Unpacking: Path Dependence in a Blockchain World

Using a path-dependent analysis, we discover something magical about the blockchain world: the theoretical foundations of the three main supporting technologies for blockchain (cryptography, economics, and information technology-consensus algorithms) were all created back around 1976.

Path-Dependence, which specifically means that technological evolution or institutional change in human societies is similar to inertia in physics, i.e., once one enters a certain path (either “good” or “bad “), one is likely to become dependent on that path. Once people make a certain choice, it is like going down a road of no return, and the force of inertia will make this choice constantly self-reinforcing, and make it easy to go out. The first person who made the theory of “path dependence” famous was Douglas North, who was awarded the Nobel Prize in Economics in 1993 for his successful explanation of the evolution of economic systems using the theory of “path dependence.

The development of any technology is always path-dependent in history. Based on the principle of path dependence we can trace the previous life of a thing, understand its present life and predict its future. If we cannot find the previous life of a thing from the path-dependent perspective, the probability is that the thing is a scam or we do not understand the nature of the thing.

The creation of blockchain is the inevitable result of multiple technological developments, and it will also conform to the theory of path dependence. Many of the areas of knowledge directly related to the creation of blockchain go back decades. In my “Blockchain Economic Model” there is an important summary: consensus algorithms are the soul of the blockchain, cryptographic algorithms are the bones of the blockchain, and economic models are the nuclear energy of the blockchain. These three major developments determine the creation and future of the blockchain. I will find that all three developments actually originated around 1976.

The field of cryptography: In 1976, Bailey W. Diffie, Martin E. Hellman, two masters of cryptography, published the paper “New Directions in Cryptography”. The paper covered all the new advances in cryptography for the next few decades, including asymmetric encryption, elliptic curve algorithms, hashing, and a number of other means, setting the direction for the entire development of cryptography to date, and playing a decisive role in the birth of blockchain technology and Bitcoin. (Note: The one on the left is Hellman, and the one on the right is Diffie.)

Unpacking: Path Dependence in a Blockchain World

It was proposed in 1977 by three young professors, Ronal Rivest, Adi Shamir and Len Adleman, at the Massachusetts Institute of Technology (MIT) in the United States, and was named the RSA algorithm after the last names of the three, Rivest, Shamir and Adlernan. named the RSA algorithm. The algorithm takes advantage of the fact in the field of number theory that while it is very easy to multiply two large primes to produce a composite number, it is very difficult to decompose a composite number into two primes. The problem of composite decomposition is still a major unsolved problem in mathematics, and there is no efficient decomposition method to date. Compared with the Diffie-Hellman algorithm, the RSA algorithm has obvious advantages because it does not require both senders and receivers to participate in the encryption process and is well suited for encrypting computer messages.

In 1980, Merkle Ralf proposed Merkle-Tree, a data structure and corresponding algorithm, which was later used for one of the main purposes of verifying the correctness of data synchronization in distributed networks, which was also introduced in Bitcoin as an important means of doing block synchronization verification.

In 1982, Lamport proposed the General Byzantine problem, marking a substantial stage in the theory and practice of distributed computing reliability. In the same year, David Cholm proposed the cryptographic payment system ECash, which can be seen that with the progress of cryptography, discerning people have started to try to apply it to currency and payment-related fields, and it should be said that ECash is one of the earliest pioneers of cryptographic currency.

In 1985, Koblitz and Miller each independently proposed the famous Elliptic Curve Cryptography (ECC) algorithm. Since the previously invented RSA’s algorithm was too computationally intensive to be practical, the proposal of ECC really made the asymmetric encryption system a practical possibility. Therefore, it can be said that by 1985, about 10 years after the publication of New Directions in Cryptography, the theoretical and technical foundations of modern cryptography were fully established.

In the field of economics: Hayek’s The Denationalization of Money was published in 1976, but it did not cause much reaction in the economics community at that time. The Denationalization of Money focuses on the origins of the government monopoly on minting money, speaks of the persistent abuse of government monopoly power, and proposes the idea of allowing privately issued money to circulate and for these different currencies to compete. Throughout the book though many of the ideas, when measured against traditional economic theory are very problematic and have the potential to be difficult to achieve. The birth of Bitcoin in 2009 made it suddenly clear that this new cryptocurrency was realizing Hayek’s vision of private money.

Unpacking: Path Dependence in a Blockchain World

The Economist Hayek

Friedrich August von Hayek (May 8, 1899 – March 23, 1992) was a well-known Austrian-born British economist and political philosopher. Known for his adherence to free market capitalism and his opposition to socialism, Keynesianism and collectivism. Widely regarded as one of the most important members of the Austrian school of economics, he has also made considerable contributions to the fields of jurisprudence and cognitive science. Hayek was awarded the Nobel Prize in Economics in 1974, along with his theoretical rival Gunnar Myrdal, “for their pioneering research on monetary policy and the business cycle, and for their perceptive analysis of the impact of economic, social and institutional interactions.” In 1991, Hayek was awarded the U.S. Presidential Medal of Freedom in recognition of his “lifelong foresight.

Information Technology: The development of computer technology has provided a solid foundation for information technology. In 1969, the ARPAnet was put into use, marking the birth of modern computer networks. One of the main theoretical aspects of co-working is the Byzantine Generals Problem, a distributed peer-to-peer network communication fault tolerance problem proposed by Leslie Lamport in 1982 in his paper of the same name, “The Byzantine Generals Problem”, which models the presence of evil nodes in a network The Byzantine General Problem is not a reality. The Byzantine Generals Problem is not a real problem, but a fictional scenario. Byzantium was the capital of the ancient Eastern Roman Empire, and due to its vast territory, it is assumed that multiple generals (multiple nodes in the system) guarding its borders need to pass messages through messengers to reach certain consensus decisions. The Byzantine general problem is considered one of the most difficult types of fault-tolerant problems due to the presence of evil-doing nodes.

Unpacking: Path Dependence in a Blockchain World

The academic discussion of the two generals problem existed before the Byzantine problem (“Some constraints and trade offs in the design of network communications”, 1975): two generals have to agree on whether to attack or retreat through a messenger, but messengers may get lost or blocked by enemy forces (lost or forged messages), how to reach an agreement, a problem with no universal solution according to the FLP impossibility principle.

By analyzing three important aspects in blockchain (cryptography, economics, and information technology), we will find that the principles underlying the development of a new thing, decades ago, have begun to form and nurture. Surprisingly, the theoretical underpinnings of these three important aspects were actually generated in the same period (1976 and 1975).

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