Bettina Warburg: How the Blockchain will Radically Transform the Economy (Transcript)

Here is the full transcript of blockchain researcher, entrepreneur and educator Bettina Warburg’s Talk: How the Blockchain will Radically Transform the Economy at TED conference. 

 

Bettina Warburg – Blockchain researcher, entrepreneur and educator

Economists have been exploring people’s behavior for hundreds of years: how we make decisions, how we act individually and in groups, how we exchange value. They’ve studied the institutions that facilitate our trade, like legal systems, corporations, marketplaces.

But there is a new, technological institution that will fundamentally change how we exchange value, and it’s called the blockchain. Now, that’s a pretty bold statement, but if you take nothing else away from this talk, I actually want you to remember that while blockchain technology is relatively new, it’s also a continuation of a very human story, and the story is this.

As humans, we find ways to lower uncertainty about one another so that we can exchange value. Now, one of the first people to really explore the idea of institutions as a tool in economics to lower our uncertainties about one another and be able to do trade was the Nobel economist Douglass North. He passed away at the end of 2015, but North pioneered what’s called “new institutional economics”. And what he meant by institutions were really just formal rules like a constitution, and informal constraints, like bribery.

These institutions are really the grease that allow our economic wheels to function, and we can see this play out over the course of human history. If we think back to when we were hunter-gatherer economies, we really just traded within our village structure. We had some informal constraints in place, but we enforced all of our trade with violence or social repercussions. As our societies grew more complex and our trade routes grew more distant, we built up more formal institutions, institutions like banks for currency, governments, corporations.

These institutions helped us manage our trade as the uncertainty and the complexity grew, and our personal control was much lower. Eventually with the internet, we put these same institutions online. We built platform marketplaces like Amazon, eBay, Alibaba, just faster institutions that act as middlemen to facilitate human economic activity.

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As Douglass North saw it, institutions are a tool to lower uncertainty so that we can connect and exchange all kinds of value in society. And I believe we are now entering a further and radical evolution of how we interact and trade, because for the first time, we can lower uncertainty not just with political and economic institutions, like our banks, our corporations, our governments, but we can do it with technology alone.

So what is the blockchain? Blockchain technology is a decentralized database that stores a registry of assets and transactions across a peer-to-peer network. It’s basically a public registry of who owns what and who transacts what. The transactions are secured through cryptography, and over time, that transaction history gets locked in blocks of data that are then cryptographically linked together and secured. This creates an immutable, unforgeable record of all of the transactions across this network. This record is replicated on every computer that uses the network.

It’s not an app. It’s not a company. I think it’s closest in description to something like Wikipedia. We can see everything on Wikipedia. It’s a composite view that’s constantly changing and being updated. We can also track those changes over time on Wikipedia, and we can create our own wikis, because at their core, they’re just a data infrastructure.

On Wikipedia, it’s an open platform that stores words and images and the changes to that data over time. On the blockchain, you can think of it as an open infrastructure that stores many kinds of assets. It stores the history of custodianship, ownership and location for assets like the digital currency Bitcoin, other digital assets like a title of ownership of IP. It could be a certificate, a contract, real world objects, even personal identifiable information.

There are of course other technical details to the blockchain, but at its core, that’s how it works. It’s this public registry that stores transactions in a network and is replicated so that it’s very secure and hard to tamper with.

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Which brings me to my point of how blockchains lower uncertainty and how they therefore promise to transform our economic systems in radical ways. So uncertainty is kind of a big term in economics, but I want to go through three forms of it that we face in almost all of our everyday: transactions, where blockchains can play a role. We face uncertainties like not knowing who we’re dealing with, not having visibility into a transaction and not having recourse if things go wrong.

So let’s take the first example, not knowing who we’re dealing with. Say I want to buy a used smartphone on eBay. The first thing I’m going to do is look up who I’m buying from. Are they a power user? Do they have great reviews and ratings, or do they have no profile at all? Reviews, ratings, checkmarks: these are the attestations about our identities that we cobble together today and use to lower uncertainty about who we’re dealing with. But the problem is they’re very fragmented.

Think about how many profiles you have. Blockchains allow for us to create an open, global platform on which to store any attestation about any individual from any source. This allows us to create a user-controlled portable identity. More than a profile, it means you can selectively reveal the different attributes about you that help facilitate trade or interaction, for instance that a government issued you an ID, or that you’re over 21, by revealing the cryptographic proof that these details exist and are signed off on. Having this kind of portable identity around the physical world and the digital world means we can do all kinds of human trade in a totally new way. So I’ve talked about how blockchains could lower uncertainty in who we’re dealing with.

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