Written by Robin Gu, a researcher at X-Order, an innovative research institute that attempts to combine cross-disciplinary fields such as distributed computing, computational game theory, artificial intelligence and cryptography to discover future extended orders. It was founded by Tony Tao, who is also a partner at NGC Ventures.
In the context of open finance, many possible innovations have emerged from the blockchain paradigm: from cross-chain scheme to expansion plans and decentralized exchanges (DEX). These innovative breakthroughs undoubtedly drive the rapid development of a new technological trend. At the same time, a lot of mostly similar projects and behaviors came into being, such as forked projects, and IEOs that have been all the rage in centralized exchanges.
Imitation is common in all walks of life in China and it is inevitable in the blockchain field as well. Undeniably, most people support original innovations and view imitation and copycats with disdain.
Nevertheless, is imitation really that bad?
Before answering this question, let’s first explore an old story — the Ship of Theseus.
The Greek writer Plutarchus once raised a philosophical question: an aged wooden boat was in a state of disrepair and the decaying wood needed to be replaced. However, even if we only replace a small portion of the wood, we would still treat it as the original boat.
However, what if all the boards on the ship were replaced? Can we still treat it as the original boat? Or can it, to some extent, be considered a new boat? But if you considered this a new boat, should there be a clear boundary of when did the boat start to become a new one?
It is quite clear there are no absolute boundaries between imitation and innovation. Oftentimes, to imitate is to modify or improve on the original, and to give birth to a new project. However, if the extent of the modification was not significant enough, people will tend to regard it as some kind of imitation. This is also why although the IEO rules and conditions of exchanges are different, people will still think that they are imitating Binance Launchpad.
Interestingly, the concept of IEO is not created by Binance. As early as 2017, Xiaolai Li first introduced the concept of IEO on the BigONE platform: the direct pairing of PRS and EOS at the time allowed a project to raise EOS directly on the platform.
Therefore, we should treat innovation and imitation more equally. There is no problem in emphasizing the importance of innovation, but we often overlook the role of imitation, especially selective imitation.
Oded Shenkar, president of Ford Motor Company’s international business management, described the enormous impact of an all-round imitation in the book “Copycats”. He even went as far as to say that this kind of imitation surpasses aimless innovation.
In fact, all-round imitation and 100% plagiarism are two distinct concepts. Such a concept is very common in the biology field — the survival and evolution of living things are achieved through adaptive imitation.
Compared with simple imitation, such imitation emphasizes on understanding or copying the contributing factors behind successes, that is, instead of imitating the behavior, they imitate the chain of causality behind it. Hence in the following discussion, we discuss with the understanding that both innovation and imitation are necessary because they play their roles in different dimensions.
Two Sides of Innovation: Pioneers and Martyrs
In the Internet era, the free flow of information has drastically reduced the cost of imitation. While the open source nature of blockchain technology makes the cost of project imitation close to zero. All the codes needed to set up a new project could be easily forked.
Bitcoin is the beginning of blockchain and is by far the most successful blockchain innovation. From the start of digital currency’s emergence to the present, no matter how much Bitcoin has been criticized (such as the slow speed of confirmation, the Turing incompleteness, the lack of complete anonymity and the exposure of transaction privacy, etc.), its status as a blockchain token leader cannot be easily shaken. This is also evident from the strong pull of Bitcoin price in the market recently.
However, not all innovative projects will flourish because of the first-mover advantage. For example, BitShares (BTS), even as the first project headed by ByteMaster (BM), has been gradually declining and replaced by EOS. Also, the first cryptocurrency that was developed based on the Cryptonote protocol, Bytecoin, has been overshadowed by the forked Monero. Now, the number of projects directly forked from Monero has exceeded that of Bytecoin.
The success of innovation is caused by many factors, luck is one of them. When we see a new project, we should pay more attention to whether the project’s growth environment is sufficiently fertile, or whether the difference with other potential competing products is large enough. Only by allowing innovative projects to grow freely will it be possible to fully play out its potential and find the right niche. In this case, the innovative project will have obvious advantages over challengers who are not so unique.
Although Bitcoin was open source at the beginning of its birth, it took two or three years for fork projects from Bitcoin to emerge. It is these three years that allowed Bitcoin to have sufficient growth time to give it a competitive advantage over latecomers and imitators.
From this, we can see that innovative projects need to be sufficiently “novel” so that others do not have enough insights to be able to imitate the project. In this way, innovative projects will have enough time to obtain market feedback, carry out continuous iterations, and search for the niche that best suits it.
Successful Imitation: All-around and In-depth Imitation
When Luke Rendell and Kevin Laland studied the social laws of individual success, they examined some of the behavioral parameters of successful individuals in society. This includes the ratio of learning and the outcomes from actual execution (the skills learned and the results that followed), the number of cycles of learning before the first try, and the degree of imitation in learning. Their conclusion is that in an unfamiliar environment with great volatility, the individual’s success attributes more to the social learning behaviors of imitating others than non-social learning behavior of exploration by oneself (similar to innovation).
They also found that carrying out imitated content in real life environments required effective “execution” in obtaining good results. The importance of execution can exceed innovation and imitation, which is why we often say,
“practice is the sole criterion for testing truth.”
How do you evaluate the results of imitation? All-around in-depth imitation processing and improving upon others’ innovation. Since it is an improvement, the quality of its results requires a reference, which can only come from the external context it would operate in.
Coming back to IEO, everyone thinks that Binance is the most successful in the IEO wave. The following reasons could be the key contributing factors to its success: first of all, timing is an important factor; after nearly a year of slump in ICO, the industry needs an approach to solving the problem of fundraising. In addition, several projects launched on Binance have been also iterating and adapting based on market feedback. For example, at the start, robots can participate and compete against human participants in the limited sale of IEO tokens, the auction method has gradually changed to the fair-lottery-style we have right now.
Interestingly, in the process of gradually iterating and improving the details, Binance also imitated Huobi’s distribution model where the right to participate in the IEO sale can only be earned by holding the exchange token.
Therefore, an all-round in-depth imitation needs to continuously interact with the external environment and improve its execution at the right time.
Integration of Imitation and Innovation
Choosing imitation or innovation is only a means to achieve goals. For most organizations, their most pressing need is to survive.
Innovation and imitation represent capabilities in two different directions. Brian Arthur mentioned in “The Nature of Technology” that the so-called innovation is actually organically combining different technical components into a tighter technical component, and there is no innovation from scratch.
Innovation links phenomena to the technology itself or matches the problems that need to be solved with available technologies. Imitation can be understood as the refinement of individual technical components. Innovation emphasizes the ability to synthesize through imagination, while imitation emphasizes the ability to optimize locally.
In general, the cost of trial and error for innovation is high, which is why successful innovations often require a fertile ground for growth that allows them to try and explore as much as possible.
From the perspective of studying single individuals, social learning experiments reveal one point: for individuals, full-scale in-depth imitation may be a better choice. Since your opponents can survive, you can certainly live better than them by optimizing and avoiding the loss they incurred through innovation.
However, this experiment did not give a conclusion when the subject to examine is a group of individuals.
The author believes that under the premise of group survival, the benefit of innovation will be far greater than imitation. Because innovation introduces new dimensions of possibility, thus the group that imitates without innovation is always in a state of a zero-sum game. Innovation increases the benefits of the group and introduces a positive-sum game.
In the previous IEO wave, we can see that projects have received adequate capital, and exchanges have also obtained huge funds and user traffic. They are undoubtedly very successful as individuals, which seems to be a win-win situation.
However, for the entire industry, from the beginning where everyone profits, to the eventual steep fall of the exchange token price; investors advocate their rights and the price of IEO token falls continuously … The entire process has clearly become a zero-sum game and a death spiral, resulting in the inevitable collapse of the IEO model.
Survival is the premise of prosperity.
If the entire nest falls, no eggs would be left unscathed. On the wave of the blockchain industry and open finance, we need to fully imitate to optimize each component so that all participants can gain a better result. At the same time, we also need innovations such as Uniswap and Cadcad to break traditions and build new synthesis. Only in this way can a diversified ecosystem such as that of blockchain be more prosperous.
The Ship of Theseus: the dilemma of the coin circle innovation was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.