Surfacing mental models, weekly
Read 3 articles to learn 10 mental models this week, including:
- Entropy
- Caching
- Ecological niche
- Opportunity cost
- Stacking functions
- Diminishing returns
- Economic moats
- Incentives
- Network effects
- Governance
Melting Asphalt — Entropy and Rebootable Processes
Entropy
Entropy is just a fancy word for ‘number of possible arrangements’. Entropy is a count of how many ways you can rearrange the ‘insides’ of a thing (its microscopic internals), while keeping its ‘outwardly’ (macroscopic) state unchanged.
The odds of seeing entropy decrease are effectively zero, not because any physical law compels it to be so, but because of sheer statistics — there are overwhelmingly more ways for the energy to be spread out than there are ways for the energy to be contained (Entropy Explained, With Sheep)
Caching
A cache is a high-speed data storage layer which stores a subset of data, typically transient in nature, so that future requests for that data are served up faster than is possible by accessing the data’s primary storage location.
Trading off capacity for speed, a cache typically stores a subset of data transiently, in contrast to databases whose data is usually complete and durable. (AWS)
Ecological Niche
A species’ niche is its ecological role or “way of life,” which is defined by the full set of conditions, resources, and interactions it needs or can make use of. Each species fits into an ecological community in its own special way and has its own tolerable ranges for many environmental factors (Khan Academy)
According to the competitive exclusion principle, two species cannot occupy the same ecological niche in a habitat if they are competing for the same resources (Biology Dictionary)
Stacking Functions
Opportunity cost
An economics term that refers to the value of what you have to give up in order to choose something else. In a nutshell, it’s a value of the road not taken (Shopify)
Opportunity cost = return of most lucrative option not chosen — return of chosen option (Investopedia)
Stacking functions
“a single input or element that serves multiple functions”
Stacking functions is a primary principle of permaculture and basically refers to elements in your life having multiple functions, instead of a single function (The Art of Stacking Functions)
In permaculture we speak about getting many yields (outputs) from one element (thing) in your system (Heathcote.org)
Diminishing returns
The law of diminishing returns states that in all productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower incremental per-unit returns (Wikipedia)
When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller (Auburn.edu)
Turing Capital — Blockchain Moats
Economic moats
Sustainable competitive advantages. Economic moats are almost never stable, either getting a little bit wider or a little bit narrower every day (Measuring the Moat — Michael Mauboussin)
A durable competitive advantage that protects returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns (adapted from: Hurricane Capital’s collection of quotes from the-above Maubossin piece)
- Supply-Side economies of Scale
- Demand-side Economies of Scale (network effects)
- Brand
- Regulation
- Patents and Intellectual Property
Incentives
Something (financial, moral, coercive, natural/intrinsic) that motivates an individual to perform an action (Wikipedia)
“Never, ever, think about something else when you should be thinking about the power of incentives.”
— Charlie Munger
— Charlie Munger
Network effects
A network effect (a.k.a. demand-side economies of scale) occurs when a product or a service becomes more valuable to its users as more people use it (a16z)
Potential network effects in blockchain: data, protocol, token, monetary, security
Governance
The mechanism for change in a system (Fred Ehrsam)
another take: Governance refers to all actions such as decision-making processes that are involved in creating, updating, and abandoning formal and informal rules of a system. These rules can be code (e.g. smart contracts), laws (e.g. fees for malign actors), processes (what must be done when X happens), or responsibilities (who must do what) (Leopold Bosankic)
another take: Governance of a blockchain amounts to having authority to update its code, which might be done either for technical reasons or to change critical constraints or assumptions (such as the rate at which new coins or shares are issued).
Blockchains must rely on a governance process in which the users agree upon a set of requirements for the underlying software code to be changed, including provisions for dispute resolution, sanctions for violating the agreed upon rules, and procedures for enforcement of penalties (Oxford — Corporate Governance and Blockchains)
