Nepotism vs Meritocracy: Which would you prefer?

If you ask anyone who works at any company, which would they prefer, they would most likely say meritocracy.  Meritocracy is the form of corporate governance that bases rewards and prestige on how much one contributes to the company and the value of those contributions, as opposed to nepotism, which rewards people for who they know, or if they have a personal connection with those in power at the company.

 

I was thinking a lot recently about nepotism and trying to challenge my own preconceptions of the practice and whether or not it is a good practice in the perspective of the corporation as a whole.  I find that when you really sit down and challenge the preconceptions of some of the things around us which we accept without question, we often find that the answers are illuminating and not at all what you would imagine at first glance.

 

Nepotism:  “the practice among those with power or influence of favouring relatives or friends, especially by giving them jobs.”

 

So what is the problem with this behaviour? Especially as China seems to make nepotism a common practice among those in the corporate world so much so that they have a special word for this — “guanxi”.  Most westerners would grimace at the thought that a company would reward some coveted positions in the company only to those who have personal relationships with those in power.  But this practice is widely seen in countries like Japan and Korea as well.  It is very common to see the daughter of a famous politician working at top tier western investment firms, or sons of wealthy businessmen finding their way into positions of power at legal firms.  But is this so bad?

 

 

After all, what is so bad about giving jobs to relatives of those who stand to potentially give your company favorable treatment in the future?  How much different is this from sales and client relationship management?  The line is definitely grey.  Who is to say that the potential business and profits that this practice may bring in isn’t more than the investing the money and effort into developing better talent for actual skilled workers?

 

If you think a bit on this and you ignore all the personal reasons or the negative secondary effects that this practice may breed (a negative impact on moral of the other employees for instance) then really the only problem with using nepotism as an effective way of increasing profits is that it shifts the company focus from the importance of internal capability and talent to that of a dependence on external parties.  Instead of building up your own capability to create value, you defer this to an IOU that you hope an external party will one day reciprocate.  Most of the time, this may pay off if the external party is influential enough to make a significant difference to your bottom line, otherwise employing nepotism won’t be worth the risk of the negative stigma that it would entail.  That is why it is rampant everywhere in corporate life around the globe. Because it works, in the short term at least. (But isn’t this true of most forms of corruption?)

 

But if it is a viable way to curry favour and increase the bottom line of your company, then why is nepotism seen as being an “unfair” practice?  After all, if you don’t like the fact that the son of the golfing buddy of the CEO just took your senior management position in your firm, why don’t you stop whining, and start practicing golf yourself instead?  Why do people complain that it isn’t ‘fair’?  Most likely because the fact of the matter is that nepotism tends to favour people within the same social circles.  And it is much harder for people of lower class statuses to mingle or even get to know people of the upper classes.  So it’s not so much the skill of your golf game that matters, it’s the fact that you would never have a chance to play golf with the CEO at all, because you are not of sufficient social wealth and influence to even interact within those circles.

 

Said tersely, nepotism favours those who have ‘earned’ their right to their position OUTSIDE of the confines of the system, while others in the company must earn their right to their station while operating WITHIN the system of evaluation of the companies’s KPI.  The tension is between those who work hard at the company and do their job well to earn the company profit, and who earn their way up the corporate ladder through merit, vs those who are rich and influential (or their progeny) who earned their wealth doing something outside of the company’s purview.  Those who earned their station via hard work, naturally feel it unfair that those who got a free ride into their position, by way of ‘cheating’.  In fact the game analogy fits very succinctly here.  Those who get their job via nepotism can be seen the same way as a team that wins a football match via paying off the referees.  Namely, they exploited an advantage that is external to the rules of the game, in order to beat their opponents at it.  Nepotism is bribing a judge at the Olympic figure skating championship; it is greasing the ball in the pitchers mitt; it is using steroids before the 100m sprint.  You are winning because you exploited an advantage that was outside of the rule confines of the game.

 

The notion of a ‘fair game’ is one which treats all the players equally and fairly.  Such that the winner wins based solely on their merits of performance within the rules of the game as agreed upon by all the participants.  This is a game which everyone can play, without fear that they would be taken advantage of, and this is the only type of game in which the losers can accept their defeat gracefully, without complaint, commotion, or resentment.

 

If we can all generally agree that nepotism, while potentially beneficial to the corporate body as a whole, in the long term breeds ill will among its honest employees, and also sacrifices internal talent and competence for dependence on the favours of external parties, then why pre-tell, are we in the crypto industry so hell bent on creating Proof of Stake systems? (as in Ethereum)

 

After all Proof of Stake systems, in which your influence in the blockchain system is proportional to the amount of native tokens that you have locked up or ‘staked’ and put at risk to ensure you perform your validation duties faithfully, are just the same thing as nepotism.  It uses the same model which rewards those who earned value external to the system, and bestows advantages to them by giving them influence in the system.  The similarities are plain to see if you just take time to look.  In a Proof of Stake system, you lock up some value in the native token (this is the opportunity cost that you pay to buy your influence).  This amount is static and you don’t need to pay any continual costs while you enjoy this position of influence.  Isn’t this very much like the daughter of the US Senator who got a sales manager job at Goldman Sachs? Her family earned a lot of money outside the system (the company) and they then pay some opportunity cost to get an influential job within the system (commits to spending their time at the company as opposed to working elsewhere), and then while employed, she doesn’t really need to do any real work, because she got the job due to her connections, and the company hired her only to curry favour with the father who is an influential politician.

 

Sounds a lot like a PoS validator!  (Sorry Ethereum, EOS, Tezos, and all the other Proof of Stake blockchains).

 

Compare and contrast, if you will, the lowly programmer, who works their butt off to develop great software products for the company.  Their position in the company is based entirely on their performance and value that they have created by way of real work delivered as software products.  Their commitment to the company is constant, as they constantly have to perform and ‘give time and effort’ to the company in order to maintain their status.  They cannot rest on their laurels.  They not only give up opportunity cost by choosing to work at this company and not another, but they also have to pay the daily cost of their labor to the company, and if they ever ceased to perform or ‘pay’ this maintenance cost or labor effort, then they would be fired.  Doesn’t this remind you of something?  Yes, Proof of Work miners!

 

Proof of Work is the only system that ensures that the game is fair, and that all participants are treated equitably and are equally incentivized to keep on paying the constant maintenance costs to earn wages in the company.  And very much like the system of corporations and capitalism, Proof of Work mining is the only blockchain verification system that has positive externalities.  Just like how employees of a company all pursuing their own advancement has the net positive externality of the company earning profit, PoW mining may soon incentivize research and development in efficient power generation and transmission, developing unused power sources, and even space exploration.

Who says Proof of Work mining is a waste of energy?

 

This is why Bitcoin Cash and only Bitcoin Cash makes sense as a global blockchain.  Because it is the only one that has both the history, and the focus on PoW miners being the most important part of the growing ecosystem.

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Ouija Board Consensus – Decentralization Myths: Part 4

This is the fourth part of a multi-part series on the myths of decentralization. You can read the previous installments here:

Part 1 – Decentralization Redefined
Part 2 – Decentralization Myth
Part 3 – Decentralization comes with People

I’ve written quite a lot about the misconceptions and deliberate misdirection that some proponents in the Bitcoin community choose to spread around in order to shape the public perception of what makes Bitcoin valuable, and as a result change the fundamental value proposition of Bitcoin.  As you all should know by now, “Value does not exist outside the consciousness of Man” – Carl Menger.  So changing people’s consciousness by way of affecting their ideas, affects the value of Bitcoin.  Thus it is important that we re-evaluate our notions of why Bitcoin is valuable every so often with a huge dose of skepticism.ouija_board

In today’s article, I’d like to review what the fundamental security model of Bitcoin is, as intended by its mysterious creator, Satoshi Nakamoto, (at least in my interpretation of it) why that model is the best we can possibly hope for, and why any further attempts at adding extra layers of ‘security’ on top of this model just ends up making it less secure by making it more centralized.

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Core Segwit – Thinking of upgrading? You need to read this!

So, voting on core’s implementation of Segwit is now enabled, and all 3 of the miners that support core have already cast their vote (2 pools and 1 cloud mining MLM), totalling about 23% of the network.  Adoption seems to have stalled (as of 4Dec16) as the rest of the undecided vote remain undecided.  Perfect time for an analysis breakdown of segwit, the good, the bad, and the ugly.

Segwit, the [un?]controversial softfork

Segwit, the [un?]controversial softfork

Segwit has been called a ‘much needed upgrade’ to the network by core proponents, which has a somewhat jury-rigged way of expanding the effective block size of a block. (to 1.7mb)

Let’s first cut through all the marketing jazz and spin that people supporting Blockstream want to put on it and evaluate it on its technical merits alone, addressing its first its pros, then its cons.

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Hard Fork Risk Analysis: If the worse happens, how bad can it be?

This post is a culmination of about a year’s worth of thoughts and research that I have been informally gathering, which started with a simple question that started last year when I first read a piece which was written in the middle of the Bitcoin XT heyday describing what would be so bad about having 2 persistent forks by core developer, Meni Rosenfeld.

Forks are not scary, they are upgrades!

Forks are not scary, they are upgrades!

The post described the general understanding of forks at the time, and it was in this context that I wrote my original piece which was very much a pro-Core stance on the dangers of hard forks.  I was wrong on some of my assumptions when I wrote that, which I have over the course of the year corrected, but nevertheless that original piece earned me many twitter RTs and ‘follows’ by core devs and supporters at the time (who have mostly now, funny enough, all banned me).

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Bitcoin Fact: Smaller blocks => Financial exclusion => Censorship

I’ll just say it. Small blockers are elitists who want to censor out Bitcoin users who cannot afford to transact on mainchain.  I’ve lost count of how many times I’ve heard the old argument that scaling onchain damages decentralization, which in turn may damage the censorship resistance of Bitcoin.

Free as in Free speech and Free beer!

Free as in Free speech and Free beer!

It is important to realize the hypocrisy in this line of reasoning.  It is subtle, so I bet most of the proponents don’t even know that they are guilty of it.

Simply put, the fee market is a form of censorship. If you cannot pay for a bullet proof car in Mexico city, then you and your family is at risk.  If you cannot afford to install a home alarm system, then you have been prevented, indirectly, from keeping your property safe from burglars.  If you cannot afford insurance, then you are at risk of a fire, or an accident etc.  Similarly, if you cannot afford to pay for the privilege of transacting when you wish in the Bitcoin network, then you must be delegated to 2nd layer networks like Lightning to do your payments. Which will have centralized payment hubs to service you and collect fees from you. How is this any different from the current banking system that we have now?  Isn’t this form of slavery to debt one of the exact reason why Bitcoin was created in the first place to solve?  Why then should Bitcoin treat those of means different from those without?  Shouldn’t all the underserved be equal in the eyes of Bitcoin? Continue reading

On Ponzi’s, Equity Derivatives, and Ethereum

Charles_Ponzi

Many people will talk about ponzi schemes without actually thinking about what that actually means. They say that Ethereum will fail because it was founded on and funded by lies. But when it comes down to it, how are these different from that of the current central banking debt based fiat money system?

Fund first, ask questions later

Ethereum was a project funded with 18m USD of value mostly in BTC. After writing a whitepaper and creating a proof of concept prototype, they hired developers to write it. Most of them were loaned money and worked for free but were promised exorbitant 20% bonuses after the crowd-sale.  They made a windfall after selling ETH before the blockchain was even in operation in what is called an initial coin offering or ICO to the public. Once the money was raised they patted themselves on the back, and all the developers who were promised pay in stock options (ETH) simultaneously breathed a sigh of relief and cheered.

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The DAO: ‘the Way’ — but to what?

Big news for ETH supporters as the DAO finally launched and have their token traded for the first time.  After a day of trading, it seems the DAO tokens closed trading under par. (ETH value).  What went wrong?

If you ask me, the DAO is an ambitious project.  It makes Macbeth look like Ben Carson by comparison. In order to understand it to any degree, first you will need to gather some things:

  1. A bottle of Jack Daniels
  2. The DAO whitepaper
  3. 10 cans of Red Bull
  4. 12 hours of free time, preferably in the dark
  5. some psychedelics
  6. 1 towel

Lock yourself into that dark place, and let nature take its course.  If you need to, use the towel.  After the elapsed time, you may emerge understanding DAO well enough to maybe want to put some money into it, or pray to it.  At which point you really should stop what you are doing, and go to sleep (because let’s be frank here, you are probably drunk and hallucinating) and pick up again in a couple days time.

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Bitcoin: Getting to the Moon 101

Easter weekend.  Family reunions, liturgical services, fasting for some, feasting for others, a time for renewal, time to dispel some crypto myths!

Everyone talks about “going to the moon” in crypto but few if any really knows what that means.  Cypherpunks care about privacy and censorship resistance, libertarians care about political ideology and businesses care about making money. But how many of them actually think through how to get there?

I don’t mean in a metaphoric sense, I mean pragmatically. What is the adoption roadmap? What do we mean by ‘moon’? Price?  Resistance to government usurpation? Censorship resistance? Self sustaining system without any oversight?

True, most people who say “To the moon!” are just pumpers or speculators trying to incite a windfall profit from the penny stock altcoin that they purchased for the express purpose of dumping it for a profit on unsuspecting suckers.  But let’s consider a moment the goal of Bitcoin –becoming a widely accepted alternate money to fiat currencies– how does Bitcoin get to there from where it is today?  What challenges and obstacles must it overcome?  What different stages of development and growth must it evolve through?

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The Decentralization Myth

I have often observed that disagreements between smart people inevitably devolve into a difference of opinions based on assumptions which are either ignored by one or both sides or insufficiently proven, which leads to the construction of a belief system built on top of nothing more than reasonable guesses.  Because of this, it takes a long time before one can peel away the layers of conditional truths before you reach the core assumptions over which the principle disagreement is erected upon. (one needs to look no further than the renewed flat earth movement to see how you can rewrite your entire belief system to support your theory). Over the last month as I have debated with the decentralists on the foundations of their “decentralization is the most important thing about Bitcoin”* argument, I believe I have finally discovered the crux of the dispute, the mistaken assumption, upon which all other conclusions are derived upon, the genesis block of the debate, if you will.

Network_topologiesThe problem comes from the fact that the term decentralization has been overloaded to mean so many different things.  From topological point of view the old graphic from Paul Baran (1964) (inset  right) may seem to provide a good enough definition but only from the perspective of a network topology which is certainly not the common usage of the term today.  More recently some folks have improved upon the definition to more clearly indicate that it is the notion of control (the little puppet master hands in the diagram) of the network nodes that make them more or less decentralized.

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How do YOU measure Decentralization?

The disagreements between the ‘big blockers’ and the ‘small blockers’ in Bitcoin are heating up.  Bitcoin Classic is poised to release its first client to compete with Bitcoin Core, and Bitcoin Unlimited has had its first vote on its new feature set.  It is a time of peril in the galaxy…

Now as the credits fade into the star field background picture a big wedge shaped Star Destroyer with the banner reading “Decentralization” filling the screen.  This word is really the Battle Cry of most crypto-currencies, and as I have written in the past, it is so poorly understood.

decentralisation

Everyone wants it, but few know what it is

It is a repurposed term, that simply describes a quality of network topology, transformed into a rallying call of rebellion.  The problem is that almost everyone that I read or encounter in the industry uses this term as a panacea for all the problems that they see in the world today, without actually knowing what it truly means. They believe it because of faith from authority, and through basic reasoning, that it is good and thus must be fought for without actually knowing why.  This is dangerous, as this is how cults start.  The Cult of Decentralization.

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