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Currency, Blockchain and Social Extensibility (Part I)

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The secret of Bitcoin's success is that it trades a lot of resources and poor computing scalability for something more valuable -- social scalability.

Original title: Echo | Nick Szabo: currency, blockchain and social extensibility (part 1)

Source: Ethereum enthusiast

The introduction

At present, blockchain is flourishing. The largest and longest-running blockchain system is called Bitcoin. Today, in its eight-year history to date (the original was written in February 2017), bitcoin's value has risen from 10,000 coins for a pizza (before exchanges priced bitcoin in traditional currencies) to more than $1,000 per bitcoin. At the time of this writing, bitcoin is worth more than $16 billion. Running for eight years with little economic loss, Bitcoin has become the most reliable and secure financial network in some of the world's most important sectors.

The secret to Bitcoin's success has nothing to do with its computational efficiency or scalability in terms of resource consumption.Bitcoin's specialized hardware for mining would have to be highly paid to be designed by experts, but it has only one function -- to repeatedly solve a particular computational puzzle that has been deliberately designed to be very difficult. This puzzle is called the workload proof, because the answer to the puzzle doesn't mean anything except that a computer does a lot of computing. Bitcoin problem-solving hardware like this can consume more than 500 megawatts in total, and bitcoin leaves engineers and industrialists speechless.

Instead of minimizing protocol information, each computer running bitcoin software uses a large number of repetitive Inventory Vector messages to flood the Internet to ensure that all messages are received as accurately as possible by other Bitcoin nodes. As a result, the bitcoin network is unlikely to be able to handle as many transactions per second as traditional payment networks such as PayPal or Visa. For engineers and industrialists who seek to maximise the use of resources and maximise performance, bitcoin is a sore point.

On the contrary,The secret of Bitcoin's success is that it trades a lot of resources and poor computing scalability for something more valuable -- social scalability.Social extensibility refers to the ability of institutions. Institutions refer to all things that can restrain and motivate the behaviors of participants, including the relationships and common activities, customs, rules that people can participate in repeatedly, etc. To what extent, then, can a system overcome the flaws in human thinking and avoid loopholes in participant incentives and restrictions?

Social extensibility is related to the extent to which and in what ways participants can consider actions, respond to institutions and deal with relationships with other participants as the diversity and number of participants in an organization grow. This has more to do with human limitations than technical limitations or physical resource limitations. There are independent engineering disciplines, such as computer science, that assess the physical limitations of the technology itself, including the resource capacity needed to handle more users or achieve higher utilization. These engineering extensibility considerations are not the subject of this article, except for comparisons with social extensibility.

It is important that social extensibility is related to cognitive limitations and behavioral tendencies resulting from differences in thinking, not to the physical resource constraints of machines, but more important (and often crucial in fact) is the social extensibility of thinking and discussing the technologies behind institutions. The social extensibility of institutional technology depends on how the technology limits or stimulates participation in the system, including protecting the participants and the system itself from undesirable participation or attack. One way of judging the technical social extensibility of an institution is to count the number of people who can benefit from participating in the institution. Another approach is to measure the extreme benefits and penalties that the system can bring (or impose) on participants, provided that the expected costs of participation and other harms (for cognitive or behavioral reasons) do not grow faster than the benefits. The cultural and judicial diversity that individuals can enjoy when participating in a system is also important, especially in the context of the global Internet. The more a system depends on local laws, customs, or languages, the less socially scalable it is.

Without the institutional and technological innovations of the past, the number of individuals allowed to participate in common activities was usually limited to around 150 -- a number known as the Dunbar number. In the age of the Internet, new inventions are also expanding our social capacity. In this article, I'll discuss how blockchain (a public chain limited to cryptographic currencies) can improve social scalability, albeit at great cost to computing efficiency and scalability.

- Cognitive ability (in terms of the relative size of the species' cerebral cortex) limits the size of primate groups. Maintaining close group relationships between animals or humans requires a great deal of emotional communication and relationship investment, such as dressing up before meeting, gossiping, joking, storytelling, and other traditional forms of conversation, singing and acting. Institutional and technological innovations are needed to break through the upper limits of human cognitive capacity for group activity (the famous "Dunbar number" of around 150 people). -

Socially extensible innovation includes institutional and technological improvements, transforming ideas into writing or machines, reducing cognitive costs, while increasing the value of information flowing between minds, reducing security vulnerabilities, and finding and discovering new, mutually beneficial participants.

, Alfred North Whitehead, (Alfred North Whitehead) [2] said: "there's a trite, obviously lose everything, but still parroting textbooks and famous speech: we should cultivate the habit of thinking, thinking we are doing. The truth is that on the contrary, the evolution of civilization, it is by increasing the us without a specification of execution."

Hayek (Friedrich Hayek) added: "we continue to use we don't really understand the formula, symbols and rules, through the use of these rules, individuals with the knowledge to rely on its own is not. In some has been proven useful in its own field of habits and the system, we developed this kind of use of the practice of the knowledge of other people and institutions, and the developed system and practice, and will, in turn, become the basis of the further evolution of civilization."

Innovations of all kinds reduce our concerns about participants, intermediaries, and outsiders, and therefore our need to pay attention to them without our limited cognitive capacity to worry about the behavior of an increasing number of increasingly diverse people.

Another type of innovation enables an increasing number (both number and variety) of participants to collect and convey valuable information to each other. There are other innovations that allow more mutually beneficial participants to discover each other.

Throughout human prehistory and throughout history, all of these innovations have enhanced social extensibility, even to the extent that they have been so pronounced that they have made possible our populous modern civilization. Modern information technology (IT), especially the discovery of modern computer science, often can be found more mutual matching, motivate people to improve the quality of information, and can reduce the demand for trust in certain types of institutions transactions, the number and variety, more and more people, these technologies and found in a very important way to further improve the social development.

The information that flows between the minds (what I call interagency agreements) includes spoken and written words, customs (traditions), legal content (rules, customs, and precedents), other factors (such as "star" rankings that are common in online rating systems), and market prices.

Trust minimization reduces the vulnerability of participants to harmful behavior on the part of each other, outsiders, and intermediaries. Most experienced long culture evolution of the system, such as the law (holes decrease violence, theft and fraud) and safety technology, in general, are subject to a variety of ways to help reduce the vulnerability of our fellow humans, so it reduces the trust in others we need (compared to the implementation of the system and technology).

In most cases, a system that is often trusted and sufficiently trustworthy (such as a market) depends on its participants' (often implicit) trust in another system that is sufficiently trustworthy (such as contract law). Since ancient times, the trust system will by minimizing its participants (such as accountants, lawyers, regulators and investigators)'s vulnerability to implement accounting, law, security or other control measures, make oneself more real-time, more are fully trust, at least can promote the function of the downstream system. Innovation can only partially eliminate loopholes that reduce the need for trust or risk in others. Of course, there is no system or technology in the world that does not require trust at all.

Even with the most powerful security technology, encryption, there is no such thing as a completely trust-free system. While some cryptographic protocols do guarantee that certain data relationships can be used against highly computable adversaries with high probability, they do not provide an absolute guarantee if you take into account all possible behaviors of all participants. For example, while encryption can strongly protect an email from direct theft by a third party, the sender still needs to trust the recipient, who will not directly or indirectly forward the contents of the email or divulge it to any third party who should not know about it.

For example, in our strongest consensus agreements, harmful behavior that is well below 100 percent of participants or intermediaries (as measured by the computing power, shares, identities, or historical counts held) also has the potential to undermine the integrity of transactions or information flow between participants, thereby harming participants in general. Recent computer science breakthroughs do reduce vulnerabilities, often significantly, but these advances are far from eliminating all potential vulnerabilities.

Matchmaking technology facilitates mutual discovery among mutually beneficial participants. This is probably the social extensibility at which the Internet excels. Social networks like Usenet News, Facebook and Twitter can help people find like-minded partners, entertain each other, or stay in touch (and maybe even find a future spouse!). . After social networks provide the possibility for people to discover each other more quickly, and then facilitate investment in different levels of relationships, the frequency of human visits to social networks will change from casual to frequent to obsessive. Christopher Allen et al. [4] have made an interesting and detailed analysis of the size and duration of interactive groups in online games and related social networks.

EBay, Uber, AirBnB, and online financial exchanges have brought social outreach through the massive increase in dealmaking: negotiation to search, find, assemble, and facilitate mutually beneficial business or retail transactions. These related services also help facilitate businesses such as payments and shipping, as well as adequate communication (such as "star rating" systems, Yelp reviews, etc.) about whether strangers have fulfilled other obligations in these transactions and the quality of completion of the transaction.

The contribution of Internet to social expansion is matchmaking, while the main contribution of blockchain to social expansion lies in the minimization of trust cost. Blockchain can reduce risks by locking in some important businesses (such as the creation and payment of money) and the integrity of important information flows, which may reduce the integrity flaws of some important matchmaking functions in the future. Trust in private computations that are secret and arbitrarily variable can be replaced by verifiable confidence in public computations that are essentially immutable. This article will focus on such risk reduction and how it can contribute to a standard performance (i.e., a currency of trust minimization) that is useful to a wide range of potential traders.

Money and markets

By matching mutually beneficial buyers and sellers and using universally accepted and standardized payment methods (currency), currency and market can directly benefit the participants in every transaction. The market here is a concept used by Adam Smith: it is not a specific place or service used to gather buyers and sellers (although these may sometimes be involved), but a collection of large pairs of transactions that harmonize the supply chain of products.

Currencies and markets encourage more accurate price signals, reducing the negotiating costs and mistakes of participants in other forms of exchange. Arguably, the efficient integration of money and markets allows more diverse players to co-ordinate their economic activities effectively, unlike previous exchange mechanisms that resemble bilateral monopolies rather than competitive markets.

Markets and money allow for matchmaking (matching buyers and sellers), reduced need for trust (relying on self-interest rather than the altruism of acquaintances and strangers), extensible means of payment (via money (a widely accepted medium that can be used repeatedly to pay), and a flow of quality information (market prices).

The first thinker to talk about money and markets was Adam Smith. At the beginning of the British industrial Revolution, Adam Smith pointed out in the Wealth of Nations that even the simplest products are directly or indirectly dependent on the labor of a large number of different types of work:

If you look at the household goods of the most common artisan or day labourer in a civilized and prosperous country, you will find that those industries connected with the production of the daily necessities (though only a small part of them) employ an indescribably large number of people. The woollen coats worn by day workers, for example, look extremely rough, but are the result of the collective Labour of large numbers of workers.

Shepherds, pickers, carders, dyers, carders, weavers, weavers, bleachers, sewing workers, and many, many others, need a combination of their different skills to complete such a household product. Besides, how many merchants and carriers were needed to transport raw materials between these workers who lived in remote areas! What's more, how many trades and ships, how many boatmen, sailors, sailmakers, and rope makers are needed to transport the different dyes that the dyers need (which often come from all over the world) to one place! And how much Labour was required to produce the most common tools used by these workmen!

Aside like a sailor work boats, bleaching with the water wheel, weavers with weaving these complex instruments, but when the shepherd shearing shears used by this very simple tools, you need to how much complex labor: must be comprehensive miners, ore furnace construction worker, loggers, the process industry, brick industry, brick industry and iron-furnace, mechanic, blacksmith of different roles, such as process can be produced.

If we are in the same way to look at the worker's clothes and other furniture, such as, close-fitting wear coarse linen shirts and shoes on his feet, sleep on the bed and the bed of a variety of bedding, cooking stove, by underground mining and may need to be delivered to his hand through the water and land transportation for coal, all the utensils in the kitchen cooking, table all utensils, knives and forks, cheng fang food and divide the earthen vessels and tin wax, bread and wine, can keep warm, pervious to light and can shelter the glazing, and those who make the invention of the north can be very comfortable to live, All the knowledge and technology with which these inventions must be made, and all the tools with which the workers made them, and so on.

In short, if we think seriously about all these things, and consider the various labors condensed on each of them, we will find that without the labor and cooperation of thousands of people, the ordinary people living in a civilized country would have no access to these daily necessities. Yet we make the mistake of thinking how easy it is to sustain.

This was before the industrial revolution and the wave of globalisation that followed 1776. To this day, the division of labor has undergone countless improvements, increasing in complexity and scope many times over. Rather than trusting strangers to act altruistically, trust markets and money, because they can create so many communities of interest that they motivate this vast network of strangers to act in the public interest:

In a civilized society, human beings need a great deal of cooperation and help all the time, yet they can only form friendships with a few people in their short lives... More often than any other animal, human beings are in need of help from others, but it is not enough to expect only kindness. The act of exchanging allows us to get far better things we need from others. The food we need comes not from the butcher, the winemaker or the baker, but from their own self-interest.

Smith goes on to describe the division of labor and the extent to which labor productivity depends on pair exchange networks: "As exchange leads to the division of labor, the degree of division of labor must be limited by the exchange capacity. In other words, the division of labor is constrained by the market." With the continuous expansion of national and even global exchange networks, more and more producers are involved, the division of labor is refined, and labor productivity is improved.

Money promotes social extensibility by providing more opportunities for exchange. As a widely accepted and reusable medium of wealth storage and transfer, money reduces transaction costs by reducing the contingency of transactions (the contingency of exchange needs matching and transfer needs matching), resulting in an increasing variety of goods and services involved in the exchange and an increasing diversity of participants.

A wide variety of media, including spoken language, clay [5], paper, telegraphy, radio, and computer networks, have been used to convey offers, acceptance, the resulting transactions and prices, as well as supervision of execution and other business communications. As for the price network formed by market and currency, Friedrich Hayek put forward a profound insight in his book "The Application of Knowledge in Society" [6] :

In a system where knowledge of relevant facts is spread among many hands, prices coordinate the independent behavior of different individuals... In any collaborative society, whoever wants a central plan has to be based more or less on some kind of knowledge. This knowledge was not originally given to the planner, but to others, who must then somehow communicate it to the planner.

For all the explanation of the process of economic theory, knowledge, which is the basis for planning through what way message to people is a vital problem, as for the original scattered all people what is the best way to use of knowledge, this problem is the economic policy, at least, or design efficient economic system one of the major problems...

Each item has a price (or, more accurately, all is the price of the interrelated, its difference depends on the transportation cost, etc.), the simple fact that seemed to hint that a solution, if all information in one's hands, it is possible to get the right price for all commodities, but it is only in concept may, in fact, all the information is scattered in the hands of everyone involved in this process...

Miraculously, in situations such as a shortage of an ingredient, without any instructions being given and with few people knowing the cause, thousands of people (whose identities can't be fully investigated for months) will spontaneously start to save the ingredient or produce the product using it; That is, people make the right choices...

The price system is one of those systems that man has stumbled upon but has not yet understood. People are learning to take advantage of the price system (but far from taking full advantage of it). The price system makes possible the division of labor and the coordinated use of resources based on the uniform distribution of knowledge... Solutions result from the interaction and collaboration of people with only partial information.

(Editor's note: Mr. Xia Daoping from Taiwan translated the title of Hayek's essay as "The Use of Knowledge scattered in the Society". The word "scattered", I think, is more appropriate to the main idea of Hayek's thesis.)