Many of the inventions we take for granted today were once silent revolutions. Remember how much smartphones have altered our way of life and work. People used to be gone as they left the office because a telephone was attached to a spot rather than an individual. Global nomads are now launching new companies directly from their tablets. To think that smartphones have only been available for a decade.
Another silent movement is underway: blockchain, a distributed ledger that keeps track of a constantly growing collection of organized documents known as “blocks.” Consider what has occurred in the last ten years:
Bitcoin, a digital money experiment, was the first global blockchain invention. Bitcoin has a market value of $10–$20 billion dollars and is used for payments by millions of people, including a massive and rising remittances market.
The second development was blockchain, which was basically the discovery that the code that underpins bitcoin could be extracted from the money and extended to a number of other interorganizational partnerships. About every large financial institution in the world is actively studying blockchain, and 15% of banks are projected to use the platform in 2017.
The third invention was the “smart contract,” which was embodied in ethereum, a second-generation blockchain system that developed little computer programs directly into blockchain that allowed financial instruments, such as loans or bonds, to be represented rather than just bitcoin’s cash-like tokens. And hundreds of ventures on the road to market, the ethereum smart contract network currently has a market value of about a billion dollars.
The fourth big breakthrough, which is at the forefront of blockchain thinking right now, is known as “evidence of stake.” The security of today’s blockchains is provided by “proof of work,” in which the party with the most overall computational power takes the decisions.
These companies are classified as “miners,” and they run huge data centers in return for cryptocurrency payments. The new systems replace data centers in favour of sophisticated financial instruments that offer a comparable or even higher level of protection. Later this year, proof-of-stake systems are scheduled to go public.
Blockchain scaling is the fifth major breakthrough on the horizon. A transaction is currently processed by a machine in the blockchain network. This is a long operation. A scaled blockchain shortens the process while preserving protection by measuring how many computers are needed to verify each transaction and splitting the workload among them.
It’s a tough challenge, but not an intractable one, to handle this without jeopardizing blockchain’s legendary security and robustness. A scaled blockchain is supposed to be quick enough to fuel the internet of things while still competing with the banking world’s main payment middlemen (VISA and SWIFT).
An elite community of computer scientists, cryptographers, and mathematicians have worked for just ten years to build this engineering landscape.
Things are bound to get strange when the full impact of these breakthroughs is realized. Blockchains can be used for self-driving vehicles and drones to pay for utilities such as charging stations and landing pads. International currency transactions would be shortened from days to an hour, and then to a few minutes, with better stability than the existing system can achieve.
This and other improvements reflect a widespread decrease in transaction costs. There can be rapid, abrupt, hard-to-predict aggregations and disaggregations of current business models as transaction costs fall below invisible levels.
Auctions, for example, were once narrow and local rather than ubiquitous and national, as they are now on platforms such as eBay. A sudden shift in the system happened as the expense of meeting people declined. Since its introduction in the late 1990s, e-commerce has caused several of these cascades, and blockchain is supposed to do the same.
It’s difficult to predict where anything will go. Did anybody foresee the rise of social media? Who’d have guessed that tapping on our mates’ faces would take the place of watching TV? Predictors sometimes exaggerate how quickly stuff can happen while underestimating the long-term consequences.
However, the blockchain industry’s sense of magnitude is that the coming developments would be “as big as the original discovery of the internet,” and this may not be exaggerated. We should expect blockchain to expand into everything from supply chains to provably equal internet dating as it matures and more people become aware of this modern way of collaboration (eliminating the possibility of fake profiles and other underhanded techniques). And, considering how far blockchain has come in just ten years, the future might be closer than we thought.
It was difficult to process a credit card safely on the internet until the late 1990s — e-commerce actually did not exist. How quickly will blockchain usher in yet another revolution? Consider Dubai’s blockchain plan (disclosure: I built it), which calls for all government records to be released on blockchain by 2020, with major initial initiatives expected to begin this year.
The World Government Summit’s Internet of Agreements concept draws on this plan to imagine a major change of global commerce, with blockchains helping to smooth out some of the bumps created by Brexit and the United States’ recent departure from the Trans-Pacific Relationship. These innovative plans will have to be tested in reality, but in Dubai, cost savings and innovation gains are expected to outweigh the cost of exploration. The bleeding edge of innovation, especially in infrastructure, is always in the hands of the state, as Mariana Mazzucato teaches in The Entrepreneurial State, and this appears to be the case in the blockchain room.