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Bitcoin May Not Survive, But The Technology Behind It Will Live On

2016 May 25
by Greg Satell

In an article I wrote two years ago about the future of money, I explained that despite the libertarian fantasies that were being bandied about at the time, Bitcoin was unlikely to ever be a mainstream currency. Now it seems that Bitcoin may be collapsing and key figures in the community are starting to back away from it.

The reasons for Bitcoin’s troubles are many, including poor governance, a lack of technological infrastructure and infighting within its community. Besides, as I noted in my previous article, the fact that sovereign governments have the power to tax in their own currencies always made a Bitcoin takeover unlikely.

Still, as Don and Alex Tapscott explain in their new book, The Blockchain Revolution, the technology behind Bitcoin may still be revolutionary. In fact, despite Bitcoin’s problems there are already thousands of entrepreneurs and investors betting on blockchain technology to reimagine transactions of all types. It’s still early days, but the potential is undeniable.

The Trust Protocol

What makes blockchain technology so useful—and potentially transformative—is its ability to create trust between two parties that don’t know each other, which is why the Tapscott’s refer to it as a “trust protocol.”

As Marc Andreessen pointed out in a excellent NY Times piece, the best way to understand blockchains is through the Byzantine Generals Problem. Imagine a group of generals that needs to coordinate an attack, but must do so only through intermediaries. Clearly, trust becomes an issue, because of the possibility that their communication will be sabotaged.

One way to solve the Byzantine Generals Problem is by establishing a trusted third party, which is the role that governments and other institutions traditionally play in financial transactions. Yet a third party is not a true solution, because there’s always the possibility that the third party can be corrupted as well.  In effect, it merely assumes away the problem.

Blockchains solve the trust protocol by creating a distributed ledger, almost as if the generals could constantly refer to an encrypted Reddit post that they all had access to. What makes the technology so exciting is that there is a wide variety of areas beyond financial transactions where trust is important.

Smart Contracts

Traditionally, one major way that we have legislated trust in our society is through contracts, which codify obligations, penalties and the jurisdiction whose laws will enforce the agreement. These can be incredibly cumbersome documents, often running to hundreds of pages.

Consider the case of a building project, in which a general contractor must sign agreements with hundreds of subcontractors. To enforce these contracts, work must be inspected and if it passes muster, it goes to an accounts payable department, which authorizes payment and instructs a bank to wire the proper amount. The process usually takes at least a few weeks.

However, a smart contract powered by a blockchain can streamline the process through automation. Using a simple tablet computer, an inspector can instantly activate the smart contract, which has all of the provisions of agreement embedded within it, to arrange settlement, including payment.

This is just one example, but the possibilities are endless. Another exciting areas is rights management for intellectual property. By integrating settlement, enforcement and other aspects of agreements with smart contracts, we can not only create enormous efficiencies, but also make our lives a lot easier.

Blockchain Resumes

Another area where trust plays a large role is in the employment marketplace. Job seekers seek to present theimselves in the very best light, so it’s important for potential employers to be able to verify experience and skills. Many firms have elaborate—and expensive— interview and testing protocols to help make the right choices about the people they hire.

Yet despite the veneer of sophistication, the primary employment search tool remains the humble resume. Sure, today these often take a digital form, such as a PDF file or a LinkedIn profile, but it’s still basically the same old resume.

Blockchain technology has the potential to bring the hiring process into the 21st century by embedding authentication within the resume itself. One school has already begun using blockchain to authenticate its degrees. The same can be done for previous employment or even work done on specific projects.

Another advantage of blockchain resumes is their ability to authenticate non-traditional experience, like freelance jobs done on platforms like Upwork or work done on open source platforms like Github, the Apache Foundation or Wikipedia, giving a much fuller picture of an applicant’s skills.

A Ledger Of Things

While we tend to think of trust as an element of personal interactions, it is also becoming increasingly important for machines. To connect to a WiFi network, for example, we have to be able to trust that it won’t load any unauthorized programs that will monitor our activity or steal our passwords.

This will only become more important as we become increasingly dependent on the Internet of Things. As everyday devices, such as cars, home appliances and security systems become connected online, the standard password method of authenticating and authorizing access will not be sufficient.

Blockchains can greatly improve on passwords because they represent an entire digital identity. So a hacker would have to create an entire history of legitimate activity in order to gain authorization for access. That wouldn’t be impossible, but it would be much harder to do and a clean blockchain would become tainted after a single intrusion.

As Alex Tapscott has put it, The Internet of Things needs a Ledger of Things.

The Revolution Will Not Be Centralized

In 1913, the great Cambridge mathematician G.H. Hardy received a strange letter with almost indecipherable scrawl. It turned out to be from a destitute young man in India named Srinivasa Ramanujan, who wanted Hardy to look at his work and, in some sense, authenticate it.

As it turned out, Hardy was one of the only people on the planet who could. It took him some time to go over the papers, and even more time to get over his utter disbelief,  but by the end of the day he recognized that Ramanujan, despite his obscurity and complete lack of credentials, was one of the greatest mathematical minds who ever lived.

In effect, we all have a lesser version of Ramanujan’s problem in that we need recognition to get things that we want. Up till now, that’s been done by centralized institutions, such as banks, credit bureaus, and universities, all of which wielded enormous power. The Internet has helped to decentralize many important functions, but in many ways it also eroded trust.

That, in a nutshell, is the role that blockchains, in the form of a trust protocol, can play in the years to come.

– Greg

3 Responses leave one →
  1. May 25, 2016

    Really interesting point of view. I didn’t thought about BC in this way. I can even not imagine how some of the ideas will work. For example your part concerning the Blockchain Resumes confuses me. You mean that everything will add some part of my biography? But in fact that means that everything have to be connected somehow? Isn’t that the same “old” resume but in more technical new look? I’m really confused…

  2. May 25, 2016

    I think the front end will probably look much the same. The main change will be on the back end, which will be securely connected and automated, much like a digital signature. So instead of a heading for freelance work with some details, a blockchain resume could be securely linked to a verifiable Upwork account, which would have a history of projects, training and skill certifications, etc.

    – Greg

  3. Kuldip Singh permalink
    June 4, 2016

    A very interesting You Tube video which validates your views re trust on Block Chain.

    How’s Veritaseum Blockchain Tech Different? Because We Get It!
    by Reggie Middleton

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