Why is Blockchain so difficult to explain?
There seems to be no doubt that Blockchain has a special moment in interest. Many scenarios are proposed that seem to be good options to build on Blockchain — many of them are probably very difficult to carry out -, although I find it difficult to explain — and understand — what Blockchain is.
It strikes me because technically it is not especially complex. It relies on fairly widespread technologies such as cryptography and P2P networks. Also, as usual, it is not necessary to understand them in depth to understand the system. Artificial Intelligence, for example, is vastly more technically complex, but it is easily understood.
the two key elements that it is fundamental to transfer to a new Blockchain are the network effect and game theory
Dan Tapscott makes a very good introduction to Blockchain in TED, which is a kind of prologue to his book. Aside from a glorious comparison of the financial services industry with Rube Goldberg’s machines, it focuses on the benefits of not relying trust on a third party and a series of scenarios to achieve a more prosperous world. Even so, I think there is a moment in which explains the figure of the miner (the participants of the system), the proof of work, cryptography, blocks and their links, in which it is normal not to assimilate it and have more doubts than before.
I think the root of this difficulty in understanding Blockchain is not technological. The complexity originates in the system design. And it is the same cause that often leads us to raise new scenarios based on Blockchain that are not viable. It is easy to underestimate how well-designed Bitcoin is. And Bitcoin is, after all, Blockchain’s model system. In the design of Bitcoin, there are two key elements that it is fundamental to transfer to the new system on Blockchain. These two elements are the network effect and game theory.
In the network effect, the critical mass is fundamental. A minimum number of participants is necessary for the system to make sense. And the greater the number of participants the greater the benefit for the system and for the participants themselves. For example, Bitcoin’s immutability is achieved thanks to the network effect. Thanks to a large number of participants in the system. This implies that it is difficult to design a scenario on Blockchain in which there are few participants.
Without intending to simplify the game theory, which until now has given to the Nobel Prizes of economy of 1994, 2005 and 2012. In the case of Bitcoin serves to design how the participants contribute to the system and what is the benefit that they obtain. It is achieved that the participants of the system have more benefit working in favor of the system than against them. In my opinion, it’s the most complex part in a new scenario about Blockchain. The proof of work used in bitcoin is inefficient in other scenarios, and the proof of stake is more complex to design. Without forgetting that the incentives in scenarios away from the cryptocurrencies are not obvious.
In short, Blockchain is intended to design a system with participants who do not trust each other, but who rely on the system itself. For this design, it is essential to pay special attention to these two elements of design: network effect and game theory.
(en español aquí)
