Overview of Blockchain

Blockchain is a new technology that will probably change the world more profoundly in the next few decades than any other high-tech invention. Blockchain is the technology behind cryptocurrencies such as BitCoin, but its applicability goes far beyond digital cash. That’s because the globally distributed immutable ledgers enabled by blockchain provide a new model of collective trust that will radically alter many existing institutions and create new economic mechanisms.

Unlike most other technologies in the high-tech world, the blockchain will particularly impact the third world. Applications will be developed allowing third world people with smartphones to have the equivalent of bank accounts and to own real estate, and therefore to obtain economic power unavailable to them today. Though it will take a few decades to play out, third world life will be radically transformed. For more on this, see Don Tapscott’s TED talk.

Today’s Institutional Trust Model

In today’s world, collective trust is vested in institutions such as businesses and governments. These institutions control databases whose data they can alter or destroy at will. We trust these institutions to maintain the integrity of the data they own, as well as to deal honestly with customers and citizens. In recent years, many of these institutions in the first world have betrayed our trust. Banks, car manufacturers, intelligence agencies, and other institutions have caused widespread social damage through their own corruption. In the third world, institutional corruption is the norm. Banking, investing, ownership of property, and other economic mechanisms are out of reach for most third-world people.

Tomorrow’s Distributed Trust Model

The essence of blockchain technology is a globally distributed immutable ledger. Unlike with an ordinary database, data written to the blockchain can never be altered. Instead, records can only be appended to the blockchain, using a global consensus process that guarantees the integrity of each copy of the blockchain. Open blockchains are not controlled by any institution or group of institutions. Instead, they are maintained by a self-selected worldwide group of participants who in general don’t trust each other. Ironically, it is the mutual distrust of the blockchain maintainers that assures that the global ledger will be trustworthy. Because maintainers don’t trust each other, they validate for themselves every new block submitted by other maintainers before appending it to their own copy of the blockchain.

Not only can maintainers check each other’s integrity, but anyone with internet access and even a modest amount of compute power can check the integrity of the blockchain without the need to trust any institution or other third party, including the maintainers. Therefore, everyone can be confident in the integrity of all blockchain data.

Evolution of Trust Models

Rachael Botsman explains the evolution of trust models in her TED Talk. In the institutional trust model, databases are opaque, closed, centralized, licensed, and top-down, while in the distributed trust model, blockchains are transparent, inclusive, decentralized, accountable, and bottom-up.

Understanding Blockchain as an Emergent Phenomenon

Some phenomena not anticipated when the internet was first invented emerged only later, after additional internet features were developed. Blockchain’s distributed trust model is one of these emergent phenomena, but it is not the first. Consider publishing. Before the internet, most publishing was controlled by institutions. It was impractical for an individual or small group to publish anything, especially if the content was threatening to the status quo.

But once the world wide web became part of the internet, anyone could publish anything, no matter how disruptive. More importantly, once something has been published on the web, it cannot become “un-published”, no matter how powerful the opposing forces. Before governments or multinational corporations can act to shut down a rogue website, the disruptive message will already have been copied to numerous other computers all over the world, where the message will be republished. To quash an internet publication, a world power would need to shut down a good portion of the internet, which it would not do because the world economy depends on the internet.

The distributed trust model of open blockchains is a new emergent phenomenon that, like democratic publishing, cannot be stopped. The global internet means that anyone can start his own blockchain or can piggyback his own application on existing blockchains, without being subject to control or regulation by governments or corporations. Many big players are nervous about cryptocurrencies. The more naive observers call for “regulation”. But cryptocurrencies are no more subject to regulation than is the weather. Just as with publishing, the only way to shut down blockchains is by shutting down the internet. Not gonna happen!

Blockchain’s Past, Present, and Future

Blockchain was invented by Satoshi Nakamoto in 2008 under quite mysterious circumstances, as the foundation for his concurrently invented cryptocurrency bitcoin.

Major industries in the financial and other sectors as well as many governments are already starting to correctly see blockchain technologies as major threats to the status quo. This is why we’re seeing big-name companies and even some governments “entering the blockchain space”. They’re afraid of what’s coming, and are hoping to control some of the action. In my view, these initiatives by the big players and governments cannot stop the disruption that’s coming.

Even a short introduction to blockchain requires mentioning blockchain guru, libertarian firebrand, and my hero, Andreas Antonopoulos. Antonopoulos is a visionary who understands and communicates the long-term significance of the blockchain better than any other observer I’ve encountered. This 11-minute nontechnical video provides an incendiary introduction to some of his work.