Skeptics needing further reassurance that the Blockchain is truly reaching a tipping point can rest easier with the recent publication of Don Tapscott’s Blockchain Revolution, co-written with his son Alex. Don, whom I’ve long known, has a knack for identifying what The Next Big Thing will likely be, and shortly thereafter writing a book to explain it to everybody else. The Digital Economy, written in the mid 1990s, anticipated the unbundling of vertically integrated companies into business webs, giving rise to the open networked enterprise. His 2006 Wikinomics predicted the rise of mass collaboration in what became known a few years later as the On Demand Economy. Blockchain Revolution, his 16th book, now explains “How The Blockchain Will Transform Everything From Banking To Government To Our Identities.”
The book is organized into three main sections. The first explains the blockchain from two complementary points of view: as a major next step in the evolution of the Internet; and as the architecture underpinning bitcoin, the best known and most widely held digital currency. The second and longest section describes how blockchain could potentially transform financial services, companies, government, the Internet of Things, and other key areas. The last section summarizes the major challenges that must be overcome as well as the governance required to fulfill the promise of blockchain.
“It appears that once again, the technological genie has been unleashed from its bottle,” write the authors in their opening paragraph. “Summoned by an unknown person or persons with unclear motives, at an uncertain time in history, the genie is now at our service for another kick of the can - to transform the economic power grid and the old order of human affairs for the better. If we will it.”
They remind us that “The first four decades of the Internet brought us e-mail, the World Wide Web, dot-coms, social media, the mobile Web, big data, cloud computing, and the early days of the Internet of Things. It has been great for reducing the costs of searching, collaborating, and exchanging information… Overall, the Internet has enabled many positive changes - for those with access to it - but it has serious limitations for business and economic activity.”
Foremost among these limitations are privacy, security and inclusion. “Doing business on the Internet requires a leap of faith” because the infrastructure lacks the necessary security.
Why wasn’t stronger security designed into the original Internet protocols? MIT research scientist and Internet pioneer David Clark addressed this question in a recent article about the early design choices that have led to today’s Internet.
Fundamentally, the Internet is a general purpose data network supporting a remarkable variety of applications. Being general purpose was a major design choice, best appreciated when considering the alternatives, such as the telephone network, which was designed specifically to carry telephone calls, or payment networks, - specifically designed to transfer money and settle financial transactions. This generality has enabled the Internet to become one of, if not, the most prolific innovation platforms the world has ever seen. But, it’s come at a price: it’s good-enough but not optimal for any one application.
Over the years, the Internet has faced a number of serious challenges, including running out of IP addresses, and lacking the necessary bandwidth to handle the growing requirements for streaming high-quality video. So far, it’s been up to its challenges. A major reason for its adaptability is that it’s stuck to its basic data-transport mission, i.e., just moving bits around. The Internet has no idea what the bits mean or what they’re trying to accomplish. That’s all the responsibility of the applications running on top of it.
Consequently, there’s no one overall owner responsible for security, - arguably the biggest challenge currently facing the Internet. The responsibility for security is divided among several actors, making it significantly harder to achieve. As Clark points out, “the design decisions that shaped the Internet as we know it likely did not optimize secure and trustworthy operation.” Hopefully, that’s what the blockchain will now help us do.
The blockchain first came to light around 2008, when “a pseudonymous person or persons named Satoshi Nakamoto outlined a new protocol for a peer-to-peer electronic cash system using a cryptocurrency called bitcoin,…” wrote Don and Alex Tapscott. “This protocol established a set of rules - in the form of distributed computations - that ensured the integrity of the data exchanged among these billions of devices without going through a trusted third party. This seemingly subtle act set off a spark that has excited, terrified, or otherwise captured the imagination of the computing world and has spread like wildfire to business, governments, privacy advocates, social development activists, media theorists, and journalists, to name a few, everywhere…”
“Today thoughtful people everywhere are trying to understand the implications of a protocol that enables mere mortals to manufacture trust through clever code. This has never happened before - trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.” The blockchain is essentially “the World Wide Ledger of value… - a distributed ledger representing a network consensus of every transaction that has ever occurred.”
The original blockchain vision, - as inspired by Satoshi Nakamoto, - was limited to creating bitcoin, a digital currency and payment system whose users could transact directly with each other with no need for a bank or government agency to certify the validity of the transactions. There was no broader goal of creating the next generation of the Internet or of fundamentally transforming how the economy works. But, as has been the case with the Internet and World Wide Web, the blockchain has now transcended its original objective.
In the course of researching their book, Don and Alex Tapscott talked to lots of people and read many publications to better understand the potential of blockchain in shaping the evolution of the digital economy. A number of themes emerged from their research which they distilled into seven blockchain design principles:
- Networked Integrity - “Trust is intrinsic, not extrinsic. Integrity is encoded in every step of the process and distributed, not vested in any single member… For the first time ever, we have a platform that ensures trust in transactions and much recorded information no matter how the other party acts.”
- Distributed Power - “The system distributes power across a peer-to-peer networks with no single point of control. No single party can shut the system down.”
- Value as Incentive - “The system aligns the incentives of all stakeholders… Now we have a platform where people and even things have proper financial incentives to collaborate effectively and create just about anything.”
- Security - “Safety measures are embedded in the network with no single point of failure, and they provide not only confidentiality, but also authenticity and nonrepudiation to all activity… In the digital age, technological security is obviously the precondition to security of a person in society.”
- Privacy - “People should control their own data. Period. People ought to have the right to decide what, when, how, and how much about their identities to share with anybody else.”
- Rights Preserved - “Ownership rights are transparent and enforceable. Individual freedoms are recognized and respected.”
- Inclusion - “The economy works best when it works for everyone. That means lowering the barriers to participation. It means creating platforms for distributed capitalism.”
“[T]hese seven principles can serve as a guide to designing the next generation of high-performance and innovative companies, organizations and institutions. If we design for integrity, power, value, privacy, security, rights and inclusion, then we will be redesigning our economy and social institutions to be worthy of trust.”