Blockchain Revolution (updated)

by Don Tapscott

  None of these privacy challenges are true showstoppers. Continued Ceglowski: “The good news is, it’s a design problem! We can build an Internet that’s distributed, resilient, irritating to governments everywhere, and free in the best sense of the word,” as we wanted it to be in the 1990s. Ann Cavoukian of the Privacy and Big Data Institute outlined seven principles for design that are “good for business, good for government, good for the public.” The first is critical: make privacy the default setting. Reject false dichotomies that pit privacy against security; every IT system, every business practice, and all infrastructure should have full functionality. Leaders need to prevent rather than react to violations, maintain transparency in all operations, and subject their organizations to independent verification. Brands will earn people’s trust by respecting user privacy, keeping users at the center of design, and ensuring end-to-end security of their data, destroying it when no longer needed. She said, “It really is a win-win proposition, rejecting zero-sum and embracing positive-sum.”57

  Said Ceglowski, “But it will take effort and determination. It will mean scrapping permanent mass surveillance as a business model, which is going to hurt. It will mean pushing laws through a sclerotic legal system. There will have to be some nagging. But if we don’t design this Internet, if we just continue to build it out, then eventually it will attract some remarkable, visionary people. And we’re not going to like them, and it’s not going to matter.”58

  10. CRIMINALS WILL USE IT

  In its early days, naysayers often condemned bitcoin as a tool for laundering money or buying illicit goods. Critics argued that, because the technology is decentralized, lightning quick, and peer to peer, criminals would exploit it. Chances are, you’ve heard of Silk Road, the dark Web marketplace for illegal drugs. At its peak in October 2013, Silk Road had 13,756 listings priced in bitcoin. Products were delivered by mail with a guide to avoiding detection by authorities. When the FBI seized the site, the price of bitcoin plummeted and digital currencies became synonymous with crime. It was bitcoin’s darkest hour.

  But there is nothing unique to bitcoin or blockchain technology that makes it more effective for criminals than other technologies. Authorities in general believe that digital currencies could help law enforcement by providing a record of suspicious activities, maybe even solving a multitude of cybercrimes, from financial services to the Internet of Things. Marc Goodman, author of Future Crimes, argued recently, “There’s never been a computer system that’s proven unhackable.”59 Opportunities for crime have scaled with technology. “The ability of one to affect many is scaling exponentially—and it’s scaling for good and it’s scaling for evil.”60 So this falls under the category of human beings wanting to harm other human beings. Criminals will use the latest technology to do it.

  However, bitcoin and blockchain technology could discourage criminal use. First, even criminals must publish all their bitcoin transactions in the blockchain, and so law enforcement can track payments in bitcoin more easily than cash, still the dominant payment medium for criminals. The old Watergate adage, “follow the money” to find the crook, is actually more doable on the blockchain than with other payment methods. Bitcoin’s pseudonymous nature has regulators dubbing bitcoins “prosecution futures” because they can be tracked and reconciled more easily than cash.

  After each mass shooting in America, U.S. representatives whose constituents and campaign funders are card-carrying members of the National Rifle Association are quick to say, “Don’t blame guns for all the gun violence in America!” It would be very rich indeed if these same people banned blockchain technology because of the crimes some people might commit on it. Technology does not have agency. It does not want for anything or have an inclination one way or the other. Money is a technology, after all. When someone robs a bank, we don’t blame the money that sits in the vault for the robbery. The fact that criminals use bitcoin speaks more to the lack of strong governance, regulation, advocacy, and education than to its underlying virtues.

  REASONS BLOCKCHAIN WILL FAIL OR IMPLEMENTATION CHALLENGES?

  So the obstacles are formidable. Looming in the distance is quantum computing, the cryptographer’s Y2K problem. It combines quantum mechanics and theoretical computation to solve problems—such as cryptographic algorithms—vastly faster than today’s computers. Said Steve Omohundro, “Quantum computers, in theory, can factor very large numbers very rapidly and efficiently, and most of the public key cryptography systems are based on tasks like that. And so if they turn out to be real, then the whole cryptography infrastructure of the world is going to have to change dramatically.”61 The debate over technological innovation and progress is an ancient one: Is the tool good or bad? Does it advance the human condition or degrade it? As satirist James Branch Cabell observed, “The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true.”62

  As the story of Lev Termen shows, individuals and organizations can use innovations for good and for evil, and that has been true across a broad range of technologies, from electricity to the Internet. Yochai Benkler, author of the seminal work The Wealth of Networks, told us, “Technology is not systematically biased in favor of inequality and structure of employment; that is a function of social, political, and cultural battles.” While technology can change business and society dramatically and swiftly, Benkler believes it is “not in a deterministic way, one way or the other.”63

  In balance, the arc of technological history has been a positive one. Consider the many advances in food and medicine, from R&D to treatment and prevention: technology has made for greater human equity, productive capability, and social progress.

  There is nothing to suggest blockchain couldn’t fall into the same trap as the Internet did. It may be resistant to centralization and control; but if the economic or political rewards are great enough, powerful forces will try to capture it. Leaders of this new distributed paradigm will need to stake their claim and initiate a wave of economic and institutional innovation in order to ensure that everyone has the opportunity. This time, let’s fulfill the promise. Which brings us to the issue of making all this happen.

  CHAPTER 11

  LEADERSHIP FOR THE NEXT ERA

  Prolific is an adjective that should precede all titles used to describe twenty-one-year-old Vitalik Buterin, the Russian-born Canadian founder of Ethereum. (Prolific founder, that is.) Ask his legion of followers about Ethereum, and they’ll tell you it’s a “blockchain-based, arbitrary-state, Turing-complete scripting platform.”1 It has attracted IBM, Samsung, UBS, Microsoft, and the Chinese auto giant Wanxiang, and an army of the smartest software developers in the world, all of whom think that Ethereum may be the “planetary scale computer” that changes everything.2

  When Buterin explained “arbitrary-state, Turing-complete” to us, we got a glimpse of his mind. Listening to music is very different from reading a book or calculating the day’s revenues and expenses, and yet you can do all three on your smart phone, because your smart phone’s operating system is Turing complete. That means that it can accommodate any other language that is Turing complete. So innovators can build just about any digital app imaginable on Ethereum—apps that perform very dissimilar tasks, from smart contracts and computational resource marketplaces to complex financial instruments and distributed governance models.

  Buterin is a polyglot. He speaks English, Russian, French, Cantonese (which he learned in two months on vacation), ancient Latin, ancient Greek, BASIC, C++, Pascal, and Java, to name a few.3 “I specialize in generalism,” he said. He is also a polymath, and a modest one at that. “I had all these different interests, and somehow bitcoin seemed like a perfect convergence. It has its math. It has its computer science. It has its cryptography. It has its economics. It has its political and social philosophy. It was this community that I was immediately drawn into,” he said. “I found it really empowering.” He went through the online forums, looked for ways to own so
me bitcoin, and discovered a guy who was starting up a bitcoin blog. “It was called Bitcoin Weekly, and he was offering people five bitcoins to write articles for him. That was around four dollars at the time,” Buterin said. “I wrote a few articles. I earned twenty bitcoins. I spent half of them on a T-shirt. Going through that whole process, it felt almost like working with the fundamental building blocks of society.”4

  All this from a man who, nearly five years earlier, had dismissed bitcoin. “Around February 2011, my dad mentioned to me, ‘Have you heard of bitcoin? It’s this currency that exists only on the Internet and it’s not backed by any government.’ I immediately thought, ‘Yes, this thing has no intrinsic value, there’s no way it’s going to work.’” Like many teenagers, Buterin “spent ridiculous amounts of time on the Internet,” reading about different ideas that were heterodox, out of the mainstream. Ask him which economists he likes, and he rattles off Tyler Cowen, Alex Tabarrok, Robin Hanson, and Bryan Caplan. He can speak on the works of game theorist Thomas Schelling and behavioral economists Daniel Kahneman and Dan Ariely. “It’s actually surprisingly useful, how much you can learn for yourself by debating ideas like politics with other people on forums. It’s a surprising educational experience all by itself,” he said. Bitcoin kept coming up.

  By the end of that year, Buterin was spending ten to twenty hours a week writing for another publication, Bitcoin Magazine. “When I was about eight months into university, I realized that it had taken over my entire life, and I might as well let it take over my entire life. Waterloo was a really good university and I really liked the program. My dropping out was definitely not a case of the university sucking. It was more a matter of, ‘That was fun, and this is more fun.’ It was a once-in-a-lifetime opportunity and I just basically couldn’t let it go.” He was only seventeen years old.

  Buterin created Ethereum as an open source project when he realized that blockchains could go far beyond currency and that programmers needed a more flexible platform than the bitcoin blockchain provided. Ethereum enables radical openness and radical privacy on the network. He views these not as a contradiction but as “a sort of Hegelian synthesis,” a dialectic between the two that results in “volunteered transparency.”

  Ethereum, like so many technologies throughout history, could dislocate jobs. Buterin believes this is a natural phenomenon common to many technologies and suggests a novel solution: “Within a half century, we will have abandoned the model that you should have to put in eight hours of labor every day to be allowed to survive and have a decent life.”5 However, when it comes to blockchain, he’s not convinced that massive job losses are inevitable. Ethereum could create new opportunities for value creation and entrepreneurship. “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center,” he said. “Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Blockchain doesn’t eliminate jobs so much as it changes the definition of work. Who will suffer from this great upheaval? “I suspect and hope the casualties will be lawyers earning half a million dollars a year more than anyone else.”6 So Buterin knows his Shakespeare: “The first thing we do, let’s kill all the lawyers.”7

  Ethereum has another apparent contradiction. It is unabashedly individualistic and private and yet it depends upon a large, distributed community acting openly in collective self-interest. Indeed, Ethereum’s design neatly captures both his enduring faith that individuals will do the right thing when equipped with the right tools, and his healthy skepticism of the motives of large and powerful institutions in society. While Buterin’s critique of the problems of contemporary society is grave, his tone is clearly one of hope. “While there are many things that are unjust, I increasingly find myself accepting the world as is, and thinking of the future in terms of opportunities.” When he learned that $3,500 would enable someone to combat malaria the rest of her life, he didn’t bemoan the lack of donations from individuals, governments, and corporations. He thought, “Oh wow, you can save a life for only $3,500? That’s a really good return on investment! I should donate some right now.”8 Ethereum is his tool to effect positive change in the world. “I see myself more as part of the general trend of improving technology so that we can make things better for society.”

  Buterin is a natural-born leader, in that he pulls people along with his ideas and his vision. He’s the chief architect, chief achiever of consensus in the Ethereum community, and chief cultivator of a broader community of brilliant developers who have strong opinions about anything technical. What if he succeeds?

  WHO WILL LEAD A REVOLUTION?

  In 1992, MIT computer scientist David Clark said, “We reject kings, presidents, and voting. We believe in rough consensus and running code.”9 That was the mantra for stewards of the first generation of the Internet. It was voiced at a time when most people could scarcely imagine how the Internet would become a new medium of human communications, one that would arguably surpass previous media in its importance for society and daily life. Clark’s words embodied a philosophy for the leadership and governance of a global resource that was radically different from the norm, yet one that engendered a remarkably effective governance ecosystem.

  Since the end of World War II, state-based institutions have governed important global resources. Two of the most powerful—the International Monetary Fund and the World Trade Organization—were born at the Bretton Woods Conference in 1944. The United Nations and other groups under its umbrella, such as the World Health Organization, received a wide berth to exercise their monopoly on global problem solving. These organizations were hierarchical by design, because hierarchies were the dominant paradigm during the first half of a war-torn century. But these industrial-scale solutions are ill suited to the challenges of the digital era. The rise of the Internet marked a significant departure from the traditional culture of governance.

  In 1992, most Internet traffic was e-mail. The graphical browser that enabled Tim Berners-Lee’s extraordinary World Wide Web was two years away. Most people weren’t connected and didn’t understand the technology. Many of the important institutions that would come to steward this important global resource were either embryonic or nonexistent. Barely four years old was the Internet Engineering Task Force, an international community that handles many aspects of Internet governance. The International Corporation for Assigned Names and Numbers (ICANN), which delivers essential services such as domain names, was six years away from existence; and Vint Cerf and Bob Kahn were just recruiting people for what would ultimately become the Internet Society.

  The second generation of the Internet enjoys much of the same spirit and enthusiasm for openness and aversion to hierarchies, manifested in the ethos of Satoshi, Voorhees, Antonopoulos, Szabo, and Ver. Open source is a great organizing principle but it’s not a modus operandi for moving forward. As much as open source has transformed many institutions in society, we still need coordination, organization, and leadership. Open source projects like Wikipedia and Linux, despite their meritocratic principles, still have benevolent dictators in Jimmy Wales and Linus Torvalds.

  To his credit, Satoshi Nakamoto aligned stakeholder incentives by coding principles of distributed power, networked integrity, indisputable value, stakeholder rights (including privacy, security, and ownership), and inclusiveness into the technology. As a result, the technology has been able to thrive in the early years, blossoming into the ecosystem we know today. Still, this deistic hands-off approach is starting to show signs of strain. As with all disruptive technologies, there are competing views in the blockchain ecosystem. Even the core blockchain contingent has split into different cryptocamps, each advocating a separate agenda.

  Brian Forde, the former White House insider and blockchain advocate who now heads MIT’s Digital Currency Initiative, said, “If you look at the block-size debate, is it really a debate about block size? In the medi
a, it’s a debate about block size, but I think what we’re seeing is that it’s also a debate on governance.”10 What kind of governance, and more specifically, what kind of leadership is needed? Indeed, Mike Hearn, a prominent bitcoin core developer, caused quite a stir in January 2015, when he wrote a farewell letter to the industry foretelling bitcoin’s imminent demise. In it, he outlined a few pressing challenges facing the industry; namely, that important technical standards questions had gone unanswered and that there was discord and confusion in the ranks of the community. Hearn’s conclusion was that these challenges would cause bitcoin to fail. We disagree. Indeed, what Hearn intended as a damning critique of bitcoin’s shortcomings became, in our eyes, one of the most eloquent treatises on the importance of multistakeholder governance, based on transparency, merit, and collaboration. Code alone is just a tool. For this technology to reach its next stage and fulfill its long-term promise, humans must lead. We now need all constituents—all stakeholders in the network—to come together and address some mission-critical issues.

  We’ve already outlined some of the showstoppers. They are significant. But they are challenges to this revolution’s success, not reasons to oppose it. To date, many issues are still unsolved and many questions unanswered, with little collective movement to resolve them. How will the technology scale, and can we scale it without destroying the physical environment? Will powerful forces choke innovation or co-opt it? How will we resolve controversial standards questions without reverting to hierarchy?

  How to answer those questions has been the focus of our research over the last two years. We found that, instead of state-based institutions, we need collaborations of civil society, private sector, government, and individual stakeholders in nonstate networks. Call them global solution networks (GSNs). These Web-based networks are now proliferating, achieving new forms of cooperation, social change, and even the production of global public value.