Three Mental Models for Discussing Crypto Research

Original author: RainandCoffee

If someone were to ask me to simplify the journey of life, I would say it is a long journey of decisions (ultimately, it will be a decision tree). In this case, every decision I make will redirect the path elsewhere, and these decisions will collectively change future outcomes. So my question is, how can we make the "best" decisions to produce favorable results?

Decision Tree

Let me introduce you to the concept of Mental Models, how these models help us make decisions, and how they increase our chances of achieving our goals. In this case, how do we make decisions that can positively impact our crypto journey?

The idea of mental models is to find a way to evaluate how certain things work, and then by understanding how something operates, it will help you make better decisions in hindsight. Essentially, as long as we do not repeat the same mistakes, we can maximize efficiency.

This means that by understanding how a certain model (or protocol) works, we can guide our decisions into beliefs. These decisions often have different lengths of commitment and must all involve trade-offs. These trade-offs may be small, but in other cases, they can have significant impacts.

In most cases, we just go with the flow without asking ourselves why. A good example is that we lock onto narratives without understanding the fundamental catalysts specific to crypto. Most people might do some searches on Twitter or Google to get some "ideas" about a project. However, this is the farthest most people can reach, which is not helpful in determining beliefs, and in most cases, it leads to failure.

So what can we do? We can use established mental models to simplify the concepts of a project. I do not mean knowing that x enables x, but rather identifying the core components of a protocol and how they interact, as well as the catalysts within the scope. In most cases, this should make it clear what kind of beliefs we should form.

The first model we will explore is First Principles. The concept of First Principles is to find the most effective way to solve a problem from the ground up. When applied to crypto, we can use it to compare similar protocols and ask ourselves whether this way of doing something is more effective than another way of doing something.

If it is, then it will surely light something up in your brain and increase your belief. As for how to find the most effective way, you can ask yourself some questions:

1. What systems support this protocol? How do they operate?
2. Are earlier versions of this protocol more effective? Can we innovate in this regard?
3. If we can innovate, what different approaches can we take?
4. Are there competitors better suited to these parameters?

If you find yourself realizing that this version is more effective than previous versions, then you have discovered obvious value. And if you find yourself realizing that previous versions are better suited to these parameters, then, in most cases, you should probably move on (unless there are other catalysts favoring this version).

First Principles

The second very useful model is One Level Higher, which is the concept of determining whether a protocol has more effectively changed the entire underlying concept or if it has merely changed a cog in the system. For example, does a certain protocol merely fork an existing protocol and make slight changes on top of that, or is it changing the entire underlying system (in a more effective way)?

In many cases, redoing something in a trivial way does not add much value. However, if you innovate something in a completely different way, you are more likely to create something original that can add value. What you are trying to determine here is essentially the level at which a project is optimizing.

It is also important to continue exploring those protocols that give you beliefs. Here, over time, you should reassess which catalysts are coming, which stories are unfolding, and how to position yourself best to respond to them. If you realize there is a problem somewhere, you should try to address it.

Therefore, if you realize that your initial belief was wrong, there is no harm in changing it. This will ultimately lead to what we call regret minimization. Essentially, you should always choose the long-term decision that you will regret the least under your current mindset. Thus, by continually reassessing your decisions, you will be able to identify the best decisions.

Let’s turn to something more personalized—my preferred way of working and whether I can optimize it. When people ask me to describe my working style, I use the concept of Flow State. The best way to describe Flow State is to think of it as "being in the zone," which is essentially a state where you are fully immersed in something.

This is often considered very positive, and I tend to agree, but let’s look at the other side of the coin. Does this way of working have negative effects? By entering a Flow State, I tend to bury my thoughts in certain information and sometimes shut down due to other updates. This can, and has, led me to sometimes miss out on things I should have been aware of.

I think a good way to do better in this regard is to look at the Pareto Principle. The idea of the Pareto Principle is that most of your results come from a few causes. Essentially, the idea is that the vital few will change the results more than the trivial many. Therefore, spending some time improving yourself in certain areas, staying updated by researching new things, and even seeking advice from others—ultimately this will lead to better outcomes.

Pareto Principle

Finally, let’s look at Bayesian Learning Theory, particularly Bayesian Inference. The idea of this theory is to update the probability of something as you gather more available information or evidence to support it. In the crypto space, we can use it to modify our beliefs as we receive new, more timely information.

If you realize that a decision you made in the past was wrong, then after obtaining new information, you have the ability to reassess and change your beliefs to align with your latest state of mind. This will ultimately lead to a much higher probability of a belief being effective (Bayesian probability).

This is obviously quite different from what I have written in the past, but I hope you can find some value in this article.