The Value of Bitcoin: Breaking the Limits of Human Cognition and Allowing Social Scalability to Continue to Extend

As the cost of computational processing power and renewable energy continues to decline, and human cognitive capacity cannot continue to grow, the benefits of this trade-off will become ever greater.

Increasing efficiency allows humans to continue to progress at high rates. Different skills open windows of human cognition, from learning to communicate to learning to use different tools, and cognitive improvements reduce the resistance and cost of everyday activities, allowing human development to grow exponentially, driven by the social scalability behind it all.

However, there is a limit to human cognition, and to continue and even increase the rate of human development, humans need to continuously discover new socially scalable technologies.

Nick Szabo, a computer scientist, legal scholar, cryptographer, and father of “smart contracts,” published an article in 2017 called “Money, blockchains, and social scalability,” in which he explored the relationship between the three in depth

However, due to the length and obscurity of the original article, Rhythm BlockBeats has chosen to publish “What Gives Bitcoin Value? Or The Most Important Idea In Cryptocurrency” by Taylor Person, which can be considered as “Money, blockchains, and social scalability”. Money, blockchains, and social scalability”, but conveys the main idea of the original article in its entirety, as translated by Rhythm BlockBeats.

In short: Social scalability gives Bitcoin the core value that makes it such a powerful and vital technology.

“Thousands of books and speeches by various prominent people repeat: ‘We should develop the habit of always thinking about what we’re really doing! But this is such a ‘false’ truth. It is in fact the opposite, that civilization progresses by constantly increasing the number of critical operations that do not have to be thought about and can be done.” ーAlfred North Whitehead

70,000 years ago, there were 6-10 human species. Now, of course, only one species, Homo sapiens, remains. But why did Homo sapiens outperform other species, such as Neanderthals?

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

The key difference is that Homo sapiens had the ability to form groups and collaborate on activities. A Homo sapiens group that understands collaboration can overcome a more powerful individual either directly through force or indirectly through control of scarce resources.

Homo sapiens have the upper hand because of their ability to collaborate, which gives rise to what researcher Nick Szabo calls social scalability: it is part of the evolutionary process that allows Homo sapiens to “continually increase the number of critical actions that can be performed without thinking”.

The growth in the size of the new cerebral cortex has allowed people to coordinate a larger number of organizations. The Homo sapiens brain has demonstrated its ability to invent additional external structures that further expand social scalability.

The Value of Bitcoin: Breaking the Limits of Human Cognition and Allowing Social Scalability to Continue to Extend

What is social scalability? Why is it so important?

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

These innovations reduce the cognitive cost of people, eliminating the need to spend too much of their limited cognitive abilities guessing at the behavior of complex people.

Language, by enabling humans to communicate, is perhaps the best “technology” for expanding social scalability. Since then, humans have discovered many other techniques for expanding social scalability.

Culture, whether within a company or within a nation or country, also expands social scalability by allowing individuals to better predict the behavior of others within that culture.

Double-entry bookkeeping is another technology that enhances people’s ability to coordinate by allowing us to trust others. Before double-entry bookkeeping, there was only one copy of each transaction record, in the hands of a single bookkeeper, which made debt records vulnerable to deletion or tampering and easy to lose. Double-entry subtraction allows you to stop trusting your counterparty so much because you keep a copy of your own transaction records, and those records cannot be altered.

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

The most fundamental component of all of this is the minimization of trust. The modern legal system has greatly expanded social scalability because when anyone signs a contract with each other, they can go to court if something goes wrong, without having to develop a personal relationship with the signatory to resolve the problem.

When you buy juice from the store, you don’t have to worry about it being poisoned or having gone bad because there are a range of technological and social innovations that inspire suppliers to provide safe products.

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

-Amazon matches consumers with manufacturers.

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

-Lyft and Uber match drivers and passengers.

  • AirBnB matches travelers with homeowners who have unoccupied homes.

These platforms have scoring systems that reduce the level of trust required 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’ reviews of safe and reliable drivers.

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

Historically, when cryptocurrency and marketplaces have been combined, they have been used to reduce transaction costs by:

-Matching (bringing buyers and sellers together)

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

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

-High quality information flow (market price)

Adam Smith explains how markets promote social scalability as follows:

“The sweater worn by the folk, for example, although it looks rough, is the result of the joint labor of a large number of workers.

Shepherds, wool sorters, carders, dyers, spinners, weavers, washers, dressers, and many others had to do their part to make this seemingly homely job.

In addition to that, how many merchants and transport workers need to be employed to be responsible for transporting materials to various places.

Especially for navigation and trade, how many shipbuilders, sailors, sailboat builders, and rope makers were needed to gather the different herbs needed to prepare the dyes from all corners of the world in one place!”

By relying on markets, people could benefit from the labor of others without having to trust them. Buyers of woolen coats did not need to personally befriend and trust the makers of the ships’ sails that brought the Indian dyes back to England.

Instead of relying on kinship, the market creates a vast network of disparate people who act in our interests:

“In civilized societies, people always need the cooperation and help of the masses, while their entire life cycle does not always result in a few true friendships… The dinner we expect comes not from the favors of the butcher, the brewer or the baker, but from their concern for their own interests.”

It was the successive waves of the industrial revolution that led to the optimization of the division of labor and allowed the market to expand its reach several times over.

Today, the supply chain involved in the coat in your closet and the different players in it are much more complex than Adam Smith documented in the 18th century.

Money promotes social scalability by solving the problem of mutual needs. If you make shoes and I make bread, but you want the bread and I don’t want the shoes, we can use money as a medium of exchange, storing value and a unit of account to facilitate transactions.

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

The first types of money used by humans were collectibles like shells and stones. Later, precious metals became money, and then paper money. Today, most currency is electronic. We have programs and protocols running on computers and servers around the world that facilitate most transactions denominated in U.S. dollars.

This has greatly improved the efficiency of matching and the efficiency of 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 Internet architecture, we completely trust the person on the other end, as well as insiders who may gain access, and hackers.

But for these organizations, your security isn’t their top priority, as recent data breaches from Equifax to Cambridge Analytica have demonstrated.

To improve social scalability, we need to expand our market globally. To expand markets globally, we need to have scalable currencies. In the 21st century, a scalable currency requires scalable computer security.

The Value of Bitcoin: Breaking the Limits of Human Cognition and Allowing Social Scalability to Continue to Extend

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 exclusively on a single trusted intermediary, but on a set of decentralized intermediaries.

When we are able to protect a financial network through computer science rather than accountants, regulators, police and lawyers, our system also goes from manual, local and less secure to automated, global and more secure.

If done correctly, cryptocurrencies can replace an army of financial intermediaries with an army of computers.

Because the core business of cryptocurrencies is conducted independently of existing institutions and can operate seamlessly across traditional borders (institutional and national), cryptocurrencies provide a high degree of security and reliability without human intervention.

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

In 1870, the transactional sector of the U.S. economy (accountants, lawyers, regulators, and police) accounted for 24% of gross national product (GNP). By 1970, it accounted for 46% of GNP.

We need increasingly higher levels of human cognitive ability to monitor these transactions. Humans today have no more effective cognitive ability than they did in 1950, yet computers are orders of magnitude more powerful than they were in 1950.

The Value of Bitcoin: Breaking the Limits of Human Cognition and Allowing Social Scalability to Continue to Extend

However, in computer science, there is a trade-off between security and performance. This makes the security required for the social scalability of cryptocurrencies very costly: it consumes resources, mainly from the electricity used for mining.

This security is essential for anything that wants to be used as a currency. It should be very difficult for any participant or intermediary to counterfeit the currency. Gold is valuable in part because it is hard to mine and there is a finite amount of gold, so people cannot make more gold quickly.

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

Cryptocurrencies sacrifice the scalability of computational processing power to improve social scalability. Computational inefficiencies (consuming a lot of electricity as well as a lot of processing power) make it socially scalable (anonymous parties can transact across institutional and national boundaries).

We cannot calculate the value of the resulting increase in social scalability, but we have reason to believe that it is on the same order of magnitude as the value derived from the Internet’s promotion of matching efficiency.

As the cost of computational processing power and renewable energy continues to decline, and human cognitive capacity cannot continue to grow, the benefits of this tradeoff will become ever greater.

It’s not that it’s easy to get our existing institutions to adapt to this new paradigm, or that we’re heading toward some sort of utopia. But cryptocurrencies allow people to continue to extend that trait that has made humans irreplaceable, that trait that has made humans stronger over the centuries – social scalability.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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