Understanding a new subject or technology is hard. It helps to understand the first principles this new thing is built onš§µ
Letās ask some fundamental, basic, pumpkin spiced latte questions until we can get to the bottom. To the 1st principles of blockchain. šŖ”
Starting with...
What is the point of Blockchain?
The answer to this feels like it would be related to:
What is something ONLY blockchain can do? What, not How. What are things that are possible now that were not possible before?
It makes sense that the projects that take best advantage of these things will be building on first principles and most likely to create something revolutionary (something new) as opposed to something evolutionary (something weāre currently doing, but better).
TL;DR: The three first principles are:
ā¢Digital Ownership Rights
ā¢Decentralized Currency
ā¢Execution Layer of Democracy
The first and most obvious First Principle is:
Digital Ownership Rights
This is ownership of digital assets that go beyond the platform itās hosted on. For example a video, or a picture, or an item in a video game. These are all digital items that live on a computer.
Currently:
Ownership belongs to whoever owns the computer/server that is storing the digital item. For example: Amazon, Google, Microsoft, Facebook. If they pull the plug (which they have the right to do), the item disappears.
There is also the duplication element. Copy + Pasting for example. These digital items are identical and this duplication is trivially simple to do. Ownership inversely is much more difficult to prove. This also complicates ownership rights from an enforcement perspective.
Any ownership rights have had to contend with the above facts. Blockchain changes the above paradigm. A network of computers host these digital items. Which all work together to store the data. So no one computer or party handles hosting the data.
These items are also cryptographically secured. Ownership becomes easy to prove due to the nature of the cryptographic signing that is inherent to the functioning of a blockchain.
3 Things the above shift allows (among others):
ā¢Digital Identity
ā¢PFP NFTs
ā¢Decentralized Permissions
Digital Ownership: Digital Identity
Identity and even social graphs (friendās lists) are now platform agnostic. Introduces another level of composability ā Any company can connect to a users identity and tap into their social graphs (with the users permission).
This has historically been a huge part of the value proposition for web2 companies. The lock in value of network effects being part of web2 company valuations. Now your network belongs to you, separate from the platform.
Digital Ownership: PFP NFTs
Profile Picture NFTs are an example of digital identity. A digital avatar that exists outside of any company and is āown-ableā in a way no digital avatar was before. These PFP NFTs have also acted as decentralized community membership cards.
Digital Ownership: Decentralized Permissions
Decentralized Permissions are an application of the above two new primitives. Permissions is a big part of web2 and this gating is something that is inherent to web3. Think of tickets to a concert or a passport.
The behind the scenes of the logistics (counterfeiting for example) of making those things function. This challenge now becomes trivial with blockchain and web3.
The second First Principle function for blockchain:
Decentralized Currency
Decentralized currencies are: convenient, easy to use as a medium of trade, with fixed supply enforced by nature (math) and not human intervention. This is a new Paradigm. This has not existed before.
Let's go back to the beginning:
Farming Invented ā Human group size increases as we move from nomadic to sedentary society. Larger groups allow for more division of labour. Now there is more room for production of things not essential to survival. Exchange of items desired.
This exchange works in a barter and trade system. But having an intermediary item would allow for more trading to occur, which would increase incentives to produce more. This Intermediary item = Money.
In order to work as an intermediary in trade it would have to fulfill a few requirements.
Requirement 1 of Money
Supply of money must be fixed. (This is difficult in nature!) In order for it to work as a neutral 3rd party in trade and relative value of items can be measured. If the supply of money changes too much, itās not reliable as an intermediary in trade.
Fixed supply allows money to be used as a store of value. You make something valuable, someone else gives you money which you can keep and trade at a later date for something else of value.
The more a community is able to have a convenient item with a fixed supply and easy to transport, the more trade flourishes. The better off that community will be. This is why controlling money supply is one of the most important functions of a government.
To have something that can easily be used in trade but whose supply is restricted. This is a VERY difficult task and counterfeiting is a dilemma as old as time.
Requirement 2 of Money
Ability to divide money is important. The better the item works as a fixed supply, the more places it will be used for trade, and thus the more valuable it becomes. If the value of money becomes higher than production of items being traded, trade stops.
Holding money is preferred to any item worth less than the money. Unless the money is divisible and you can trade a fraction of money. Now money can become currency.
If requirement 1 wasnāt hard enough, fulfilling it AND 2 is near impossible. It is very difficult to find something that is both Fixed Supply and ALSO conveniently divisible. Fraudulent money is always possible, so supply isnāt fixed.
Gold ā Not convenient. Supply fixed but verifying authenticity is hard. Divisible but doing so is also hard. Still, best solution and so has historically had very high value.
Fiat Currencies ā Money invented by government of some form or other (coins, paper). Supply controlled and enforced by government, but this supply restriction is artificial and difficult to enforce. Counterfeiting an eternal threat.
The benefit is artificial control of trade through control of money supply. The problem is artificial control of trade through control of money supply. Especially when considering political desire to create money for selfish reasons not benefitting the community.
New Paradigm
Consider Bitcoin. Easy to use, divisible to 8 decimal points and impossible to counterfeit and with a fixed unchangeable supply controlled by no single party or government. This has not existed before.
The second First Principle function for blockchain:
The Execution Layer of Democracy
Socratesā great criticism of democracy in Platoās Apology is that it doesnāt match its own standards. Democracy claims one thing but is corrupted by human nature in practice and often fails to live up to its own standards. Power corrupts as the popular saying goes.
This fundamental flaw in democracy in practice has always existed. Until now. Democracy can now be executed without human intervention. Thanks to the invention of smart contracts.
As pieces of unchangeable code that live on the decentralized blockchain, they allow for automatic execution of whatever is coded. This code is uneditable due to the nature of the blockchain.
With so many aspects of our society being digital (especially the invention of digital trust-less money aka cryptocurrencies.) Also when we consider NFT tokens being potential representations of real items.
All these elements can now be automatically controlled by a smart contract.
A smart contract can now auto-execute funding decisions decided by votes. All of this being done publicly and automatically. The key here is that all of this is enforced by the very nature of the blockchain. If you use the blockchain, all of this comes standard.
This type of platform/technology has not existed previously.
To take it to an extreme, consider military defense technology being controlled by smart contracts. There are of course so many pitfalls, but the point here is that really, everything can eventually be on-chain and controlled by smart contracts.
Whether you want to is up for debate, but the possibility exists. This separation of decision and execution.
The possibility now exists of execution being controlled automatically by smart contract, leaving the decision up to the social layer of public discussions (including the decisions about execution).
So it looks like we have a good starting point for the first principles of blockchain. The fundamentally new things Blockchain allows.
The things that take advantage of these things are in my opinion most likely to build something revolutionary (something new) in web3, as opposed to projects that are evolutionary (something weāre currently doing, better).
First Principles of Blockchain:
ā¢ Digital Ownership
ā¢ Decentralized Currency
ā¢ Execution Layer of Democracy
Something that hits all 3 of the above points: DAOs. But more on those later!
You can read the thread as a post on mirror:
mirror.xyz/syedshah.eth/nnq_CrLlRauVC_MSm2mjE4UVpnkKL2awYtRoKw5HFr0
Blockchain/web3 might look dumb and niche, but so did the internet in the early 90s. This is a big deal. Youāre early.
Follow me @realsyedshah for more about Blockchain, Web3 and DAOs.