“Social scalability is the ability of an institution […] to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate” — Nick Szabo
Technical scalability has been the focus of the first era of the Internet; unfortunately, more and more trust was delegated to centralised institutions in exchange for performance and efficient, technical scaling. Its approach reflected a rush to connect millions of users without a proper focus on how to do so successfully.
As the technical systems of the Internet grew bigger and bigger, we now see the limits of this centralised model where trust & decision power is polarised in the hands of few Internet aggregators, that we trust to do the right thing for us. These limits, and the risks they imply, are what call for a step towards an Internet that optimises for social scalability first, enabling more humans and more machines to achieve beyond our inherent shortcomings.
Then in 2009 came Satoshi’s breakthrough discovery, we finally found a way to build digital systems that optimise for social scalability: trust minimising public blockchains powered by cryptocurrencies (“crypto”). And after almost 10 years since Bitcoin’s inception, there are no doubts that a decentralised, socially scalable Internet will have to be built on top of crypto.
This is why people and projects that aim to significantly improve the current social scalability of crypto are the ones that we, as Turing Capital, find the most interesting and most likely to generate alpha in the long term.
Advancing crypto’s social scalability ultimately boils down to 3 interlinked challenges:
- Improved blockchain architecture: Exploring the trade-offs betweensecurity and performance.
- Adoption of cryptocurrency: Creating a new programmatic language of value.
- Effective governance: Expanding crypto-economic consensus.
1. Improved blockchain architecture
Exploring the trade-offs betweensecurity and performance.
Improving the existing crypto infrastructure is the first necessary step towards the promise of a global decentralised Internet.
Scaling crypto today is about enabling the optimal trade-off between security and performance for a specific use case: high stake TXs will want to settle for the highest security possible, the opposite being true for a low value, low stake TX that might settle on a Layer 2 scaling solution such as Lightning Network, Raiden etc. New Blockchain models are also being developed but their fate rests on their ability to deliver a true Pareto improvement over the existing trade-off curve of security vs. performance.
Core themes (and some examples):
- New blockchain models (Kadena, Hashgraph)
- Layer 1 scaling solutions (Plasma)
- Layer 2 scaling solutions (Lightning Network, Truebit, Raiden)
- Interchain operability systems (Cosmos, Polkadot, ICON)
2. Adoption of cryptocurrency
Creating a new programmatic language of value.
The decentralized Internet institution will need its own language of value, its own form of money, a tool for both humans and machines to organize each other efficiently and reach common goals. In a global, public blockchain that tool is necessarily a cryptocurrency.
Smart contracts are what programmatically improves a cryptocurrency’s ability to be useful by minimising trust required to perform complex operations.
Core themes (and some examples):
- Sovereign digital identity (Blockstack, Urbit)
- Making current blockchains (Bitcoin / Ethereum) more expressive (RSK, zeppelinOS)
- Cryptoassets and security tokens (Polymath)
- Crypto primitives (Set Protocol, Stablecoins, TCRs, Curved Bonded Tokens)
- Digital scarcity (NFT)
- Data ownership (Filecoin)
3. Effective governance
Expanding crypto-economic consensus.
Targeted implementations of crypto-economic consensus (i.e. Bitcoin PoW Miner consensus) have delivered strong resilience and smaller attack surfaces in specific environment but, in the long run, hard forks and community disagreements threaten governance risks that could endanger even the most established crypto communities. This is a strong case for continuing to experiment with crypto-economic consensus: whether there are ways to expand its reach, ensure better long-term sustainability and ultimately create effective governance.
In political science there is “voice” vs. “exit”, where “voice” is changing a system from within, and “exit” is leaving the system to create a new one. In the crypto space “exit” works (hard-forks) but “voice” is fragile. Working on crypto-governance today is about ensuring that both “voice” and “exit” are effective mechanisms of change. Practically effective models of crypto-governance will grow organically from trial and error, a case for empirical and not normative governance.
Core Themes (and some examples):
- Native blockchain governance (Tezos, Dfinity)
- Modular governance (Aragon, Colony, Democracy Earth)
- Off-chain signalling (Future markets during SegWit2x)