On the Philosophy of Bitcoin/Blockchain Technology: Is it a Chaotic, Complex System?

TL;DR

This paper examines whether Bitcoin and blockchain technology can be classified as complex or chaotic systems, using information theory and statistical complexity measures, and concludes it is unlikely to become chaotic.

Contribution

It applies the Information Theory of Complex Systems and Crutchfield's Statistical Complexity to blockchain, providing a novel analysis of its systemic nature.

Findings

Blockchain has low statistical complexity, indicating it is not a chaotic system.

The analysis suggests Bitcoin is unlikely to enter a chaotic regime.

The study offers a new perspective on blockchain's systemic properties.

Abstract

The philosophy of blockchain technology is concerned, among other things, with blockchain ontology, how it might be characterised, how it is being created, implemented, and adopted, how it operates in the world, and how it evolves over time. This paper concentrates on whether Bitcoin/blockchain can be considered a complex system and, if so, whether it is a chaotic one. Beyond mere academic curiosity, a positive response would raise concerns about the likelihood of Bitcoin/blockchain entering a 2010-Flash-Crash-type of chaotic regime, with catastrophic consequences for financial systems based on it. The paper starts by highlighting the relevant details of the Bitcoin/blockchain ecosystem formed by the blockchain itself, bitcoin end users (payers and payees), capital gains seekers, miners, full nodes maintainers, and developers, and their interactions. Then the Information Theory of Complex Systems is briefly discussed for later use. Finally, the blockchain is investigated with the help of Crutchfield's Statistical Complexity measure. The low non-null statistical complexity value obtained suggests that the blockchain may be considered algorithmically complicated but hardly a complex system and unlikely to enter a chaotic regime.