Financial incentive, maximalism, and the unnecessary tribalism of crypto
By: Matthew Werner
Tags: Cryptocurrency, Bitcoin

The cryptocurrency industry is a fascinating space. It elegantly blends the disciplines of finance, technology, and cryptography into a brand new beast that offers novel solutions to old problems.

There’s a lot to appreciate in what we’ve accomplished already. Crypto is making a real impact in areas of economic strife. Crypto-enthusiasts are passionate supporters of building awareness, real adoption, and have some of the best meme game on the Internet. On top of that, some of the most brilliant technological minds are joining up to look into how we can use it to level up the Internet.

All that being said, one aspect of the industry that has always frustrated me is the belief that there will some day be one coin that dominates over all the others. This view is termed “Maximalism” and it is holding back this nascent industry.

Cryptocurrencies naturally foster maximalism through its use of financial incentive. It’s understandable that we’ve gotten to this place, but if we can find a way to understand why it’s happening and how we can take a different view, the cryptocurrency industry will benefit.

Financial incentive is fundamental

Cryptocurrencies are generally more complex than traditional protocols. They leverage financial incentive to secure the networks facilitating the transactions. When we say “secure” here, it means that the way in which the currency operates, it will punish bad behavior and reward good participants, making the network operate more reliably. Mining serves as a good example:

Suppose one of the computers, Miner A, is deciding which transactions should be processed in the next block, and accidentally (or maliciously) included transactions that conflict with one another, potentially double spending money.

In a proof of stake system, when another participant, Miner B, sees the mistake, Miner B will receive a reward for pointing it out. The reward will come from Miner A, which will have their stake “slashed”; directly losing money from their mistake.

However, if Miner A had just done things correctly, they would receive a block reward for their efforts as well as all the fees on any transactions processed.

Introducing financial incentive presents new challenges, but is a required component to allow for trust-less parties to interact in a shared data layer. The financial implications of participation makes everyone play nice and allows for the system to work.

Why you’ve never heard of TCP maximalism

Protocols are how we connect, communicate, and move data between computers and people on the internet.

If you are reading this article in a browser or on your phone, you’re using one of the more common combination of protocols: TCP and HTTP.

This combination of protocols dictates how your device finds and requests this article, securely transports the data to your device, and reliably communicates the required information for your device to present you with the content.

There’s a wide range of protocols used across the Internet, a short list of examples covers some of our most common applications:

* Watching Parks & Rec on Netflix (TCP)

* Taking a Skype call with your cousin in Tokyo (UDP)

* Sending that draft in your Gmail account (SMTP)

* Pulling up this blog post on your Medium app (HTTPS)

These protocols have different requirements and characteristics depending on their intended usage. For example, TCP requires a response from the requester acknowledging receipt of the transmission; UDP does not. This makes UDP much better for streaming data that is tolerant to loss, such as video conferencing. If you’re loading HTML to render a page, you can’t miss half of the markup and still proceed as normal, so we use TCP.