I think Tupac had it right – trust nobody. You can’t shouldn’t trust anyone. The problem with trust is that in a lot of scenarios, it has to be absolute. The most glaring of these is the exchange of value between two counter-parties. Every time a transaction occurs, there is a certain level of trust – for a long time these concerns were mitigated because transactions happened real-time, face-to-face. Every transaction requires a certain level of trust, but for most of human history the requisite trust was minimal. Example: I want a beaver pelt so I’ll trade you these spices – boom, done. If the pelt wasn’t what I was expecting I’d call off the trade; if you tried to run off with my spices without giving me the pelt, I’d just kill you.
In an age of globalization, however, this changed. The advancements in mobility (sea, air, ground) has made the world more accessible – the advent of the internet put global access on steroids. The proliferation of the digital age has created entirely new asset classes, some of which originate and live solely in the digital world. With value exchange now exonerated from the bounds of physical connections, there needs to be a way to transfer value securely and with trust.
Consider a situation I found myself in recently, something many of you (if anyone is reading this) may have experienced yourselves. I was going to a Jays game and found some tickets online through a friend of a friend. I e-transferred them the money, they emailed me back the tickets and I was on my way… on my way to a game I didn’t have tickets to. They were fake. This was an unfortunate situation, but I lived. However, not every transaction is so inconsequential. Consider a friend of mine who, years ago, moved to Canada from Ghana to be afforded more opportunities. Before the family arrived, they found an apartment for rent and in order to secure the property, sent first and last month’s rent, along with a lease agreement. Once landed in Canada, my friend and his family show up at their new home, only to find that someone already lives there. The person living there had never heard of the Ghanaian family that just moved across the world and was expecting to step foot in their new Canadian home. Not all transactions where trust is broken are inconsequential like me missing out on the Jays. But what if we didn’t even need trust at all?
In 2008 we were introduced to a better way – a trustless (devoid of the need for trust) way to exchange value. The revolution came in the form of Bitcoin, a digital currency that has the characteristics of gold (fixed supply) and has a public record of every transaction that has ever occurred, guaranteeing the status of every transaction that is, and was. How did Bitcoin accomplish this? The blockchain.
Like Machine Learning, Artificial Intelligence, Natural Language Processing and every other hot term you probably saw on the cover of WIRED magazine, Blockchain is a term everyone is talking about, but not a lot of people seem to understand. The truth is, no-one knows all the potential applications of the Blockchain, but I’ll do my best to give a quick primer so that we are all starting from the same place of understanding. The Blockchain is a public ledger an economy, containing the current state, as well as every previous permutation. Every time a transaction happens, it is confirmed by a series of computers (nodes) and added to a new block that is linked to the previous chain of blocks, hence the Block-Chain. The new block contains a cryptographic hash, derived from the Merkle Tree, that contains a record of every previous block – this ensures that the state of the economy can not be artificially manipulated. These blocks are then uploaded to a public network of powerful computers (nodes) to ensure that every transaction is accounted for, and fully transparent to the world. In the case of Bitcoin, there are ~21M Bitcoins in existence; ~16.5M are in circulation; and ~4.5M are reserved for the nodes that confirm the transactions through a process called “mining”, because Bitcoin is like digital gold… queue the “ahhhhhh”.
Bitcoin was created because centralized control is dangerous. No matter how well intentioned people or organizations are, Tupac had it right – trust nobody. My stories above show specific examples of broken trust – Bitcoin was a foundational innovation right down to it’s formation. The supply is fixed and can never be changed – the chain of blocks dating all the way back to the first one guarantees that, and along that chain it shows who has ever own each one of them. No longer could a centralized entity, like a country, print twice as much money to fund a political agenda, rendering everyone who owns that currency half as rich. An individual can also never claim they had more or less of something because the blockchain has a record.
The scope of the power of the blockchain is much broader, however. Ethereum took it a step further and created an environment where contracts can be created and settled on the blockchain. We have this fundamental issue of timing of settlement. Consider my example with the tickets – do I send him the money first, or does he send me the tickets first? And do I know they are even legit (turns out they weren’t). Now, the tickets can be validated as real, and committed to the transaction on the blockchain, once I remit the currency the tickets are sent to me and he gets the transaction. I don’t get the tickets unless the money is remitted, I’m not debited the money unless the tickets are sent and confirmed as legit. This sounds a lot like escrow… the problem is, traditional escrow relies on a centralized entity to fulfill this role, and as we know… trust nobody.
So why is this so important? Right now, per the World Bank, there are approximately 2.5 billion people unbanked or financially underserved. These financially underserved are generating about 4.5 billion undocumented transactions per day. What this means is that 2.5 billion people are essentially relying on handshake deals and cash/barter based transactions in their daily life. The implication here is two-fold: 1) 4.5 billion transactions are happening in good faith, which we’ve established is a problem; and 2) these 2.5 billion people aren’t able to participate in the global economy because they are limited to in-person transactions. The blockchain enables everyone to participate in the global ecosystem with a trustless (fully trusted; lacking the need for trust) system. This innovation doesn’t just impact the 2.5 billion underserved, it connects the world and empowers everyone to exchange value with each other, irrespective of their geo location or socio-economic status.
Not only does this innovation bring us closer to parity in accessibility, it also empowers everyone to become a stakeholder in the ecosystems they participate in. Right now, a few centralized entities control the flow of information and distribution. For example, WeChat has twice as many business accounts than the internet has Chinese websites.
This type of centralized control poses a risk to innovation. It is a gross fallacy to assume that one or two entities can build the best experiences for everyone. What you get are a bunch of bland services developed for the masses. A service or community built by the people it is meant to serve will always be better than one built by a centralized entity trying to build something for everyone, that is, when resources are not a constraint. Now, for the first time ever, via the blockchain, every participant in an ecosystem can be a stakeholder and is empowered to create, and capture value.
If we listen to Tupac, yes, we shouldn’t trust each other – but that doesn’t mean we shouldn’t work together. The blockchain lays a foundation for global collaboration; cryptocurrency facilitates the exchange of value. I’m hopeful this is the starting point for an inclusive economy where we all benefit from working together, just remember, trust nobody.
Written by: Tanner Philp