of more than 4,800 percent since The Age of Cryptocurrency was published in January 2015 and a return of almost 19 million percent since bitcoin was first tradable on a semi-liquid exchange in July 2010. If you’d invested $6,000 in bitcoin, you’d be a millionaire right now. Such results give credence to cryptoasset analysts Chris Burniske and Jack Tatar’s description of bitcoin as “the most exciting alternative investment of the 21st century.”
In essence, the blockchain is a digital ledger that’s shared across a decentralized network of independent computers, which update and maintain it in a way that allows anyone to prove the record is complete and uncorrupted. The blockchain achieves this with a special algorithm embedded into a common piece of software run by all the computers in the network. The algorithm consistently steers the computers toward a shared consensus on what new data to add to the ledger, incorporating all manner of economic exchanges, claims of ownership, and other forms of valuable information. Each computer updates its own version of the ledger independently but does so by following the all-important consensus algorithm. Once new ledger entries are introduced, special cryptographic protections make it virtually impossible to go back and change them. The computers’ owners are either paid in a digital currency, which incentivizes them to work on protecting the system’s integrity, or they do their work as part of a commitment to a consortium agreement. The result is something unique: a group of otherwise independent actors, each acting in pure self-interest, coming together to produce something for the good of all—an immutable record that everyone can trust and that’s not managed by a single, centralized intermediary.
A bunch of computers managing data with fancy math tools might not seem like a big deal. But as we’ll explain in the next chapter, record-keeping systems, and specifically ledgers, are at the heart of how societies function. Without them we wouldn’t generate sufficient trust to enter into exchanges, to do business, to build organizations and form alliances. So, the prospects of improving that core function and of not having to rely on a centralized entity to perform it have profound implications.
This model should enable true peer-to-peer commerce, eliminating middlemen from all sorts of business operations. And because it has the capacity to inspire trust in our data records so that individuals and businesses can engage in the economy without fear of being duped, it could herald a new age of open data and transparency. Essentially, it should let people share more. And with the positive, multiplier effects that this kind of open sharing has on networks of economic activity, more engagement should in turn create more business opportunities.
Blockchains point the entire digital economy toward something people are calling the Internet of Value. Whereas the first version of the Internet allowed people to send information directly to each other, in the Internet of Value people can send anything of value to each other, be it currencies, assets, or valuable data that was previously too sensitive to transmit online. If the first phases of the Internet created huge opportunities for wealth creation and new business models by helping people jump the fences and get on the playing field, this next one promises to remove the fences altogether. In theory, it means that everyone with access to a device and the Internet can participate directly in the global economy. Thus, the hope is that we will greatly expand the pool of open-source innovation from which all sorts of powerful ideas will emerge.
Think of how disintermediation has already transformed the global economy in the earlier Internet era and you get a sense of how sweeping this next phase could be. Consider, for example, how the outsourcing of technical advice, Web design, and even accounting services disrupted jobs in Western countries and fostered economic growth in places like Bangalore, India. Or think of how Craigslist, which allowed people to post ads for anything at zero cost on a site that had global reach, completely decimated the classified ads business and, ultimately, shuttered hundreds of local newspapers. If blockchain technology lives up to its promise to decentralize and disintermediate so much of our economy, these prior disruptions may seem minuscule by comparison.
As we’ll discuss in the pages ahead, there’s still much work to do to get this technology ready for prime time. In fact, it may never be scalable to the size needed to make a difference. Nonetheless, people across every industry are coming to recognize its potential power. They’re starting to realize that resolving trust barriers could allow all of us to do more with what we have: to deploy our assets, our ideas, our creativity into whatever productive endeavor takes our fancy. If I can trust another person’s claims—about their educational credentials, for example, or their assets, or their professional reputation—because they’ve been objectively verified by a decentralized system, then I can go into direct business with them. I can give them a job. I can collaborate on a joint venture. I can share sensitive business information with them. All without having to rely on middlemen like lawyers, escrow agents, and others who add costs and inefficiencies to our exchanges. These kinds of agreements are the stuff of economic growth. They fuel innovation and prosperity. Any technology that reduces friction and makes such collaborations happen should benefit everybody, in other words.
Still, there’s nothing to say this will assuredly play out in a way that’s best for the world. We’ve seen how the Internet was co-opted by corporations and how that centralization has caused problems—from creating big siloes of personal data for shady hackers to steal to incentivizing disinformation campaigns that distort our democracy. So, it’s crucial that we not let the people with the greatest capacity to influence this technology shape it to suit only their narrow interests. As with the early days of the Internet, there is much work to be done to make this technology sufficiently safe, scalable, and attendant to everyone’s privacy concerns.
Blockchains are a social technology, a new blueprint for how to govern communities, whether we’re talking about frightened refugees in a desolate Jordanian outpost or an interbank market in which the world’s biggest financial institutions exchange trillions of dollars daily. By definition, getting blockchain technology right requires input from all sectors of society. You can treat that as a clarion call to take an interest, to get involved.
It might surprise you to read this, but the most subversive, controversial, anti-authoritarian idea in the world of finance, an idea so powerful every government on the planet is trying to figure out whether to co-opt it or outlaw it, the dream of the most fervent libertarian, dark-Web denizens, is a ledger.
Like, an accounting book.
The genesis of that subversive idea was, of course, Bitcoin, which, when boiled down to its most basic concept, is founded on the upkeep of a digitized ledger, a record of exchanges and transactions. What makes this ledger so radical, so controversial, is the way in which this record of transactions, known as a blockchain, is created and maintained. Bitcoin, released in 2009 by a person or persons using the pseudonym Satoshi Nakamoto, was designed to be an end-around to the banks and governments that have for centuries been the guardians of our financial systems. Its blockchain promised a new way around processes that had become at best controlled by middlemen who insisted on taking their cut of every transaction, and at worst the cause of some man-made economic disasters.
You probably bought this book expecting to read crazy, wild ideas about our digitized future … and here we are, giving you ledgers. But ledgers have been integral in underpinning the development of civilization for millennia. The trinity of writing, money, and ledgers made it possible for human beings to do business beyond kinship groups and thus form larger settlements. And while the contributions of money and writing are well appreciated, ledgers tend to be known only by those who studied the dry science of accounting.
The advent of the first ledger technology can be traced back to roughly 3000 BCE, in ancient Mesopotamia (modern-day Iraq). Of the tens of thousands of clay tablets the Mesopotamians left behind, most are, well, ledgers: records of taxes, payments, private wealth, worker pay. The famous Code of Hammurabi—the Babylonians’ system of law—was written on one of these ledgers, but