My First Principles Thinking on the Blockchain Industry

First Principles Thinking for Blockchain Industry

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

Since I read the new version of “Musk Biography”, I have been trying to think about the blockchain industry using 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. Centralized systems have the highest efficiency but lack fairness. Decentralized systems are relatively fair but less efficient. There is no system that is both efficient and fair, and a balance needs to be struck between the two.

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3. Whether to focus more on efficiency or fairness depends on individuals’ worldviews and real-life situations. Practitioners in the blockchain industry prioritize fairness, so achieving decentralization of a subsystem is considered “the correct worldview”.

4. Digital content itself is physically replaceable, but blockchain systems achieve the non-fungibility of digital content by adding sequences. This is the essence of establishing the ownership of digital content.

5. Blockchain systems are multi-center, and multiple centers are interchangeable, so there is no authorization issue. This is the essence of the permissionless feature of blockchain.

6. Composability is not unique to the blockchain industry. Any internet industry can provide a certain degree of composability by offering API interfaces. However, dApps built on blockchain have a higher degree of composability because they are usually open-source and run on the same global virtual server.

7. The blockchain’s block records the states of different addresses, which is essentially an accounting system that requires bookkeepers (miners) to run nodes. Bookkeepers need rewards, which is the reason for the existence of cryptocurrencies. Without cryptocurrencies, a superpower entity with excessive power would be needed to enforce or incentivize bookkeepers, which would violate the principle of decentralization.

8. Blockchain technology can be combined with many industries, primarily through issuing coins and using smart contracts. Issuing coins is to map certain rights or functionalities, while using smart contracts is to maintain decentralization and fairness. These projects achieve a certain degree of decentralization at the cost of sacrificing some efficiency.

9. The definition of “Web3” is problematic. The blockchain system is not an upgraded version of the internet but a complementary system. The internet is a centralized system, while blockchain is a decentralized system. Most people prioritize efficiency. According to the “Pareto principle,” 80% of people choose to use the internet, while 20% of people prioritize fairness and expect to find “resonance of worldviews” in the blockchain system.

10. Current blockchain projects mainly focus on how to use cryptocurrencies and smart contracts. These projects can be combined with different industries through issuing coins or using smart contracts.

11. According to the development history of the blockchain industry, the industry usually starts with mapping rights through issuing coins and then moves on to using smart contracts. The coin issuing phase may be accompanied by the emergence of Ponzi schemes.

12. The blockchain system is an inefficient and fair distributed system with a physical limitation on TPS. Therefore, it will not completely replace centralized systems but can serve as a beneficial supplement to meet the needs of those who prioritize fairness. This conclusion is derived from the first principles of real physics.

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