Iang14. December 2015 Uncategorized

What (more) did Bitcoin achieve – coalescence of the community into a GFN

(part 2 in a series on the impact of the Bitcoin thing. Cheater’s tip – the tl;dr is at the bottom.  Part 1. Part 3.)

An under-appreciated but perhaps even more interesting thing that Satoshi Nakamoto achieved is this: Bitcoin has coalesced the financial cryptography community – and many other communities – around a single concept, a single code base, a single money and a single blockchain.


Just like chess, bitcoin is an international language. #chess #btc

An international language means that there are economies to scale in developers, tools, memes, indeed everything. It’s better if we collaborate on these things rather than fight because of the cross-benefits we earn.

With self-deprecating apology, let me drop a few opposing data points to set the scene:

  • Systems. My own Ricardo can still do more than Bitcoin. It’s faster, more reliable, more end-to-end, safer and it has messaging, identity and file store built in. But it’s not “blockchain” so few people are interested – which is bemusing because in the 1990s it was psuedonymous rather than “blinded” so little respect there. It’s not just me – Chris Odom has had something of a similar experience with his OpenTransactions – interest was polite but light. Since DigiCash announced, 1000s of startups have gotten a lot of people excited in principle over new code bases, but few systems ever got people involved.
  • And, it’s not the open source aspect that does this. I’ve seen open source versus closed source a hundred times and the open source issue isn’t the thing that makes this work – or not. If open source were critical to this endeavour, the Apple Store, the Android Store and the Facebook ecosystem wouldn’t exist.
  • The application isn’t the answer either.  E.g., Namecoin has recently decided to dump their own blockchain and switch to the mainnet blockchain for their names database. We can perhaps accept Namecoin’s capitulation, but there are more terrible misfits. I’ve frequently complained about blockchain as the hammer and your app as a pack of nails. Blam! Blam! Yes we can!
  • Here’s a couple: the market for refugee camps and financial inclusion (or to be more factual, financial exclusion of poor people in Africa). I have direct experience of the latter, indeed I probably have more applicable experience than just about anyone in this narrow niche of emerging payments. I know from having built it and having seen the market place and deployed it and worked with the users and from just about any focussed metric you care to bring up that … blockchain is the wrong tool for the job.
  • But all the technical knowledge doesn’t matter. Bitcoin enthusiasts have spotted they can use blockchain to ‘solve’ the refugee problem, or the poor people problem, or the whichever problem. And they will. Blockchain is their hammer and they will nail the refugees. The enthusiasm will sweep them all up and they’ll create a local wave of energy riding on top of the general tsunami of Bitcoin fervour.

And thus, the naive will succeed to help the unfortunate, or, as it turns out. How well depends on the future and is hard to predict, but taking a leaf from the OneName experience, above, they might succeed well enough to falsely confirm their choice: it works so they are using the right tool.

At which point the wrong tool has become the right tool.

What’s happening here? That which was carefully nurtured IT thought and experience in tool making and 4 year computer science courses and 50 years of journals and 70 years of project experience going back to Fred Brooks and beyond is being thrown out the window. We’ve gone for market driven development. Or worse, FOMO, the fear of missing out:

For banks to go this route, they must learn about the technology, get everyone to the same table, and develop and deploy a standard. The blockchain conveniently solves these problems due to the hype around it. In my view, it’s not the novelty of blockchain technology but rather its mindshare that has gotten Wall Street to converge on it, driven by the fear of missing out. It’s acted as a focal point for standardization.”

Blockchain isn’t the right tool for technical reasons. It’s the right tool because we’re all agreed it is the tool we’re going to use – it’s as if it could achieve a sort of Nash equilibrium between the cypherpunks and the banks.

“To build these private blockchains, banks start with the Bitcoin Core code and rip out all the parts they don’t need. It’s a bit like hammering in a thumb tack, but if a hammer is readily available and no one’s told you that thumb tacks can be pushed in by hand, there’s nothing particularly wrong with it.”

Which then leads me to repeat the question: What’s happening here? This isn’t Metcalfe’s law. This is something beyond that. What we’re looking at is not only the effect of Metcalfe’s law on the narrow transactions or price front (which has seemingly stalled at its current level, probably due to the mining tax) but at a combined effect across different axes. We’re seeing the kick-in of different groups applying the same tool to different problems, where each new application benefits the others.

This is more like Reed’s Law:  Bitcoin has become what Reed called a group forming network (GFN), or a network of networks, where each of the simple nets is orthogonal in purpose, but combining in benefit into a super-net.

“In networks like the Internet, Group Forming Networks (GFNs) are an important additional kind of network capability. A GFN has functionality that directly enables and supports affiliations (such as interest groups, clubs, meetings, communities) among subsets of its customers. Group tools and technologies (also called community tools) such as user-defined mailing lists, chat rooms, discussion groups, buddy lists, team rooms, trading rooms, user groups, market makers, and auction hosts, all have a common theme—they allow small or large groups of network users to coalesce and to organize their communications around a common interest, issue, or goal. Sadly, the traditional telephone and broadcast/cable network frameworks provide no support for groups.”

The wider network or GFN has the capability to grow faster than the square of the number of participants, and Reed calculates it at 2^N. That’s two to the N, not N squared. This is a network that grows very slowly at first, and then kicks in its massive growth much much later.

Someone who might get this is David Rutter:

That is where R3 comes in. Placing an emphasis on working with the market from Day One, we’ve partnered with more than 20 of the top banks in the world, …. These partners recognize that the best approach to bringing shared ledger technology to the broader market is to work together. We believe that the collaborative model is the best way to quickly, efficiently and cost effectively deliver these new technologies to global financial markets.

R3 … began working in earnest with the banks more than a year ago to promote understanding of the opportunity presented by them. The banks understand that the most critical attribute of the successful adoption of distributed ledger technologies is a powerful network effect. The networks we ultimately develop will be appropriate to the group of counterparties they seek to connect.”

What was R3 doing? Ignoring the hype, it seems, and quietly building the network of banks. Now what is it going to do?

“Having established the network of member banks, we will now run the first industry collaborative joint working groups to design and deploy advanced shared ledger technology in the global financial sector…”

If you take the above at face value, it’s going to build the network of financial institution design and deployment groups.

(Disclosure – I’m now working with R3CEV but (a) I wrote this post before starting there, (b) I can say that the experience hasn’t change these thoughts, (c) excepting the quotes above, these thoughts are my own not R3’s official or even unofficial vision.)

It’s not about building capabilities, or products or sales or popularity or channels or the latest whizz-bang homomorphic cryptopie…, it’s about building networks. This is something I’ve been talking to people about for a long time, but in a rather unfocussed way, so I can understand that people didn’t get it. Including myself, it needed months of musing on Reed’s concept of Group Forming Networks to see the big picture.

Which might be why there is such slathering excitement but so little measurable success: Bitcoin fans might be very capable of sensing a GFN, but they are literally hopeless in seeing and explaining what the sense means – hence the common shorthand in the tech world is that either, you get it or you don’t. Meanwhile, the humble engineer is much better at calculating Metcalfe effects than reverse-engineering the hype cycle, so when they do get it, they are rather useless at the task at hand – building the network of networks.

Where this leaves us is an open question – of much debate. It is fairly clear that Satoshi didn’t build a GFN – how could he? He was one or a few guys and gals, and they and a bunch of mates were trading packets and gambling on hashes, and he left the mates to get on with it before the party had really started. But it is fairly clear that in coalescing the small group around a common code base, common protocol and common unit of account, Satoshi laid the foundation for a GFN.

It has taken me some months to accommodate this shift in perspective, so if you have the sort of brain that thinks long before acting slowly, don’t worry. I’m with you. OTOH, if you’re the type that gets it instantly, you should be worried. Maybe you felt you just “get it” but have trouble explaining it. What this means is that you are one of the many who might have an advantage in sniffing GFNs, but typically, just sensing or sniffing has a massively horrible false positive rate. Indeed, empirically you’re 1000s of times more likely to be robbed because there are simply so many scams out there telling you to join this bright new thing.

TL;DR: if you’re looking at dislodging Bitcoin with a bright new idea, then look to Reed’s Law. Building a new blockchain thingie might be the least of your worries — you’re going to have to build a GFN. Good Luck!

(topPart 1. Part 3.)