Internet has dramatically changed our life. If we have a question, we simply google it, we read most of our news online, and we socialize with Facebook and Twitter. We take it for granted, but in the 1960s, even the simplest collaboration among peers around the world in a shared document in real time was probably unimaginable.
More than lacking proper technological tools, I believe that, conceptually, it was just too big a place for that to happen. I believe we are on the brink of a much greater transition. This will not only impact every facet of our life, every industry, but it will also lead to new, social, organizational structures in our society. I believe that “decentralized networks” – I will keep getting back to this terminology – will take over the roles of banks, corporations, and insurance companies within a decade or two. I believe that will be just the beginning.
So if you look at the murmuration of those starlings – to me, they look a lot more like a living creature rather than a flock. Look at their movement and the flow. Beyond the beauty of that movement, what fascinates me is it seems there’s no single bird responsible for coordinating that movement. Imagine having in these decentralized networks millions of people and computers, rather than birds, cooperating around shared goals.
How will it look like? What will it take to do it? And would it be a good or a bad thing? The basis for this revolution is the blockchain technology, the technology underlying bitcoin. It was introduced in 2008 by Satoshi Nakamoto, the anonymous inventor of bitcoin. Blockchain is this decentralized platform that stores and manages records of value transfer. It sounds a little complicated, so let me explain.
Middlemen are everywhere in our economy. They are there to store records, they are there to keep agreements on those records, and to take decisions. I own something if there is a social agreement that I own that thing. It is as simple as that. Ownership is set by social agreement, and if there’s no such agreement, then I don’t own anything. This agreement needs to sit somewhere. For example, if the bank says I own 20 dollars, but I want 30, then we just trust the bank’s records to hold to the truth. But as long as this record needs to be somewhere, it also needs to be in someone’s hands, which gives that person enormous power.
Blockchain is this decentralized platform that tracks the records of value exchange so it keeps tracking who owns what at any point in time. By being decentralized, it means that it sits nowhere and everywhere, or rather that each computer in the network will store a copy of that ledger, that public ledger, and can confirm the validity of that copy.
So the entire network consents simultaneously. Everyone can access the records, can control the records of his own assets, so I can transact money to my friend in China with a click of a button, and the money just goes through instantaneously. The whole magic of blockchain is its ability to maintain continuously that consensus. This is a resolution to a long-standing problem in computer science called the “double-spending problem.”
So let me give you an example: if I hold one bitcoin, and then let’s say, I publish on this side the network I send this bitcoin to a friend “A,” and at the same time, I publish on that side of the network that I send a bitcoin to a friend “B,” this part of the network will hear the message that I sent it to friend “A” first, will process that, and when it will hear about the other message, it will render it illegal; whereas this part of the network will see reality the opposite way. So we have just diffracted the network.
The whole magic of blockchain is that, somehow, that network is being able to organically recover, and, in mere seconds, agrees with consensus about a single reality. We rely on intermediaries more than just to store our records, we also rely on them to process our agreements.
Let me give you an example. Let’s say you and I want to place a bet. From the beginning of recorded history, we had to rely on a third party to place that agreement and give it the funds to secure and process the contract. So, whenever we have economic interaction, we need intermediaries, we need middlemen to execute our contracts, to execute our economy.
With the advent of Blockchain 2.0, we can also remove the intermediaries from that, whereas before that, we wrote that agreement on paper or in code, and we placed it in the hands of a third-party both of us trusted together with the funds. Now we can simply write it in code. We can place that code onto the blockchain. It has an address – We call it a smart contract. – and then we can transact money to that contract. From that point onwards, the blockchain guarantees to self-execute the contract by the code, unambiguously; no middleman. no friction whatsoever.
So, if the magic of the Blockchain 1.0 was that somehow the entire network agreed with consensus about records, in Blockchain 2.0, the entire network consents to the records, the agreements over the records, and the execution of those agreements. If you want, if Blockchain 1.0 is some sort of public ledger, then Blockchain 2.0 is a public computer, a decentralized computer. This technology is already in process of replacing and reforming basically the entire today’s financial infrastructure. The largest corporations, governments, banks, insurance companies are all racing to develop and implement this technology.
But in economy, we also rely on intermediaries at a deeper level: we rely on middlemen to take decisions for us, to direct and to coordinate. We need a CEO to run a company; we need governments to collect and distribute taxes; and we need a mayor to run a city. We also need Airbnb to coordinate among people and the value flow between those people in a home rental network. There’s already a movement towards the decentralization of opinion and the decentralization of coordination.