Blockchain is the new buzzword CEOs and policymakers use to inject energy into their otherwise-boring press releases. And some of them are very serious about it …
Fortune 500 companies like IBM, Oracle and Visa started jumping onto the blockchain bandwagon last year.
The European Union is now forming a commission to study and adopt blockchain technology.
Even China’s Xi Jinping is calling blockchain a “breakthrough technology.”
Good. As world leaders become enamored with the technology, blockchain is taking its rightful place alongside Artificial Intelligence and the Internet of Things. Combined, they have the potential to set off a new, 21st Century Revolution that could rival the Industrial Revolution of the 18th and 19th centuries.
|By itself, blockchain itself simply a database that’s spread out among many computers, making it more difficult to change and almost impossible to hack. That’s it!
But here’s where I think many in the crypto community get it wrong …
They cheer these developments as proof positive that the mainstream is moving their way. “Blockchain has finally arrived,” they say. “The world is getting ready for crypto!” they claim.
Hold your horses. These CEOs, presidents and PMs are clearly focused on “blockchain” — not “cryptocurrency.” Yes, I know some people seem to think the two terms are interchangeable. But that’s hardly the case:
First, blockchain has many other applications beyond cryptocurrencies.
And second, blockchain is not the only piece of technology needed by cryptocurrencies. They also use what’s called “public key cryptography” to create key pairs … “consensus algorithms” to help secure a network … plus other important technologies.
True, Bitcoin inventors gave us the distributed database we know as “blockchain.” But what makes this invention so revolutionary is the combination of many technologies that helped create a new form of digital asset. An asset that cannot be reproduced, forged or manipulated by any participant in the network.
By itself, blockchain is simply a database that’s spread out among many computers, making it more difficult to change and almost impossible to hack. That’s it!
For example, if I store my name, address and Social Security number on a blockchain, copies of the information are stored on the local hard drives of thousands of different computers.
Suppose I want to change my address? To update the database, each of the computers on the network would need to validate the change and update its individual copy.
That’s not easy.
Old-fashioned 20th-century technology is easier. I submit my change-of-address form to the Post Office, the IRS or whatever agency controls the data. A data entry clerk logs on to a central computer housing a single database. The clerk makes the change. And then hundreds of other authorized users can also log in to view or edit the updated data.
Easy, but also insecure! All you need is one breach of trust by one user — or a single hack of one user’s computer — and zap! My private ID is all over the frickin’ internet. So …
What does it mean when CEOs or prime
ministers tout the benefits of blockchain?
It’s typically their way of saying they’d like to find a way to transition their insecure, centralized storage toward secure, distributed storage.
Provided no one individual or group can control the keys to the database, this could greatly enhance security. But it has very little to do with cryptocurrencies. For cryptos like Bitcoin or Ethereum, blockchain was simply the means to an end.
Their real goals were far more ambitious:
Bitcoin’s goal was to create a digital storage of value that anyone, anywhere can own and control directly. That meant taking centralized institutions like governments and banks OUT of the loop. Nearly all the critical functions of money — its creation, storage and transfer — are moved to a network of peers, where no central authority calls the shots.
Ethereum’s goal was to take crypto to the next level. Not just for money, but also for a whole series of other applications as well.
Consider, for example, a decentralized version of Uber.
|Galaxy Digital Capital Management CEO Michael Novogratz discussed cryptos and regulation at last week’s Bloomberg Invest New York Summit. Click here to watch.
To borrow a term recently used by Mike Novogratz, let’s call it dUber. With this app, users and drivers meet directly. No central company acts as a middleman between the parties. No one takes a cut in the transactions. And no single leader or group is empowered to make the rules of engagement.
Instead, all the rules are decided collectively among participants and encoded mathematically in the dApp. The drivers and riders themselves are the community.
They are also the token holders, making them both owners and users of the platform. These communities are called …
Decentralized Autonomous Organizations (DAOs)
They represent a new way of governing, a new way of structuring the economy … even a new way of organizing society.
The end result is global institutions that are, by definition, more democratic, more adaptable, more open and more inclusive than virtually any other institutions known today. They will be borderless organizations with the potential to thoroughly disrupt existing corporations and governments.
But when a centrally owned and controlled company wants to adopt or co-opt blockchain technology, is that revolutionary?
If their goal is to create a true distributed network, yes.
If their goal is to simply upgrade their databases to save a few bucks, no.
Which would you rather invest in? A massively disruptive new technology? Or moderate upgrades to an existing business model?
“Blockchain” could refer to either. But I recommend you put your money exclusively in the former. And in future issues, Tony Sagami and I will tell you more about how to spot the difference.
P.S. I recently wrote about “How Blockchain Can Restore Normalcy in a World Gone Mad.” You can read Part 1 and Part 2 of this article by clicking on these links.