I had the opportunity to attend an evening program on Wall Street on the topic of blockchain. I find that the popular writings on this topic are a "string" of words without penetrating to meaning and the technical writings are laden with jargon and wholly inscrutable!
The Event
Given that this event was organized by the Museum of American Finance and positioned for folks presumably on Wall Street, I thought it would be worth attending and see if I could glean a little more understanding of this breathlessly discussed topic.
Authors Michael Casey and Paul Vigna were launching their new book at this event, The Truth Machine - The Blockchain and the Future of Everything. Michael Casey teaches at MIT and Paul Vigna writes for the Wall Street Journal.
They were joined by the Winklevoss twins, Cameron and Tyler. They are Olympic athletes who competed in crew in Beijing. They are Harvard and Oxford graduates. More famously, along with classmate Divya Narendra, they sued Mark Zuckerburg for copying their original idea for Facebook and reportedly settled for $30- 65 million. The Winklevoss brothers now run a company called Gemini which is a Digital Asset Exchange.
There was also a Financial Advisor / blogger Joshua Brown on the panel who spoke in a manner that I was able to understand!
Finally there was also Joseph Lubin who is the founder of Ethereum which is a blockchain computing platform. However, this company famously fell victim to a $60 million hack soon after its opening. He spoke in a manner I was not able to understand!
With such colorful characters assembled, the program began.
Some Learnings
No intermediary needed
The speakers positioned blockchain as being a real technology breakthrough. In essence it is the technological ability for an agreement or a "contract" to be reached between two individuals without the need for an intermediary or a governing authority.
Today for example, if I bought something from you and used money, that money is backed by a sovereign entity. In the example of currency, if one were to use a blockchain based currency, no such sovereign entity's backing would be needed.
What makes it tick?
For any contract, there is a legal record. Such as, a title to a land. And that record is stored with a legal affidavit with government authorities.
But with technology today, that same record can exist on the internet without the backing of a government entity or a bank. I use the word exist, rather than the word store, in the sentence above, since to store means that there is a "place" where it is kept. Rather, I use the word exist to mean that it exists as a "record" in a distributed manner across the internet.
What is it?
I probably should have started with a definition first. I do realize I may fall prey to the same complaint I have expressed at the start. That is, whatever I say below will be superficial, without getting to its meaning. But here we go!
A block chain is a huge and growing string of information. Each "block" is a record of a transaction. And as the transactions continue each record gets appended to the other.
For example - Person A sells his car to Person B (one block or one record). Person B then turns around and sells it to Person C (second block or second record). For the car in this example, its transactional record continues to grow as it changes hands from one person or entity to another.
Thus, using the above explanation - a blockchain is an ever growing string of records.
How about security, safety and privacy?
There has been enormous strides made in internet protocols and security. For example, we can do banking or trading online or on our mobile phones. That is serious business!
The whole field of cryptography has evolved to a point and the set-up and algorithm of the blockchain is such that, in theory it is essentially purportedly unhackable.
umm ..... except in the case of Ethereum in my anecdote above, where it was literally immediately hacked upon its release!
Bitcoin, Bitcoin, but what about Bitcoin?
It took me a while, but I finally realized that all the hype on bitcoin aside, what with it being on the cover of The Economist Magazine and so on, that bitcoin is one specific application of the blockchain technology. And that too in the financial world and that too with regard to currency.
The speakers it seems to me concluded that blockchain is a real technology development. They also concluded that bitcoin, a special application of blockchain, while getting all the buzz, is speculative (almost) nonsense.
Are all institutions going to go poof and disappear?
If intermediaries, sovereigns and other authorities that the public assigns authority and legitimacy are not required to ensure the existence of contracts, then might not sometime in the distant future not need governments, banks, courts and other such institutions?
In addition to the hype about bitcoin, this is the hype about blockchain. Shiver, the world is about to collapse!
This latter hype was what I was hoping to clarify at this event.
What I understood from the panelists and the speakers was that while blockchain is indeed real, that what we are really headed for is a slow and dramatic gestation. This gestation is similar to our experience with the TCP/IP protocols of the internet. The TCP/IP protocols were published in the 1970s and there was another 20 history prior to that of slow and steady developments. And then it took another 20 years from the 1970s before the world wide web took off as we know it.
S-l-o-w G-e-s-t-a-t-i-on.
That was my one big aha from attending this event.
Regarding ledges
I was glad that I had an invitation to go to this event. While I certainly don't know a whole lot more about blockchain than when I went in, I did learn a few things about some of the players in this space and authors as well. It also clarified some basic questions for me.
Reading the current breathless coverage in the press it was beginning to feel to me like, "hey the robots are coming and they are going to block us up in chains ...!"
Therefore I was relieved that I did not immediately need to go find that metaphorical ledge, take a deep breath and jump off it.
The Event
Given that this event was organized by the Museum of American Finance and positioned for folks presumably on Wall Street, I thought it would be worth attending and see if I could glean a little more understanding of this breathlessly discussed topic.
They were joined by the Winklevoss twins, Cameron and Tyler. They are Olympic athletes who competed in crew in Beijing. They are Harvard and Oxford graduates. More famously, along with classmate Divya Narendra, they sued Mark Zuckerburg for copying their original idea for Facebook and reportedly settled for $30- 65 million. The Winklevoss brothers now run a company called Gemini which is a Digital Asset Exchange.
There was also a Financial Advisor / blogger Joshua Brown on the panel who spoke in a manner that I was able to understand!
Finally there was also Joseph Lubin who is the founder of Ethereum which is a blockchain computing platform. However, this company famously fell victim to a $60 million hack soon after its opening. He spoke in a manner I was not able to understand!
With such colorful characters assembled, the program began.
Some Learnings
No intermediary needed
The speakers positioned blockchain as being a real technology breakthrough. In essence it is the technological ability for an agreement or a "contract" to be reached between two individuals without the need for an intermediary or a governing authority.
Today for example, if I bought something from you and used money, that money is backed by a sovereign entity. In the example of currency, if one were to use a blockchain based currency, no such sovereign entity's backing would be needed.
What makes it tick?
For any contract, there is a legal record. Such as, a title to a land. And that record is stored with a legal affidavit with government authorities.
But with technology today, that same record can exist on the internet without the backing of a government entity or a bank. I use the word exist, rather than the word store, in the sentence above, since to store means that there is a "place" where it is kept. Rather, I use the word exist to mean that it exists as a "record" in a distributed manner across the internet.
What is it?
I probably should have started with a definition first. I do realize I may fall prey to the same complaint I have expressed at the start. That is, whatever I say below will be superficial, without getting to its meaning. But here we go!
A block chain is a huge and growing string of information. Each "block" is a record of a transaction. And as the transactions continue each record gets appended to the other.
For example - Person A sells his car to Person B (one block or one record). Person B then turns around and sells it to Person C (second block or second record). For the car in this example, its transactional record continues to grow as it changes hands from one person or entity to another.
Thus, using the above explanation - a blockchain is an ever growing string of records.
How about security, safety and privacy?
There has been enormous strides made in internet protocols and security. For example, we can do banking or trading online or on our mobile phones. That is serious business!
The whole field of cryptography has evolved to a point and the set-up and algorithm of the blockchain is such that, in theory it is essentially purportedly unhackable.
umm ..... except in the case of Ethereum in my anecdote above, where it was literally immediately hacked upon its release!
Bitcoin, Bitcoin, but what about Bitcoin?
It took me a while, but I finally realized that all the hype on bitcoin aside, what with it being on the cover of The Economist Magazine and so on, that bitcoin is one specific application of the blockchain technology. And that too in the financial world and that too with regard to currency.
The speakers it seems to me concluded that blockchain is a real technology development. They also concluded that bitcoin, a special application of blockchain, while getting all the buzz, is speculative (almost) nonsense.
Are all institutions going to go poof and disappear?
If intermediaries, sovereigns and other authorities that the public assigns authority and legitimacy are not required to ensure the existence of contracts, then might not sometime in the distant future not need governments, banks, courts and other such institutions?
In addition to the hype about bitcoin, this is the hype about blockchain. Shiver, the world is about to collapse!
This latter hype was what I was hoping to clarify at this event.
What I understood from the panelists and the speakers was that while blockchain is indeed real, that what we are really headed for is a slow and dramatic gestation. This gestation is similar to our experience with the TCP/IP protocols of the internet. The TCP/IP protocols were published in the 1970s and there was another 20 history prior to that of slow and steady developments. And then it took another 20 years from the 1970s before the world wide web took off as we know it.
S-l-o-w G-e-s-t-a-t-i-on.
That was my one big aha from attending this event.
As most clearly and succinctly described by two Harvard Professors Marco Iansiti and Karim Lakhani, blockchain is not a “disruptive” technology, which can attack a
traditional business model with a lower-cost solution and overtake
incumbent firms quickly. Rather, blockchain is a “foundational” technology. That is it has the potential to
create new foundations for our economic and social systems.
According to these two professors, while the impact WILL be enormous, it will take decades for blockchain
to seep into our economic and social infrastructure. The process of
adoption will be gradual and steady, not sudden, as waves of
technological and institutional change gain momentum.
Reading the current breathless coverage in the press it was beginning to feel to me like, "hey the robots are coming and they are going to block us up in chains ...!"
Therefore I was relieved that I did not immediately need to go find that metaphorical ledge, take a deep breath and jump off it.
15 comments:
Etho purincha mathiri irukku...but not able to understand the implications and its future effects.
Thanks for making it simple to understand...
Great recap. Appreciated your insights here!
First of all, I watch Josh Brown everyday on CNBC’s Halftime Report. “Colorful” indeed…. Smart, witty, not shy. He clearly knows his stuff. I learn a lot from him.
As for your takeaways, while I don’t entirely understand blockchain either, I also have the impression that blockchain has a bright future.
Bitcoin? Not so clear….
Brilliant
This is great. Thx for sharing!
Excellent. You have a good one too.
A very nice write up. I enjoyed reading it. You met the Winklewii. Sweet!
My 2 cents: I’ve personally concluded blockchain won’t work for banking tech and furthermore exposes them to great risks.
Blockchain worked for bitcoin economics but won’t for conventional banking. If done, it requires incalculable computational (and energy resources) which no bank has ambition to invest in.
Energy: Bitcoin energy consumption has increased to over 450 gigwatts of energy recently to mark its blockchain ledger per day - enough to power Haiti for a year. If this is what is needed to shepherd a portion of the 18 or so million coins that remain in circulation, what computational resources would it cost the global banking industry to process billions of transactions every moment.
Security and transparency: The bitcoin ledger may parade itself as unhackable but data can be intercepted and stolen at the nodes/gateways. Steve Wozniak got scammed for $70K worth coins a few days ago. People keep are getting either scammed out of coins or losing them. The system only has a max out 25 million coins and with Silk Road bust outs, FBI seizes etc a notable portion of the coins have gone to heaven and not recoverable. Which is why every time a scandal breaks, BTC is jumping up in value.
Regulatory: Also, the very nature of blockchain and bitcoin technology is a rebellion against fiat currencies. So its untraceable, anonymity can lead to a lot of scope for money laundering. Which is already the case with bitcoin.
All these risks and more are inherent in blockchain. It’ll open flood gates to a very advanced financial crisis if embraced. But not many are saying this yet - in the blockchain discussion. Which is what concerns me.
Furthermore - I agree - everyone seems to throw the words blockchain in for a quick bump up in stock price or presence at party or conference without stating what they intend to use a common ledger system that will ultimately use more energy than out sun for. BitConfused.
Thanks for the short and crisp description of the Block chain technology.
Saved me the effort to Google and know.
Always wanted to know about this
Interesting and I did follow up on this; in fact my new initiative to democratize the manufactuing May benefit from this ...
that's was a nicely written article. I guess blockchain will become the eventual future.
The blockchain event must have been interesting. I confess that I’m still trying to get my head around all of the crypto-currency issues and risks (call me old economy!)
Surya, Here is my reply on Blockchain. Thanks for the update and good summary of the discussions.
My take is as follows :
1) it is not a technology revolution now but leveraging existing technology to make interesting use. The concept of distributed data base and encryption existed even before
2) What are the essential , interesting characteristics of Block chain ?
a) Immutable records
b) Distributed data base
c) consensus mechanism without one master or intermediaries
That opens up use cases where many entities can come together on a platform and do trustful transactions.
Examples -
Imagine Car odometer recorded on Blockchain every month. The prominent fraud of tampering odometer in secondhand car sales will not be possible.
When you buy a diamond ring, you can check the provenance from the mine till jeweller.
But Can we not have the same use cases done with existing technology solutions ? I have a basic issue there. I am yet to come across such strong need for use cases that cannot be solved by existing technologies.
The trend now is to call such existing encryption based solutions also as another type of Blockchain!
And a bit of caution here - the current Blockchain cannot handle huge volume of transactions today. About few thousands per second is the limit.That is a severe limitation for mass deployments.
Second : The encryption can be broken with next generation quantum computers.
But inspite of all such issues, I believe it will shape in to a disruption in the years to come ! All great technology disruptions started with severe limitations. The first digital camera prototype was dismissed because the resolution was poor! Where ? Within Kodak !!!
Surya,
Excellent info from you and Sriki !!
Firstly if your article on blockchain was intended to demystify the whole concept, it achieved it fabulously!! Even for someone who educated himself to some extent on this enigma recently, it was quite useful!
As you aptly mentioned about the two speakers, it is all about who explains in a way one could understand or not!
I immensely liked your analogy of TCP/IP to the slow gestation as someone whose livelihood was made from Internet technologies - business of networking gear. Slow gestation but a wholesome grip finally!!
Sriki,
An excellent write up on what the uses are and where the challenges lie. Thanks to the meeting recently in Bangalore, this was a good recapitulation.
Also above cooment on power needed was a very erudite one, but let us see to what extent blackchain disrupts banking. *But slow gestation*. We don’t know whether in our times we will experience its full impact....
Good write up, sir. Keep writing. Comments also made interesting reading. Obviously, you have generated lots of interest.
I used to think, bit coin is a bubble sure to burst any time soon. However, the block chain is where the technology is heading to.
But why call it block chain? Sounds lifeless. Soon I think, we will have a block chain product called, may be, buffalo (After Apple and Windows, we have the animal kingdom left out).
As I said, block chain is the way technology has to progress. There is no other alternate way. Time we called banks the big hoax off.
They have been making too much money out of doing nothing and by creating legal tangles. In the name of currency exchange, in the name of card usage, etc., I think, they have been stripping us out of our hard earned money.
Time we told them, the party is over!
If you are in the banks, you should be ready to go home! <>
Then of course, every other walk of life is going to go through a major change over. Everyone who made easy money will have a hard nut to crack. Most possibly shift jobs sooner than later.
As said earlier, block chains may not hog the limelight in the same name tomorrow. But it is the way to go!
Hello Rahul, Nice write up. Blockchain is a wonderful vision of removing middle (wo)men. Good design to implement but costly implementation. Just raises a problem that has to be clearly defined and then solved.
BTW Rahul, a personal note: I am an 1985 alumnus of PSG Tech..wondering if we know each other.
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