This is a spin-off of my still unpublished essay “A Brief Historical Chronicle Towards Unstoppable Money”, where I synthesize the history of reason, the political individual, institutional and economic development.
“Each thing changes, but nothing ever dies. The spirit wanders, roaming here and there, and takes possession of a creature’s limbs, whatever body it desires, passing from savage animals to human beings, from human beings to beasts, but spirits never are destroyed.”
- Pythagoras, Metamorphoses (by Ovid).
Before history was history, tribes in lower Mesopotamia did so well in agriculture and cattle raising that their surplus was traded with many neighbors in the region. All these merchants thought it would be better to live together to continue growing. Witnessing this, a half-man half-fish came out of the sea and he taught them the use of letters, sciences and arts of all kinds. He taught them to found temples, to compile laws, and explained to them the principles of geometrical knowledge; he instructed them in everything which could tend to soften human manners and humanize their laws. And when the sun set, retired again into the sea, for he was amphibious.
These merchants, with the help of the wisdom of the talking bipedal fish, formed Uruk, the first city ever, and showed traces of a quasi-urban complexity. Its internal order had accountants and leaders.
And so, the formal institution was born.
Formal Institutions are structures, frameworks of behavior easily identifiable with a defined hierarchy and therefore inherently exclusionary, where the information and capacity for action is completely asymmetric. So, let’s rewind, why did these people listen to the fish? how can people convince other people to follow the rules within certain formal frameworks of behavior? Well, we need existing informal institutions, like family, religion, values in general and commerce, even more basic things (what doesn’t mean are simple) like shared manners or language are more than esencial. Everything encompassed and known as culture, that creates frameworks of behavior without clear heads, but that are sustained by the social fabric.
These informal institutions have the potential of giving shape to individuals capable of following rules that are not necessary to follow, but that in doing so could represent signs of progress towards a specific or general goal. What is implicit in the informality, becomes explicit in the formality. In the case of these early merchants, they believed the Gods expected human beings to use their lives to help maintain order, and this included finding a way to work together.
Centuries later of the foundation of Uruk, the creation of cities exploded in the region, all with their own kings in a proto-dynastic system, but eventually all of them were integrating a coordinated government. This is how Sumer emerged.
But what is the institution but the name we give to the bureaucratization of the ritual. What would we expect if we sang a bolero during a Catholic mass? Or if a senator happened to jump rope during a legislative session? The institution encloses other rituals, and makes known to individuals and organizations (people who come together to achieve personal goals) the incentives and penalties for following or not following the frameworks of behavior.
And it doesn’t matter if I’m in Mexico during the revolution, in France during the Napoleonic expansion, or in the Zulu kingdom during Shaka’s reign, there are universal rituals, perhaps not in form, but in substance. And what event generates more universal rituals that when who used to be, ceases to be. When those who still are, they sob, gasp, and an emerging force from the chest shoots up, makes the throat suffer and drenches the eyes. The Sumerians thought that there is only one thing that can make the fate of the dead less abhorrent: a proper burial with an affectionate care of the corpse ensures at least a quiet repose.
The Sumerians were not only the first to invent written language, the first cities, institutions, and study of the heavens, they were also the first to express their abysmal anguish at death.
We can see it in a story of a tyrant King of Uruk, which raised the question of the existence of humanity, its mortality and the role of the gods in the lives of the persons.
The story begins with the King subjugating his people, the gods protest and send Enkidu, a beastman to oppose him; They end up being friends, begin adventures, and it is during these trips that Ishtar, a very important goddess, falls in love with the King, he despises her and in retaliation she demands the creation of a celestial bull to attack them, which is killed by Enkidu, for which he is punished with a fatal disease.
The king despairs and begins an odyssey against mortality. He meets a divinity named Siduri, from whom he hopes to receive directions on how to reach his destination, and he tells:
“Enkidu, my brother whom I loved, the end of mortality has overtaken him. I wept for him seven days and nights till the worm fastened on him. Because of my brother I am afraid of death, because of my brother I stray through the wilderness and cannot rest. But now young woman, maker of wine, since I have seen your face, do not let me see the face of death which I dread so much.”
She answered: “Gilgamesh, where are you hurrying to? You will never find that life for which you are looking. When the gods created man they allotted to him death, but life they retained in their own keeping.”
A common moral that people draw from this story is that Gilgamesh did in fact achieve immortality, through the text.
The bodies die. Formality always does.
But spirits, ideas, culture, have other opportunities. From informality, it is its advantage.
And coming back to modern times, what is software but ideas embodied, not on rock or paper, but on silicon; and not written with blood or chisel but with electric ink.
And these ideas, the source, the ethos, can with their substance, as if it were literature, arouse passions, which in the eyes of the indifferent could only fulfill plain computational operations, the product of the operation being what matters. And thinking about this latter, as if it were the work of Platonic philosophy (look at the theory of forms), the software product is the reflection of its ethos, of what cannot be superficially seen, of the language in which it has been conceived. A software of which ethos cannot be seen publicly, is completely connected to the organizational body that developed it, so its existence has been sealed with irreparable death.
When the ethos is free, the software ceases to be just part of a body and has the possibility to adhere, as an idea and project, in the minds of others.
Despite having previously made a distinction between organization and institution, there is no such thing as a pure organization. Organizations adopt practices of bureaucratized rituals and sometimes become formal institutions itselves. The formal institution has in it a not very scalable element: the operational cost. Returning to the parallelism with literature, both software authors and book authors have an editor behind them, and when we talk about large publishers those same editors have supervisors. All paid by the same entity, and although they may have a genuine interest in their work, in the end they work for a concrete reward, which is usually the payment itself.
As you already know very well, the legacy of Stallman, Torvalds and many more electrical ethos liberators lies in freedom to run, study, share, and modify the software. Does this make the Open Source movement inherently informal? Not exactly. Formality is a key factor for libre software to survive, at least for many projects, but absolute informality in the development fabric is possible, and In the same way, some of the greatest books ever conceived were written without publishers behind.
Again, if Microsoft disappears, so does Windows. If Canonical does, Ubuntu probably won’t, although updates may be slower. Informality can reduce the operational cost dramatically, although it also reduces incentives.
My thesis is that Bitcoin is an institution, in fact others have already referred to it as such, like Hasu in his “Unpacking Bitcoin’s Social Contract”. But studying Neo-institutionalism, from where I have taken the categories of formal and informal, I have come into conflict, because the development fabric aspect of Bitcoin looks informal, after all, the information and capacity for action is something very close to symmetrical, there is no a Canonical or Linux Foundation of Bitcoin, and the formality of the jobs of many contributors does not influence the already established coordination process and planning of the project, however I have come to the conclusion that it is and is not both categories at the same time.
Bitcoin in absolute terms is a solid body and an highly coordinated informality, and for this, we need a new category.
But before we get to this new category, I have to reiterate, institutions may contain other Institutions, but mainly organizations, and organizations compete, complement and/or coordinate with other organizations. We can think of institutions as the referee who enforces the rules in a football game, where it is not allowed to touch the ball with the hand or play out of place. Organizations are the teams. In the same way, there are a series of rules in the development of libre software, and each project is one more player in the game. Taking up the Ubuntu example, there are hundreds of Operating Systems based on it, each with its own characteristics, colors and flavours that appeal to a particular user community.
It is clear that Bitcoin being libre software complies perfectly with the principles of run, study, share, and modify. Nevertheless, Bitcoin is not to Litecoin like Debian is to Ubuntu or, more accurately, like BitTorrent is to qBittorrent. However, it is easy for many to think that projects like Ethereum are much improved and advanced versions of Bitcoin. How can we blame them? In many, if not the majority of low and high level explanations available, they’ll just hear about distributed networks, cypherpunks, proof of work, blockchain, cryptography, Byzantine generals problem, minering, hash rates; and Bitcoin as the definite solution to the proposals in DigiCash, Ecash, b-money and Bit Gold. In other words, a straightforward progression of technological development. All this hodgepodge of technical terms (including economical ones) makes the new agents understand the predilection for Bitcoin based on its price performance compared to other projects that were inspired by it, as if they were direct competitors.
It becomes easy to create a false assumption: the “better” (complex) the infraestructure, better the money.
And boy, it is normal for highly complex fields to find many misunderstandings, but in Bitcoin one must spend a large amount of time to finish connecting the dots, and finally be able to say “few understand this.” But unlike the more recognized dimensions of Bitcoin such as monetary policy and technological infrastructure, the organizational side lacks of a theoretical body, and much of that time spent understanding Bitcoin depends on understanding this side in a fragmented way and from very abstract concepts such as “governance” or “consensus”. Definitely, Bitcoin is more than “run the numbers” or “money backed by math”, if so, it would be the same to run Bitcoin or any of its bizarre copies.
Amir Taaki commented on this last paragraph: “People think software is just rules, but forget it’s a fundamentally social endeavour, and every day developers are making value decisions. I’m not even talking about 21 million coins or the algorithm, but small changes shape the longue duree and evolution of the community/ecosystem.”
History matters, the conflicts, struggles and resolutions matters. History gives shape to institutions.
For example, the dramatic birth of the Roman Republic is related in its founding myth as a trigger of a rape from the king’s son to the daughter of the prefect of the kingdom’s Capital, so she committed suicide, a situation that inflamed the aristocracy and made Lucius Brutus cry out in pain: “I will pursue Lucius Tarquinius, his wicked wife, and all his children and never again will I let them or any other man be King of Rome!”
The Roman Republic and eventually the Empire would be the largest institutionalizing entities in antiquity. When the Senate was designing its structure, they saw it necessary to create the figure of the dictator to minimize constitutional limits to be able to face extraordinary internal and/or external threats. Characters like Cincinnatus helped maintain the rēs pūblica, which despite being him deeply loved, refused at the request of others to violate with the dictatorship the still tender institutional order of checks and balances.
On the other hand, Bitcoin began as just another P2P project, an organization, funded by no one, but with contributors influenced by a culture that made them believe in it. Satoshi was, naturally, the undisputed leader, what Gavin Andresen likes to call “Benevolent Dictator”, sovereign and well-meaning.
It is common to hear that the leaving of Satoshi in 2010 was key to make Bitcoin what it is today. This was the beginning of a metamorphosis that was consummated in the very symbolic failed attack by those who signed the New York Agreement in 2017. The product of this metamorphosis is our new type of institution, the Amphibious Institution.
Satoshi Nakamoto presumably started work on what we now call Bitcoin Core in early 2007. He wanted to make sure it was possible to build the idea before writing the white paper. Some contributors started to join the project and among other things add support for Linux (2009) and macOS (2010). Satoshi hard coded many features alone, and on some occasions vulnerabilities were found and was asked to run the patch without making clear the purpose of the code.
In December 2010 Satoshi made his last post on Bitcointalk. On December 19, the development was moved to GitHub and Gavin Andresen, who had arrived in May of that year, explicitly made clear in a post that he will take the place of Nakamoto as development leader.
Gavin set about rewriting and solidifying the infrastructural structure in the following months. Much of the code written by Satoshi was improved by him.
More contributors were joining the development, so in late 2011, Amir Taaki introduced a social organizing process to propose changes and improvements, as well as provide descriptions of problems encountered. Its name is Bitcoin Improvement Proposals (BIP).
As economic interests around Bitcoin increased, Gavin found the Bitcoin Foundation in 2012. This entity was the closest thing Bitcoin had to a Linux Foundation, in fact it was directly inspired by it. In addition, as a founding member was Mark Karpeles, CEO of MtGox, the largest exchange of those times, which in turn was the largest funder.
The foundation aspired to be the public face of the protocol. And even though it helped pay excellent full-time developers to dedicate themselves to Core, Oliven Jassens, former Board member, stated: “The truth is that the Foundation’s plan was to hire even more Core devs to start a Bitcoin Standards Body”. To top it off, neither operations nor finances were ever transparent.
In February 2014 MtGox suffered its fatal hack. In that same quarter, Mike Hearn, a former bitcoin core developer, very restless and close to Gavin, publishes BIP 64, which proposed “a small P2P protocol extension…”; Hearn would make a forked client with the BIP 64 changes called BitcoinXT. In June 2015, after a very heated dissolution that even made Mike Hearn declare “I no longer believe this community can reach consensus on anything protocol related” and “There must be a single decision maker for any given codebase”, Andresen published BIP 101, where he proposed increasing the size of the blocks to 8MB and a subsequent doubling every two years. Hearn added BIP 101 to BitcoinXT, hoping it would become the reference implementation instead of Core. Gavin Andresen agreed about Hearn becoming the Benevolent Dictator of BitcoinXT.
This was not only the beginning of the Scaling Wars, it was the beginning of a fight over the geometric nature of power in the development fabric. And in a merely dialectical movement, culture revealed the true nature of the individuals that made it up. A will of central leadership arises, both of concrete individuals and of pseudo oligarchies (thesis), from this emerges a headless opposition (antithesis), whose conflict will end up configuring a geometry of power with symmetrical tendencies, and a rigid, strong, stronger than ever, identifiable operational body (synthesis).
Perhaps some may be alarmed by the use of dialectics, generally associated with Hegel, but I think that if we remove the deterministic factor, it can be useful.
Anyway, we could go on citing many controversial phrases from this duo, and describe how they discreetly planned, in collaboration with key companies, to push BitcoinXT as the reference implementation. But neither XT, Unlimited, Classic, nor any other were not even close to fulfilling its goals. However, when it was shown that the decentralization of the network was not just rhetoric, was when very large companies, in total 50, that claimed to have support from 83% of the network’s miners, organized themselves to impose SegWit2x through a Hard Fork, under the name of New York Agreement. On the other hand, in that same quarter, a user-activated Soft Fork was planned that would incorporate SegWit, a conservative and efficient solution to the scalability problem that allows the implementation of the second-layer solutions. And how did this episode end? Those who thought of themselves as the oligarchy, realized that they are not such, and SegWit was activated.
The process of maturing from an organization to an institution had already been completed at this point. The Bitcoin Foundation was virtually dead already. Wladimir Van der Laan had taken on the role of lead maintainer and he had no intention of becoming a benevolent dictator. Unlike the Roman Republic and Cincinnatus, it was not Wladimir’s goodwill that made Bitcoin an Amphibious Institution, but rather the respect and subscription to the values of the individuals that comprise it which allows him to be the possessor of one of the little asymmetry of action capacity in the development fabric. On the other hand, asymmetry in access to information is non-existent.
Now, the amphibious institution has the advantage of having the rigidity of a formal institution, but without the exclusive hierarchy; and the decentralization of the informal institution, but without the inevitable fragmentation. Hence the name, since amphibious works as an adjective for something that has two (institutional) natures. Also, amphibians are born with one (aquatic), and their metamorphosis ends up shaping their biological potential (aquatic and terrestrial). It is a coincidence that our nice sumerian half-man half-fish was also an amphibious.
Thinking of Bitcoin as an institution, it’s not just an epistemological advantage, bringing terms and analysis tools which were lacking before, but also represents a concept in the popular culture linked to stability and consistency, which is precisely what Bitcoin is.
I believe that this model, which I will work on from now, can unify the understanding we have about Bitcoin. Those who have been in the ecosystem for a long time have it clear, but the organizational dimension is the one that has the most fog. Understanding Bitcoin as an institution would be key to clarifying the minds of many new agents, individual users, companies and formal institutions, whether private or public.
The followings are not new concepts, of course, but could be understood more accurately within the model of the Amphibious Institution (Organizational dimension), its relation and dependency with the Monetary and Technological dimensions:
- Code is Law: Unlike within a traditional legal framework, where the same law has its own degree of ambiguity and is also conditional (if you follow it there is an incentive, if you do not do it there is sanction/punishment), in the digital infrastructure there is no option or openness to personal interpretations, so coercive enforcement is not necessary or even possible. However, when code becomes law? it is when it regulates systems of behavior and has its own institutional tendencies (point 2 & 3). A good example is the TCP/IP protocols. As David Clark in 1992 put it: “We reject: kings, presidents, and voting. We believe in: rough consensus and running code.”
- Smart Money: When something is inherently enforced by code, its very nature allows automation, interaction with and maintenance of the infrastructure as long as taking into account the law (point 1 & 3).
- Conservative Law Change: In the specific case of Bitcoin, the nature of the infrastructure is clear: a gnostic system of checks and balances. Monetary policy is an abstraction of an absolute and concrete balance in the system, with a maximum of 21 million units of account, and to make the balance effective and open, everyone has to be able to access to it and it has to be difficult to control. The rigidity of the central laws is what gives credibility to the institutional body (the network), and the changes that although slow, since each one goes through an extensive peer review, help to increase the reliability and maturity of Bitcoin (point 1 & 2).
Douglass North, one of the fathers of Neo-institutionalism, makes an important analysis in the understanding of different societies’ wealth creation. You can import infrastructure, let’s say some fabulous factories or transportation, from society A to society B, but the economic success that has society A is not guaranteed for B. You can’t import the trust, the social norms and values that easily. Institutional development is not something that can be systematized as generations of technocrats have gone out of their way to make us believe. This applies to Bitcoin as well, anyone can replicate infrastructure and even the monetary policy, but culture cannot be replicated, history cannot be replicated, the development fabric and community cannot be replicated.
It’s not just the technology or the scarcity, but also the social endeavor around Bitcoin that makes it valuable.
Learning becomes a collective duty, and the entire social fabric is very receptive to failures. This is very good, for example, the well known risk analyzer (and promoter), Nassim Taleb, says “Failure saves lives. In the airline industry, every time a plane crashes the probability of the next crash is lowered by that. The Titanic saved lives because we’re building bigger and bigger ships. So these people died, but we have effectively improved the safety of the system, and nothing failed in vain.” The number of involved actors in the airline industry, a highly regulated field, makes every mistake closely observed and studied. Each mistake makes the next one more difficult. The institutional nature of Bitcoin has this same property. Bitcoin is highly antifragile.
For those who are not very familiar with the term, Nassim identifies 3 types of complexity items: fragile, robust and antifragile. These are parts of a spectrum of reaction against failures. For example: cloth is in most cases a more fragile type of material in comparison with a quartz. Is clear that if you try to damage both, the cloth is the one that will give you results more quickly, however, with the correct tools no matter how robust it is, if you insist enough, the quartz can be damaged as well.
Fragile systems are the ones that tend to stop working faster under the test of risks. Risks carry failure and the fragiles are the first to fall. On the other hand, robust complexities tend to have a bigger tolerance to risk exposure, but the results of these can only help to maintain the status quo or give a longer resistance to death in comparison to the fragile, but with the same end.
The antifragile is the one that feeds from risks, that gets better after failure. And that’s why the exemplification with the materials could no longer continue. The antifragile needs to be dynamic. And it is only through this dynamism that complexity systems have the option to become something else, to try to survive and spread, to be able to find the most functional balance of power.
I designed this combination of the Ichak Adizes’ life cycle of organizations (with some changes) and the complexity items of Nassim Taleb:
The history of no organization or institution is just a curve, but the model can give us a good understanding of the whole process, and complexity items let us conceive the internal processes. We have to comprehend this life cycle as phenomenological instead of structuralist (theoretical approach that identifies patterns in social arrangements and creates predictions).
When the Roman Republic was expanding, many factors such as the massive incorporation of slaves used by the kleptoman aristocracy affected farmers and merchants, including soldiers and former soldiers. A reform that attempted to resolve this made soldiers more loyal to their generals than to the senate, and within a few decades a general used the loyalty of his soldiers to oppose a magistrate’s resolution. The dictatorship, the pillar, the Institution that kept the Republic standing for centuries, would become so great that it broke the roof, and gave way to the Empire. The antifragile when it stops learning becomes robust, the robust becomes fragile, and the fragile, if it does not return to the antifragile, dies.
And since life is retained in the gods’ keeping, so everything human is finite, we have to ask ourselves a harrowing question: when will Bitcoin die? Many political attack vectors have been analyzed, some more plausible than others, but the one I fear most is the lack of memory, the lack of recognition of the mistakes and successes that have made the network what it is, the lack of values by a generation far from us (or perhaps not so far away).
We live in times of great freedom, more than the political individual has ever enjoyed in human history, but nothing is forever, and control has never been so easy to exercise. It is our responsibility to leave an analytical, informative and cultural legacy that prevents future generations from deviating from what is important and thus Bitcoin can continue to be a tool, an institution, a tangible reminder that dissent is possible and desirable. I hope not decades as Satoshi said, but centuries of progress and antifragility. Will it be possible? history will tell.
Throughout history, we’ve witnessed great projects focused towards eternity. From the Macedonia of Alexander the Great to the Soviet dystopia, but all the buildings and power perish before Cronos who devours their bodies. We don’t remember the great walls Gilgamesh was deeply proud of, but his history that were guarded in small tablets of rock and pieces of paper. In the future this is how silicon will be seen.
I met a traveller from an antique land,
Who said — “Two vast and trunkless legs of stone
Stand in the desert. … Near them, on the sand,
Half sunk a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed;
And on the pedestal, these words appear:
My name is Ozymandias, King of Kings;
Look on my Works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.
The bodies die. Formality always does.
But spirits, ideas, culture, information, have other opportunities. From informality, it is its advantage.
