Social Scalability

Mar 19, 2019   |   by William Glynn   |   Thought Leaders & More
Writing a description for this thing for general audiences is bloody hard. There's nothing to relate it to.

Satoshi Nakamoto

It is the goal of this essay to explain the “why” of decentralized networks. People explaining it tend to zoom in on specific concepts such as “blockchain” and “smart contracts”, but this causes tunnel vision in a space where general understanding is quite critical. These concepts are more or less nuts and bolts of a complex and eternal concept within these networks; Trust. The ideal goal of education is universality, and the core purpose of these networks truly offer a great leap in understanding of something fundamentally universal; again, trust. Without trust we creep towards isolation and discomfort and lack of connectivity for growth. Hubs of trust have been used to improve connectivity of the human race, but in the process of hyper-connectivity, we have made detrimental decisions.

Perspective and scope will be the two main tenets of this article. It is easy to get lost in one specific aspect of this emerging technology. As a predominantly conservative thinker, I value the knowledge and wisdom inherited from our human legacy. It is rather exciting to nosedive into new concepts of the 21st century, but we must express appreciation of the roots of these concepts and proceed with ease. So before we talk about the damaging deals with the devil that we've made for trust in the modern day, let's look at the evolution and scalability of trust:

These inventions are not so much physical, but rather social technologies. They are the foundations on which trust, connectivity, wealth and economic activity can take place. One could consider them to be the metaphorical gears and screws of civilization that expanded our cooperation, in all aspects, beyond our immediate community. Like any technological advancement, this infrastructure can improve, or conversely become obsolete due to other advances.

Social scalability is not an issue of material constraint, but rather a constraint on human behavior. Trust is a fundamental dependency in human behavior and is the significantly more oppressive restraint on economic growth and collaboration with strangers.

Forms of currency have, with relative success, allowed us to scale economic activity. Without currency, we would have to rely on barter - trades like 1 cloth for 12 eggs. This barter method requires a double coincidence of needs. Person A needs Something Person B wants, and Person B needs something Person A wants. Having a common good or commodity that holds a generally agreed upon value like Gold or the dollar bill eliminates the need for this coincidence. This was a breakthrough in human interaction. Fundamental trust for economic activity could stretch beyond tribe and kinship.

“Markets and money involve matchmaking (bringing together buyer and seller), trust reduction (trusting in the self-interest rather than in the altruism of acquaintances and strangers), scalable performance (via money, a widely acceptable and reusable medium for counter-performance), and quality information flow (market prices).”

Nick Szabo

The clock allowed us to trust that an amount of time was sacrificed for an act. This trust allowed social constructs like time- rate wage labor, to have certain agreed upon truths, such as how much time had passed since event A to event B. This revelation of measuring time accurately and agreeably by the hour allowed for a fungible measure of sacrifice. Measuring wage based on something like piece output of whatever a worker is producing, results in side effects, such as the worker selfishly increasing quantity at the sacrifice of quality. A better method for measuring sacrifice is time because, “With incentives more closely aligned by the calendar and clock measuring the opportunity costs of employment, to be compensated by the employer, the employer can focus observations on verifying the specific quantity and qualities desired, and the employee (to gain raises and avoid getting fired) focuses on satisfying them.” - Nick Szabo

While these non-constant, obscure aspects of the work contract need to be slowly adjusted through management-mediated employee selection, a need for an immediate measure of sacrifice arose to finally solve the issue of serfdom and non-competitive wage seeking.

“it’s usually hard to specify customer preferences, or quality, in a production contract. It’s easy to specify sacrifice, if we can measure it. Time is immediately observed; quality is eventually observed.”

Nick Szabo

"the time-rate wage played a leading role the economic revolution that started in the late Middle Age. The massive change on the farm, the dominant form of industry, in the 14th century from serfdom and slavery to markets and wage labor, was caused fundamentally and permanently by the time-rate contract and the new ability verify its crucial measurement of sacrifice, time. -Of all measurement instruments, the clock is the most valuable because so many of the things we sacrifice to create are not fungible.”-(Szabo 2005)

The only fundamental requirement for a functioning society after desired terms are made is that desired terms are met. We need to trust that these terms are executed while ensuring that there is some sort of failsafe, security, or stake to fall back on if the terms expire and remain unfulfilled. This is where third-party intermediation takes place to alleviate risk to the individual. This third party model has allowed for unprecedented growth. Once again, a new layer of social scalability encapsulates civilization, allowing for complex and dynamic social structures.

Third Party Intermediary: “Firm or person (such as a broker or consultant) who acts as a mediator on a link between parties to a business deal, investment decision, negotiation, etc. In money markets, for example, banks act as intermediaries between depositors seeking interest income and borrowers seeking debt capital.”

These third parties can range anywhere from credit card companies and social media sites, to lawyers, financial advisors, loans and insurance providers. To this day, a hierarchical model of bottlenecked information, permissions, and decision making clouts the service markets making them extremely lucrative and potentially corrupt businesses.

“the financial services sector comprises about 16.9% of the global economy, as measured in GDP. Further data from the IMF shows that the total service economy makes up about 60-65% of total global revenue.”

The service economy (Education & Health, Government, Finance, Business, Transportation) is all built on top of third-party infrastructures. We will get into the expensive and devastating security hole-nature of third-party hubs later.

“Companies like Visa, Dun and Bradstreet, Underwriter's Laboratories, and so forth connect untrusting strangers into a common trust network. Our economy depends on them.”

You can’t easily set up a trade deal with somebody you don’t trust; this is counterparty risk. The level of risk results in a lost opportunity for economic activity. These intermediaries are in the business of taking on the burden of these risks and a fee ensues for their efforts.

“These trusted institutions in turn traditionally implement a variety of accounting, legal, security, or other controls that make them usually and sufficiently, at least for facilitating the functionality of their client institutions, trustworthy, by minimizing vulnerability to their own participants. An innovation can only partially take away some kinds of vulnerability, i.e. reduce the need for or risk of trust in other people. There is no such thing as a fully trustless institution”.

Trust still requires more sacrifice than ever in modern practicing societies as the demand for cooperation grows. Though we can achieve very impressive forms of global trust, they are failing to scale and they impose a catastrophic economic and social strain. We have 3rd world countries that can handle the social growth, but are impeded by lack of access to trust hubs.

“Portrayal of the poor within a third world village is not one of culturally-based low trust. Rather, it is the painful lack of the various widely trusted intermediary institutions that catalyze commerce at a distance, and that we normally take for granted in the first world.”

As humanity heads towards its rapid and impending colonization of cyberspace, these intermediaries of services establish their markets and bring their security holes with them. Countless ways of hacking, extortion, identity theft and blackmail have been a direct result of security holes designed into the architecture. These third-party security holes have ruined lives, cost hundreds of billions in damages globally in both the private and public sectors.

“Assumption in a security protocol design of a "trusted third party" (TTP) or a "trusted computing base" (TCB) controlled by a third party constitutes the introduction of a security hole into that design. The security hole will then need to be plugged by other means.”

And the plugging of these constituted security holes has been an economic, humanitarian and social disaster with honeypots of sensitive data growing ever larger.

“The Internet was built without a standard, explicit way of identifying people or organizations. So websites simply began offering their own local accounts with usernames and passwords, and this has been the predominant solution ever since-This silo-based approach, where users must maintain identities for every site they interact with, has become untenable. It is not just a usability disaster for individuals, it also creates a multitude of data honeypots for hackers”

(Modern Costs of Trust).

“Cybersecurity Ventures predicts cybercrime will cost the world in excess of $6 trillion annually by 2021, up from $3 trillion in 2015”

The overall inefficiency of an inherently centralized and uncoordinated internet is far more damaging. This is once again a direct unintended consequence of Trusted Third Party security holes.

Trusted third parties hold massive honeypots of media, data, and sensitive information in a world slowly colonizing cyberspace. Third Party Security holes are an inherent argument for self-sovereign identity. Self-sovereign meaning that you (self) have total authority and control (sovereign), forever protecting your identity and privacy on the internet. These new scales of trust will make concepts such as this a reality.

One damning side effect of these third parties is the censorship. Decision makers can control the usage of platforms, and create walled gardens of economic activity with patents, copyrights, and permissions. We also see permanent bans from social media sites and payment platforms. Censorship of money, our most universal form of free speech has been of a growing concern of cypherpunks for decades, and rebels for centuries.

“A TTP (Trusted Third party) that must be trusted by all users of a protocol becomes an arbiter of who may and may not use the protocol.”

Enter Bitcoin

Here we have the first network to ever use trustless trust. Bitcoin takes advantage of several tenets of trust, like timestamping to agree when events trustfully took place. This echoes back to our first discovery of trust, with the clocks, and takes it to a universal and immutable scale. Proof of Work uses hash-rate (computer energy) as a measure of sacrifice to uphold the competitive self-interest of security providers. And finally, it uses a peer to peer topology, giving people sovereignty over their property. These are the foundational architectures for the peer to peer, trustless economy.

“Much of the trust in Bitcoin comes from the fact that it requires no trust at all. Bitcoin is fully open-source and decentralized. This means that anyone has access to the entire source code at any time. Any developer in the world can, therefore, verify exactly how Bitcoin works. All transactions and bitcoins issued into existence can be transparently consulted in real-time by anyone. All payments can be made without reliance on a third party and the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Bitcoin, and the network remains secure even if not all of its users can be trusted.”

In Conclusion, Bitcoin is a breakthrough in designing trust systems. It gives us these powerful and advantageous 1st world hubs of trust, without the third party layer. This is unprecedented because last time we were operating without third-party layers, we were toothless nomads. Trust was gradually established and centralized. The great arbiters initially being churches, then kings, then banks. And now the new player is Big Tech on the internet. Disruption between these phases resulted in some decentralization of power, but hierarchical systems always allowed it to recollect. Bitcoin is the first real-world instance of the power of true economic and social freedom.

Follow us on Twitter for more interesting cryptocurrency articles.

"Arise, you have nothing to lose but your barbed wire fences!" (Timothy C. May, The CryptoAnarchist Manifesto)

Quotes and Work Cited

The Nakamoto Institute:

“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

“Scalable markets and prices require scalable money. Scalable money requires scalable security, so that a greater number and variety of people can use the currency without losing its integrity against forgery, inflation, and theft.”

“Satoshi’s breakthrough with money was to provide social scalability via trust minimization: reducing vulnerability to counterparties and third parties alike.”

“When we can secure the most important functionality of a financial network by computer science rather than by the traditional accountants, regulators, investigators, police, and lawyers, we go from a system that is manual, local, and of inconsistent security to one that is automated, global, and much more secure”

“I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party.”

“For the first time we can implement on the Internet the integrity properties on which civilization depends – including synchronized clocks, unforgeable transactions, and censorship-proof publishing. Where today's Internet, lacking this technology, fails to provide many of these properties, we now know how to provide them with a greater degree of integrity and availability than either the Internet or any previous media was capable of.”

“The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending.”

On Trusted Third Parties

“The best "TTP" of all is one that does not exist”- Nick Szabo


William Glynn

I came into crypto for a decentralized web and stayed for everything else. I come from a background of political and entrepreneurial interests, but crypto eventually took immediate precedent, as it was a new infrastructure for every aspect of humanity in the form of trust-less trust. I am majoring in Finance and currently working with Garden of Crypto. I hope to scale into running network infrastructures like Lightning Network and several other crypto network nodes.