research provides a net benefit to society as a whole, and a host of benefits to many different groups within it, therefore there are ample types of people and organizations who would want to participate in Etica. Unlike crowdfunding, where spending $10 enables you to “vote with your $10” once, spending $10 on Etica enables you to vote on all future proposals.

Voting on proposals also earns you a share of the reward for the proposal. In this way, Etica provides a financial incentive for participating in it, even somebody of pure financial motivation with no interest in medical research might see value in buying and holding Etica. Of course, Etica's value relative to other currencies is determined by many factors and it would be foolish to try and predict what that will be. I am not trying to pitch Etica as an investment vehicle here.

Comparison to Pharmaceutical Company & Government Funding 

Pharmaceutical companies, directly funding research through government funding, and relatively recently crowdfunding are society's current best ways to fund expensive drug development. Let's see how they compare to Etica.

Comparison with crowdfunding: Crowdfunding does not guarantee that IP generated through funding becomes publicly-available, though in some cases it may offer it. In this way, it offers a better incentive structure than pharmaceutical companies. However, crowdfunding has been primarily used for research, whereas bringing a drug to market usually involves a pharmaceutical company at some stage of the process for complexity and cost reasons. This means that crowdfunding medicine for rare diseases, for example, is de-incentivized as pharmaceutical companies aren't going to produce a drug which isn't worth manufacturing, putting through medical trials, etc. Crucially, in order to participate in crowdfunding, one must surrender money and there is no guarantee that it will actually result in the research getting done that you would like to see. Additionally, you can “vote with your dollar” but each dollar can only vote once. When you buy Etica, it entitles you to continue voting on proposals as long as Etica exists. This also incentivizes people asking for research funding to maintain a good reputation among the Etica network by producing the research expected of them when their proposal is funded. A large proposal can also be split into milestones which get voted on, while this can be done with crowdfunding it is more complicated.

Comparison with government funding: Etica is similar to government funding in that it is funded by inflating the supply of a currency (though there are non-inflationary means of funding government programs as well, such as spending money directly collected from taxes). The difference is that the inflation schedule is pre-determined and predictable in Etica, and that participants in the economic network (Etica holders or taxpayers) have a direct ability to submit proposals for funding and vote on which ones receive funding. In some government systems, it would be possible for participants (taxpayers) to submit and vote on funding resolutions, though for most it is not, and it would be impractical.

Comparison with pharmaceutical company: If you want to be a part of the drug discovery process for a pharmaceutical company, your best option would be to become a shareholder. If you obtain enough shares, you could submit a shareholder resolution, and theoretically other shareholders might be able to vote on it, but it is a rather complicated process and only occurs once a year. Shareholder resolutions are generally about bigger picture goals, whereas decisions like “which disease to research” and other day-to-day things are at the discretion of management. As a pharmaceutical company is funded entirely from IP, it cannot reasonably offer to produce IP-free cures for diseases. And as a shareholder, you are economically de-incentivized from trying to get the company to produce them. As many shareholders simply own shares for investment purposes, and may only have a few, they are not interested in voting on proposals and delegate that task to larger entities (management or a proxy voting organization) who are inherently mostly concerned with share price and company profits. It is illegal for management to vote any other way, and proxys could lose all their proxy votes not just for this company but for shareholders in all companies they represent.

Additional points: One thing Etica does that none of these systems do is that Etica provides incentivizes for people who vote on proposals. This encourages people to actively engage in the science funding process and learn about different areas of medical research. None of the previous methods for funding medical research offer this. 

How does voting work? Staking?

Votes on proposals are private and can be cast for 21 days after the proposal is made. After this point, they become public. This is to keep voters honest, make them come to their own evaluation of the proposal, and make sure they aren't just "voting with the crowd". Etica users who vote on successful proposals receive a share of the reward (the person(s) who submitted the proposal receive the other main part).

In order to submit proposals or vote on proposals, you must stake your Etica. This means temporarily locking up your Etica for 28 days. If you vote "yes" on a proposal that is ultimately successful (a good proposal), you can withdraw your Etica and any rewards you earned. If you voted "yes" on an unsuccessful proposal, you receive no reward and your stake will be "slashed" which means it will continue to be locked up for a certain amount of more days. The amount of days and the reward you receive (if any) is determined on how well you voted. The more unpopular a proposal is that you voted "yes" to, the longer you will get slashed. Conversely, voting "for" really popular proposals will result in you getting greater rewards.

What % of the vote is required to make a proposal pass is dependent on how successful previous proposals were. A "ratio target" is established to keep things balanced, I encourage you to check out the whitepaper if you want to read about the details. In short, this insures that not a ratio of passed to not passed proposals is kept. This avoids everyone voting "yes" on all proposals to game the system.

A note on protection against bad actors: If you vote for an extremely unpopular proposal (>90% of votes against), you will actually lose some of the Etica you have staked (up to 33%). This is to discourage bad actors. Similarly, if you submit a proposal and 90% of votes are against it, you lose up to 100% of the Etica you staked to make that proposal. So long as you submit and vote on reasonable proposals, this in theory should not happen to you, it should only happen to junk/spam/bad faith proposals and votes.

How do people obtain Etica?

People can mine Etica or submit proposals to be voted on. Presumably in the future one could buy Etica on a cryptocurrency exchange just like any other cryptocurrency, but it is in the very early stages of development at this point.

Tokenomics? Inflationary/deflationary?

Etica does not have an ICO or any pre-minted coins. Etica is distributed in two phases. Phase 1 is expected to last about ten years and will distribute 21 million Eticas through mining and protocol rewards. The goal of phase one is to distribute these as widely as possible as the network grows, as Etica are used to vote. In each phase (approx 1 year, so 10 phases), the ratio of rewards to mining and protocol rewards will decrease. So in year 1, 90% will go to mining with 10% to protocol rewards, in year 2, 80% to mining and 20% to protocol rewards, etc.

In phase two, mining rewards will stop and new coins will only be minted through the approx 2.5% built-in supply inflation. These coins are distributed to people who stake/vote/submit proposals.

If you are familiar with ERC-20 tokens, Ethereum, etc, you can simply think of Etica as an ERC-20 token which is distributed through mining, except that the ERC-20 contract lives on a clone of Ethereum instead of Ethereum main net, this is mainly to avoid gas fees. This fork has its own Eth currency as well, and presumably gas.

On inflationary/deflationary, the protocol has a built-in inflation of 2.5% (this is how research is funded). However, I believe slashes for submitting/voting on extremely unpopular proposals could be a deflationary pressure as well, though it depends on how common those are. Much like Ethereum, whether the supply is inflationary or deflationary depends on how the network is performing.

Wait, so if Etica is being mined and eventually mining stops, how will the network be secured?

There are actually two kinds of mining. The first main kind of mining is mining Etica, that is what follows the tokenomics above. But remember that Etica is a token produced by an ERC-20 smart contract on the Etica blockchain which is a clone of Ethereum classic. Ethereum classic is a proof-of-work blockchain that has its own mining requirements and native token (eth) which is used to pay for transactions that use the Etica smart contract (Etica calls this egaz). I do not know the tokenomics of this base layer, but I believe it follows Ethereum's template. Suffice to say that in order to use Etica and interact with the ERC-20 smart contract, you must obtain and spend egaz which must be mined, so this provides incentive for miners and security of the blockchain. One good thing about being based on Ethereum is that it should be relatively easy to build bridges to other blockchains which connect to Ethereum. Additionally, as Etica's voting and token distribution is done via an ERC-20 contract, it should be hostable on any EVM-compatible blockchain should running an Etica-specific blockchain not be desirable in the future for some reason. 

Why make an Ethereum clone? Why not use Ethereum or another network that supports smart contracts?
Great question, I don't know the developer's full thinking behind this. Doing it off ethereum was to avoid high gas fees which are a result of demand > supply for Ethereum's computational capacity and security. The Etica blockchain would need less security than the whole of the Ethereum blockchain, so it could just live as its own blockchain network. The ERC-20 smart contract could also be migrated to another blockchain in the future that supports EVM or onto the main Ethereum blockchain when gas fees are lower, which various L2 solutions are promising to make happen. 

Why make another Proof-of-Work coin? Isn't is a huge waste of energy? Isn't it out-dated?

I can't speak for the developer here, but I will just quickly list some points about this as I had the same question/criticism. Etica relies on the coins being distributed as widely and fairly as possible, this is really important as the coins are used for voting, and proof-of-work is really the only way to do this. Anybody with a computer can mine Etica, which makes it very accessible. As miner's put money into mining, they must recoup the cost, so mined coins inevitably get auctioned off to the public at whatever the public deems they are worth. The PoW emissions plan means that Etica will continue to exist and be mined along its planned trajectory of over a decade so long as people are mining it.

With proof-of-stake, it is difficult to insure the network's security at the start because you must mint and distribute enough coins to build up a base of stakers. If you mint all the coins at the start, and you must come up with a fair distribution mechanism. This is really difficult to do in a short timespan unlike the many year or many decade time-span PoW can take. Often this involves selling the coins (and keeping some for the founders/developers) which is difficult to do if you don't have access to an exchange, and they can be quickly bought up/used for speculation and not experience the slower, more organic type of growth that PoW can provide. Getting listed on exchanges is expensive and difficult, especially for new projects. PoW is proven technology, and PoS still has some learning to do. They both have their place.

On the energy question, I would argue there are few better places to put energy than into medical research. And not just medical research, but a system that may fundamentally and radically improve the speed and value of the medical research that society produces. I'm sure much of the energy used to fund drug development companies and the competition between them could also be argued to be wasteful. Cooperation is inherently more energy efficient that competition, as is using the same science instead of having to “re-invent the wheel” to get around patent/IP issues.

The point of this is to get the discussion going on whether Etica seems like a good funding model for open medical research or not. I would love to hear about other blockchain-based solutions for funding it!.