The First Principles of Crypto and Blockchain

First principles, in the context of philosophy and reasoning, refer to fundamental truths or basic principles that are self-evident and do not rely on any further justification.

These principles serve as the foundation for logical reasoning and understanding.

In other words, they are the basic building blocks from which all other knowledge and concepts are derived.

So what are the first principles of crypto?

The History of the Crypto Industry

The history of the crypto industry, and by extension the blockchain movement as a whole, begins with the release of the Bitcoin whitepaper back in 2008. 

Other attempts to create a digital means of value exchange already existed at the time. For instance, projects like eCash, Hashcash, and Bit Gold predate the Bitcoin whitepaper. But while Bitcoin may not have been the first project to conceptualize trustless electronic exchange, it is seen as the project that ushered in the birth of the cryptocurrency movement. 

In fact, many of the principles outlined in the original 2008 whitepaper have since become the first principles of crypto and blockchain.

1. Community-Driven Development 

Bitcoin’s original whitepaper was published by a person or group known as Satoshi Nakamoto. Despite countless theories, the identity of the person or people behind this alias remains unknown to this day.

While the idea of not knowing the founder(s) of a project would usually be enough to alienate adoption in most industries, many cryptocurrencies are able to survive without a figurehead or leadership hierarchy.

As Bitcoin, and its underlying blockchain technology, are open source, anyone can develop changes to the network and propose them to the broader community.

This first principle has allowed many cryptocurrencies to be entirely community-driven. Often, the creator of the project matters a lot less than how users within that system make it their own.

Not all cryptocurrencies and blockchain projects are open source. However, letting the community control at least some portion of the network’s future is a prevalent feature of most successful projects in the space.

2. Trustless Transactions

Enabling the existence of a trustless network is one of the first principles of crypto, blockchain, and other decentralized systems.

In the introduction of Bitcoin’s whitepaper, its author(s) critique the “inherent weaknesses of the trust based model” that is used by traditional financial systems. 

“What is needed is an electronic payment system based on cryptographic proof instead of trust,” the whitepaper states. Crypto projects instead allow “any two willing parties to transact directly with each other without the need for a trusted third party.”

Sure enough, trust is in very short supply in the world today. 

In the aftermath of numerous financial crises and the failure of governments and corporations to act within the best interests of the many, people have become hesitant to place blind faith. 

At the time of the cryptocurrency movement’s birth, the world had just witnessed the 2007–2008 financial crisis. In its aftermath, the arrival of a system that would remove the need for trust was ripe for public adoption.

Cryptocurrencies are powered by provable code that automates the exchange of value between people on a peer-to-peer basis. These trustless systems remove the need for having blind faith by treating users as equal and allowing anyone to review pertinent information related to transactions at any time.

3. Transparency

Married closely to the viability of a trustless system, transparency is a first principle of crypto and blockchain that is incredibly important to the industry’s success.

Blockchains are public ledgers that contain a record of every transaction that has ever taken place on a network. 

Beyond even just the cryptocurrency movement itself, blockchain’s ability to ensure transparency has made the technology viable in a broad range of other industries as well.

When it comes to crypto, most cryptocurrencies allow their users to view all transactions that have taken place in the network through simple tools known as block explorers. This transparency allows people to feel secure, as they can independently verify how value is being traded.

The crypto movement has also seen the birth of smart contracts. These are programs that allow processes to automatically be completed once set criteria have been met. For instance, smart contracts can be used to store a bet between two participants, which is then paid out automatically.

Since smart contracts are automated and can often handle large sums of money, it is incredibly important that people feel secure in the fairness of these smart contracts. 

Fortunately, with transparency being a first principle of crypto systems, people can easily carry out smart contract audits to make sure that these automated programs are as fair as they claim to be.

4. Immutability

Another first principle of cryptocurrency and blockchain is the concept of immutability. Not only are transactions on a blockchain transparent, they are also impossible to modify. 

Having a permanent and unchangeable record allows users to feel comfortable adopting the decentralized systems. 

This principle also has a range of other benefits and use cases, such as recording historical information and even allowing messages to exist within the blockchain that are immune to censorship.

Using a block explorer tool like PulseChain Scan or Blockchair lets you see every transaction that has ever occurred in a decentralized crypto network. Thanks to blockchain technology being immutable, we can actually find evidence of another first principle of crypto—taking power away from traditional financial institutions—stored within the very first Bitcoin transaction.

5. Redistributing power and removing intermediaries 

As one of the technology’s first principles, cryptocurrencies remove the need for intermediaries and allow power to be given back to users.

Within an immutable message stored in Bitcoin’s genesis block, we can find evidence of why this has remained such a core principle of the crypto movement. 

A message stored in hexadecimal characters within the first ever Bitcoin transaction reads as follows:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” 

This message is a reference to a newspaper article published on the day of the Bitcoin network’s launch in 2009. It is interpreted as a condemnation of the financial intermediaries, like banks, that played a significant role in the 2007–2008 financial crisis.

Decentralized systems mitigate the need for intermediaries, allowing people to interact with each other directly in centralized systems. This allows cryptocurrencies to disrupt the stronghold of traditional financial institutions and redistribute power back to the users themselves.

6. Democracy through decentralized consensus

The first principles of democracy and decentralized consensus are incredibly important in the cryptocurrency industry. They allow projects to survive without the risk of becoming the very systems they were designed to replace.

Whereas traditional financial systems have historically been run by powerful people and institutions that act within their own interests, decentralized systems aim to act within the interest of the broader network of users.

But without third party intermediaries like banks to mediate transactions or a figurehead to control projects, decentralized systems need a way to achieve consensus. This is where consensus mechanisms come into play. 

At the current point in time, Proof of Work (PoW) and Proof of Stake (PoS) serve as the most popular consensus mechanisms used by the majority of cryptocurrencies. Both grant users the ability to verify transactions, a voice in deciding when to adopt proposed upgrades, and the right to have their say in a network’s future.

7. Freedom

Freedom is a first principle that provides core insight into how the cryptocurrency industry has gotten to where it is today. It is the reason we see so many different cryptocurrencies and decentralized finance projects exist, innovate, and compete with one another.

In this context, freedom means getting to store your own assets and being in control of the decisions that impact you the most. It also means being able to choose the solutions and projects that make the most sense to you. 

Arguments and conflict are plentiful anywhere and everywhere that people talk about crypto. But this is not a bug. Instead, it's actually a core feature.

Open source cryptocurrencies can be forked at any time, allowing users to branch off when they do not believe in the value of a proposed upgrade. In addition, the abundance of crypto projects on the market today means that you can find the projects that best align with your own values and goals.

Freedom within the cryptocurrency movement also means that you can choose to support the first principles and fundamental values that you believe matter most. By design, the landscape is free from a central voice—what you make of it is in the hands of no one other than you.