Building Blocks — Part One

Alice hands Bob her Concert Ticket

When Alice gives Bob a concert ticket, it is no longer in her possession, and the ticket is now in Bob’s hands. This simple “transaction” that happens in the physical world had not been possible in the digital world — until now. The reason for this is because the internet works like a giant copying machine. Everything we send over the internet is necessarily a copy. When Alice sends Bob a concert ticket, she still retains the image of it on her computer. The provenance of digital property over the internet is, therefore, difficult to verify. We cannot know who owns it and we cannot be sure if it was modified before we receive it.

Consider the concept of unique digital property with the ability to transfer it over the internet between users. Imagine the ability to send (peer-to-peer), concert tickets, identification cards, certificates, and even money between digital devices. This breakthrough is called value-exchange, and it has been made possible by blockchain. It is why the technology is becoming known as the internet of value.

We can now create digital property that behaves like real-world physical property but is transferable around the world at the speed of light.

Why is this important?

1. Digital Property

It used to be the case that when we bought something, we gained a physical asset. Digitisation means we now own nothing.
Media is increasingly a subscription service tied to content providers and their terms of use. In the past books, music, movies, and computer software could be resold in the second-hand market, gifted or passed on to younger generations. While we are still paying for content – only now we end up with no assets that can be transferred or resold.

2. Information Provenance

The internet is like a copy machine. Therefore, information both leaves a trail of activity and can become difficult to verify. We cannot receive a message from another user and be sure it is the original message. Original ownership of the message is unverifiable. The internet requires us to use a central agent to verify both users and act as an intermediary. While convenient it means both users must surrender identification and contextual information to the agent. The intermediary becomes a hub of information which it can potentially exploit for commercial purposes.

3. Peer-to-Peer

Most services on the internet require third party approval. At a minimum, it may be email address identification, but once payments are involved, we need approval from our bank. Our activity on the internet, therefore, becomes immediately attached to us and is easily trackable.

Consider how we visit the movie theatre. When we pay for a ticket to see a movie we have the option to pay in cash. We don’t need to identify ourselves (beyond, maybe, flashing proof of age). Now imagine another theatre that required, in addition to payment, further information. For example: who we are, who we bank with, where we live, the names of all the movies we have seen, the names of all the movies we have considered watching, the number of movies we have seen, how regularly we watch movies and what times of the day and week we watch movies. Given a choice, we may not choose the theatre where we are forced to disclose all our information and preferences. On the internet, we do not have this choice. Streaming services collect this type of information on its customers because aggregating (and potentially reselling) the data creates enormous value for them.

With cryptocurrency, we can pay for online services by “cash”; transfer money directly to the vendor, comparable to how a physical cash transaction works in the real world. We don’t need to surrender more information than we want to.

Blockchain

It is difficult to overstate the significance of decentralised technologies. Peer-to-peer goes beyond person-to-person. We will be able to communicate directly with devices with no need for a central server in the cloud. Devices will be able to interact with each other. The technology removes a centralised point of failure, risk and operational bottleneck, providing scope for enormous efficiencies and innovation.

These are just some of the implications of blockchain technology. For a more thorough exploration, we would recommend reading “Blockchain Revolution” by Don Tapscott and Alex Tapscott.

This article is the first part of a series focusing on how blockchain technology works and how to think about the digital assets produced by it.