How Stories and Culture Lead to Social Scalability

tl;dr: Shared myths and a common culture that are instilled early in the life of a network can become robust moats and competitive differentiators in later years. This looks at Ethereum as an example.

One of my go-to clichés is: “marketing: because the best technology doesn’t always win.”

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This was one of the things that came to mind as I read Dan Zuller’spost, Understanding Monetary Premiums in Programmable Value Networks.

It came to mind because one of the implied conclusions from Dan’s post was about the probability for the long-term success of Ethereum.

From what I gather, he believes that the likelihood of success is higher because of the social capital that goes into the network, not just the physical (mining equipment or, even, labor).

So though Ethereum may be technically inferior to some of the newer, or soon-to-be-released smart contract platforms coming out (aka “Ethereum killers’), that alone is not enough to spell the end of the platform.

As Dan describes it:

Social capital, or cultural capital as some refer to it, refers to the networks of relationships among people who live and work in a particular society.

It includes things such as interpersonal relationships, a shared sense of identity, a shared understanding, shared norms, shared values, trust, cooperation, and reciprocity.

Social Scalability

Two years ago, I wrote The Unfortunate Truth About Blockchains, which was inspired by Nick Szabo’s Money, blockchains, and social scalability”, the same concept that served as an inspiration for Dan.

Though blockchains and crypto force us to think about money and value in entirely new ways, these approaches don’t exist in a vacuum. People still (for now) need to make the decision about where to invest their time and effort.

That investment is based on rational factors (network stability, security, etc.), but also on social and emotional factors (do my friends hang out here? Am I treated well in the Slack or Discord channel?)

These factors are synergistic over time. One builds on the other in a perpetual loop.

From the beginning of my time in crypto, I recognize the critical importance of community overall and developers, in particular. This isn’t really a major insight since I’m not alone on this one.

What Dan is highlighting is that the networks which have strong social capital in these terms are going to be worth more than the ones that do not. They will have a premium associated with them.

The models for measuring and valuing social capital are, as far as I know, relatively immature and rough.

I wouldn’t be surprised if a crypto-marketing or some analyst firm came up with a “Social Scalability Index” one day.

It would be a real-time metric associated with some of these “softer” things, but which are indicators of the overall strength of the network.

Last summer, one of the NSM interns took a whack at this (looking at things like GitHub commits), but we didn’t quite get there in version 1.

Social capital has always mattered for organizational success. We called it “customer satisfaction” and “word of mouth” and “goodwill” and “shared belief,” so in many respects, this is nothing new.

At the same time, Dan helps us understand that importance in decentralized orgs of creating a shared, common myth and a sense of culture.

the Ethereum community’s interpersonal relationships, shared sense of identity, shared understanding, shared norms, shared values, trust, cooperation, and reciprocity are all “sticky” factors that may produce substantial friction against the possibility of migration

This should remind us that, particularly in crypto networks, it’s important to think about the storytelling and community (this is the marketing part) early on.

They can create as much of a competitive advantage in the long run as great technology can.

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How Stories and Culture Lead to Social Scalability was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.