Blockchain Revolution_ How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World

THE BIG IDEAS When we wrote Blockchain Revolution, we got off to a good start by characterizing blockchain—the underlying technology of cryptocurrencies—as the Internet of value. We explained that, for nearly four decades, we’ve had the Internet of information. It vastly improved the flow of data within and among firms and people, but it hasn’t transformed how we do business. That’s because the Internet was designed to move information—not value—from person to person. When we e-mail someone a document, photograph, or audio file, we’re really sending a copy of our original. This information is abundant, unreliable, and perishable. Anyone else can copy, change, and send it to somebody else. In many cases, it’s legal and advantageous to share these copies. In contrast, to expedite a business transaction, we cannot e-mail money directly to someone—not just because copying money is illegal but because we can’t be 100 percent sure our recipient is who he says he is. Information about identity needs to be scarce, permanent, and unchangeable. So we go through powerful intermediaries to establish trust and maintain integrity. Banks, governments, and even big technology companies confirm our identities and enable us to transfer assets; they clear and settle transactions and keep records of these transfers. But the limitations of these intermediaries—their operational opacity and their vulnerability to hackers, rogue employees, and equally vulnerable suppliers—are becoming more apparent. We need a new way forward. Blockchain solves the double-spend problem, as cryptographers call it. Now for the first time ever we have a native digital medium for value, through which we can manage, store, and transfer any asset—from money and music to votes and Stradivarius violins—peer to peer in a secure and private way. Trust is achieved not necessarily by intermediaries but by cryptography, collaboration, and clever code. We almost titled the book The Trust Protocol. It seems that Blockchain Revolution was a clearer title—it’s still a best seller, as of this writing. The response to it has both encouraged and delighted us. It received widespread coverage from such respected media as the Financial Times, Forbes, Fortune, The Guardian, Harvard Business Review, Newsweek, NPR’s All Things Considered, Reuters, Time, and The Wall Street Journal and was a feature article in The New York Review of Books and the subject of a PBS television special. It’s gone global, too—translated into fifteen languages so far and, as of now, a best seller in five Asian languages alone. Don’s second TED talk (TED’s first on blockchain) has received well over three million views. At 2017 TEDxSanFrancisco, Alex spoke on blockchain and financial services; his has become one of the most watched talks on the topic, too. When we first published in May 2016, ours was one of a handful of serious books about the topic. Now several important new works have entered the market such as Michael Casey and Paul Vigna’s The Truth Machine, Chris Burniske and Jack Tatar’s Cryptoassets, and Primavera De Filippi and Aaron Wright’s Blockchain and the Law, to name a few. Our book continues to hold its own as the bestselling book on blockchain. We receive positive comments on a number of its big ideas: 1. The book underscores the importance of identity and the end of digital feudalism. What some called “surfing the Internet,” we viewed as “serfing the Internet,” throwing off our data for the Internet landowners to expropriate and monetize. The notion of a self-sovereign identity for each of us, with our personal data stored in a virtual black box, is one of the most foundational concepts of our time. Realizing this “Virtual You” through blockchain technologies could restore our control over our own identities, the data we create, and the rest of our rights. No serf surfing, we say. 2. As a thought experiment, we tried to get inside Satoshi’s mind and tease out his design principles for blockchain. It turns out there were seven. That chapter (chapter 2) was technical, appealing more to technologists and business engineers. We applied these seven principles to seven domains—financial services (chapter 3), the architecture of the firm (chapter 4), business model innovation (chapter 5), the Internet of Things (chapter 6), economic inclusion (chapter 7), government and democracy (chapter 8), and the creative industries (chapter 9)—and argued that blockchain would create seven new substructures for a distributed economy. 3. We dubbed the financial services industry a Rube Goldberg contraption, a ridiculously complex system that actually performs eight basic functions. That taxonomy has proven helpful for industry executives and regulators alike. Do take a look at chapter 3 and the Golden Eight. Smart contracts (aka distributed applications) on a blockchain could, in theory, do each of these eight to disintermediate incumbents. Conversely, incumbents could transform their businesses for the better, if they embrace blockchain. 4. Nobel Prize–winning economist Ronald Coase’s theory on the firm proved quite applicable to an analysis of blockchain’s impact on corporate architecture. We explained how blockchain would radically reduce the transaction costs of search, coordination, contracting, and building trust in an open market. Inexorably, this efficiency will lead to more decentralized models for orchestrating the capabilities needed to create new products, services, and wealth. The new “blockchain business models” that we described hold up well, and many new ones have emerged since the book’s publication. Decentralized business models are subject to network effects so that, when the number of nodes increases, so does the network. This in part explains the rapid growth of cryptoassets. 5. Blockchain can help us solve the prosperity paradox, where developed economies grow but the middle class and prosperity for most stagnates. Rather than the usual solution—the redistribution of wealth through taxation—we explained how blockchain could help us predistribute wealth by including billions of people in the global economy. For example, we could protect property rights through immutable land titles, create a true sharing economy through shared, open, and distributed platforms, empower diasporas to remit funds through low-fee mobile payment systems, and endow entrepreneurs with the same capabilities as large companies. 6. Soon most transactions will occur between things, not people. We can instill intelligence into our infrastructure by adding smart devices— sensors, cameras, microphones, global positioning chips, gyroscopes— that reconfigure themselves according to availability of bandwidth, storage, or other capacity, and therefore resist interruption. Blockchain is critical. This Internet of Things depends on a Ledger of Things to track every node, ensure its security and reliability, record its production and consumption, and schedule and pay for its maintenance or replacement. There are potential applications across every sector. 7. Our work on blockchain applications in government, democracy, and culture has received much attention. Since Donald Trump’s inauguration as U.S. president, our insights seem even more prescient. Engaged citizens and dedicated public servants everywhere are exploring how blockchain can help them reinvent government, protect the free press, restore legitimacy to democratic institutions, and find common ground in public discourse on the Internet. The technology also helps not only journalists to quash claims of “fake news” but also creators of such cultural assets as songs and art to receive fair compensation for their work. 8. We were reluctant to include a chapter on leadership and governance, but we’re glad we did. The space is full of formal and informal leaders, that is, those with executive roles in start-ups, blockchain consortia, and regulatory bodies, and those whose vision and talent are both compelling and influential. That said, concerted effort to transform obstacles into opportunities has been the most important factor in the blockchain’s success thus far. So crucial is blockchain stewardship that the World Economic Forum asked us to write a special report on governance and launched important programs based on that work. We also cofounded the Blockchain Research Institute (BRI), a think tank on distributed ledger technology, to investigate blockchain use cases, transformative thought leadership, and implementation challenges. The multimillion-dollar program includes some seventy-five projects across ten industry verticals and seven C-suite roles in both public and private sectors. Many of the quotes in this new preface come from the leaders of these projects. BRI membership consists of large corporations, governments, nonprofits, and members of the start-up community. Some of our founding members include IBM, Accenture, Capgemini, SAP, NASDAQ, CIBC, PepsiCo, Liberty Global, Tencent, Fujitsu, FedEx, Thomson Reuters, and Centrica, along with the governments of several countries. To our delight, our institute’s editor-in-chief is Kirsten Sandberg, who was the original editor of Blockchain Revolution. Notwithstanding all this goodness, a lot of water has gone under the bridge. While the book holds up well, we wanted to report on our latest discoveries in this new edition. Rather than revise the whole manuscript, we are consolidating our findings in this new preface and an afterword. This new material derives from our ongoing research, investments in the space, and speaking engagements around the world. We welcome your feedback (www.blockchainresearchinstitute.org/contact-us).