My first principles thinking about the blockchain industry

Author: CaptainZ, Prompt Engineer Source: X (original Twitter) @hiCaptainZ

Since I read the new version of “The Biography of Musk”, I have begun to try to think about the blockchain industry from first principles, and recently formed my own thinking framework.

1. The blockchain system is a distributed system that achieves decentralization through a multi-center architecture.

2. The centralized system has the highest efficiency, but lacks fairness. Decentralized systems are relatively fair, but less efficient. There is no system that is both efficient and fair; there is a trade-off between the two.

3. Whether to focus more on efficiency or fairness depends on one’s worldview and reality. Practitioners in the blockchain industry pay more attention to fairness, so decentralizing a certain subsystem is considered to be a “correct worldview.”

4. Digital content itself is physically fungible, but the blockchain system realizes the irreplaceability of digital content by adding sequences, which is the essence of realizing the confirmation of digital content rights.

5. The blockchain system is multi-center, and multiple centers are replaceable with each other, so there is no authorization problem. This is the essence of the permissionless nature of the blockchain.

6. Composability is not unique to the blockchain industry. Any Internet industry can provide a certain degree of composability by providing API interfaces. But dAPPs built on the blockchain have a higher degree of composability because they are often open source and run on the same global virtual server.

7. Blockchain blocks record the status of different addresses. It is essentially an accounting system that requires accountants (miners) to run nodes. Bookkeepers need rewards, that’s why cryptocurrencies exist. Without cryptocurrencies, a super-powerful entity would be needed to force or incentivize bookkeepers, which would violate the principle of decentralization.

8. Blockchain technology can be combined with many industries. The two main ways are to issue coins and use smart contracts. The purpose of issuing coins is to map certain rights or functions, and the use of smart contracts is to maintain decentralization and fairness. These projects achieve a certain level of decentralization at the expense of some efficiency.

9. There is a problem with the definition of “Web3”. The blockchain system is not an upgraded version of the Internet, but a complementary system. The Internet is a centralized system, while the blockchain is a decentralized system. Most people focus more on efficiency. According to the “80/20 rule”, 80% of people choose to use the Internet, while 20% of people pay more attention to fairness. They look forward to finding “resonance with the world view” in the blockchain system.

10. Current blockchain projects are mainly about how to use cryptocurrencies and smart contracts. These projects can be integrated with different industries by issuing coins or using smart contracts.

11. According to the development history of the blockchain industry, the industry usually starts by issuing tokens to map equity, and then moves to the use of smart contracts. The currency issuance stage may be accompanied by the emergence of the Ponzi model.

12. The blockchain system is an inefficient and fair distribution system, and TPS has physical limitations. Therefore, it will not completely replace the centralized system, but can serve as a useful complement to it and meet the needs of those who are more focused on fairness. This conclusion is derived based on first principles of real physics.