The Technology of Trust

How the Blockchain will revolutionize digital prosperity

I was in Toronto recently and sat down with my friend and mentor Don Tapscott to chat about his latest book Blockchain Revolution: How the Technology Behind Bitcoin is changing Money, Business, and the World, (co-authored with his son, Alex Tapscott).

Wait, what is this “Blockchain”?

At its core, the Blockchain is a decentralized database that is continuously updated and shared by everyone on the network. In other words, it’s a public and transparent ledger of all the valid transactions that have taken place.

Blockchain allows the network to make peer-to-peer transactions without the need for middlemen. So for example, I can send you money directly without having to go through a bank or PayPal. Since the ledger is shared and updated by the whole network, it’s very difficult to deceive the system or tamper with the information without alerting everyone else. Everyone owns a full copy of this ledger, meaning no one person can take control of it, or alter without anyone noticing.

Every ten minutes, a batch of transactions is verified and stored in a “block” that gets added to the preceding block in chronological order, forming a heavily encrypted “chain” that becomes nearly impossible to corrupt or change. Hence: a chain of blocks or the Blockchain. (For more technical explanations read this or this.)

First created by Bitcoin inventor Satoshi Nakamoto (whose identity remains hidden and disputed to this day) in 2008 as a part of the original source code for the cryptocurrency, the Blockchain has since inspired countless other implementations — sometimes referred to as Blockchain 2.0, to distinguish between Bitcoin itself and the philosophy of the programming that drives it.

Don and Alex call these massively collaborative, peer-to-peer transactions “The Trust Protocol” and argue that it will have a massive impact on business because it shifts power away from corporate interests and back to the people through networks of distributed power.

The Second Generation of the Web

Don and Alex believe that the Blockchain represents an important evolution in the web and how we use it. We’re transitioning beyond an era of information (or Data Abundance as I call it) and into one of value.

Their research revealed a disappointing truth: despite the massive amounts of data available online, global prosperity was waning. How can the 51st percentile be declining when access to information and new digital platforms were supposed to herald in an age of financial liberation?

“Turns out that a lot of the benefit of the digital age has been captured by powerful forces — big middle men like large social media companies, and incumbents like banks,” Don told me. These players own the network because they own the transactions, we need them to verify the information so we can safely use the web. “What if there was a platform for the peer-to-peer creation, protection and exchange of digital assets? What if you didn’t need powerful intermediaries to establish trust?”

That’s the basis for the transformative potential of the Blockchain, because beyond just money, the technology that powers BitCoin can actually be applied in many other ways. For one thing, it’s programmable, so we can create cryptocurrencies that represent things other than money, like property, digital assets, shares in a company, or even an election vote.

In Honduras, the government is using Blockchain technology to build a highly secure database of land titles. Nasdaq is exploring how to use blockchain technology to create more transparent governance systems to track private market trades.

These transactions can minimize the need for human verification since the conditions for successful use of the cryptocurrency can be programmed right into each unit. For example, an organization can give employees a healthcare allowance that will only be redeemable at health care providers. Or an office supply budget that can only be used to buy office supplies.

The open nature of the blockchain makes transactions within organization more transparent and most importantly, it eliminates the need for intermediaries helping to create a true peer-to-peer economy.

The Internet of Things and Blockchain

The Trust Protocol becomes more valuable as we start to look at its application for the Internet of Things. As processes become more automated, our devices our also becoming smarter and more complex. Having a transparent and trusted infrastructure to manage the rise of smart automation will become vital.

From a connected device perspective, imagine a smart home where appliances can self-regulate when they operate to minimize the electricity bill and your car will be able to schedule and pay for it’s own oil change.

Companies like slock.it are already working on making it easy for anything to be wired with blockchain technology. Their slogan, “Rent, sell, or share anything — without middlemen,” reflects Don and Alex’s vision for a true sharing economy where individuals can deal directly with each other whether they are renting a room or selling a lawnmower.

Prosperity & Trust: The Real Challenge of an Open Web

For Don, the real opportunity here isn’t about your dishwasher negotiating with your blender, but about setting the foundations in place in order to help the maximum number of people prosper. “We are bringing billions of people into the global economy and blockchain is giving us the opportunity to have another kick at the can,” he says. “We need to be focused on protecting land rights, creating healthy entrepreneurship ecosystems, and making sure that value creators are getting fairly compensated for what they are making.”

There’s another area that’s desperately in need of some transparency: politics. “I’ve been writing a lot about the crisis of legitimacy of democratic institutions and the blockchain has informed much of my thinking. Imagine a world where everyone gets to vote because their name is actually on the list, but where politicians get elected with smart contracts,” he said. “They don’t get paid unless they execute on their agreements with citizens, instead of the lobbyists and corporate interests that fund them.”

At the most basic level, Blockchain will help dramatically reduce government corruption with the introduction of public and transparent ledgers that will account for every dollar.

Gyges’ Ring and the Hearts of Men

The Blockchain brings about an unprecedented fusion of technology and trust, ironically, removing the need for us to have faith in each other at all. The reason we need such advanced, incorruptible algorithms is that we, as a species, seem incapable of resisting temptation — as evidenced by the broken promises that have become all too commonplace in our governments and corporations. These systems have failed us because we were asked, as citizens and consumers, to blindly believe in these institutions only to be let down.

Plato wrote, “All men believe in their hearts that injustice is far more profitable to the individual than justice.” Why not face up to this very human flaw, and replace it with radical transparency? Why not create systems inherently designed to keep us honest?

I find the Blockchain to be refreshingly pragmatic. It’s the solution to the “this is why we can’t have nice things” phenomenon, whereby one group of people ruins everything for the rest of us. And it’s time to stop letting them get away with it. The Blockchain gives us the ability to hold each other accountable. That’s a system I’d believe in.

I’ll be giving away some digital copies of Blockchain Revolution to my newsletter subscribers next month as well as sharing more excerpts of my conversation with Don. You can join the fun here if you’re interested. I write about digital culture, creativity, productivity, and tech.