Why is Blockchain such a big thing?
Asked about Blockchain, a lot of people speak about a paradigm shift. And with every new paradigm a new jargon comes up that is hard to catch.
So for people entering the space that can’t afford to spend six straight weeks doing nothing else but reading about the topic during the day and attending blockchain meetups at night, all those terms seem obscure and the motivation of these people questionable: What are smart contracts, ICOs, DAOs, ledgers and wallets? There are people raising 100m USD and they say they are not in for the money?
Before explaining every term, you might want to start with a different approach which is closer in explanatory power why Blockchain is such a big thing: What is the motivation of the people who are so excited about the technology? What is their drive behind it? What is their hope?
Technology & Dreaming
As with every new technology, the imagination of people are triggered in a way that may have not been before. When the Wright brothers were building the first ever glider (a forerunner of a plane) more than a hundred years ago, the power of imagination was ignited to the people witnessing this new technology. Some may have dreamed about seeing the world from above like a bird, some may have dreamed about reaching far-away distances in what probably seemed like a stone’s throw away. A lot of people started expanding their view of the world and the possibilities within.
And that’s case with every promising technology, it enables us to imagine things and see possibilities. New technologies enable dreams to get more realistic (even though some may turn out to be disappointments or even nightmares).
Vision of Opportunities
Many people in the scene still have this gleam in their eyes that tells me it is more than just the money. The scene deeply believes that blockchain will help us change society and create a future different from the conventional way of proprietary systems, gatekeepers and intransparent power structures. This is fueled by the ambition of the young Generation Y that is looking for jobs that do more than just pay the bills. We have a shot of changing how things are run in the old world.
Sure, there is speculation and a crypto trader scene has developed that is in only for the monetary gain which is okay. That is the price to pay for the success of mainstream adoption.
Open Source
But what are the fundamental reasons people are so excited about blockchain? For the first time open source projects can not only create, but also capture value. When Vitalik Buterin and his peers at Ethereum came up with the concept of an ICO, they did so since other sources of funding simply were not available.
Venture investors did not fund open source projects. They sometimes funded service companies around open source projects like Red Hat (Linux) or Automattic (Wordpress), but not in the way the mainstream adoption of their services would suggest. Wordpress powers nearly 30% of all websites, Linux runs more servers than any other operating system. Open source projects that we all take for granted were developed by an intrinsic community that pours hours and hours of unpaid work into it. Wikipedia has to beg every quarter for funding to keep their servers running, even though they serve the whole world with a free encyclopedia. It was sad to see how little society values these services that made our lives a better one.
It is easy to understand why these people that worked hourless on open source projects are so excited about capturing value: It is a means to fund the dream they set out to build anyway. It implies having the resources that open source projects never used to have. Most of those folks have been in open source long before it was lucrative. They are candid when saying they are not in the game for the money, even though they just raised 100m USD. They started when most projects did not yield any gains except respect in the community.
We do know the problem of open source in the real world. Solutions that create value but do not capture it are usually solved by the state or charitable work. Even though we have fared well with trying to align personal incentives with public interest, it oftentimes leads to inferior solutions for society as a whole known as the Tragedy of the Commons. Some people, including me, believe that the blockchain will see many public services evolve that benefit both their users as well as society and is superior to the current status.
Decentralisation
Not only the blockchain software favors decentralisation, also their members do. This is a tribe of people that does not foremost identify with the nation state and rather with their fellow blockchain peers around the world. The blockchain teams reflect that. ICOs see investors from around the world pour in. There is no dominating jurisdiction. We suddenly see organisations that go beyond national law.
That is a big motivation for some people of different origins: Libertarians for example have long feuded the powers of the nation states and saw their liberties chipped away. People minded with civil rights to information privacy that loath central data control are also involved as well as globalist, that would rather say the nation state goodbye sooner than later.
Blockchain potentially reduces the exchange ratios of national laws. As today, German investors rarely invest in US companies for the lack of understanding German commercial law (and vice versa), the same is true for Chinese investors and South African companies or Brazilian investors and Russian startups — you get the idea. If we take into account all 193 UN member states, we have 37.249 of these exchange relations.
Blockchain drastically reduces exchange relations, because it is universal code. The code will be executed no matter what some nation states say. If you understand the code, you understand the law. If, as some members claim, code has become law, is up to the reader. What is true in any case is that the blockchain already reduces transaction cost drastically and has for the first time in history enabled a worldwide market for investments.
Trustless trust
Trust is the base on how our society works. Simple transactions like going to the supermarket to buy milk is only possible due to trust mechanism that we rely on. There is obviously the law and our trust in it being enforced that places a high burden on being reckless in the street or straight out robbing people. There is also the mundane things like consumer protection that lets us buy the milk without smelling the freshness of its content first. Also, we can be sure that we can actually buy the milk with the money we have.
The state has the monopoly on such trust systems. This is changing right now with the blockchain. Through decentralisation the blockchain is immutable and its rules are self-executing. That again means that even the founders can’t cheat or suddenly decide that they changed their mind. You just can’t change it once it is out there, except for future transactions if there is consensus among the whole group. This is a big deal.
We can actually create organisations for the first time that govern themselves. We replace an often flawed central rule, where we rely on gatekeepers to hopefully do their job, with a transparent decentralised immutable process that is based on consensus. If that is good depends on how we use it, but it is definitely powerful.
Warning
But we are not there yet. We have been at this point of technological enthusiasm before. Many times. The last time was when the idea of the internet was born, a lot of hope has been put into this technology. The reality today looks disappointing: some of the players have gained monopolistic positions with questionable issues such as data privacy and security.
Blockchain is like a newborn and as such it needs a lot of attention and care-takers, righteous nourishment and an empowering environment to flourish. Right now, it might also turn into our biggest nightmare. It always depends on how a technology will be used. But one thing is certain, it will reflect upon us as humans. And it will function as a mirror and definately shape our worlds. As a wise man once put it “We become what we behold. We shape our tools and then our tools shape us.”
About the Authors:
Burak Yigen is a recent graduate from Copenhagen Business School & has been exploring human-technology relationship in general, AI and Distributed Ledger Technology in particular lately. Burak is Head of Community Building at Fractal Blockchain.
Julian Leitloff is Co-Founder & CEO of Fractal Blockchain. Fractal aims to ‘Tokenize Equity’ and offers user-friendly and relient onboarding processes for token sales. Julian has researched equity crowdfunding at Zeppelin University before co-founding Stilnest and Trustharper. Julian is one of Forbes Magazines 30 under 30 in 2016.
