On the Origin of Blockchains: Part I

James Brodie
Jun 13 · 8 min read

Evolution, Ecology and Blockchains

This is the first in a series of thought pieces that, through the lens of biology, identifies cryptoassets and blockchain networks that are most likely to succeed within the new niches that have arisen from decentralisation.

You can find out more about the background to this thought piece, the way it has informed the ID Theory investment thesis and links to the other articles in the series embedded throughout the introduction to ‘On the Origin of Blockchains’.

To begin, it’s worth stating an important proposition that underpins this series which relates to the theory of evolution:

If the output of running open source blockchain software is the formation of a network and that these networks are adaptable to challenges then the “fittest” will go on to survive and colonise a niche.

This proposition begins with the understanding that open source software is less constrained, evolves faster and can better address markets than closed source software.

Public blockchain software, which is open source, evolves through a process of forking, which occurs in response to a challenge. This is analogous to mutation, where various blockchain elements or “genes” are adjusted and then either promoted or discarded in order to alter the underlying “DNA” of the network and potentially increase its fitness.

Decentralisation plays an important role because it is able to expand a fundamental niche.

Niche
/niːʃ,nɪtʃ/
noun — a function or position of a species within an ecological community. A niche describes how an organism or population responds to the distribution of resources and competitors and how it in turn alters those same factors.

Blockchain networks, which have mutated through forking to have different “DNA”, compete to realise these niches. However, trade-offs in scalability or security are required, with different blockchains suited to different use cases.

For example, money is a niche within the financial ecosystem, which various blockchain networks are competing to fill.

Evolution in Software Development

The gap between biological evolution and artificial systems evolution is enormous but the former may inform the latter through natural selection and survival of the fittest.

Software evolution is the process by which programs change shape, adapt to the marketplace and inherit characteristics from pre-existing programs. It has become a subject of serious academic study in recent years¹.

While the average PC microchip performance has increased a hundredfold in recent decades, software’s inability to scale at even linear rates is widely recognised:

However, it has been shown that open source programs (e.g. Linux) grow at geometric rates², breaking the inverse squared barrier constraining most traditionally built computer programs. In other words, open source software is less constrained, evolves faster and can better address markets.

Blockchain development may be predictable when approached from a systems level.

Evolutionary Pressures in Software Development

Before the advent of Bitcoin, there were instances of other peer-2-peer networks whose architecture had evolved in order to stay alive e.g. file sharing:

The software evolved in the face of regulatory and legal challenge. It became more decentralised and better able to survive, evolving into the most recent architecture, BitTorrent.

In the way that BitTorrent had disrupted the music industry, Bitcoin has the potential to disrupt the finance industry. Software adapts in response to challenges the more a decentralised network evolves, the more resilient to challenges it is; survival of the fittest.

Blockchains and their Protocols

Blockchain technology results in highly coordinated, global, decentralised networks:

Blockchain technology is merely software. To become a participant in the network created by a protocol, one need only run a piece of software.

Blockchain technology is open source software meaning that anyone, anywhere, can run the software and join the network without restriction and without permission.

The essence of each blockchain is “encoded” within it’s protocol — a living codebase that defines the rule of the network — this can be though of as its DNA.

Within the protocol are discrete elements, that can be mixed, modified and replaced. These are responsible for the “fitness” of the resultant network — in other words, genes.

Blockchain software can be thought of as having “genes”, elements that can be swapped and mutated.

The Mechanism by which Software Evolves: Forking

In software engineering, a project fork happens when developers take a copy of source code from one software package and start independent development on that code.

The fork creates a distinct and separate piece of software that is developed independently and in parallel to the original code base.

As open source software, blockchain projects are experimental playgrounds; their “DNA” can be altered by anyone. These mutations can have an effect on competing protocols and the niches they operate within:

  • If a protocol is better than its predecessor it will take over its niche.
  • A protocol can be adapted in some way to colonise a new niche.

This represents a natural selection mechanism that drives evolutionary change.

Critically, forking is analogous to mutation; altering the DNA of the networks and potentially increasing fitness. Using the same analogy, genes (blockchain elements) that evolve through mutation (forking) are selected through “fitness”. In this sense, Darwinian mechanics can be used to scope out the “evolution” of decentralised networks in the blockchain space.

There are several important factors to consider for a gene’s fitness: the extent to which its corresponding network is decentralised and its ability to go on to colonise a niche by exploiting environmental resources (e.g. network participant contribution), and surviving in the face of environmental challenge (e.g. regulatory actions).

Niches for Networks: It’s All About Decentralisation

The reason why decentralisation is so important in defining the viability and success of peer-2-peer networks is because it fundamentally alters the properties of the niche within which the technology exists.

We live in a world where trust has been abused at a corporate, governmental and institutional level. Blockchain technologies bring hope. Their networks have properties differentiating them from their centralised counterparts and they benefit from architectural and political decentralisation:

Decentralisation is important as it answers to the failings, abuses of trust and expense of centralised institutions and middlemen. Understanding how it can enhance the characteristics of existing niches is critical in identifying where the opportunities lie.

The most value will be created in ecosystems that benefit from decentralisation the most. These ecosystems are those that require trustlessness, censorship resistance, permissionless interactions, security and transparency.

However, decentralisation comes at a cost, and the benefits must outweigh those costs. This is especially true with regards to the end user — it doesn’t make sense to strap a blockchain onto everything.

For example, decentralised networks are much harder to coordinate than their centralised counterparts — they may lack focus and result in the duplication of work. While decentralisation provides a critical response to abuses of centralised power, its benefit must outweigh its cost, which is ultimately shouldered by the end user.

The Blockchain Trilemma

The blockchain trilemma is a term coined by Ethereum founder Vitalik Buterin², which posits that blockchains can only achieve two out of three particular traits at any one time. Decentralised networks can either be secure, or they can be scalable, but not both simultaneously. There are always trade-offs to be made:

It is important to understand where trade-offs can be made across these qualities, which is heavily dependent upon use cases.

Is the priority for a network decentralisation, security or scalability? This will inform which protocol has the fittest set of “genes” to address the needs of its potential network.

Thus, when evaluating a blockchain solution for a particular use case, one must consider which of these traits are most important — which protocols have the “best” DNA to solve the problem.

  • A store of value: Can forfeit scalability as it is more important to be secure and censorship resistant.
  • A gaming platform: Requires a high transaction throughput but doesn’t rely on being censorship resistance.

In other words, different blockchains for different use cases.

Niches 101

A niche is a function or position of a species within an ecological community; It includes the physical environment to which it has become adapted and its role as producer and consumer of resources.

Populations and species compete within a fundamental niche, realising a certain proportion of it.

A fundamental niche is expandable; for example, decentralisation can endow a niche with new attributes that were previously not possible.

Money is an example of a niche within the financial ecosystem, but there are other niches that can be expanded by decentralisation within this ecosystem. Additionally, there are niches within other ecosystems that can be expanded by decentralisation.

Fundamental niches are expanded by properties bestowed by decentralisation.

This is similar to how personal computers and cellular technologies opened up their respective fundamental niches.

Money is a Niche Within the Financial Ecosystem

Different “species” will compete to fill that niche. Those projects with the best attributes to fill that niche will survive and prosper.

By definition, decentralised networks are most suited to exploiting these new fundamental niches.

Continuing ‘On the Origins of Blockchains’

In the second thought piece in this series, ‘From Protocols to Network Participants’, I will look at the various elements or genes that make up a blockchain network’s DNA and how these are used by participants in a ‘trustless’ manner.


References:

[1] https://www.salon.com/2002/04/08/lehman_2/

[2] W. Godfrey, Michael & Tu, Qiang. (2000). Evolution in Open Source Software: A Case Study. Proceedings of the International Conference on Software Maintenance (ICSM 2000). 131–142.

[3] https://github.com/ethereum/cbc-casper/wiki/FAQ#what-is-the-tradeoff-triangle


ID Theory may hold positions in some of the assets discussed in this post. This post is strictly for informational and educational purposes only and does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or cryptoassets discussed herein. Always perform your own research and conduct independent due diligence prior to making any investment decisions.

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ID Theory

ID Theory is a a London-based long-term cryptoasset investment firm.

James Brodie

Written by

Chief Investment Officer at ID Theory

ID Theory

ID Theory

ID Theory is a a London-based long-term cryptoasset investment firm.