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Why you should let insects pick your cryptocurrency investments

Posted: 26 March 2018 6:10 pm
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Insects are much more advanced than humans. You can learn a lot about crypto by watching insects.

Aerospace researchers are keenly examining one common species of ragworm. Specifically its jaws, which have one of the best hardness to lightness ratios of any material in the world. Meanwhile, scientists and engineers in all kinds of disciplines have been interested in iridescent butterfly wings for a long time, but it wasn't possible to create the same colours artificially until 2015. That's when humans finally had the technology to mimic the microscopic reflective crystals that create such vivid colours.

Elsewhere engineers found a way to improve the efficiency of anti-reflective screens for solar panels, phones, iPads and similar by taking a very close look at moth eyes, and the extremely efficient film that covers them.

Dragonflies were of special interest for artificial intelligence programmers at the University of Adelaide. Despite having relatively poor vision and a brain the size of a grain of rice, these insects manage to nimbly buzz around at speeds of up to 60kmh in a world full of moving distractions, and hunt equally nimble prey with an outstanding success rate. By looking at just how the heck they managed to do that researchers managed to devise an AI visual tracking algorithm about 20 times more compact than the previous one.

Biomimicry, as it's called, has been helping science go further and faster for a long time, and insects have proven to be an especially fertile area because nature has to pack an extraordinary amount of complexity and high performance into a very small package. Now the advent of decentralised currencies has investors looking in the same direction with some very interesting possibilities.

Biomimicry for cryptocurrency speculators

Anti Hero Capital is the world's first venture fund exclusively dedicated to investing in blockchain technology and cryptocurrency using evolutionary science. Specifically, it's looking at collaborative hive minded insects to see what makes an effective and self-sustaining decentralised network that can survive in the long run, and how to apply complex group decision-making of the kind that bees and ants are especially good at, to decentralised networks like cryptocurrencies.

"There are a number of similarities between the characteristics of evolutionary networks in nature and cryptocurrencies built on blockchain technology," explains James Nguyen, co-founder and managing director at Anti Hero Capital. "By comparing the fundamentals of new coins with the decentralised systems of species such as ants and honeybees, we can identify a clear signal for imminent market adoption."

Evolution isn't so different from a competitive market. It's survival of the fittest, and if you're looking for a system that's effectively and sustainably decentralised it makes a lot of sense to learn all about the ants and the bees. Cryptocurrencies and decentralised human communities are very new, but the behaviour of communal insects has been honed over millions of years.

What to look for in cryptocurrencies and insects

"These Darwinistic networks are organised so that all information transmitted between individuals is transparent, all decisions are made meritoriously, and incentives are proportionately aligned. It is also important that within these cryptocurrencies there is an equitable governance structure as well as an environment that encourages information sampling and aggressive iteration of innovation," Nguyen says.

All of these characteristics are embodied by ants and bees in various fascinating ways.

How bees make decisions

When a colony of honeybees gets too big for one hive, the old queen will take a few thousand bees and set off in search of a new home. Most of the hive will travel together for protection, while a few hundred scouts will race around to find potential locations.

When a bee finds a potential site, it will head back to the main swarm and share the location of the site plus its personal opinion of how good the site is. The location is conveyed by an interpretive dance, while the bee's enthusiasm for the site is conveyed by the number of times it repeats the dance moves. If it's a mediocre site, the bee might just do the steps a single time. If it's an exceptionally good location the bee will enthusiastically throw itself into several repetitions.

Other bees will observe the dance, then go scout the location for themselves and bring back their own opinion which is then also conveyed through dance. Better sites are naturally given more weight because their locations are repeated for longer which leads to more other bees checking them out and bringing back their own personal opinions on it. The less-suitable sites don't get as much traction. Eventually, after about 16 hours of dancing over several days, the swarm will dance into consensus and move onto the best location.

Interestingly, bee biology seems to have a kind of built-in anti-fanaticism fail-safe. Sometimes a bee will dance its heart out but still not get enough traction for its favoured location. Rather than keeping at it, the bee will eventually just stop caring and move on and forget about it.

The queen is present for all of this but doesn't do any leading. She leaves it to the swarm instead. The end result is a highly effective decentralised decision-making system that:

  • Involves taking in data from a wide range of sources.
  • Collectively sifts through the data sources to find the most suitable solutions for the current situation.
  • Dismisses less favourable outcomes for more favourable outcomes.
  • Always reaches a collective decision that the entire colony can agree on. The anti-fanaticism fail-safe means the swarm will never schism between two sites, but will always reach consensus.
  • Makes complex decisions in a timely fashion, rather than leaving the swarm unprotected and without a hive for too long.

The bee dance-to-consensus system is arguably superior to just about any human collective decision-making system. Even the USA is technically more of an oligarchy than an actual democracy, to say nothing of the more blatantly rigged electoral systems around the world.

DLT technology and cryptocurrencies present a unique situation where it's not only possible to program a democracy, but essential for the survival of a network to ensure it's done effectively.

Nguyen names Ethereum as one of the projects that effectively embodies these characteristics.

"Ethereum demonstrates a number of these network signals, which suggests a defensible community with high growth potential is being built. With the impending transition from Proof of Work (PoW) to Proof of Stake (PoS), Ethereum is showing it can proactively adapt its consensus and governance structure to the usage of its community," Nguyen said.

"All participants in the network are incentivised to continue developing the platform in an innovative direction, providing feedback and working collaboratively to achieve solutions. This exemplifies aligned incentives and is a core characteristic seen in the most adaptable decentralised networks in evolution."

One clear example of this proactive adaptation is the Ethereum Ice Age. This little code tweak may have flown under the radar of many initial speculators, but someone looking for insect-like characteristics, in the form of sustainable decentralisation, might have found it much more interesting.

The Ethereum Ice Age

Ethereum is currently using a "proof-of-work" (PoW) mining system. Much like bitcoin, it uses a decentralised network of miners using their computing power to secure the network, mine blocks and earn rewards for doing so. Their interests are aligned with the Ethereum collective because they're appropriately incentivised.

But what happens when those incentives are no longer in the best interests of the network?

The technology wasn't there at the time, but the inherent scaling problems of blockchain technology mean it can get bogged down under too many transactions. This wasn't a problem initially, but the growing popularity of cryptocurrencies brought it into sharp focus, with bitcoin and Ethereum both grinding down under the weight of too many users and experiencing spiking transaction fees.

Ethereum's long-term solution for this is a switch from PoW mining to "proof-of-stake" (PoS) mining. PoS systems let people become miners and help secure the network simply by holding enough coins in their cryptocurrency wallets. The peculiarities of Ethereum's public blockchain systems mean this switch requires the entire community to back the change and collectively agree to update their software with a "hard fork" upgrade.

But forks can go wrong, and communities can schism over disagreements to fragment into multiple competing coins, to the detriment of everyone. This has already happened to Ethereum once, with the competing Ethereum Classic fork spawning from an ideological schism.

Ethereum's switch from PoW to PoS would be good news for the sustainability of Ethereum's ecosystem because it makes it faster and more scalable. But it would also be bad news for Ethereum miners. They'll lose a major income source after the switch, risk seeing their investments in mining gear lose a lot of value and stand to see more business competition after the switch. Ethereum developers were concerned that the event would schism the community again, and lead to another competing Ethereum PoW fork composed of those who refuse to upgrade the software.

The Ethereum Ice Age is designed to bring miners on board, even against their own short-term best interest.

The Ice Age, or "Metropolis Difficulty Bomb Delay and Block Reward Reduction" as it's formally known, is a ticking time bomb in Ethereum's code. It tweaks Ethereum's PoW mining algorithm to make it more difficult over time, and eventually completely impossible. It's essentially a slow acting poison to eventually kill Ethereum PoW mining entirely. The miners might not like it, but it's still in their best interests to support the switch to PoS.

The Ethereum Ice Age is one example of how decentralised systems can proactively adapt, and incentivise all component parts towards the same goals.

The Ethereum network has been deliberately programmed to bring on some of those bee-like decision-making techniques. It transparently puts forward the information for all, puts a hard time limit on the process and ensures that the entire Ethereum hive is unified towards the same goal.

Bitcoin and bad decentralisation

Conversely, bitcoin might be an example of a poorly decentralised network. It doesn't align the goals of its disparate participants, doesn't incentivise the community towards consensus and makes decisions in a fairly opaque way.

These issues have led to countless schisms and the fragmenting of the bitcoin network, to the detriment of everyone.

For example, Bitcoin Cash was created by upping the bitcoin block size to 8MB. It was intended to be a quick fix to the scaling problems hitting bitcoin. The move was opposed by those who didn't want to foot the extra data storage costs for a larger block size, and many of the core developers who didn't want to share power with a bandaid scaling solution.

The end result was a simple fix that fragmented the coin and gave bitcoin new competition. Now development efforts, market share, users and more are split between bitcoin and Bitcoin Cash, and both insist that theirs is the "real" bitcoin. The bitcoin.com domain name is actually locked up for Bitcoin Cash now, much to the consternation of devout bitcoin users.

The same thing has happened over and over again. Bitcoin Gold was another attempted fork, created by a subset of miners who were dissatisfied with the influx of high-powered ASIC mining hardware in the network and wanted to earn more rewards for themselves.

Now that it has fragmented so many times, bitcoin has been left with a limited number of experienced developers who tend to run the show with a top-down management style, and a relatively homogeneous user base. With the scaling problems still unresolved, Bitcoin's remaining users have gradually shifted the coin's goalposts away from being a payment system and towards being some kind of "digital gold" that simply stores value.

The cryptocurrency space would be very different right now if bitcoin was decentralised more effectively, and better able to unify the incentives of its users to avoid all the schisms.

Is decentralisation the future?

If a study of insect behaviour lets one pick out the most sustainably decentralised networks, then the million dollar question for someone who wants to use these characteristics to pick investments might be whether decentralisation is really the future.

Nguyen thinks so. He points out that decentralised systems foster more innovation than centralised ones, and that innovation is infinitely better at creating value than stagnation. It's survival of the fittest, and in the extraordinarily fast-paced cryptocurrency space, being able to evolve quickly is essential for survival.

"Innovation is encouraged through supportive, meritorious and incentivised networks. All of these things facilitate the flow of information and promote an environment that is more conducive to agile iteration and feedback," he says.

"Innovation is important because it generally comes before value creation. But both components are needed to maintain a community. Innovation attracts participants and evangelists, but without significant and sustainable value creation, this community will be abandoned in favour of a more valuable substitute."

"Centralised legacy systems show less of these characteristics compared to burgeoning decentralised cryptocurrencies. The conditioned information silos and strict hierarchies that are commonplace in legacy systems can block the prerequisites to innovation. The movement towards decentralised systems is inevitable. This has been proven by decentralised networks in nature that have happily existed for millions of years, such as that of honeybees and ants."

Many cryptocurrencies have recognised this. For example, the IOTA Ecosystem project was specially designed to achieve exceptionally quick development through effective decentralisation.

It's a jungle out there, and for a cryptocurrency to survive it needs to evolve quickly. Many industry predictions see the cryptocurrency marketplace narrowing down to just a handful of coins in the long run, as the best in each category rise to the top. The remainder are probably going to be going to zero.

Following insect cues to pick the fittest and fastest-evolving coins makes a lot of sense.


Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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