Technometria

By Phil Windley

Decentralized Systems Don't Care; Technometria - Issue #57

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Technometria
Decentralized Systems Don't Care; Technometria - Issue #57
By Phil Windley • Issue #57 • View online
I like to remind my students that decentralized systems don’t care what they (or anyone else thinks). The paradox is that they care very much what everyone thinks. We call that coherence and it’s what makes decentralized systems maddeningly frustrating to understand, architect, and maintain. 

I love getting Azeem Azhar’s Exponential View each week. There’s always a few things that catch my eye. Recently, he linked to a working paper from Alberto F. Alesina, el. al. called Persistence Through Revolutions (PDF). The paper looks at the fate of the children and grandchildren of landed elite who were systematically persecuted during the cultural revolution (1966 to 1976) in an effort to eradicate wealth and educational inequality. The paper found that the grandchildren of these elite have recovered around two-thirds of the pre-cultural revolution status that their grandparents had. From the paper:
[T]hree decades after the introduction of economic reforms in the 1980s, the descendants of the former elite earn a 16–17% higher annual income than those of the former non-elite, such as poor peasants. Individuals whose grandparents belonged to the pre-revolution elite systematically bounced back, despite the cards being stacked against them and their parents. They could not inherit land and other assets from their grandparents, their parents could not attend secondary school or university due to the Cultural Revolution, their parents were unwilling to express previously stigmatized pro-market attitudes in surveys, and they reside in counties that have become more equal and more hostile toward inequality today. One channel we emphasize is the transmission of values across generations. The grandchildren of former landlords are more likely to express pro-market and individualistic values, such as approving of competition as an economic driving force, and willing to exert more effort at work and investing in higher education. In fact, the vertical transmission of values and attitudes — “informal human capital” — is extremely resilient: even stigmatizing public expression of values may not be sufficient, since the transmission in the private environment could occur regardless.
There are certainly plenty of interesting societal implications to these findings, but I love what it tells us about the interplay between institutions, even very powerful ones, and more decentralized systems like networks and tribes[1]. The families are functioning as tribes, but there’s like a larger social network in play as well made from connections, relatives, and friends. The decentralized social structure or tribes and networks proved resilient even in the face of some of the most coercive and overbearing actions that a seemingly all-powerful state could take.
In a more IT-related story, I also recently read this article, Despite ban, Bitcoin mining continues in China. The article stated:
Last September, China seemed to finally be serious about banning cryptocurrencies, leading miners to flee the country for Kazakhstan. Just eight months later, though, things might be changing again.
Research from the University of Cambridge’s Judge Business School shows that China is second only to the U.S. in Bitcoin mining. In December 2021, the most recent figures available, China was responsible for 21% of the Bitcoin mined globally (compared to just under 38% in the U.S.). Kazakhstan came in third.
When China instituted the crackdown, some of my Twitter friends, who are less than enthusiastic about crypto, reacted with glee, believing this would really hurt Bitcoin. My reaction was “Bitcoin doesn’t care what you think. Bitcoin doesn’t care if you hate it.”
What matters is not what actions institutions take against Bitcoin[2] (or any other decentralized system), but whether or not Bitcoin can maintain coherence in the face of these actions. Social systems that are enduring, scalable, and generative require coherence among participants. Coherence allows us to manage complexity. Coherence is necessary for any group of people to cooperate. The coherence necessary to create the Internet came in part from standards, but more from the actions of people who created organizations, established those standards, ran services, and set up exchange points.
Bitcoin’s coherence stems from several things including belief in the need for a currency not under institutional control, monetary rewards from mining, investment, and use cases. The resilience of Chinese miners, for example, likely rests mostly on the monetary reward. The sheer number of people involved in Bitcoin gives it staying power. They aren’t organized by an institution, they’re organized around the ledger and how it operates. Bitcoin core developers, mining consortiums, and BTC holders are powerful forces that balance the governance of the network. The soft and hard forks that have happened over the years represent an inefficient, but effective governance reflecting the core believes of these powerful groups.
So, what should we make of the recent crypto sell-off? I think price is a reasonable proxy for the coherence of participants in the social system that Bitcoin represents. As I said, people buy, hold, use, and sell Bitcoin for many different reasons. Price lets us condense all those reasons down to just one number. I’ve long maintained that stable decentralized systems need a way to transfer value from the edge to the center. For the internet, that system was telcos. For Bitcoin, it’s the coin itself. The economic strength of a decentralized system (whether the internet of Bitcoin) is a good measure of how well it’s fairing.
Comparing Bitcoin’s current situation to Ethereum’s is instructive. If you look around, it’s hard to find concrete reasons for Bitcoin’s price doldrums other than the general miasma that is affecting all assets (especially risk assets) because of fears about recession and inflation. Ethereum is different. Certainly, there’s a set of investors who are selling for the same reasons they’re selling BTC. But Ethereum is also undergoing a dramatic transition, called “the merge”, that will move the underlying ledger from proof-of-work to proof-of-stake. These kinds of large scale transitions have a big impact on a decentralized system’s coherence since there will inevitably be people very excited about it and some who are opposed—winners and losers, if you will.
Is the design of Bitcoin sufficient for it to survive in the long term? I don’t know. Stable decentralized systems are hard to get right. I think we got lucky with the internet. And even the internet is showing weakness against the long-term efforts of institutional forces to shape it in their image. Like the difficulty of killing off decentralized social networks, decentralized technology systems can withstand a lot of abuse and still function. Bitcoin, Ethereum, and a few other blockchains have proven that they can last for more than a decade despite challenges, changing expectations, and dramatic architectural transitions. I love the experimentation in decentralized system design that they represent. These systems won’t die because you (or various governments) don’t like them. The paradox is that they don’t care what you think, even as they depend heavily on what everyone thinks.
End Notes
  1. To explore this categorization further, see this John Robb commentary on David Ronfeldt’s Rand Corporation paper “Tribes, Institutions, Markets, Networks” (PDF).
  2. For simplicity, I’m just going to talk about Bitcoin, but my comments largely apply to any decentralized system
That’s all for this week. Thanks for reading.
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Phil Windley

I build things; I write code; I void warranties

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