In my previous blog, I have discussed cryptocurrency and what creates it, blockchain technology. I started reading a book called "Blockchain Revolution" by Don Tapscott and Alex Tapscott this week. The second chapter of this book describes the 7 design principles of the blockchain economy. These principles will serve as an understanding of the Blockchain Revolution for the future. Every principle is discussed in-depth and current concerns and Blockchain breakthroughs are expressed for each principle.
1. Networked Integrity Principle: In every step of the process within the blockchain network, Integrity is ingrained. That is, participants of every transaction will exchange value directly expecting that the other party will act with honesty. Acting without integrity within this economy is either impossible or very costly in terms of time, money, energy or reputation. Problem to be solved: People have not been able to do transactions or business directly because money is not similar to any other information goods or intellectual property per se. For instance, you can send the same article, or photo to your friends and family; nonetheless, you cannot send the same dollar to them. It can't exist in different places. There is a risk of spending the dollar in 2 different places and having one of them bouncing back like a bad check. The problem is now considered as "double spending problem". Breakthrough: Blockchain ensures integrity through clever code instead of human beings choosing to do the right thing. It is done with the Consensus Mechanism that could solve the double-spend problem as well as, if not better than the intermediaries. The network time-stamps the first transaction where the owner spends a particular coin, thus it rejects the following spend of the coin. Miners, the network participants who run the fully operating nodes, gather the recent transactions and settle them in a block of data, and repeat this process every 10 minutes. No one hides a transaction, and that makes bitcoin more traceable than cash. Within the Blockchain Economy, its members are securely distributed: no single member or party should be able to overtake the majority, even when they had the means and incentives to do so. Implications for the Blockchain Economy: We can trust the network to verify people's identities and vouch for their reputations instead of trusting big companies and governments. Blockchain provides many possibilities for a new kind of organisation and society by hosting a platform for secure and reliable mass collaboration. 2.Distributed Power Principle: Power is distributed across a peer-to-peer network with no single point of control. No single party can shut the system down. Problem to be solved: Large institutions have proven that they are willing and able to override users, warehouse and analyse user data without users' knowledge and implement large-scale changes without users' consent. Breakthrough: The energy costs of overpowering the bitcoin blockchain would outweigh the financial benefits. Satoshi deployed a proof-of-work method requiring users to expend a lot of computing power to defend the network and mint new coins. Satoshi distributed the mint by linking the issuance of bitcoins to the creation of a new block in the ledger, putting the power to mint into all the hands of the peer network. Anyone can download the bitcoin protocol for free as well as maintain a copy of the blockchain. It is distributed in the voluntary network for free such as BitTorrent which is a shared database of intellectual property residing on tens of thousands of computers worldwide. The blockchain resides everywhere. The network broadcasts every transaction for following verification and validation. No intermediaries such as central bank or treasury are required. Implications for the Blockchain Economy: Blockchain platform could allow new ways of creating wealth. We could solve the problem with mistrust and illegitimacy in today's institutions by shifting real power towards citizens, equipping them with real opportunities for prosperities and participation in society.
3. Value as an Incentive Principle: Within the system, incentives are regulated for all stakeholders. Problem to be solved: large corporations with their concentrated power, complexity, and obscurity allowed themselves to draw out disproportionate value, In the first era of the Internet. The case could be a lending officer preying on the poor to get incentives out of them. Large tech companies offered free services in exchange for user data. Breakthrough: Participants are expected to act in their self-interests in the Blockchain economy. The source code was programmed so that even when people acted selfishly, their actions will benefit the systems overall and add on to their reputations, no matter how they choose to identify themselves. They could be compelled to do the right thing since there is a consensus mechanism and having bitcoin as a reward. Bitcoin is an incentive for miners to participate in creating a block and linking it to the previous block. Bitcoin is also a claim on the blockchain through ownership in the platform itself. By owning and using bitcoin, the person is financing the blockchain's development. Implications for the Blockchain Economy: With the Blockchain platform, people and things have proper financial incentives to collaborate effectively and create just about everything.
4. Security Principle: In the network, safety measures are embedded with no single point of failure, and they provide not only confidentiality but also authenticity and nonrepudiation to all activity. Problem to be solved: The first era of the Internet might have done little to increase the security of persons, institutions and economic activity rather than bringing transparency and impairing violations. Data breaches in financial institutions accounted for over 50 percent of all identity thefts reported that year. Breakthrough: Public key infrastructure (PKI) is required for establishing a secure platform for participants. PKI is an advanced form of "asymmetric" cryptography where users get 2 keys not performing the same function: one is for encryption and one for decryption. According to Andreas Antonopoulos," Past schemes failed because they lacked incentive, and people never appreciated privacy as incentive enough to secure those systems". If we are both using bitcoin, if we can store and exchange bitcoin securely, this means that accordingly, we can store and exchange highly confidential information and digital assets securely on the blockchain. Implications for the Blockchain Economy: Bitcoin blockchain can preserve security by protecting our data and making the transactions of value happen with its more secure design and its transparency. 5. Privacy Principle: People should have control over their data. Problem to be solved: Within the last 20 years of the Internet, databases in both private and public sectors have accumulated confidential information about individuals and institutions without their consent. Breakthrough: The blockchain does not need to know who everyone is since Satoshi did not require any identity for the network layer itself. The identification and verification layers are separate from the transaction layer. This means that no one has to give out their name, email address or any other data to use what blockchain has to offer. Higher levels of transparency can be designed into any set of transactions, applications or business models should all stakeholders agree to do so. When companies are transparent with their stakeholders, they build trust. This preserves privacy for individuals and transparency for organisations, institutions and public officials. Implications for the Blockchain economy: The blockchain gives us the opportunities to end the hurry to the surveillance society. 6. Rights Preserved Principle: Don Tapscott and Alex Tapscott say: "Ownership rights are transparent and enforceable. Individual freedoms are recognised and respected". Problem to be solved: Finding ways to exercise ownership rights more efficiently was what the first era of the digital economy about. Middlemen such as bankers expected a percentage of people to cheat and accepted a certain level of fraud as unavoidable. Legitimate rights including privacy and security rights, free speech, reputation, and equal participation got crushed. Breakthrough: The blockchain provides means of proving ownership and preserving records without censorship. A smart contract is a piece of special-purpose code executing a complete set of instructions on the blockchain and provides a means for assigning usage rights to another party. It also gives a means for owners of assets to pool their resources and create corporations on the blockchain, where articles of incorporation are coded into the contract, clearly spelling out and enforcing the rights of those owners. Implications for the Blockchain Economy: Enforcing rights must start with clarifying rights. We need greater education about rights and the development of new understandings about rights management systems.
7. Inclusions Principle: The economy works best when it works for everyone Problem to be solved: A majority of the world's population is still excluded, not just from access to technology but also from access to the financial system and economic opportunity. There are still 2 billion people without a bank account. Financial institutions still apply fees to support mobile payment apps in developing economies. Breakthrough: The blockchain lowers the cost of transmitting such funds as remittances and lowers the barrier to having a bank account, obtaining credit and investing. It also supports entrepreneurship and participation in global trade. Implications for Blockchain Economy: The blockchain can help with the inclusion, which is the foundation for prosperity. This means an end to social, economic and racial dominance, an end to discrimination as well as ending barriers to access because of where a person lives or how a person voted but also an end to glass ceilings.