Bitcoin's Value: Breaking the Limits of Human Cognition and Continuing Social Extensibility

Increasingly efficient human beings can continue to progress at a high speed. Different skills open the window of human cognition, from learning to communicate to learning to use different tools, the improvement of cognition reduces the resistance and cost of People's Daily activities, and makes the human development rate increase exponentially, and the driving force behind all this is social extensibility.

However, there are limits to human cognition, and to sustain or even accelerate our rate of development, we need to keep discovering new technologies that are socially scalable.

Nick Szabo, a computer scientist, legal scholar, cryptography, and father of the "smart contract", explored this relationship in a 2017 paper called "Money, Blockchains, and Social Classifiers". However, because the original text is long and difficult to understand, Rhythmic Blockbeats chose a book by Taylor Person called "What Gives Bitcoin Value? Or The Most Important Idea In Cryptocurrency," This article may be regarded as a scaled-down version of Money, Blockchains, and Social Classifications. However, it is an accurate translation of Blockbeats.

In short: Social extensibility is what gives Bitcoin its core value and makes it such a powerful and vital technology.

"The same books and various celebrities in speech repeated:" we should cultivate habits of thinking about what on earth are we doing! ", but this is the truth of such a "mistake". It is on the contrary, the progress of civilization is increasing by those who don't have to think and can complete the number of key operation." ー Alfred North Whitehead

70,000 years ago, there were 6 to 10 species in the genus Homo. Now, of course, Homo sapiens is the only species left. But why did Homo sapiens outcompete other species, such as Neanderthals?

It is said that Neanderthals were physically much stronger than Homo sapiens.

The key difference is that Homo sapiens had the ability to form groups and cooperate. A cooperative group of Homo sapiens can overcome a more powerful individual either directly by force or indirectly by controlling scarce resources.

Homo sapiens prevailed because of their ability to collaborate, which led to what researcher Nick Szabo calls social extensibility: it was part of the evolutionary process that allowed Homo sapiens to "continually increase the number of critical tasks that we didn't have to think about and could do."

The increased volume of the neocortex allows people to coordinate a larger number of tissues. The brain of Homo sapiens has shown that it can invent other external structures that further expand social extensibility.

What is social extensibility? Why is it so important?

A variety of innovative technologies have made us less vulnerable to other actors, middlemen, and outsiders.

These innovations have reduced the cognitive cost of guessing the behavior of complex people without spending too much of our limited cognitive capacity.

Language, by enabling humans to communicate, may be the best "technology" to expand social scalability. Since then, humans have discovered many other technologies to expand social scalability.

Culture, whether within a company or within a people or country, allows individuals to better predict the behavior of others within that culture and also increases social scalability.

Double entry bookkeeping is another technology that enhances people's coordination by making us trust others. Before double-entry bookkeeping, there was only one copy of each transaction, in the hands of a single bookkeeper, which made debt records easy to delete or tamper with, and easy to lose. Double entry subtraction makes you less trusting of counterparties because you keep a record of your trades that cannot be changed.

In short, all these innovations have contributed to the economic miracle of the past few hundred years.

The most fundamental component of all of this is trust minimization. Modern legal systems greatly expand social scalability because when anyone signs a contract between them, they can turn to the courts for help without having to develop a personal relationship with the signatories to resolve the problem.

When you buy juice from a store, you don't have to worry about the juice being poisoned or spoiled because there are a range of technological and social innovations that incentivize suppliers to provide safe products.

One of the biggest advances in social scalability in recent years has been the improvement of matching mechanisms through online scoring systems:

- Amazon matches consumers with manufacturers.

- Online dating sites match two suitable people who are impossible to meet.

-Lyft and Uber match drivers and passengers.

-  Airbnb matches travelers with hosts with vacant homes.

The platforms' scoring systems reduce the amount of trust needed for each transaction. I don't need to do a background check on a driver before using Lyft or Uber, because I can see hundreds of other riders' evaluations of the driver's safety and reliability.

Blockchain has the potential to minimize trust and expand social scalability by promoting its currency and market applications.

Historically, when money and markets were combined, transaction costs were reduced in the following ways:

- Matching (bringing buyers and sellers together)

- Reduced trust (trusting self-interest over the altruism of strangers)

- Performance expansion (using currency, a widely accepted and reusable medium)

- High quality information flow (market price)

Adam Smith explained how markets promote social scalability:

"Take the sweater worn by a migrant worker as an example. Although it looks very rough, it is the result of the concerted effort of a large number of workers.

Shepherds, wool sorters, carders, dyers, spinners, weavers, washers, dressers, and many other workers must apply their respective skills to this seemingly homely task.

In addition, how many tradesmen and transport workers need to be employed to move the materials to various places.

How many shipbuilders, sailors, sail-makers, and rope-makers, especially in navigation and trade, would it take to gather together in one place, from all corners, all the different herbs needed for the preparation of dyes!"

By relying on markets, people can benefit from the labor of others without having to trust them. Buyers of the wool coats did not need to personally know and trust the makers of the sails, which could bring Indian dye back to England.

Instead of relying on kinship, the market has created a vast, disparate network of people to act in our interests:

"In a civilized society, one always needs the cooperation and assistance of the masses, but one does not necessarily acquire a few true friendships throughout the life cycle... The dinner we expect comes not from the favor of the butcher, the brewer, or the baker, but from their consideration of their own interests."

It is the continuous wave of the industrial revolution that has continuously optimized the division of labor and expanded the market coverage several times.

The supply chains and different roles involved in the coats in your wardrobe are now far more complex than Adam Smith recorded in the 18th century.

Currency promotes social scalability by solving the problem of mutual needs. If you make shoes and I make bread, but you want bread and I don't want shoes, we can use money as a medium of exchange and store value and units of account to facilitate the transaction.

In this way, money allows a wider variety of goods and services to be exchanged among a wider range of people, increasing social scalability.

The first kinds of money that people used were collectibles like shells and stones. Later, precious metals became money, and then paper money. Today, most money is electronic. The programs and protocols we run on computers and servers around the world facilitate most dollar-denominated transactions.

This greatly improves the efficiency of matching and information flow, but at the cost of system vulnerability.

Traditional computer security is not very socially scalable because it relies on a trusted third party to monitor your data. With the current architecture of the Internet, we have complete trust in the person on the other end, as well as insiders and hackers who might gain access.

But for these agencies, your safety is not a priority, as recent data breaches from Equifax to Cambridge Analytica have demonstrated.

In order to increase social scalability, we need to expand the market globally. To expand globally, we need to have a scalable currency. In the 21st century, scalable money requires scalable computer security.

What gives bitcoin its value?

In 2009, an individual (or group) named Satoshi Nakamoto created the most socially scalable currency in history. Bitcoin does not rely entirely on a single trusted intermediary, but rather on a set of decentralized intermediaries.

When we can protect a financial network through computer science instead of accountants, regulators, police and lawyers, our systems move from manual, local, less secure to automated, global, more secure.

Done right, cryptocurrencies can replace an army of computers with an army of financial intermediaries.

Because cryptocurrencies' core businesses operate independently of existing institutions and can operate seamlessly across traditional boundaries (institutions and countries), cryptocurrencies provide a high degree of security and reliability without the need for human intervention.

Over the past century, in order to increase social scalability through globalization, we have had to increase the size of human institutions. To be reliable and safe, we need more and more accountants, lawyers, regulators and police.

In 1870, the trading arm of the US economy (accountants, lawyers, regulators and police) accounted for 24 per cent of gross national product (GNP). By 1970, it accounted for 46 percent of GNP.

We need higher and higher levels of human cognition to monitor these transactions. Humans are no more cognitively capable today than they were in 1950, yet computers are orders of magnitude more powerful.

In computer science, however, there is a trade-off between security and performance. This makes the security required for cryptocurrency's social scalability costly: the majority of its resource consumption comes from the electricity used to mine it.

This kind of security is essential for anything that is going to be a currency. Counterfeiting should be very difficult for any participant or middleman. Gold is valuable in part because it's hard to mine, and there's a finite amount of it, so you can't make more of it quickly.

The benefit of cryptocurrency security is that transactions that used to require a large number of intermediaries, such as sending money from Bangkok to Malawi, can now be done point-to-point.

Cryptocurrencies sacrifice the scalability of computing processing power in favor of social scalability. Its computing inefficiencies (it consumes a lot of power and a lot of processing power) make it socially scalable (anonymous parties can transact across institutions and borders).

It is impossible to calculate the value of this increased social scalability, but it is reasonable to believe that it is in the same order of magnitude as the efficiency with which the Internet facilitates matching.

As the costs of computing power and renewable energy continue to fall, while human cognitive capacity cannot continue to grow, the benefits of this trade-off will become ever greater.

It is not that adapting our existing institutions to this new paradigm will be easy, nor that we are heading towards utopia. But cryptocurrencies allow people to continue to extend what has made us irreplaceable, what has made us stronger over the centuries: social extensibility.

 Money, Blockchains, and Social Classifiers

What Gives Bitcoin Value? Or The Most Important Idea In Cryptocurrency

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