Proof that cryptocurrencies are a virus
|Tony Sheng||Apr 8, 2019|
Gangs naturally form around cryptocurrencies. True believers1 in those gangs compete viscously to attract new members (often from competing gangs). They know that growing their numbers–growing true believers most important of all–increases the likelihood their cryptocurrency will win.
These gangs are visible wherever crypto people hang out: twitter, reddit, discord. The label “maximalist” emerged to describe this behavior. I’ve been critical of “maximalist” behavior in the past because of it’s association with being unkind to others. Fred Wilson recently complained about crypto maximalism as well, saying:
If someone wants to believe deeply in one thing and nothing else, we should understand and appreciate it. But when that leads to hatred, nastiness, and ridicule, we should reject it. We should call it out for what it is and we should not accept it.
I agree that hatred, nastiness, and ridicule are bad. We should call that out. But maximalism is here to stay. If anything, I expect more maximalism to emerge. If you hold a cryptocurrency and want it to succeed, you want more people to be like you. Being a visible maximalist does this.
Here’s a study called “The Friendship Paradox and Systematic Biases in Percpetion and Social Norms” (2016) with a theory on why being a visible maximalist might work even better than one might expect.
Most people have fewer friends than their friends. This is called “The Friendship Paradox.” People with more friends are more visible than people with fewer friends. The person with one thousand friends shows up as a person with a ton of friends to a ton of people. The person with no friends shows up no times as a person with no friends.
The diagram below shows you why your friends probably have more friends than you.
Data from James Coleman’s (1961) study of high school friendships. Nodes are girls and links are mutual friendships. The first number listed for each girl is how many friends the girl has and the second number is the average number of friends that the girl’s friends have. For instance, the girl in the lower left-hand corner has 2 friends, and those friends have 2 and 5 friends, for an average of 3.5.
This phenomenon leads people to believe that a given behavior is more prevalent than it actually is. In this case, that people have more friends than they have. It creates a reality distortion that inspires more of that behavior (seeking friends). This creates a feedback loop. Let’s consider twitter followers:
Average twitter user Steve sees that most of the people they follow have more followers than they have
Steve believes that he has fewer twitter followers than average
Steve makes more twitter engagements, driving up his followers
And driving up overall engagement on twitter
This is a feedback loop that drives more engagement on twitter2. In fact, the authors note that the friendship paradox is greatly magnified by social media.
a study of Twitter behavior by Hodas, Kooti, and Lerman (2013) found that more than 98 percent of users had fewer followers than the people whom they followed: typically a user’s “friends” had 1000 percent more followers, or more, than the user. Given the increased use of social media, especially by adolescents, the potential for biased perceptions in favor of a tiny proportion of the most popular users becomes overwhelming
This feedback loop was already well established by prior works. But the authors wanted to know whether more connected individuals (e.g. more friends) behaved differently from less connected ones.
They found that more connected individuals were more likely to be influenced by behaviors they observed in their networks and if they had something to gain from the activity, they would actively seek more connections. And these natural behaviors bias overall behavior.
The authors summarize their findings:
As I establish here, there are two basic forces at work. One is that people who have the most connections are most exposed to interactions with others, and thus in any setting of strategic complements (or substitutes), their behaviors are most heavily influenced. The second is that if people differ in their tastes for a given activity, then it is the people who benefit most from that activity who choose to have the most connections.
People with more connections have a higher probability of exhibiting the behavior. And people who like the behavior are more likely to seek more connections. These two forces drive up the perceived popularity of that behavior. The increase in perception then increases actual popularity of the behavior.
They use the example of teenage alcohol consumption to illustrate the point:
For instance, returning to the example above, since consuming alcohol by teenagers is in part (or largely) a social activity, the people who spend more time socializing with others would have more reason to consume alcohol at an early age, and would also tend be those who have a greater base proclivity to consume alcohol at an early age. So, students who are more often seen as friends by others being more likely to consume alcohol leads to biased samples and biased perceptions, consistent with the data, and feeds back to produce high levels of activity overall.
Just as the person who likes having friends (or drinking) benefits when more people have friends, the person who holds a cryptocurrency likes when others hold the same cryptocurrency.
This is the “Maximalist Paradox”3.
More connected people are more likely to engage in maximalism because maximalism is more visible to them
Maximalists seek more connections because an increase in maximalist behavior benefits the maximalist
Perceived maximalist behavior goes up
Leading to actual maximalist behavior to go up
Why do people have to be Maximalists? Why can’t they just socialize support for some social good enabled by technologies or socialize general support for cryptocurrencies? The nature of mass movements tells us that adherents to one mass movement cannot be adherents to another. And that mass movements are winner take all. This lines up with conventional wisdom that “money”–the largest market for cryptocurrencies–is winner takes all.
In sum, maximalism is here to stay. And probably works better than even maximalists think.
In our globally connected world, buying cryptocurrencies is a social behavior just like drinking. The natural incentive for people that buy cryptocurrencies is to connect with more people, which leads the average person to think more people are buying cryptocurrencies than they actually are, leading to real increases in that behavior.
In other words, the virus is spreading.
True believers are members that take it upon themselves to evangelize the social movement around their tribe. ↩
One could argue a similar thing is happening for personal blogs, podcasts, etc. We see a lot more of them so we think more people have them so we’re more likely to create one. ↩
Working title, perhaps “Maximalist” is too disparaging a word, which is not my intention. Suggest me a better name! ↩