On the Origin of Blockchains: Part II

James Brodie
Jun 13 · 6 min read

From Protocols to Network Participants

The first part of the ‘On the Origin of Blockchains’ series explained how open source software develops, resulting in decentralised networks that are more resilient and that can expand niches within a range of ecosystems. These niches are then competed within and dominated by blockchain networks, which succeed based on the blockchain elements or “genes” that they are made up of.

In this second instalment, I will delve further into the topic of blockchain genes, including how different types are suited to different use cases, and how participants or “cells” recognise these genes and interact on this basis.

The flow of this second thought piece can be summed up in the following statement:

Blockchain protocols are analogous to DNA, encoding aspects and functions of a network participant. All participants emerge from the same DNA, and so all are playing by the same rules within a network.

By running a protocol, an individual becomes a participant in a network. This network participant is bound by the rules defined within the protocol’s genes, which we are calling blockchain elements.

These blockchain elements, or genes, can be mixed and matched. Different genes are more or less optimal for different use cases. The protocol with the best genes is most likely to be adopted by more users; a process of natural selection.

The Central Dogma of Molecular Biology

In biology, the central dogma was first proposed in 1958 by Francis Crick¹, the discoverer of the structure of DNA. It describes a two-step process by which the DNA in an organism is transcribed into a length of mRNA which is, in turn, translated into a protein, explaining the flow of genetic information within a biological system. We see an analogous process occurring when an individual decides to run a piece of software that allows them to participate in an open source decentralised network such as bitcoin:

Blockchain elements

In this analogy, proteins, which are encoded by genes, are replaced with “blockchain elements”. In effect, these are the “genes” of the protocol and they encode characteristics of a network participant and therefore the behaviour of a decentralised network:

Distributed Ledger:

  • History of all transactions
  • Immutable
  • Replicated throughout the network

Cryptographic Rules:

  • Integrity of the ledger
  • Authenticity of transactions
  • Identity of network counterparties

Consensus Mechanisms:

  • Decentralised coordination
  • Shared control tolerating disruption
  • Transactions validated

Business / Use-case Logic:

  • Transactions
  • Logic embedded within the ledger
  • i.e. cryptocurrencies to smart contracts

Incentive Mechanisms:

  • Align network stakeholders’ behaviour
  • Encourage network participation
  • Increase network growth

Classes of “Genes”

Individual blockchain elements define the rules that a network (formed by individual network participants) operates by, with different use cases having different requirements. As in biology, these genes can be divided into two major classes.

Most elements are responsible for defining the behaviour of the network participants, but the incentive mechanisms are responsible for driving the growth of the network.

Constitutive Blockchain Elements

These are effectively “housekeeping genes”. They are required for the maintenance of basic network function, ensuring all participants play by the same rules. Depending on the elements present, a species (or decentralised network) may be better adapted for a particular fundamental niche (a concept that was introduced in Part I).

Different blockchain elements for different use cases

Blockchain elements can be mixed and matched depending on use case. For example:

1. Different consensus mechanisms: When a network would like to make stakeholders out of those participants that take assets to secure the network, it may be Proof of Stake (PoS) instead of Proof of Work (PoW).

2. Different distributed ledgers: If very high transaction capacity is required, the network may be designed to manage its participants transactions in the form of a directed acyclic graph (DAG) instead of a blockchain.

3. Different cryptographic rules: A network may want to implement an alternative security model compared to a competitor and so opt for an alternative mining algorithm. For example, Litecoin is mined through Scrypt, whereas Bitcoin is mined through SHA-256.

Creating a Network of Participants

The invention of blockchain means that any two individuals anywhere in the world can interact and transact within these decentralised networks, without needing to trust each other.

Also, there is no requirement for third parties to validate the identities or claims of these individuals. Trust is implicit in the network.

In other words, each network participant is able to interact with any other participant within the network and trust them inherently. This is similar to antigen structures in the biological world; each network participant implicitly signals to other network participants that they are of the same species.

Antigen
/ˈantɪdʒ(ə)n/
noun — a structural molecule that is specifically bound by cell surface antibodies helping an organism recognise something as native or foreign to itself.

All participants within the network are continuously communicating with each other on the state of the network. They coordinate their behaviours for mutual benefit and to monitor the network for attacks.

At any time, the whole network is aware of its own state, which draws parallels to quorum sensing in bacterial communities.

Quorum Sensing
/ˈkwɔːrəm /sɛnsɪŋ /
verb — a process of cell–cell communication that allows bacteria to share information about cell density and adjust gene expression accordingly.

The Analogy with Nature

Similarly to how a species emerges from DNA, a decentralised network emerges from a protocol. The protocol is responsible for the formation of a coordinated decentralised network:

Continuing ‘On the Origins of Blockchains’

In part one of this series, I explained the properties of a niche (especially those enabled by decentralisation) in order to predict new fundamental niches of great value. In this piece, I have described the central dogma in order to make clear the comparison between molecular biology and blockchain evolution.

In effect, I am looking at cells under a microscope and understanding their constitutive elements, and then postulating as to which constitutive blockchain elements are best suited to realise a specific niche. This approach is at the heart of the ID Theory investment thesis.

In the next piece, I’ll explore the area of incentive mechanisms and the significant role they play in the growth and success of a network.


References:

[1] Central Dogma of Molecular Biology, Crick, F., Nature 227, 561–563 (1970)


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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.