Seeing the “Network for the Nodes” in Blockchain Technology

forestfortreesI often use the term “can’t see the forest for the trees” when discussing the struggle to maintain perspective. The term serves an effective metaphor to describe any instance where one is so caught up in the minutia of a subject they fail to consider the “big picture”. (i.e. so focussed on a single tree you fail to see the entire forest). In our limited capacity as mere human-beings it is no surprise that this occurs quite frequently — our tendency to focus on the micro (near-term, observable, familiar) distracts us from the macro (long-term, possible, uncertain). I believe this tendency is a core contributor to the conditions that, for many, make appreciating the implications of blockchain technology so challenging. In blockchain terms — I would say that such individuals “can’t see the network for the nodes”.


The Scale of the Conversation

It is important to define the relative scale to which I am speaking — what are the trees versus the forest? One way of answering this question is to simply define the trees as the prevailing topics of the present day and the forest as the unbridled potential of blockchain technology. I find this a suitable scope for this conversation but would stress the importance of considering the entire history of human evolution when considering the “forest” (big picture) — to limit perspective to my own minute lifespan (30 years) would be vain.


The Trees — What Many are Talking About

It comes as no surprise that much of the current dialogue surrounding blockchain technology is focussed on the use-case of bitcoin and other blockchain-based tokens as digital currencies or assets. With this focus comes a host of justifiably meaty discussions relevant to the present day. Will cryptographic currencies survive and go mainstream? Are mining incentives sufficient? Are node incentives sufficient? Are blockchains secure? How do we regulate cryptocurrencies? Oh my… look at the price volatility! I consider such questions to be the “trees” of our metaphor and believe many of their answers to be foregone conclusions.

First, a world with blockchain-based currencies inevitable. It is clear that the value of a distributed open-source protocol and asset ledger (the blockchain) will take relatively little time to be exploited for its real-world utility. Furthermore, no sufficiently secure blockchain can exist without a cryptographic token (such as bitcoin) to back it. Native tokens are inherent features to blockchains — not optional external applications. As a car cannot run without an engine nor can a blockchain operate without a native token. Jonathan Levin was the first to truly address this issue head on — if you’d like to learn more read his post here.

What really gets interesting are the places this technology can take us once established. Once blockchain technology has been refined and is backed by a token of sufficient value to provide an unimaginably secure blockchain – what impact will this have on our world?


The Forest — What Few are Talking About

If you are passionate about bitcoin, blockchain technology and decentralization you’ve probably been in, or at the center of, a conversation where blockchain technology is touted as the solution to all of the worlds problems. This is often followed by waves of skepticism and even disregard by observers. Such criticisms are easy to make of an over-zealous speaker who is passionate about the potential.

The reality is that blockchain technology is disruptive. It allows ancient problems to be approached from an angle never-before possible (i.e. Distributed Consensus, Non-Hierchical Incentive Structures). I would argue that while it is difficult for the Lehman to grasp in a 10 minute conversation — those that understand blockchain technology and decentralization as ecosystems for voluntary participation, contribution, and reward can make some convincing arguments that blockchain technology provides a potential solution to many of the worlds problems. Is a new globally-distributed cryptocurrency disruptive? You better believe it — but it is the potential of the decentralized systems made possible by blockchain technology to usher in new constructs for societal progress never before possible in traditional hierarchical structures that gets my wheels turning. When looking beyond 5 years to 50 years from now it is hard to imagine blockchain technology and distributed systems only being recognized for their inherent tokens.

With all things ‘potential’ ones outlook is often rooted upon the tendency towards optimism or pessimism. In the case of blockchain technology the pessimists view simply means more of the same — an unfulfilled potential. The optimists view opens up an entire new realm of possibility across our global financial, political, and social infrastructure. I for one am pleased to be hanging out with the optimists on this one — the forest is vast and growing by the day.


If you want to “go deep” on the concept of perspective — you might enjoy this clip, one of my favorites, by the reverent Carl Sagan from his 1994 book Pale Blue Dot. If you’re feeling pretty important this might “bring you back down to earth”.

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Ryan’s “Traits of Money” Series ( Part I )

This is Part 1 of a series of posts discussing the “Traits of Money” Chart

In May 2014 I published an article on CoinDesk discussing the traits of money in the context of Universal Darwinism. You can view it here. Imbedded within the piece was a chart I created displaying the traditional “traits of money” as recognized historically as well as some “new traits” now made possible by blockchain technology.  It ended up making the rounds over the past 9 months making its way across twitter, reddit and even into Pantera Capitals most recent monthly bitcoin letter. I have been pleased to see its been well received and also stirred up some great debate and discussion. My only regret is that I have yet to give it the full and thorough explanation it well deserves to defend the traits I chose to include and my initial ratings of each.

It is worth noting I recognize it has become a seemingly unpopular opinion nowadays to claim bitcoin is a good or better form of money. I’m finding more and more opponents, and even proponents, choosing to attack or deny this possibility. Proponents often boast bitcoin will find its niche as a payment platform or intermediary for exchange ignoring the “form of money” debate altogether — possibly in an effort to be taken more seriously in a professional world wrought with criticism (I can empathize with this and also acknowledge they may very well be right too). Opponents often have direct but wildly uninformed arguments often referencing 150 years of economic theory interwoven with biased opinion. It is my belief that irregardless of whether bitcoin or cryptocurrencies succeed or fail we need look no further than the inherent traits of money to determine which is best.

For those interested in diving deeper into this subject… before you read on I only ask you take 10 seconds right now and do your best to detach yourself from your traditional understanding of money. As best you can, wipe the slate clean and think not of money as paper bills or metal coins but as a tool that requires specific traits to fulfill its purpose. You’ve been dropped off onto planet earth for the first time and you’re tasked with the job of creating the tool the world will use for money… no pressure.

Here is the chart again for your reference:

TraitsofMoney

I spent a significant amount of time designing the table and pondering which traits to include as well as the degree (Low, Medium, High) to which each form of money fulfills each trait. As no such table yet existed I realized this may become a useful reference for many in the future so I didn’t want to drop the ball.

Traits vs. Characteristics

It is important to understand why I chose to use the term “trait” instead of “characteristics”. In biology traits are heritable through the genotype (genes). They are the intrinsic elements that determine our makeup. Characteristics on the other hand are expressions of a genotype within a given environment — this is known as a phenotype.

Stated more simply — characteristics are the result of traits.

The chart below may provide added context (‘Scarcity’ is a trait while having ‘High Scarcity’ is a Characteristic):

Screen Shot 2015-01-15 at 9.20.24 PM

I make this point because I’ve seen many people claiming that bitcoin is inherently “too volatile” to be used as a form of money. Take only the most recent “Ponzi” whistle-blower Gary North’s article from Kernel.

“Bitcoins are too volatile in price ever to serve as a currency.” – Gary North

The mistake these individuals make is that they perceive price volatility to be a “genotype” of money (intrinsic) when it is in fact a “phenotype” (extrinsic).

I’ve seen many individuals in the commentary of the article and on reddit make the same mistake. They propose that certain traits be added to the table when in fact they are referring to extrinsic characteristics. One such example is “Network Effect”. It is easy to recognize that network effect is not an intrinsic trait of any form of money — rather “network effect” it is the result of a money’s inherent traits thriving in a given environment. The first person to ever find gold didn’t pick it up and say “hey – this has incredible network effect!” — most likely they said, “wow – shiny!”. Over time golds scarcity, durability & fungibility were likely big contributors to its success and network effect.

In Part 2 I will begin to break down my position on each trait and give context to what may appear to be a system of sweeping generalizations. Let’s be honest, a “Low, Medium, High” rating system is so I look forward to adding context.