Social scalability is a fascinating concept articulated by Nick Szabo, the BitGold creator and smart contract pioneer, in his blog post “Money, Blockchain, and Social Scalability” as part of his larger Unenumerated blog. The purpose of his essay is to elucidate how previous iterations of society have relied on evolved individual interactions of human beings that have led to foundational institutions and broader market development from which society as a whole can further scale without actually having to understand the underlying mechanics of established markets or precise knowledge used to build these paradigms. Specifically, how this concept relates to modern technology, money, blockchains, and the future of socially scalable systems.
It is best summarized in a quote by Friedrich Hayek:
“We make constant use of formulas, symbols, and rules whose meaning we do not understand and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess. We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up.”
Background on Social Scalability
Written in early 2017, Szabo elaborates on the specific shortcomings of a public blockchain, specifically Bitcoin, as essentially a computationally and technically inefficient, resource intensive shared database that does not scale well from a technical perspective. However, the brilliant trade-off of such a system is that Bitcoin intentionally buys something even more valuable with the aforementioned inefficiencies, social scalability, the key killer application of Bitcoin and public blockchains.
As defined by Szabo:
“Social scalability is the ability of an institution –- a relationship or shared endeavor, in which multiple people repeatedly participate, and featuring customs, rules, or other features which constrain or motivate participants’ behaviors — 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. Social scalability is about the ways and extents to which participants can think about and respond to institutions and fellow participants as the variety and numbers of participants in those institutions or relationships grow. It’s about human limitations, not about technological limitations or physical resource constraints.”
When applied to cryptocurrencies, particularly public blockchain cryptocurrencies such as Bitcoin and Ethereum, the concept of social scalability is highly relevant to their primary feature of existing as global, decentralized networks of value exchange. Without such systems, humans are relegated to implicitly trusting third parties or centralized institutions in interactions ranging from finance to more contemporary issues of data security and integrity.
The essential component of public blockchains is trust minimization, with which, people are free to interact with each other through interconnected mediums afforded by the Internet, where all participants can beneficially participate in the institution while the institution simultaneously protects both participants and the institution itself from harm. Social scalability enables cognitive limitations of humans to be overcome as part of a larger system of incentivized participants acting within the confines of a predefined, yet mutually beneficial network.
The rise of technology has impactful consequences on social scalability moving forward, but the concept itself is best understood first by diving into more empirical permutations of its existence.
Socially Scalable Markets
Markets directly benefit participants by allowing them to interact with each other through the exchanges of goods and services. Money and information accentuate this dynamic by facilitating matchmaking, scalable performance, and quality information flow through providing a solution to the coincidence of wants situation, by creating a mutually accepted and reusable medium of value exchange.
The dynamics through which people interact at the individual level, and its subsequent effect on reliance of an individual’s trust in the counter-party’s self-interest rather than in perceived altruism, can be extended to the more general analysis of how a network depends on the nature and extent of pairwise exchange between individuals who do not necessarily need to trust each other.
Put more eloquently by Adam Smith in The Wealth of Nations:
“In civilized society man stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons…[In contrast to other animals, man has an almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence only. [Exchange is the] manner in which we obtain from another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.”
The consequence of such realizations is that as the exchange of information and value continues to grow exponentially around the globe, the need for socially scalable networks to facilitate the trust minimized interactions of an increasing number of individuals becomes paramount. Money directly expedites the opportunities for exchange and thus, has a significant role in increasing social scalability.
A global market of individuals interacting with one another at an increasing scale requires a specific construct that has the ability to scale various markets around the world, socially scalable money.
Network Scalability and Blockchains
As mentioned earlier, Bitcoin makes a distinctly clear trade-off between resource efficiency and computational scalability for a greater scalability, that of social scalability. While the social scalability of human nature has always been statically elusive, technological innovations are an inevitable tool and byproduct of our evolution and advancement.
“By substituting computationally expensive but automated security for computationally cheap but institutionally expensive traditional security, Satoshi gained a nice increase in social scalability. A set of partially trusted intermediaries replaces a single and fully trusted intermediary.”
Traditional iterations of network security rely on root-trusting access control security models, which are centralized, scale poorly and can lead to honeypot hacking incidents, such as recently with Equifax. With a concept of scalable money such as Bitcoin, the need for a parallel scalable security model as part of the system is evident. Importantly, Bitcoin relies on computer science rather than inefficient human models of security such as regulators, investors, lawyers, and other inconsistent security implementations. This has a profound effect on increasing the scalable security of Bitcoin because it substantially reduces the transactional costs of such inefficient mechanisms for maintaining security.
By utilizing a network of decentralized nodes, Bitcoin and other public blockchains substitute an army of computers for traditional models of security, consensus, value storage, and exchange mediums. As finances and assets continue to become digitized, a system that is distinctly valuable for its existence as being independent from existing institutions and has the ability to operate seamlessly across borders, although not perfect, offers the necessary framework for trust minimization by providing a global, public, and secure settlement layer.
Although the security of public blockchains comes at a high price (electricity for PoW and poor throughput scalability), it is a security that is entirely necessary for any form of money, let alone a global, scalable form to exist and be universally acknowledged as a source of value.
As Szabo describes it:
“Without that high security it’s just a gratuitously wasteful distributed database technology still tied to the local bureaucracies it would have to depend upon for its integrity.”
Scaling human institutions is expensive and costs increased bureaucracy, risks, and regulation. Scaling computational resources costs additional cheap computational resources. Computational resources which continually become cheaper as technology develops. By focusing on scaling the static and complex interactions of network participants at the individual level rather than on the technology, Bitcoin and other public blockchains represent modern examples of the direct and indirect consequences of human interactions that lead to incredibly sophisticated markets that cannot be feasibly comprehended as their collective sum, but rather only as a complex network of the individual actions of a large variety of people.
Articulated by Adam Smith in the Wealth of Nations:
“Observe the accommodation of the most common artificer or day-laborer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation.
The woolen coat, for example, which covers the day laborer, as coarse and rough as it may appear, is the produce of the joint labor of a great multitude of workmen.
The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production.
How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country!
How much commerce and navigation in particular, how many shipbuilders, sailors, sail makers, rope makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!
..if we examine, I say, all these things, and consider what a variety of labor is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we may falsely imagine the easy and simple manner in which he is commonly accommodated.”
The Future of Scalable Networks
While the Bitcoin blockchain may not be able to computationally scale to levels achieved by payment processing networks such as Visa, less trust minimized peripheral networks such as the Lightning Network (LN) may eventually provide the solution to making a public and socially scalable blockchain capable of processing lower value transactions which eventually will be settled on the more secure and trust minimized blockchain. Implementations of such concepts besides the LN are already being developed and employed as layer 2 solutions across the industry.
The important aspect to remember is that although these payment networks exist off-chain, they are able to be settled as larger transactions on-chain through leveraging data integrity models such as Merkle Trees. Bitcoin’s existence as a deflationary currency, that is resource intensive, will continue to provide it with inherent value, value which will only be accelerated by mainstream adoption and recognition of its existence as a secure and socially scalable network that supersedes national boundaries.
Such a system may provide refuge for citizens of countries like Venezuela, where hyperinflation has risen to catastrophic levels. Or perhaps as a global settlement layer, through which peripheral networks of value exchange are aggregated and settled on a globally decentralized and highly secure network.
“Blockchains don’t guarantee truth; they just preserve truth and lies from later alteration, allowing one to later securely analyze them, and thus be more confident in uncovering the lies.”
The immutability of public blockchains offers a unique dynamic through which data integrity is maintained, outside of the influence of third parties. The result is an inevitable increase in social scalability, as participants in the mutually beneficial system are protected from the potentially malicious effects of coercion, without really having to understand why or how. They can participate in a institution built upon a foundation they are not aware of.
Going back to what Friedrich Hayek stated:
“We make constant use of formulas, symbols, and rules whose meaning we do not understand and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess.”
The possibilities of blockchains moving forward, specifically public blockchains, remains unpredictable, but assuredly offers a unique, socially scalable medium for people to interact.
Bitcoin is not perfect, Satoshi Nakamoto intentionally made a distinct trade-off that demonstrates that. Paradoxically, Satoshi created a technological novelty that intentionally inhibits its own technological scalability in an attempt to create social scalability, a scalability of human cognition rather than the technology it produces.
As the Internet continues to grow and a global network of participants permeates every aspect of society, the need for progress in trust minimized systems is clear. The question becomes, how will these networks garner adoption, and how will they fit into a disparately evolving society?