Blockchains are all the rage. The oldest and biggest blockchain of them all is Bitcoin, which over its eight-year history so far starshipped in value from 10,000 bitcoins per pizza (before there were exchanges that priced bitcoin in traditional currencies) to over $1,000 per bitcoin. As of this writing Bitcoin has a market capitalization of over $16 billion. Running non-stop for eight years, with almost no financial loss on the chain itself, it is now in important ways the most reliable and secure financial network in the world.
The secret to Bitcoin’s success is certainly not its computational efficiency or its scalability in the consumption of resources. Specialized Bitcoin hardware is designed by highly paid experts to perform only one particular function – to repetitively solve a very specific and intentionally very expensive kind of computational puzzle. That puzzle is called a proof-of-work, because the sole output of the computation is just a proof that the computer did a costly computation. Bitcoin’s puzzle-solving hardware probably consumes in total over 500 megawatts of electricity. And that is not the only feature of Bitcoin that strikes an engineer or businessman who is focused on minimizing resource costs as highly quixotic. Rather than reduce its protocol messages to be as few as possible, each Bitcoin-running computer sprays the Internet with a redundantly large number of “inventory vector” packets to make very sure that all messages get accurately through to as many other Bitcoin computers as possible. As a result, the Bitcoin blockchain cannot process as many transactions per second as a traditional payment network such as PayPal or Visa. Bitcoin offends the sensibilities of resource-conscious and performance-measure-maximizing engineers and businessmen alike.
Instead, the secret to Bitcoin’s success is that its prolific resource consumption and poor computational scalability is buying something even more valuable: social scalability. 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. There are separate engineering disciplines, such as computer science, for assessing the physical limitations of a technology itself, including the resource capacities needed for a technology to handle a greater number of users or a greater rate of use. Those engineering scalability disciplines are not, except by way of contrast with social scalability, the subject of this essay.