How to think about the Blockchain
The first blockchain was conceptualized by an anonymous person or group known as Satoshi Nakamoto in 2008. It was implemented in 2009 as a core component of Bitcoin. The words block and chain were used separately in Satoshi Nakamoto’s original paper, but were eventually popularized as a single word, blockchain.
Bitcoin or any other digital currency isn’t a file saved somewhere. It is a representation of the transactions taking place on the Bitcoin’s Blockchain, where each transaction is verified and approved by a large peer-to-peer network. Apart from digital currency, blockchains can be programmed to record anything of value and importance to humans securely like land records, birth certificates, identities, medical records, etc.
A lot has been talked about the opportunities and possibilities of this technology in the domain of finance, viz. micro-payments, currency conversions, remittances, insurance, Blockchain IPOs, Altcoins etc. I will stray away from these topics as much as possible. Partly because enough has been written by experts in economics and partly because the immediate transformation felt by people will most likely not be in this domain. I truly believe that for the technology to be adopted, it’ll have to ease in into the world of finance, much like the internet did, rather than be this gift from a mysterious person here to change the face of finance. Again, I’ll be the happiest if proven wrong.
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Although revolutionary, it would benefit us more if we stop thinking of the Blockchain as this revolutionary technology (which it is) and start thinking of it as a tool that secures and embeds trust in systems. “Any design that incorporates lightness and thinness conveys the impression of being smaller, lesser, and humbler. Pity gives way to respect when much more value is delivered than originally expected” says John Maeda in his book The Laws of Simplicity. We can be more forgiving if the technology which is yet to mature misbehaves, if we stop thinking of it as the David set out to defeat all the evils that exist in world. If we just stop thinking of it as a doorway to a new world order.
Starting small
The Blockchain needs to be thought of as a tool to be used to secure trust in systems rather than a solution to all of the world’s problems. Although the idea is revolutionary, it’s value is in the execution. The killer app for blockchain will probably not come from a large company. It’ll come from the fringes, maybe a few kids in a garage somewhere tinkering with it. We need to start at a small scale. Simple applications. Maybe a small house or maybe a room in the house.
Hey! They are calling Blockchain the new internet. What does that even mean?
The internet ushered in a new era of entrepreneurs and industries. Although some feel, it failed to fulfill it’s promise of being democratic, of providing equal opportunity to all stakeholders. Much like the era before, the internet has turned into a monopoly with a handful of companies controlling majority of the traffic and thereby majority of the wealth. All this at the expense of privacy of the people these companies generate wealth from. Jaron Lanier argues in his book “Who owns the future” that the middle class is increasingly disenfranchised from online economies. By convincing users to give away valuable information about themselves in exchange for free services, firms can accrue large amounts of data at virtually no cost. Many feel that Blockchain might become a way for these firms to start being accountable. It’s a long shot, but one that we need to get right.
The internet was not meant for distribution of value, it was meant for sharing of information. It made copying of data easier, it failed in enabling transfer of value.. Money, is not like a selfie, a tweet or any other information good. You can send the same selfie to all your friends, but not the same dollar. The money you send needs to leave your bank account. The same dollar cannot be used for two transactions. This is called the double spend problem. For people to be able to do business on the internet, there was a need for intermediaries which people could trust. Banks and number of tech companies jumped at this opportunity. They solved the double spend problem by clearing every transaction through central databases of one or many third parties. Each third party took a cut of the transaction in fees. The settlement in many cases can take days. The blockchain promises to reduce transaction costs and settlement times drastically without the need of a central authority.
Satoshi designed the system to work on top of the internet, but it can run without it if necessary. Dictatorial governments could shut down the internet and the blockchain could still function as a mechanism for transaction. You could perform transactions over shortwave radio, morse code or even a series of emoticons in text messages. Unlike the internet, the blockchain is a much more inclusive system.
References
- Blockchain revolution by Alex Tapscott and Don Tapscott
- Who Owns the Future? by Jaron Lanier
- Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia by Anthony M. Townsend
- The Laws of Simplicity by John Maeda
- How the blockchain is changing money and business by Don Tapscott (TED Talk)
- How the blockchain will radically transform the economy by Bettina Warburg (TED Talk)
P.S. A lot has been talked about the opportunities and possibilities of this technology in the domain of finance, viz . micro-payments, currency conversions, remittances, insurance, Blockchain IPOs, Altcoins etc. I have tried to stray away from these topics as much as possible.
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