Cryptocurrency Notes, Part 2

Bitcoin and Ethereum represent two fundamentally different ways of thinking about cryptocurrency. Not only this, but I will argue that they represent different ways of thinking about everything, in general.

Bitcoin's initial design has centered around simplicity. Make Bitcoin do one thing well (transact money) and leave the details to the market (things like smart-contracts, accounts settlement, and so on). Ethereum is more ambitious and seeks to create a secure, virtual, peer-to-peer computation service that can be utilized for computing any sort of thing, whether smart-contracts or other, more exotic applications based on emerging technologies like Internet-of-Things.

There is a binary pattern, here, that might not be obvious on first inspection. Bitcoin is a lot like free-market capitalism - don't try to design society from the center, rather, set up a few, simple rules and let the market figure out the rest. Ethereum is a lot like central-planning socialism[1] - let's build a fully-functioning, fully-integrated system that is as good as possible, leaving the end-user to only have to worry about his or her moment-by-moment choices and desires rather than everyone having to be their own corporation, as it were.

It is my view that this divide is very deep - deeper than just competing political theories or competing technological approaches. Imagine that we lived in a completely virtual world, perhaps resembling the ancient Greek conception of Olympus. Since everything in such a world is just information, the "price" of anything in this world would be actually zero[2]. But suppose that we wanted there to be prices, if for no other reason than to build worlds in which scarce goods exist. We would need to construct a scarcity-generating mechanism. After we constructed such a scarcity-generating mechanism, suppose we wanted to build a completely virtual world, just like our virtual Olympus, within the world-of-scarcity governed by the scarcity-generating mechanism. Some of us might argue, "Prices optimally coordinate the factors of production in a condition of scarcity, thus, we should build a monetary system and let the inhabitants of our scarcity-governed world figure out how to build a virtual world like ours, within theirs." But others of us would argue, "This is absurd and a needless duplication of effort. Our virtual world is already free of the limits of scarcity because it is adiabatic - all we need to do is to allow the inhabitants of the world of scarcity to directly copy the rules of computation by which our virtual world operates. Then, they will be existing in the same virtual world of bliss that we inhabit."

I am arguing that we should think of our world as though it were ruled by some scarcity-generating mechanism, embedded within some other, greater world that is free from the constraints that we are bound by. Bitcoin's approach aligns with the thinking of the first group of virtual Olympians. "Build a foolproof accounting mechanism and let the market handle the details." Ethereum's approach aligns with the thinking of the second group of virtual Olympians. "Figure out the ideal coordination of all goods within the realm of scarcity and then automate this with an ever-increasingly-efficient, centralized computation."

But which one is correct? This question is why I have framed the thought-experiment in this Olympian context. I am convinced that they are both correct. They both solve the same problem in a different way. Each solution is its own, unique approach but both solutions work. But the story doesn't end here. If either solution works, then can't we optimize by eliminating one of them? If we get the entire world behind a market-based solution, then that's twice as effective as having only half the world behind a market-based solution. Or, if we can get the entire world to be centrally-planned by a globe-spanning super-mind, that's twice as effective as having exactly half the world being centrally-planned by a hemispherical super-mind. This thought is, however, a category error - if we are dwelling in virtual Olympus, efficiency is irrelevant because efficiency is just a corollary of scarcity. If the problem of scarcity can be completely solved, and if the deepest structure of reality is existing in a state where it is solved, then these two approaches to solving the problem of scarcity must be existing in perpetual harmony with one another.

Another metaphor might help. Consider selection theory. From Wiki: "r/K selection theory relates to the selection of combinations of traits in an organism that trade off between quantity and quality of offspring. The focus upon either increased quantity of offspring at the expense of individual parental investment of r-strategists, or reduced quantity of offspring with a corresponding increased parental investment of K-strategists, varies widely, seemingly to promote success in particular environments." The market approach to social planning is like r-selection - generate many offspring and let the chips fall where they may. Some will survive, many will perish, but whatever remains will work. The central-planning approach is like K-selection. Let's not leave things to chance, let's build a system that works, even if it requires a great deal of resources to get it working. The thesis of this post is that both approaches work - that is, both approaches can, in principle, solve the problem of scarcity.

Returning to our virtual Olympus world, free from the constraint of scarcity, if we were to build a scarcity-generating mechanism inside of such a world and then try to encourage the inhabits of the world-of-scarcity to build their own virtual Olympus, we should expect to see both solutions (market-planning and central-planning) emerge and live in harmony with one another. To say it another way, if the world is not governed by scarcity at its deepest level, then all viable solutions to the problem of scarcity are equally suitable because scarcity itself is contrived, existing solely as a byproduct of some unseen, scarcity-generating mechanism.

Part 1 is here.

[1] NB: Ethereum is a distributed, peer-to-peer network, in the same way as Bitcoin; it is not centrally administered.

[2] Assuming we can compute adiabatically