Author: NFT Price Floor co-founder Diario, Bankless; Translated by: Wuzhu, Golden Finance
Hard power and soft power
Most analyses of what makes a Layer 1 blockchain superior to other blockchains and a great investment usually emphasize the technical aspects. They often describe innovative and groundbreaking attributes that are considered to be panaceas that solve all the inherent problems and dilemmas that public blockchains have faced since their inception.
While it’s clear that technology is critical and continued improvements and discoveries in consensus design, cryptography, and distributed systems engineering (hard power) are necessary to make this technology accessible to everyone in the world, it’s important to remember that blockchain is more than just technology.
In fact, blockchains rely on the faith (care) of the community, rooted in shared values, culture, and, best of all, universally accessible spirit. They offer everyone the opportunity to participate in an open, optimistic history that is both recorded in the blocks and held in the imagination of the community. This is what we call the soft power of blockchains.
Blockchain is the ultimate coordination tool, the authoritative ledger where humans can record their digital existence and history. Blockchain is technology, but it is much more than technology. If you judge them only by technical criteria, if you only evaluate their technical features and ignore their soft power, you will miss the bigger picture.
On History, Writing and Accounting
As Yuval Noah Harari explains in Sapiens: A Brief History of Humankind, humans came to dominate the world because they were able to cooperate on a massive scale, thanks to our unique ability to believe things that exist purely in our imaginations: stories.
Those stories based on shared belief systems, those cultural products that encode different aspects of human existence, when they are combined and recorded, produce history.
How do we record history? By writing.
So, on the one hand, we can define history as the sum of shared stories that human society agrees on their importance and validity. On the other hand, we can affirm that history and writing are intertwined, since there can be no correct history without a system of recording.
Let's add another part here. The world's earliest written language, cuneiform, has its roots in an ancient accounting system that used clay markers to track commodities such as livestock and grain in early agricultural societies in the Near East. Originally, these markers represented various commodities, with different shapes representing different items or quantities, such as a cone representing a small amount of barley.
By around 3500 B.C., as cities emerged and the economy became more complex, the variety of marks expanded to around 300 different shapes to cover the wider range of goods produced in urban areas. Interestingly, the final impetus for the development of writing came from Mesopotamian society's shared belief in the afterlife.
History, shared beliefs, record systems, accounting mechanisms, tokens… Do these concepts sound familiar to you, anonymity?
Money and money sex are common beliefs
According to Harari above, the human capacity for large-scale coordination stems from our unique ability to believe in things that exist purely in the imagination, such as gods, states, money, and laws.
In other words, large-scale cooperative systems such as religions, trade networks, and political institutions are the result of the uniquely human capacity for fiction.
In this framework, money only exists if people collectively believe in it as a system of mutual trust. In this sense, Harari’s argument is directly related to the subjective theory of value, which states that the value of any good is determined not by the good’s inherent properties, nor by the cumulative value of the components or labor required to produce or manufacture the good, but rather by the person or entity that buys or sells the good.
Thanks to this concept, the value of an item can rise significantly from the time it was created because it is seen as more valuable or desirable in certain cultural contexts. Many factors influence this evolution, such as changes in age, personal attachment, rarity, etc. In short, cultural relevance.
But why does all this matter?
The Subjective Theory of Value (STV) helps us understand all the stores of value that have been adopted throughout human history, such as salt, cattle, shells, gold, and crypto assets like Bitcoin and Ethereum.
However, it is only through understanding Harari’s argument about the crucial role that shared beliefs have played in human history that we can truly comprehend the full power of STV and how it works.
Like human history itself, successful currencies and stores of value are not just the product of an initial, groundbreaking shared belief — they are networked products that require ongoing attention!
Some would say, no money, no fun. In the case of blockchain, you better make sure your preferred L1 has store of value functionality as a native asset before you claim it’s superior to its peers. If it’s not good money, it won’t have good economic security. Period.
How do you ensure that your native asset truly becomes a store of value and not just a fad?
History and cultural vitality. Here lies the answer.
Blockchain as a digital historical ledger
Remember, a public blockchain like Ethereum or Bitcoin is a shared, decentralized, immutable, and censorship-resistant ledger that helps record transactions and track assets.
In other words, once information is recorded on the blockchain, it cannot be easily changed or deleted. This feature is crucial in preserving history because it ensures the authenticity of documents or transactions stored on the chain.
We greatly applaud this ingenious system that allows for trustless management of transactions and balances. But what about the actual history recorded? Isn’t that just as important as the underlying technology itself?
In my opinion, absolutely.
Ethereum’s native asset, ETH, derives its value from its cryptoeconomic properties, according to the rules set by the protocol. However, as we’ve already pointed out, none of this means anything without a loyal and large community of humans who actually see value in both using the network and storing wealth in the native asset.
The community's shared belief in the value of the network has given rise to a rich economic history that is recorded in the form of a public ledger on the Ethereum blockchain. It is this rich history, this shared culture of the community, that leads to a positive feedback loop that continuously reinforces the value of its native asset, ETH.
History is nothing more than the sum of shared stories of community significance, whose importance is socially agreed upon. In the case of blockchains, their history reflects the social and economic relationships that have developed between community members.
These relationships should be measured not only in terms of quantity but also in terms of quality, as a reflection of the culture that underpins them:
Is it fair to compare the creation of CryptoPunks and its second-order effects (leading to the development of an entire industry) to the launch of a low-cost NFT series (leading to a temporary craze)?
Can we compare the impact of Uniswap and other 0-to-1 DeFi breakthroughs to simpler 1-to-N protocols that offer incremental improvements and sometimes look like an excuse to sell tokens?
So while one could argue that all L1s have their own history engraved in the form of blocks, unfortunately not all blockchain histories are created equal, nor are their impacts on their respective native assets (and more specifically, on their ability to accrue value and become a store of value in the long term).
Summarize
L1s have value as coordination tools and decentralized ledgers that can be used to build economies and communities. However, not all blockchains are created equal. Properties such as decentralization, censorship resistance, and trustlessness started out as technical features but evolved into core values (belief systems/shared narratives) that bind communities together.
Without a strong belief in these values and ethos, and a vibrant, creative community that chooses the blockchain as the home for their projects and the repository of their creations and wealth, it would be impossible to develop a rich and lasting history. This shared history attracts new members who will help grow the network. It is this history that provides the intangible but vital support for an asset: the trust and continued attention of the community.
Think about Ethereum: Imagine how much it would be worth and how it would maintain its value in a decade if Vitalik hadn’t launched it through an ICO and established a foundation to manage it. What if he hadn’t implemented the proof-of-work phase to prevent over-centralization of tokens? What if his actions deceived others and didn’t prioritize the best interests of the network? What if Ethereum hadn’t been chosen as its primary home by Larva Labs, Hayden Adams, and many other founders?
The Ethereum community and history will be completely different. Technology is not the main issue because it is upgradeable, even if challenged by technical debt. However, history is unrepeatable, irreplaceable and indelible. Only through a rich and lasting history can the native assets of the blockchain develop a premium!
