Notes on Bitcoin, Institutions and Lindy

Nakamoto, Satoshi. "Bitcoin: A Peer-to-Peer Electronic Cash System," (2008)

https://bitcoin.org/bitcoin.pdf

Why am I re-reading this? I'm looking for something I'm missing. Something essential, and obvious. Something I already "know", but seen in a new light.

Vitalik calls it cryptoeconomics, Szabo trust-minimization. Whatever it is, it is what is new about Bitcoin. Many systems are copying it, but most will fail. There might be something new inspired by it that has different characteristics, but only Bitcoin has stood the test of time.

What did Bitcoin do?
Bitcoin showed a way to reduce the need for trust for commerce on the internet. Specifically for trusted third parties, so two parties can exchange directly. This has several positive side effects compared to a trust based model. Since a third party isn't mediating the transaction anymore, there's no possibility of reversal. This means transactions costs are lower, since parties don't have to worry about fraud and so on. This also leads to a decoupling of identity and money, where (the equivalent of) financial institutions don't need to know who you are.

This quickly leads into notions of privacy, freedom and censorship resistance.

Institutions

One way of looking at institutions is as a set of rules in a society, or:

stable, valued, recurring patterns of behavior (Samuel Huntington).

From the book Political Order in Changing Societies, Huntington, 1968, which I haven't read but seems worth skimming at least. Examples of institutions (taken from Wikipedia): family, religion, peer group, economic system, legal system, penal system, language, mass media, education, research, medicine, military, industry/business, art/culture, nation state.

That's a lot! These are not to be underestimated. Many of them have a long, very long, history.

Why is the need for reducing trust so strong? Where does it come from, and where else can we see this? Nick Szabo has an essay on this, where he argues it is a form of social scalability.

Related reading:

Szabo writes that Bitcoin achieves social scalability through trust minimization, both to counterparties and third parties. This is a way to scale humanity by using computer science (cryptography, decentralization). Having an institution like this is more automated and secure, compared to an army of accountants, regulators, police and lawyers.

What will stay and what will go?

Is this true? At least partially. But I don't see all of these roles disappearing over night. Morphing yes, but not disappearing. Most have been around for a very long time and will likely remain.

What we might see if a form of change seen in agricultural, where remarkably fewer people are required for the same output.

Now, other things might well disappear, especially new things. The great fiat experience appears to be quite recent, though this requires further fact checking. Taking a long view, it seems as if all fiat currencies eventually go bust. JP Koning has some contrarian thoughts on this though:

Another thing: financial institution and this coupling between identity and money. Especially on the internet. The internet is still very new, so the rate of change is fairly rapid. A lot of it constrained by what is technologically possible. There's still a lot of inertia, and the rate of change operates at a different time scale. There definitely appears to be some new patterns that don't have a direct historical counterpart: these should be treated with suspicion, as per the Lindy effect.

Here are two facts that strike me as remarkable:

  • With cash, we can directly exchange goods for services, without anyone's approval or anyone else knowing.
  • When communicating, we can do so privately and securely in the context of our own home (sans bug-crazy states or spying neighbours).

What is remarkable isn't these two above things, it is how these... natural rights? are being taken away from us with new institutions online.

Now, it could be that this is bound to be and things are heading in this - dystopian - direction, fait accompli and all. There are fundamentally new aspects of this connected world that shouldn't be taken lightly. These are things such as:

  • Information multiplying freely and never disappearing
  • Ever connected Internet and travel (flights, see pandemics)
  • Centralization and expanding power of BigGov, BigCorp etc

Counterforces: information scarcity (Bitcoin, invite-only sites etc?), localism, indie companies / OSS

It isn't clear to me how new or fundamental the last 2-3 are. Not even the first one. They all have some historical counterparties (printing press for duplication; people travelled a lot in past too; large empires/companies existed before).

What has been will be again,
what has been done will be done again;
there is nothing new under the sun.

  • Ecclesiastes 1:9, Bible, ~200 BCE

Institutions that alienate these natural rights, if we may call them that, appear to me to be on the wrong side of history. They are fragile and likely to go extinct. Replaced by what? Replaced by something that is more similar to what has existed before.

Incentives

I never got to this part. For a future entry. It strikes me that this is more about the “how” as opposed to the “what”. How do we guarantee certain behavior? How do we make it stable and valuable to do the right thing (and vice versa)? In other words, how do we create institutions. More of a technological lens, as opposed to a social one.


You'll only receive email when Zibaldone publishes a new post

More from Zibaldone