2 min read

Why lowering costs matters

I've been thinking lately about the idea of trying to lower costs. In particular, I've been reading about Ethereum and some long documents on the website are dedicated to reducing costs. This seemed pretty boring. Why care? Why do costs matter?

One good answer is about accessibility and for lack of a better term "profitability." This is not a purely capitalistic idea, however. I've been reading Proof of Stake recently, and one of the things Vitalik Buterin addresses directly is costs, and why care about lowering them, in the essay "The Value of Blockchain Technology." The framing and wording are, as usual, laden with crypto wonk jargon. Despite that, the argument is clear: At high costs, some applications that could make sense, that could add value, just don't. Lowering the costs of an approach means we can use it in more situations where it could be useful.

The frame focuses (if I recall correctly) on dollar-value costs, and incorporating others into a formal model poses problems, however we can and should informally include all kinds of costs when thinking about this. That means externalized costs, too, like environmental ones. Incidentally, those environmental costs are one reason Vitalik gives (in a different essay, I think) to prefer proof of stake over proof of work.

The core idea here is that the more it costs to do something, the less widely it will make sense to do that thing. If you have to write on clay tablets and it takes hours to produce useful output, then it doesn't make sense to use that except where you really really need to put something in writing. You would only write in contexts where you gain more than you lose. Conversely, if writing is cheap as typing, or sketching notes on paper with a $5 for 100-pack pencil, it makes sense to use it for a lot more things, like silly notebook blogs. (This is also true for distribution costs which are to some extent bound up with writing costs.) Thus, as you lower the costs of some activity or technology, you can expect wild new applications and activities to spring up in the wild downstream of that. These are the things that don't make sense at a higher price, but can exist when lower costs make them more valuable than they are a pain in the butt to realize.

There are lots of examples of this in the wild. Language, writing, the printing press, analog and digital computers, computer networking, and the Internet are all examples. Possibly other examples from industrial, transportation, and shipping advances include: Manufacturing, bicycles, cars, sailing ships, steam ships, modern cargo ships, and the shipping container.