February 20, 2018
A special guest post written by Phil White (with contributions by hebgb) and re-printed with permission.
With the recent explosion in volatility, and the inevitable crash that it portends (the financial crisis of 2008 will have been a mere blip by comparison,) it is important to understand what the world of distributed ledger technologies (and, to a lesser extent, the crypto-currencies underpinning them) can offer people in terms of financial security, individual sovereignty, and improvements to the human condition. This article aims to define the terms associated with this new technology, clarify some of the misconceptions about crypto-currencies, put to rest some of the fears many have, and introduce some lesser-known applications of this largely untested, but radically different system that promises to fundamentally change the way the world functions. The teams currently working on this technology truly are trying to change the world in order to make it more inclusive, diverse, accessible, and secure. It could rightly be called ‘digital anarchy’.
If you thought the crypto space was about digital cash, you’ve missed out on 99% of what DLTs will be doing for humanity. In the comment section of a popular financial website, Zero Hedge, the user called Mr. Universe said,
“I’m starting to mine ACME coins right now. I built a farm in a cave I painted on the side of a mountain.”
Although funny, it succinctly states that which many wrongly think about the entire CC space.
When people talk about Bitcoin, what they are really talking about is much bigger than even they realize. Most people think that using the term Bitcoin describes the entire crypto-currency space, all the underlying blockchain technology, and all the applications which have arisen and will arise from this technology. This is, obviously, an overly simplistic view and is akin to saying that the term ‘concert ticket’ adequately describes every musical genre, band, and instrument, and explains how all songs are written, recorded, and sold. So let’s disambiguate.
Bitcoin (BTC) has become something of a generic term used to describe everything blockchain. It is a mistake, and one made by most mainstream reports on the topic, to refer to BTC and other crypto-currencies (CCs) as though they were the same thing. It is also a mistake to refer to the blockchain as though it applies equally to all coins. Blockchains are not singular entities, but refer instead to a structure containing within them the data and the history behind every transaction applied through their use. It is this process through which CCs and smart-contracts establish trust, account for transactions, and secure the information of such transactions for all time. There exist many blockchains, each with distinct properties, which can operate independently or be linked together into networks of networks. Think of a blockchain as a separate intranet, linked to many other intranets, all of which are connected (but need not be) through the internet. DLTs (distributed ledger technologies) can be thought of as the multitude of different blockchains. Some DLTs, such as Hashgraph (a consensus algorithm,) which is also a DAG (directed acyclic graph), are not technically blockchains but fulfill the same role.
BTC is a digital coin as are Ethereum (ETH,) Litecoin (LTC,) Ripple (XRP,) etc. Think of them as subway tokens. If you want to ride on the BTC line and take advantage of the benefits of BTC, you will need to exchange some of your money for BTC. The same applies to all crypto-coins. Each provides a different set of services with their own individual pros and cons. The BTC train does not stop at ETH stations, and vice-versa. To take advantage of ETH’s services, you would need to trade some of your money for ETH, and the same goes for any other coin. Blockchains are not (yet) fully compatible.
The entire BTC line can be seen as the BTC blockchain, the string of transactions which have already taken place and the data they contain. It is always growing. There are many ways to build a blockchain – some trains are faster than others, some are more expensive to ride, some require more powerful engines (and use more energy,) some have tinted windows to protect privacy, some are local, some are international, and some even go to secret locations. Some lines publish their maps and allow anyone to come aboard, others are private and only show their maps to members.
In this sense, BTC is to CCs as a certain blockchain is to DLTs; it is merely one of many varieties. Pardon the semantics, but unless referring to one individual blockchain, it is a mistake to refer to ‘the blockchain’ as a single entity.
Crypto-Currencies (CCs)
CCs describe all the coins which one can purchase in order to participate in a certain decentralized application. There are currently some 1500+ coins representing at least as many projects, some of which are designed to improve a current system, some are designed to create brand new systems, some are designed to turn a profit, but all share the goal of solving a particular problem or set of problems. Contrary to popular belief, CCs were not designed to act as speculative investment vehicles. CCs can best be compared to crowd-funding for start-ups. They are usually released through ICOs (initial coin offerings – the decentralized version of IPOs,) though they need not be. CCs can be traded over exchanges such as (in no particular order) GDax, Bitfinex, Bitthumb, Huobi, Bittrex, Poloniex, Binance, Coinbase, Kraken, Cryptopia, QuadrigaCX, … like any other currency can be traded in the Forex market.
Decentralized Applications (DApps)
DApps promise to eliminate the middle-man by directly connecting users with providers over P2P (peer-to-peer) networks called the blockchain. For example, if Twitter was a DApp, tweets could not be censored because they would not rely on any one server which is controlled by a single entity. DApps and smart contracts are built on top of algorithms.
If eBay were a DApp, buyers and sellers would communicate directly without the developers charging fees, setting conditions, or refusing clients. The difference is that DLTs replace servers (by spreading computing power over multiple computers) so no third-party has any control over the transaction by controlling the servers through which they run.
If we compare a DApp like Bitcoin (BTC) to a centralized App such as PayPal, both of which were designed to facilitate payments, we see that while PayPal controls the servers through which financial transactions are made, and in so doing can control every aspect of the user’s account (holding transactions for up to eight business days, for example) and could even, through the actions of a bad actor, remove money from the account, use the account illicitly, or even close the account for arbitrary reasons, BTC, not being under the control of any one individual or group, does not allow for an intervention in any of the transactions passing through the network. This is what is meant by ‘decentralized’. (N.b. There is a possibility of compromising the network through a 34% attack, but more on this later.)
Forgive the repetitiveness of the above, but this point cannot be over-stated; the problem with the internet, its lack of security, and the ability for certain entities to control/censor large parts of it, lies in the fact that everything revolves around the use of servers. Servers are the means by which information is controlled. DLTs re-distribute the power of control and put it in the hands of the people using the system instead of those who own the servers. An excellent example of this is social media. Facebook, Twitter, YouTube… can all, rightly, control what gets published over their servers. Wouldn’t it be nice if a social media DApp were developed which could not be censored? Wouldn’t it be nice if there were no need for advertising (which doesn’t work anyways) and the spying which underpins it? (The only reason companies spy on users’ personal habits, the surveillance state not withstanding, is so that users can better be advertised to in order to pay for the infrastructure supporting the servers.) Wouldn’t it also be nice if authors owned the information they put online instead of transferring ownership to those who publish it? The very notion of free speech on the internet depends upon the ability to control the dissemination of that speech, itself. There has never been free speech on the internet. Everything can be censored. Much like if one were to visit a neighbour and act the fool in their home, the host would, and should, be able to kick that guest off of their property. Facebook is not a public space, Facebook is a private space. They can and do decide what is allowed. The government can block protests on public land because, in this case, ‘public land’ is merely a designation; the land is owned by the government. Nobody owns the blockchain.
The truth is that the world is in the process of undergoing a massive change in the way it conducts its business. It is crucially important for everyone to grasp exactly what is involved as it will surely affect the lives of everyone on Earth and change the way people look at life, business, finance, social networks, the internet, governments, elections, privacy, freedom… which are all going to have to change in a fundamental way.
Permissions, nodes, layers, shards, and APIs
Permissioned ledgers/networks are relatively simple in terms of incentives; your incentive for running a node (one of the computers that is running the system – approving transactions, storing data, etc.) is participation; if you want to play a game, you must join that game’s network, and means you need permission to run a node. Airlines could each be a node in the airline network. Musical artists could be their own nodes, or brokers could run their nodes for them. Why not buy concert tickets from the artist directly? On public networks (non-permissioned ledgers,) the incentives are much more complex, and will not be discussed here.
One can think of networked communications as comprised of a series of layers. There can be a crypto currency layer, a consensus layer, a security layer, a data layer, etc., and all of these are built upon each other. They can be described as an algorithm sandwich. Every layer slows down the system, introduces additional points for bugs to creep in, and increases the complexity of communication between the layers. Speed, throughput (the amount of information being processed within a system in a given amount of time,) security, and fairness must be maintained throughout all the layers despite constant additions. The pieces of the layers cannot be thought of individually, they must be addressed holistically.
Systems that use many shards (the partitioning of databases into smaller parts) need to be fast, but systems that need to operate on only one shard need fast shards. Shards are like processors in your computer; some programs need many, some need only one. Some applications/programs will not be any better if there are many shards. Some need the multiple shards to run more efficiently. This is largely relative to the size of the network. Shards can be looked at as bricks. Even if the security of one shard is good, how will the security be affected when putting these shards together? Strong bricks can build weak walls or strong walls, whereas weak bricks can only build weak walls. Shards are being built to be modular so that if a better brick is developed, it can be inserted into the wall at a later date.
An application programming interface (API) is, in basic terms, a way for different components of a program to communicate together.
Common Myths About CCs
There are many false notions about CCs which are being put forth by otherwise well-educated and well-intentioned individuals and organizations. Several economists, bankers, traders, politicians, and others have been arguing against the advent of CCs. The arguments they raise against the use of blockchain as it pertains to money are well known but are usually not very accurate and can be very biased. The following are a selection of common myths, misconceptions, and arguments which are, at best, weak.
No backing, no intrinsic value
It has been said that CCs do not represent anything of value, are not backed by anything of value, and consist of nothing more than ones and zeros on a computer screen. There are many problems with this statement.
There are some CCs which are backed by various physical goods such as gold or oil. They are not the first. The US dollar was backed by physical gold until 1973 and the country of Tatarstan still backs its currency with both wheat and oil. It may be the only country left in the world which does not use fiat currency.
OneGramCoins (OGC) are each backed by one gram of physical gold and became the world’s first gold-backed digital coin. Venezuela has released the Petro (Petromoneda – PTR) crypto-coin which is backed by over five billion barrels of oil currently held in reserves. These are but two examples of how certain coins are being backed by physical commodities and they are not alone. This being said, they are certainly the exception rather than the rule. Most coins are backed, not by goods, but by services. Owning these coins allow the users access to services which would otherwise not be possible. Some claim that this is not a backing, but in reality, it is simply a different form of backing. A similar and related point brought against CCs is that they have no intrinsic value. Some would argue that neither does fiat currency, nor any of the other multitude of goods which have been used as currency throughout the ages such as: seashells; tally sticks; beads; modern nickel and copper coins; etc. The problem with this is that even precious goods, once they fall out of favour for whatever reason, also lose their intrinsic value. (Silver lost much of its value with the advent of digital photography.) The value of CCs is what they allow the holder to do with them. Access to computational power, for example, is certainly of value to mathematicians seeking to discover new prime numbers. Access to micro-loans is a very valuable service to those in emerging market economies seeking to improve the quality of their lives. Examples of intrinsic value are endless. Some who defend CCs have stated that it is the underlying technology which gives coins their value, but this is not accurate. The tech itself is mostly public and of little value. The way a certain team of individuals applies the technology gives the project, and therefore, the coin, value.
CCs are nothing but scams, fads, and Ponzi schemes
There are currently over 1500 CCs which comprise companies, staff, budgets, and goals. It is beyond credulity to insinuate that all these hundreds of thousands of people are all in on a scheme to defraud the rest of the population. Certainly, some coins, ICOs, and blockchain projects are merely scams (or even jokes) and several have been proven to be schemes to defraud investors. These represent a very small percentage of the overall market, and the same can be said of any asset class. Buyer beware. But it is nothing more than a paranoid delusion to imply that all coin projects, or even a majority thereof, are scams. Many, maybe even most of the coins on offer today will end up being worthless, but so will the majority of shares in small companies. Early adopters often suffer the greatest losses or the greatest gains. But early adoption helps the industry develop and grow, which is what fuels a rise in value in the first place. Traditional markets can also be compared to Ponzi schemes considering the boom-bust cycle and the bank bail-outs and bail-ins which fuel it.
CCs are not like break-dancing, and they will not go away.
CCs are in a bubble – tulips
When one looks at the market for CCs of late, it would be easy to think that it is in a bubble. BTC is often compared to tulips, hearkening back to the Dutch tulip mania which collapsed in 1637. The only problem with this analogy is that BTC has been there before, losing over a third of its value many times in the past, only to rebound and come back stronger than ever. This, of course, is not to say that it will continue to do this forever. BTC could very well go to zero one day, but calling it a bubble every time it goes up in value is disingenuous and disregards its almost ten year history. Whether or not BTC is in bubble territory is not so important. With the recent growth in the space, even if BTC were to suffer a catastrophic loss of value, there would be many other coins ready to take its place. Saying that the entire CC market is in a bubble is also misguided considering that the tech bubble burst when values were at the $7T level. The entire CC space now sits at about $500B. It is the author’s personal belief that the market is in its infancy and that the total value of CCs will only rise to eclipse the value of every asset class in history. Many have said that CCs will give rise to the world’s first (official) trillionaire. CCs may one day be in a bubble, but for the moment, the bubble has only just begun to inflate. It is more like a blister on the financial world’s heel.
There are just over 1400 people, private individuals in the US alone, not counting corporations, banks, hedge funds, etc., who make $60M per year.
Globally, there are about 1800 crypto wallets worth over $10M.
Do you still think it’s a bubble?
Traditional market analysis
This leads us to look at the metrics used to evaluate traditional markets. There are no comparisons possible between the usual tools and CC analysis. This becomes quite obvious when looking at CC charts. Certain patterns tend to emerge which are not seen in the lower volatility regime of stocks and bonds et al. Using these methods to glean a forecast of crypto-performance is akin to measuring a bottle’s volume with a sextant or the distance to the nearest star with a bathroom scale. Many traditional tools are more than useless even in the domain for which they are intended, but trying to find a place for them in the CC market is simply wrong-headed.
CCs are speculative investment vehicles
CCs were not meant nor were they designed to be used as speculative investment vehicles. The fact that many have made fortunes trading CCs is secondary to their true purpose. CCs can be seen in much the same way as crowd-funding resources or even municipal bonds. They are simply a way in which capital can be raised in order to support an underlying project. They could more accurately be called digital start-up capital. Anything which lives in a highly volatile milieu can be traded for enormous gains or losses, but without the underlying goals, the coins themselves have no meaning. The coins have become as a proxy; rather than buying stocks or investing in IPOs (sometimes also backed by ideas and intrinsically worthless,) the coins serve as the assets traded and represent an investment in the idea, in the team, or both.
CCs can be hacked
This is a common misconception. There is much conflation between the coins, their companies, and the exchanges which allow for their trading. No crypto coin, including BTC has ever been hacked. Blockchains and distributed ledgers do not get hacked. On the other hand, many exchanges have been hacked. The irony is that if the internet had been secured using a DLT security layer, hacking exchanges would be orders of magnitude more difficult. Many CCs have also been lost or stolen, but this is a different matter altogether. Lots of money is either lost or stolen every year, as well.
No electricity, no CC
A common argument against CCs is that access to them is removed during a power failure. While this is mostly true, it is no different than with fiat money. Credit cards, debit cards, ATMs, and even bank employees do not work during power outages. Unless one has cash on hand, which CCs do not preclude, access to money is always in short supply during blackouts. Paper wallets can be traded like IOUs or stock certificates during power outages. Digital wallets run on batteries, and can be used to transfer coins.
Production (electricity) costs are prohibitive
While this has been true for some coins using the proof-of-work algorithm (PoW,) the same cannot be said of newer coins which use proof-of-stake (PoS) algorithm, amongst others. There are many algorithms in use today including proof-of-stake-velocity (PoSV,) proof-of-importance (PoI,) proof-of-capacity (PoC, includes varieties called proof-of-storage and proof-of-replication,) proof-of-burn (PoB,) proof-of-asset (PoA,) and proof-of-run (PoR). While the cost of ‘mining’ can be high, it need not be. [Explanations of these algorithms is beyond the scope of this article, but a simple explanation can be found here.]
Network fees are prohibitive
This is also true for certain coins, but many coins can be traded with no, or very low fees. Let’s not forget that credit card companies charge 3-4% on every transaction. This is temporary and all coins will soon cost nearly nothing to use.
Network transactions/clearing take(s) a long time
While some coins can take a matter of hours to clear, the majority of coins clear almost instantly. This depends on throughput. Bank wires take several days to clear. PayPal can hold funds for up to eight business days. Western Union, while quicker, charges enormous fees. This argument is obsolete.
Internet shut-downs would kill CCs
It can be argued that CCs rely on the internet to be of any use. There is some truth to this, but it is not completely true. CCs can be exchanged through local wallet to wallet transactions, paper wallets can be printed and traded like IOUs, and intranets based on local servers can be used to transfer funds. These transactions will not be recorded on their blockchains (until updated) and the security measures inherent in the system to guard against things such as double-spending would, obviously, not be in place. Nevertheless, the internet was designed to be redundant, and a major persistent shut-down has never occurred. National shut-downs have occurred and are a threat to those living in such a place. The natural option here is to re-locate, but that option is not open to everybody. It should be noted that governments, while they do hold the power to shut down the internet in their own respective countries, can not shut it down on a world-wide scale. It should also be noted that if the government wants to, it can use regulation to limit the use of CCs, so why shut down the web? Governments can and have confiscated all manner of things from blankets to gold and could confiscate CCs, as well. Whether or not they would succeed is another story. The irony is that the use of DLTs will make governments more responsive to the people (if they control their own money) rather than the banks (that do so now.) DLTs can also make governments more transparent and can even eliminate corruption by making elections open and secure, making all government accounting public information, and limit fraud, over-spending, and black budgets by governments that hide tax-payer money for illicit purposes, which they all currently do, without exception. Using a blockchain to account for government finances would immediately expose black budgets. (If total expenditures are greater than revenue plus debt, where does the extra money come from?)
Elites control the price of CCs
As in any market, it is the whales who get their way; this is not common only to CCs. Large holders of any asset, be they institutional or private, can manipulate price, volume, and demand to a large extent. Current manipulations can be seen in the gold market among others, algo-driven trading determines prices across almost all markets, futures trading affects price, as does government regulation. This is no different than the current fiat regime. The difference is that with CCs, people will come to control much more than any billionaire or corporate entity could afford to buy. Once the threshold of control passes into the hands of the public and the ratio of ownership changes, these shenanigans will be much more difficult to rig. This is a temporary problem.
CCs will usher in a one-world government
This is quite a claim, but the argument is not a new one. It is without doubt that there has been a move towards digital currencies. These, however are not the same as CCs. Digital currencies are simply fiat money but without the cash. It is the elimination of cash which has led to reports of global governance, which is a real phenomenon, but one which does not rely on CCs. Hence the conflation. As it happens, the only way to subvert any actions governments might take to consolidate their power over the populace is through the advent of personal and financial sovereignty. Only DLTs are currently positioned to offer a path in that direction.
If McAfee eats his manhood, cryptos are dead
Much has been made of the wager offered up by one of the gurus of CCs and DLT technology. If indeed BTC does not attain the heights to which John McAfee claims, it only speaks to BTC’s failures as a viable technology. While the CC markets seem to be closely correlated to BTC’s price, many coins are expected to fall by the wayside as the technology progresses. BTC has many problems which can better be addressed by other DLTs. The movie industry didn’t die when VHS was replaced with DVDs. The same can be said of this non-argument.
CCs are not money
Well, here again we get into semantics. There are many definitions of money. Here’s what money is, to most people: Money is that which one gets for one’s labour, and that which one trades for goods and services required. For most people, CCs can just as easily be money as can coins and bills, or silver and gold, or seashells and beads. CCs have an advantage though; they can be sent instantly anywhere in the world. In many parts of the world, CCs have been accepted as methods of payment for everything from homes to bullion to clothing and to lunch.
There are two arguments for CCs relating to money which are rarely, if ever, brought up. The first is that because of their limited supply, they are invulnerable to hyper-inflation unlike the currency of certain nations: Argentina; Venezuela; Germany; and Zimbabwe, to name a few. This is not to say that they cannot lose value if they become obsolete, only that the money supply is inalterable. It is control of the money supply, the amount of money circulating through the economy, which most influences its value.
The second is more down-to-Earth. Currently, most of the children under twelve who have any experience on the internet have used some form of CC or token. It is the only knowledge most of them have regarding the wide world of finance. They have been earning tokens from any number of online video games and exchanging them for upgrades to their characters or for the purchase of useful equipment. As far as the economy goes, besides the fifty-dollar bill grandma’ puts in their Christmas card every year, it is the only experience these children have with money, and they use it almost every day. These children have no trust issues with CCs, are very comfortable trading them, and are growing up rather quickly. They are the future, and the world will belong to them. It is only natural that they apply that which they know best to the world they will have a hand in creating.
What are some of the problems we face, and what are the solutions DLTs offer?
DLTs came about, not by chance, but for a reason. Their purpose has simply been to solve problems. CCs can help fund teams of thinkers and dreamers who wish to tackle some of the world’s most pressing issues. The following are just some of the more pertinent problems the world has yet to solve, but as we have left it to governments and NGOs to do these things for us, and as their mandates have largely been ignored or have failed, it is time we take back the power for ourselves in order to effect change on our shared planet. Problems like corruption, sovereignty, freedom, poverty, and war have been put aside in lieu of more important issues, or so say the international institutions we relied upon to fix them, and have instead been replaced by measures like austerity, increased surveillance, immigration, political correctness, terrorism, and one-world government. How much longer were we supposed to wait?
Most of these ‘solutions’ are not panaceas, rather, they offer the opportunity for those who suffer from these problems to bring about their own solutions. Whether it is by crypto-anarchists who want to free themselves of all forms of governmental control, or by the financial industry (first-adopters) who want more freedom to profit from within the current regulatory framework, or by workers in emerging markets who want more control over their financial lives, the issue of sovereignty has always played a major role in the development of DLTs. Sovereignty is the basis for many of the projects which have been launched in this space, and it comes in many forms.
Micro-loans have become very popular in less developed markets. This industry has made many people rich and even more have been made richer than they were. There are many ways to implement micro-loans over DLTs, but the important part to take from this is that no third party is needed. Instead of one wealthy person serving as banker to the poor, there is no reason why anyone cannot become a lender of small amounts of money half-way around the globe. Certain CCs are making this easy and are reducing the cost of borrowing money for people everywhere. Why should the rich get to borrow large sums for free (at 0% interest, or close to it) when the poor are charged significantly more? By removing the middle-man, fees can be eliminated altogether and interest can either be waived by philanthropic individuals or be brought down to levels comparable to those which large borrowers currently pay. In the same vein, people who choose to sell goods to others over peer-to-peer (P2P) networks can eliminate the fees charged by auction sites like eBay, as well as all the associated costs of currency conversion and transaction fees from payment processors like PayPal, not to mention that the transactions would be instantaneous. Even if paid upon reception, a linked sidechain could be appended to the blockchain in order to track a parcel sent through the mail.
Banks running dark pools want secure data storage and encrypted communication between nodes. They want to share information but don’t trust each other. Banks in dark pools have to trust one bank that runs the servers. Controlling a server gives an advantage to those who control it. There are no privileged parties in the blockchain.
Banks, credit unions, credit card companies, insurance companies, investment brokers… the entire financial services industry could save lots of money on security. Instead of protecting one server, the cost of securing the network would be evenly distributed amongst all the participants. Early adopters of the tech were the crypto-anarchists and the financial industries.
By this point, some of you might be thinking that there would be no need for banks at all. That might very well be true for personal banking needs, but institutional needs are a different matter. Financial industries are leading the charge; banks and insurance companies want speed and security and fairness, believe it or not, but just amongst themselves and not necessarily for the greater good. The entire insurance industry has already adopted Hashgraph (currently the fastest and most secure DLT) as their new standard.
This is not to say that the reduced presence of banks in the lives of people would not be greeted with enthusiasm, as it certainly would. Nobody would argue that banks don’t make enough money, with the possible exception of bankers. Perhaps their role in the world could be lessened while the people enjoy more of their money and the freedom that comes with financial sovereignty.
Employers who paid their staff with CCs and through DLTs would not incur fees, nor would anyone ever need to be charged for cashing a cheque. And since all payments could be made through smart contracts, the payroll and tax accounting could be taken care of automatically further reducing costs for business owners.
An insecure internet
Who hasn’t been exposed to spam? Many have also been victims of phone spoofing. (The telephone network, built long ago, is also very vulnerable and insecure.) Distributed denial of service attacks ( DDoSs) can easily take down websites through their use of bot-nets. Hacking, through code insertions (popular amongst websites which use Flash,) distribution of viruses, trojans, worms, etc., affect us all, at some time. ‘Game theory’ attacks can affect international financial systems as has been the case with recent attacks on the SWIFT system. Firewall attacks are also common.
The current internet of things (IOT) is both fragile and vulnerable and introduces many more potential bots in the form of dishwashers, printers, webcams… which are susceptible to being taken over by malicious forces using bot-nets for DDoS attacks and other nefarious purposes.
DLTs can be built in a layer on top of the internet in order to add security and overcome the flaws inherent in the network. Changes are very difficult to implement into the current underlying technology of the internet. Adding a secure layer on top of the internet provides an excellent way to make these changes quickly and to make them scalable. Serious security protocol vulnerabilities, which persist for years and are sometimes not noticed until they are exploited, can be eliminated. A trust layer (verification) would solve spam if everyone were to send mail through trusted and decentralized networks. Hackers would find that their methods of stealing information and vandalizing systems would be greatly limited. (It should be noted that all software is inherently vulnerable to hacking. If it can be programmed, it can be hacked. DLTs would mitigate the risks and bring the probabilities of successful attacks down to insignificance. More importantly, DLTs would instantly inform all the users on a network that a hack had taken place thus making it much easier to limit its spread and greatly reduce its effects.)
Firewall attacks refer to the 34% rule, as mentioned above. If a malicious actor or group of actors can control 34% of the computers running a network, the entire network can be compromised. This is true for all systems. It is very unlikely that any group could ever come to control 34% of all the computers (or nodes) on a network, but the problem today is that entire networks can be compromised through the control of only one computer. This is the very worst possible scenario, and is the paradigm which the internet finds itself under today. It is one which currently costs businesses untold billions in internet security. These costs could be eliminated, or greatly reduced, through the immediate implementation of DLT technology.
If security and privacy were not necessary, then we could just use a server, but if security slows down the process too much, it wouldn’t be accepted. The answer is not to scale down security, rather to build a better system where the security does not hinder throughput. Systems need to take considerations of speed into account. A faster system is a better system (and in many cases a more secure one,) and processes inherent in some DLTs are faster than anything currently available.
Another aspect to security is that the incentives to act in good faith (good faith would not even need to be a consideration with strong verification) are vastly outweighed by the incentives to game the current system for bribes, coercion, and financial or political gain. When billions of dollars are at stake, the threat of fines or a short stint in a minimum security facility is no deterrent. DLTs can, and do, offer better incentives for all involved to act correctly. If everyone used strong locks, thievery might be eliminated. In the same way, if everyone used strong networks, negative actions would not be worth the trouble. (Better enforcement of current regulations would also help, but that is another story, altogether.)
Peripheral costs and benefits
There has been much focus on the fact that the current system the internet is built around is having enormous and detrimental effects on people using social media, especially on the youth. It has been said that we are now all ‘alone together’. Culture has changed overnight and on a massive scale. Ironically, online social interactions are hurting social skills amongst the youth. Loneliness and depression increase with ‘smart’ phone use. Fewer distractions could lead to a greater attention span and more efficient cognitive processes. Technology has already altered our consciousness and our culture.
Servers carry much of the blame for this problem, as well. The current state of internet technology and the way it is implemented hinders true communities from forming. Instead, people interact, not within groups, but one-on-one within a group. DLTs could change the very nature of group interaction by making it possible to create virtual worlds (everyone would have the power to create their own virtual universe without necessarily exerting control over the group.) Leemon Baird calls these ‘shared worlds’.
With shared worlds, one wouldn’t have to pay for access, there would be no limit to membership, anything would be possible, interactions would be group-based and not just one-on-one times a hundred, the structure could be democratic or tyrannical, and the market would decide which it preferred. Users could even vote on the direction the world took. They would put Civilization, Sims, and all the other ‘Tycoon’ games to shame.
Liberals and conservatives could go their own way and isolate themselves or learn to live together and play nice with everyone. Don’t want to deal with hate-speech? Make your own rules. Want to encourage free speech? The same applies.
This is the elimination of cultural borders within state borders. It is also the implementations of borders within state borders. In a phrase, it is the advancement of total freedom to associate.
Different shared worlds could connect to each other. Imagine starting one’s own stock market or video game as easily as typing a letter. A certain world could issue/manage a CC which could be used by several shared worlds. Data storage, game environments (like Minecraft,) alert systems,… all could be created without paying for hosting services, and changes made to one world would instantly propagate throughout all these connected worlds.
Thus everyone could interact as though they were in a group instead of interacting with others one-at-a-time. Advances in virtual reality (VR) would help. This would have positive effects on the psychology of those who partake in social media. Not to mention, instead of being alone together, kids could hang out and truly be together. For example, instead of a ‘zombie’ user walking into a lamp-post, those in the group could warn that user that a lamp-post was in their way. This is a very basic example, but the possibility of increasing the group dynamic within the social media space, depending on the level of VR technology available, is unlimited. Whatever way this develops, it is important, and is becoming more and more urgent, that we build a society based on benevolence, compassion, and teamwork instead of greed.
The culture of the developers, and of the entire blockchain revolution, is central to this new paradigm. Cultural issues affect the technology being developed, how the technology is to be implemented, and how the technology influences the world’s culture as a whole.
Griefing (vandalizing digital property/assets) can be eliminated through the implementation of DLTs. Much can be gleaned about property rights through this one simple example.
Systems for such things as distributed computing and data storage could be made much more effective and secure thus enabling large-scale projects (some of which already exist) to more efficiently use the resources of the entire network as though it were one machine. Networks could be turned into super-computers more powerful than any in existence, and that would make it possible to make use of unused, and currently wasted, computing resources. (The advent of AI is a different thing, but despite its dangers, that discussion is beyond the scope of this article.) This would indirectly allow those whose electricity costs are high to take advantage of lower energy costs elsewhere in the world. This, in turn, would incentivize governments, not only to reduce the costs of energy, but to find and adopt better methods to generate power. Technologies which threaten the profitability of dangerous industries (such as nuclear power generation) would be made available to the public. Nikolai Tesla might finally get his wish. Technologies such as water-based engines, LFTR – thorium reactors, hydrogen fuel cells, etc., the patents for which have been bought by private corporations and locked away in a safe, could now be brought out to the benefit of all. Free energy has been proposed by many people, and whether these technologies can be proven to work or not, at least their potential can now be examined openly. The incentive to hide beneficial technology from the public in lieu of higher profits can be done away with.
Thomas Rau has some interesting insights into some of the potential applications of DLTs. He envisions a ‘material passports’ which could be implemented in order to re-use all the raw materials that go into building all the products in existence.
Protect your information/privacy while sharing it
This might sound like an impossibility, and under the current system, it might well be, but through the use of DLTs, this can become the new standard for information access. Take the case of a driver’s license, as an example. If some entity needs to see your driver’s license in order to get some information about you, why would you want them to see your street address and/or any other information contained within the document which is not relevant to the matter at hand? DLTs can limit exactly what information is to be shared with concerned parties. The validity of your license can be verified independently of any associated information, and can even be done anonymously. The license itself can be verified without the identity of the user being divulged. This would be beneficial to a great number of things such as medical records, voting records, tax information, property ownership… and the list goes on.
Using this method could make governments transparent and accountable while, at the same time, protecting sensitive information such as state secrets which impact national security. I do not believe that governments want to stifle this technology, rather, they want to prevent the public from using it against them. Results of FISC (FISA court) procedures could be made public while protecting the underlying classified information. Immigration documents, passports, social insurance cards, gun registration documents… could all be better managed using this system. Imagine the implications.
Also, and perhaps even more importantly, the revocation of a document would be shown across the network instantly. This would relegate forged documents to the dustbin of history. Indeed, some of the best applications for DLTs, as far as governments and banks are concerned, is the eradication of counterfeiting. This was the main focus of the Chinese (and others’) government’s investigations into DLT technology at the outset. Serial numbers on fiat currency (being a centralized use) once put on the blockchain (decentralized information) could indicate counterfeit bills at point-of-sale locations everywhere. The same technology could be applied to all manner of documents. Even proprietary software applications which are offered on a trial basis could be monitored more easily. Software piracy would become a thing of the past.
Even the gold industry has started integrating blockchain-based gold trading which could lead to a re-emergence of the gold standard replacing fiat currencies the world over. This is just speculation, for the moment, but who knows where this could lead?
Education and ownership
Education, as it exists now, is a costly endeavour and is limited to a certain strata of the population. Student debt is currently a huge hindrance to those just getting started in life. DLTs could make all educational materials available to all people, all across the world, and at no cost to the users, all the while protecting the rights of those who contributed/authored course materials. Imagine what could be accomplished if the sum of all human knowledge were available to anyone who wanted it. The potential genius of those without access to information could be unlocked and put to the best use society would have for it. How many potential Nobel laureates have gone unnoticed? How many stupendous innovations have been lost to class divisions or geographical chance?
This could change the way the world thinks about intellectual property, patents, copyrights, and the notion of ownership itself, while ushering in a world of co-operation instead of the current paradigm of competition. Some might claim communistic overtones, which is by no means the intent here. What this really portends is the advent of a purer form of capitalism. Whether this leads to an abandonment of banks (or even money per se,) will be decided by the market, and by the people themselves. Further, what this actually indicates is the possibility that many contradictory paradigms can co-exist instead of necessarily leading to animosity, hatred, or war.
Groups could start working together, not only to come up with solutions, but to fine-tune those solutions and come up with others, and by comparing them, come up with the best solutions instead of the most profitable ones over the near-term. This really changes the focus from short-term profits for a few to long-term benefits for all.
People might start making movies based on merit rather than box-office expectations. News media might even take-up proper journalistic standards instead of chasing ratings. Although this may be a premature argument to make, it does lead one to think about the truly awesome possibilities DLTs present. It is sure to raise interesting questions and spark debate over fundamental issues the world has, so far, taken for granted.
Take-aways
Some of the things which are central to the adoption of DLTs include: security; trust/verifiability; speed; throughput (expressed in transactions per second;) consensus; fragility; scalability; redundancy; invisibility (working in the background;) privacy (sovereign identity;) latency (timing;) revocation; transparency (banking, government;) and sharding.
While a very few of these attributes are applicable to current technology, only DLTs offer the possibility of integrating all of these benefits into the goods and services we all use everyday.
It is also important to understand that there are many issues which need to be addressed and resolved before this technology is adopted on a larger scale. Some of these issues include technical implementation, social considerations, political implications, organizational hierarchies, regulatory systems, and the legal aspects underlying all of the above. There are also some philosophical questions (which were touched upon above) left to consider. The main issue (and one which could be facilitated by the very technology in question) is that whatever course we, as a united human organism choose to take, that course will be decided upon freely instead of being foisted upon us by some outside force with a vested interest in retaining the status quo.
This is just the tip of the proverbial iceberg. The possibilities are truly endless, and the technology is very much still in its infancy.
*Update*
Russia is in the process of implementing Ethereum-based blockchain technology in order to secure its election systems and guarantee fair elections. Seems like a strange thing to do if Putin really was the tyrannical dictator that the west makes him out to be. How ironic that while the USA is mired in election tampering (this is only one of hundreds of articles showing voter fraud and election tampering which is so very prevalent all across America,) as well as a sideshow to implicate Russia for it, the Russians are becoming the paragon for democratic processes.
Read more about it here.
The revolution has begun.
Although many different coins, technologies, applications, and people were mentioned by name in this article, I do not specifically endorse any in particular. This article should not be taken as investment advice. The reader is encouraged to do their own research on this and on any topic.
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Thank you for your time and attention to this crucially important matter.
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