Building Blocks — Part 2.1
What is the Internet?
Technological change is a force for economic growth and is tightly connected to economic history since technology both requires resources and produces new resources. Throughout history, we can identify periods which were dominated by a single new technology. The late 18th century and the industrial revolution is characterised by the invention of machine tools (textile machinery, mining and metallurgy). The 19th century saw extraordinary advances in transportation, most notably the steam engine. The 20th century’s key technology has been information gathering, processing and distribution. Information technology has given rise to terms such as ‘the information society’ and ‘the digital economy’, where knowledge has been codified and distributed across vast electronic communication networks. While this period encompasses the installation of worldwide telephone networks, the invention of the radio and television, and the birth of the computing industry, the internet stands out as one of the breakthrough technological advancements of civilisation. The Internet is the largest engineered system ever created by humankind, with hundreds of millions of connected computers and communication links.
The Internet and the digital economy is made up of billions of online connections between people, businesses, devices, data and processes. This interconnectedness has given rise to new business models, products and services, processes and has changed the culture of society. The use of information and data has upended conventional notions of how businesses are structured:
TechCrunch, a digital economy news site, noted, “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate…”
The Internet has been a king-maker for companies who harness and exploit information for aggregation, generating network effects and building platforms. The technology has disintermediated many industries, replacing dispersed middle-men with a single platform that captures information in ‘data silos’. Billionaire entrepreneur, Peter Thiel, famously characterised the primary goal of an internet start-up is to become a monopoly. Only by achieving this goal can firms capture and create lasting value; “competition is for losers”.
We now stand at the beginning of another major technological advance — described as ‘the second coming’ of the internet. Existing business models, processes, and society, in general, is set to experience an upheaval on the same scale as the first internet — an idea that even current internet companies need to be critically aware. Don Tapscott, co-founder of the Blockchain Research Institute, explains:
The first generation of the digital revolution brought us the Internet of information. The second generation — powered by blockchain technology — is bringing us the Internet of value
Blockchain is part of a new set of technologies collectively called Distributed Ledger Technology (DLT). DLT adds an entirely new infrastructural layer to the internet which allows the transfer of value rather than just information (described in part one of this series). DLT has the potential to replace traditional contracts and payment systems because it is tamper-proof.
To understand how Blockchain works, we first need to know how the internet works. While abstract networks can describe the power of the internet, the internet itself is a part of real computer networks. Once we understand how computer networks work, we can move away from the idea of Bitcoin as ‘tulips’ or ‘not being real’. After all, Bitcoin is currently the largest public blockchain in the world, and if it is not real because we cannot touch it, then the same can be said about the internet.
