Editors note: This article comes from Blue Fox Notes (ID: lanhubiji), author: Nick Szabo, the article comes from nakamotoinstitute, translated by the Blue Fox Notes community Li Xihe, and reproduced by Odaily with authorization.
Foreword: Blockchain further promotes the scalability of society on the basis of the Internet. To put it bluntly, it is to achieve more and greater connections. In the past, information was connected, but now value is connected. Through the matching of information and the minimization of trust, the scalability of human society is finally realized. The author is Nick Szabo, the creator of the smart contract concept and one of the pioneers of blockchain.
Blockchain is all the rage. The largest and oldest blockchain project is Bitcoin, which is 8 years old and has prices ranging from 10,000 BTC a pizza to over $1,000 a BTC. As of this writing, Bitcoin has a market capitalization of $16 billion. This growth has continued for 8 years, and there has been almost no loss of funds on the chain. In many important respects, it is currently the most reliable and secure financial network in the world. (Blue Fox Note: It has a history of 10 years, and its market value is now nearly 70 billion U.S. dollars, and the market value once climbed to more than 300 billion U.S. dollars)
The secret to Bitcoins success is certainly not its computational efficiency, or its scalability in terms of energy consumption. Experts are paid a fortune to develop highly specialized hardware for one job: to continually solve a mathematical problem that is intentionally designed to be computationally expensive. This type of problem is called a proof of work, because the answer to the problem is equivalent to proof that the computer has performed a sufficient amount of expensive calculations. Bitcoins puzzle-solving hardware probably consumes more than 500 megawatts of electricity in total.
And among the many characteristics of Bitcoin, this is not the only part that strikes engineers and businessmen as concerned about minimizing resource consumption, which is highly impractical.
Not only did it fail to reduce its protocol information to as few as possible, each computer running a Bitcoin full node redundantly sprays a large number of stock vector data packets on the network to ensure that all messages are accurately delivered to as many nodes as possible. possibly many other nodes. As such, Bitcoins blockchain cannot handle the high volume of transactions per second that traditional payment networks such as PayPal or Visa can. Bitcoin offends the sensibilities of engineers and businessmen seeking to use resources efficiently and maximize performance.
Instead, the secret to Bitcoins success is that it traded heavy resource consumption and poor computational scalability for a more valuable property: social scalability. Social scalability is an institutional capacity, a relationship or joint effort in which many people repeatedly participate, establish customs and rules, create regulations that restrict or encourage participants, and aim to overcome the shortcomings of human thinking and motivation, and Some shortcomings of the constraint system: it does not limit anyone or how many people can participate.
Social scalability is about the extent and manner in which actors are able to participate and respond to institutions, as well as the growth in the richness and number of actors. Its about human limitations, not limitations of technology or physical resources. There are separate engineering disciplines for the latter, such as computer science for evaluating the physical limits of the technology itself, which evaluates how to handle more users or the resource capacity required for greater usage.
These engineering scalability aspects are beyond the scope of this article, except for comparison with social scalability.
Although social scalability is about cognitive limitations and behavioral tendencies of the mind, not about the physical resource constraints of machines, it is interesting and important to think about and discuss the social scalability of technologies that facilitate institutions. The social scalability of institution-related technologies depends on how the technology restricts or incentivizes participation in institutions, including protecting participants and the institutions themselves from harm and attack by malicious actors.
One way to assess its social scalability is by assessing the number of people who can beneficially participate in the institution. The other is to evaluate the additional benefits and harms that the system brings to the participants. Previously, the expected costs or other harms of participation in institutions grew faster than the benefits, for cognitive or behavioral reasons. In the context of global networks, the cultural and judicial diversity of those involved in institutions is often also important. The more an institution depends on local laws, customs, and language, the less scalable it will be.
If there were no past institutional and technological innovations, the maximum scale of peoples collaboration would be about 150 people: the famous Dunbar number. In the Internet age, innovation continues to expand our social capabilities. In this post I discuss how blockchains, especially public blockchains that incorporate cryptocurrencies, can improve social scalability, even at the cost of greatly reducing computational efficiency and scalability.
Cognitive capacity: shown here in the form of the relative size of the cerebral cortex of a species: it limits the size of primate groups. Sustaining a close animal or human group requires a lot of emotional exchange and investment in relationships, such as mutual grooming, small talk, telling jokes, stories, singing, games, and more. To overcome the limitations of human cognition, that is, who or how many people can participate in a system (the limit of Dunbars number is about 150 people, see the picture above), it requires institutional or technological innovation.
The innovation of social scalability involves the improvement of the system and technology. These improvements must be able to write the functions of the brain on paper and input them into the machine. While reducing the cost of cognition, it can improve the flow of information between different ideas. value, improve reliability, and seek and discover new mutually beneficial players. Alfred North Whitehead once said: We should form the habit of thinking about what we are doing is a false cliché repeated in all textbooks and in the speeches of eminent men. Quite the contrary. A civilization It’s because we don’t need to think about more actions that we progress.”
Friedrich Hayek added: We are constantly using symbols, formulas, rules that we do not understand, and with the help of knowledge that we do not possess. We develop these by establishing habits and institutions that have proven successful in our field. practices and institutions, which in turn form the basis of the civilization we build.
A wide-ranging set of innovations makes us less vulnerable to other players, middlemen, outsiders, and thus reduces our need to spend our limited cognitive capacity worrying about how an ever-increasing variety of populations will behave. Another type of enhancement facilitates the precise collection and transfer of valuable information among an ever-increasing number of diverse actors. Yet other improvements could enable more diverse people to discover mutually beneficial participants.
All of these innovations have increased social scalability over the course of human history, sometimes so dramatically that it has made our entire modern civilization viable with a global population. Modern information technology (IT), especially through the use of computer science that has only recently emerged, can often find more mutually beneficial pairings, improve the quality of information, and can reduce the need for trust in transactions within a particular system, especially in todays population. This further increases social scalability in the context of increasing numbers and diversity.
Information flows between ideas: what I call intersubjective protocols: including spoken and written texts, customary traditions, legal content (rules, cases, etc.), ), market prices, etc.
Trust minimization makes it harder for participants in the overall system to be harmed by each other or by intermediaries and outsiders. Most institutions have undergone long cultural evolutions, such as laws (which reduce the harm of violence, theft, fraud), security technologies, etc., which essentially reduce our need to trust others. In most cases a well-trusted institution (such as a market) depends on its participants tacit trust in another well-trusted institution (such as contract law).
These trusted institutions in turn enforce a set of auditing, legislative, security, or other controls that generally reduce the likelihood of harm to participants (eg, accountants, lawyers, managers, investigators). This vulnerability to other participants is called vulnerability to other participants. An innovation usually only partially removes vulnerability, i.e. reduces the need or risk of trusting others. There is no system or technology that is completely trustless.
This kind of complete trustlessness does not exist, and it is true even in the field of our strongest security technology - cryptography. Although some encryption protocols do ensure that specific data relationships can only be cracked with a very low probability even with astronomical computing power, they cannot provide 100% security considering all possible behaviors of all participants.
For example, encryption can protect emails from direct eavesdropping by third parties, but the sender still needs to trust that the receiver will not forward the email to others or leak the content of the email to third parties directly or indirectly. As another example, in our strongest consensus protocols, even malicious actors with far less than 100% of the total participants or intermediaries (through computing power, stake, number of individuals or counting, etc.) transactions or the integrity of information flow between them, and endanger the participants. Recent breakthroughs in computer science can greatly reduce the vulnerability, but are far from being able to eliminate any vulnerability to harmful behavior of potential attackers.
Pairing facilitates mutual discovery of mutually beneficial participants. Pairing is probably the kind of social scalability the internet does best. Social networks like Usenet News, Facebook, and Twitter facilitate the discovery of each other by like-minded or able to entertain and exchange information (even future spouses).
After they allow people to be more likely to mutually benefit and discover each other, social networks facilitate relationships at different levels, from casual to frequent to obsessive. Christopher Allen has done some interesting and very specific analyzes about the size of some groups and the amount of time people spend interacting with them in some online games or connected social networks.
eBay, Uber, AirBnB, and online financial transaction platforms have all increased social scalability through dramatic advances in business matching: searching, finding, aggregating, and facilitating the negotiation of mutually beneficial business or retail transactions. These or related services also facilitate the performance of other industries, such as payments and shipping, as well as verifying the performance of obligations by strangers in agreements, and communicating the results of these performances (such as star review systems, Yelp reviews, etc.).
The main social scalability advantage of the Internet is matching, while the main social scalability advantage of blockchain is trust minimization. The blockchain can reduce vulnerabilities by locking the integrity of some important functions (such as currency creation and payment) and important information flow, and may also reduce the integrity of some important matching functions in the future. Trust in private computations that are secret and tamperable can be replaced by trust brought about by publicly immutable verifiable computations. This post will focus on the reduction of such vulnerabilities and the benefits it brings to all parties involved in promoting standard performance, i.e. a trust-minimized currency.
Currency and Markets
Money and markets directly benefit participants in transactions by matching buyers and sellers and by having a widely accepted and standardized consideration (currency). By market here I mean what Adam Smith defines as a market: not a specific place or service (although that will be involved) where buyers and sellers bring things together, but a broader set of transactions in which the product supply chain is defined by coordination. (Blue Fox Notes: In other words, the market has an invisible hand directing the production and distribution of products.)
Money and markets also incentivize more accurate price signals that reduce negotiation costs and errors in transactions. Thus, the powerful combination of money and markets enables a far larger number of diverse actors to coordinate their economic activities than before, which was more like a two-sided monopoly than a free competitive market.
Markets and currencies involve matching (bringing sellers and buyers together), trust reduction (trusting self-interest over the altruism of strangers or acquaintances), scalable performance (through the widely accepted and reusable medium of money), and High-quality information flow (market prices).
The most prominent early thinker on money and markets was Adam Smith. Early in the British Industrial Revolution, Smith pointed out in The Wealth of Nations that even the manufacture of the simplest products was directly or indirectly related to the work of a large number of different people:
Observe the lodgings of the most common workman in a civilized and prosperous country, and you will see that the trades involved, and the numbers employed in them, are enormous. For example: a wool coat worn by ordinary workers may be rough and simple, but it is the product of the cooperation of many workers. Shepherds, wool sorters, wool workers, dyers, weavers, garment makers, etc., all of these people had to join in different trades to complete this seemingly simple product. Besides, how many merchants and porters must be employed to transport the material produced by these workers to the hands of people in different parts of the country! Especially in commerce and seafaring, how many shipbuilders, sailors, sailmakers, ropemakers had to be employed, so that the dyes could be brought together in different materials, often from the remotest corners of the world!
And what a rich variety of labor is involved in producing the tools these workers use to work! Let us forget for a moment such complex machines as the sailors boat, the fullers mill, the weavers loom, etc., and consider only the simplest machines, such as the shepherds shears for shearing sheep, which What a variety of labor types are involved.
Miners, smelter makers, woodcutters, charcoal burners, brickmakers, bricklayers, boilermakers, waterwheelers, blacksmiths, blacksmiths, etc., all contributed their skill and labor to make a Scissors. If we observe in the same way, we will find that the different parts of his clothes, or the furniture in the house, the linen shirt he wears, the shoes he wears, the bed he sleeps on, and all the things that make up these and the grate for cooking, the coal for cooking, which may have to be transported by sea and land for a long distance, and the utensils he used in the kitchen, the table, the knife and fork, the clay or tin Plates, utensils to divide food, and someone to help prepare bread and beer, and glass windows to let in the sun and heat, and to keep out the wind and rain. These are all thanks to the gift of knowledge and art, which make these beautiful and happy inventions possible. Without these, there would hardly be a comfortable living environment in the northern regions, and there would be no workers of different types of work using tools to provide these different conveniences. .
If we were to sort through, it seems to me, all of these things, and consider what a rich variety of labor is involved in it, we should realize that without the cooperation and help of thousands of people, even the most ordinary man in a civilized society Nor can a man be provided with the basic necessities, even though we may mistakenly think that his life consists of a very simple.
While this preceded the successive industrial revolutions and globalization between 1776 and the modern age, this division of labor has now been vastly more thoroughly refined and expanded. Markets and currencies create more mutually beneficial pairings than trusting the altruism of so many strangers, and thus incentivize people who dont know each other in this large network to act in their own interests:
In a civilized society, a man may make few friendships in his life, in comparison with the great amount of co-operation and assistance he needs in his life. Compared with other animals, humans almost always help their brothers and sisters, and they do not do so out of selflessness. In exchange, we get help from the whole system (institution) when we need it. Our suppers do not come from the benevolence of the butcher, the brewer, or the baker, but simply because they benefit us by acting in their own interest.
Smith went on to describe the division of labor, and how productivity depends on the degree to which the network of pair-trading is developed: As the power of exchange affords opportunities for the division of labor, the degree of this division of labor will always be limited by this power, In other words, it is limited by the degree of market development. With the increasingly developed national and global trading networks, more types and quantities of producers join in, which further increases the division of labor and labor productivity.
By improving the chances of transactions happening, currencies facilitate social scalability. By reducing the coincidence problem (including the coincidence of demand in transactions and the coincidence of wants and events in unilateral transfers), as a widely accepted and reusable wealth storage and transfer method, currency greatly reduces transaction costs, making more A large number of transactions of a wider range are possible, and more people can participate.
Various forms of media, from spoken language itself, to clay, paper, the telegraph, radio, and computer networks, were used to make and accept offers, and to facilitate transactions and pricing, as well as to monitor performance and other business communications.
One of the most insightful observations on Markets and Price Networks of Money Generation is Friedrich Hayeks paper, The Use of Knowledge in Society:
In systems where knowledge of the relevant facts is distributed among the population, prices can be used to coordinate the different actions of different people... In any society where many depends on knowledge, which often does not belong to the planner in the first place but someone else, and needs to be communicated to the planner in some way.
Peoples planning is based on knowledge, and the various ways in which knowledge is communicated to them are key issues for any theory of economic processes, and how best to use the knowledge that is distributed among the population in the first place is the key to economic policy. One of the core problems to be solved is also one of the core problems facing how to design an efficient economic system.
The fact that any good has a price—or, say, a local price relative to transport costs, etc.—brings (this is only theoretically possible) a situation where a single entity owns all the information (in practice the information is Scattered among the people involved in the process)...Its amazing how in a case of rare raw materials, even though no order was placed and many people didnt understand the cause, thousands of random people were able to Use this material or products made of this material more sparingly.
That said, theyre heading in the right direction...the price system is just a way people stumble across it and dont fully understand it and have to learn to use it (though its far from being good enough to use it). In this way, not only the division of labor can be achieved, but also the coordinated use of resources based on knowledge of an equal division of labor...Through this interaction between people who each hold different parts of knowledge, solutions arise.
