Societies emerge from the cooperation between people. This cooperation organizes people into communities, companies, governments, multinational bodies, and one day even multiplanetary organizations.
Money has been one of the driving forces behind this cooperation; a tool that allows us to exchange value with each other. But that is only one facet of our sophisticated reality.
The terms of any cooperation have to be agreed upon, even if implicitly. As a result, there’s an entire world, invisible on a daily basis, of contracts, agreements, term sheets, lawyers, notaries, even governmental bodies, that together serve the function of enabling and preserving cooperation.
From two friends agreeing to collaborate on a side-project, to the contract of marriage, all the way to the opening of a bank account, the purchasing of a house, the wiring of money for the payment of a service, the fine print of an insurance policy, or even the law that governments uphold.
We managed it relatively well until the computer came along, then the internet, and finally the inevitable digitalization of our world. We spent the last 30 years, or so, truly coming online.
The prospect of a world in which all forms of content and communication are in digital form on easily modifiable media raises the issue of how to certify when something was created and what its contents are.
The above paragraph is a paraphrase from a paper published in 1991, in the Journal of Cryptology, by Haber and Stornetta, on how to time-stamp a digital document. The ideas in this paper, some argue, were foundational to the beginning of the thought process that would later lead to the blockchain.
Issues of validity and truth were already emerging as early 1991, as we recognized that the digitalization of the world came with a whole new set of challenges. Agreements are modifiable, documents are hackable, terms are forgeable, in ways that can easily be hidden to the naked eye. These are issues that we’ve come to know quite well in the collective imagination with the emergence of deep-fakes, corruptible elections, and the challenges of the 24/7 social-media enabled news cycle.
In the physical world, in the old world, we might have written the truth down in numbered books, with no pages left blank, signed, stamped, and stored safely. That alone, digitalization aside, was prone to error and forgery. Now scale that kind of book-keeping to a global scale. That, coupled with computers and bits, mutable in nature, seems to have inevitably led to the emergence of the blockchain.
I say inevitably, but only in retrospect.
“The blockchain is a digital, decentralized, distributed ledger. Most explanations of the importance of the blockchain start with money […] But money is only the first use case [...] and it’s unlikely to be the most important.”
That is the opening line of The Blockchain Economy: A beginner’s guide to institutional cryptoeconomics, a medium piece by Chris Berg, Sinclair Davidson and Jason Potts. I mention it here because it was this piece that gave me the mental model to contemplate the bigger societal landscape from where the blockchain emerges.
When reading and learning about the blockchain, it’s easy to come across a certain understanding of it as a “new technology” in the way that Apple’s new M1 chip or Artificial Intelligence are new technologies.
But central to understanding the blockchain is seeing it more as an idea than a technology. One of those apparently simple and obvious ideas that come along once in a while. Obvious in the way that the wheel is obvious – that is not obvious at all, it took us all the way to 4000 BC to come up with it. Yet, when it came about, it fundamentally altered the course of culture for the better.
Today, societies are made of citizenship, voting, laws, ownership, property rights, contracts, legalities, who can do what and when … and central to all this are ledgers which, at their most fundamental level, map these economic and social relationships.
The genius of the blockchain is that, on one hand, it’s just a ledger. But on the other hand, it’s a radically new idea for how to do just that. In its simplest form, it’s made up of two parts.
The first is the idea of storing of information in such a way that each record carries with it a fingerprint. This fingerprint is an abstract representation of both the current record and the previous record. In real terms, when a block of information is created, a large number is generated based on the interweaving of the data inside the current block as well as some of the data from the previous block.
This results in the chaining of information, as it’s stored, in such a way that it becomes very hard to manipulate or compromise it. Simply put, if I change one block, then I have to change the blocks around it because the fingerprints have to match. Then if I do that, I have to also alter the blocks around those blocks, ad eternum.
The second idea is that no one computer, authority, institution or government is responsible for the bookkeeping. The blockchain is stored over and over again in multiple computers, owned by multiple people, across multiple countries,
Every time new records are added, computers from around the world compete with each other to update the blockchain, and get rewarded based on the validity of their update. That is then cross-checked by other computers in the network and only then, once all is squared away, does the blockchain get updated across the remaining computers.
The probability of the same computer, person, agent, or organization, updating the blockchain twice in a row is, as it currently stands, very low.
Together, these ideas form a global, decentralized, and hyper-secure way of storing information. When seen through this lens, this might be an invention akin to ideas like democracy and capitalism. Ideas that are structuring to the fabric of our world.
This is a system with the potential to enable cooperation at the planetary scale; regardless of any one person, organization, institution, or country; by being a transparent and secure account of what was said, what was agreed upon, what was done, what was traded, what was sold, …
Berg, Davidson, and Potts are not exaggerating when saying that the blockchain competes with firms and governments as a way to coordinate economic activity; read global cooperation. It is no wonder, then, that the blockchain emerged in the aftermath of the financial crisis of 2008. A time when it became apparent that the old system could be manipulated for the benefit of a few, at the expense of the many.
Comparable to the invention of the wheel, and mechanical time, the printing press, the blockchain might be about to open up entirely new categories of economic organization that had until now not only been impossible, but un-imaginable.
I’m left nothing other than awe-struck, inspired, and energized.
Personally, I found it useful to take a step back from all the buzzwords and the threads on social media and see the blockchain through a broader and more agnostic lens. The vision introduced here is not mine. I’m here articulating it in lay terms as a means to clarify things for myself. But head over to medium and read Berg, Davidson and Potts’ piece. I’m here to learn, not to be an expert; so if any part of it could be made better, by all means, do reach out and share your perspective.