CaptainZ

CaptainZ

Prompt Engineer. Focusing on AI, ZKP and Onchain Game. 每周一篇严肃/深度长文。专注于AI，零知识证明，全链游戏，还有心理学。
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My first principles thinking on the blockchain industry

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The author has been using first principles thinking to analyze the blockchain industry after reading a book about Elon Musk. They have developed their own framework, which includes the concepts of decentralization, fairness, and trade-offs between efficiency and fairness. They believe that blockchain systems provide non-fungible digital content and permissionless and highly composable dApps. The author also discusses the importance of cryptocurrencies as incentives for miners and the combination of blockchain technology with different industries through tokenization and smart contracts. They argue that the blockchain industry is still in the early stages and typically starts with tokenization before transitioning to the use of smart contracts. The author acknowledges the limitations of blockchain systems in terms of efficiency and scalability but believes they can complement centralized systems to satisfy the worldview of a minority. They conclude that their framework may be subject to change as they continue to learn and evolve.

Ever since I watched the new version of "The Musk Biography," I have started trying to think about the blockchain industry using first principles and have finally developed my own framework of thinking recently.

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

  2. Centralized systems are the most efficient but lack fairness. Decentralized systems are relatively fair but less efficient. There is no system that can have both high efficiency and good fairness, so there needs to be a tradeoff.

  3. Whether to prioritize efficiency or fairness depends on a person's worldview and reality. People in the blockchain industry prioritize fairness from a worldview perspective, so achieving decentralization of a subsystem is a "worldview correctness" (I prefer not to use the term "politically correct").

  4. Digital content itself is fungible in physical terms, but blockchain systems achieve non-fungibility of digital content through the addition of sequences. This is the essence of establishing digital content ownership.

  5. Blockchain systems are multi-centered, and multiple centers are fungible with each other, so there is no authorization issue. This is the essence of blockchain's permissionless nature.

  6. Composability is not unique to the blockchain industry; any internet industry can provide a certain degree of composability through API interfaces. However, dApps built on the blockchain have a higher degree of composability due to two reasons: first, dApps are almost all open-source, and second, a blockchain is similar to a global virtual server, with all dApps using the same blockchain system running on the same server. In contrast, apps on the regular internet run on different servers, so apps running on the same "virtual server" naturally have higher composability.

  7. The blocks in a blockchain record the states of different addresses, which is essentially an accounting system. Since accounting requires accountants (miners), machines are needed to perform the accounting, and machines require real funds to purchase and maintain, which incurs costs. Therefore, the blockchain system needs a "accounting voucher (cryptocurrency)" to reward the accountants and give it value. This is why cryptocurrencies must exist. Without an "accounting voucher (cryptocurrency)," there would inevitably be an entity with superpowers to force or incentivize the accountants, which would result in the loss of decentralization advantages and violate the "worldview correctness" of the blockchain industry.

  8. Blockchain technology can be combined with many specific industries, resulting in two types of combinations: first, issuing coins, and second, using smart contracts to write industry rules into smart contracts stored in the blockchain virtual server. The purpose of issuing coins is to map certain rights (such as equity rights) or functions (such as ticketing functions) of the industry to the coins. The purpose of using smart contracts is to avoid excessive centralization in the industry and achieve a fairer "worldview correctness." However, due to the permissionless and composability nature of blockchain system dApps, the industry also achieves permissionless and composability. In other words, by sacrificing a certain degree of efficiency, a certain "decentralization" can be achieved, resulting in higher fairness, permissionlessness, and composability.

  9. I don't like the term "Web3" because its definition is very forced and self-brainwashing. In reality, the blockchain system is not an upgraded version of the internet; it is just a complementary system that emerged alongside the internet: the internet is a typical centralized system, while the blockchain is a typical decentralized system. Based on current understanding, there are more people in this world who prioritize efficiency. According to the "Pareto principle," we can say that 80% of people in this world choose to use the internet to achieve high efficiency, while the remaining 20% prioritize fairness and expect to find "worldview resonance" in the blockchain system.

  10. Currently, all projects in the blockchain industry are only doing two things: using coins and using smart contracts. In other words, how to better use coins and smart contracts. For example, creating a new chain (L1 or L2) aims to use coins and smart contracts more affordably and quickly. Centralized exchanges facilitate the liquidity of coins by providing a trading venue, while DEXs write the trading rules into smart contracts on the blockchain virtual machine. GameFi projects that only focus on asset tokenization map game assets to coins, and if it's a full-chain game, they write the game rules into smart contracts on the blockchain virtual machine. SocialFi projects that only focus on asset tokenization map certain social assets to coins, and if it's an on-chain social platform, they write the social rules into smart contracts on the blockchain virtual machine.

  11. Based on the current development history of the blockchain industry, the combination of an industry with blockchain technology usually starts with mapping rights through coin issuance, often accompanied by a spiral rise and rapid decline of Ponzi schemes. Then, it transitions to using smart contracts on the blockchain virtual machine to achieve decentralization and meet the industry's "worldview correctness." Currently, there hasn't been an industry that can directly skip the coin issuance phase and transition directly to the smart contract phase.

  12. The blockchain system is an inefficient and fair distributed system, with TPS having strong physical limitations. Therefore, this system will never replace centralized systems. For example, DeFi can never replace traditional centralized finance, stablecoins can never replace fiat currencies, Web3 games can never replace traditional centralized games, and decentralized social platforms can never replace centralized social platforms like Twitter and Facebook. However, they can serve as beneficial supplements to centralized systems to meet the "worldview correctness" of the remaining 20% of people. This conclusion is derived from the first principles of real physics.

The above framework of thinking may be incorrect, and I will modify it as needed.

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