Since its creation a decade ago, the blockchain has struggled with an identity crisis. Originally spread to an email list of activists and computer science professors as “A peer-to-peer electronic cash system”, it was clearly intended as the technological basis for a digital currency. Since the development of Ethereum in 2015, attention has turned to more expansive use of blockchain. But a clear understanding of exactly what the technology is has proven difficult to pin down, even as scandals such as last week’s collapse of Sam Bankman-Fried’s FTX suggest to cynical observers that it may be nothing more than newfangled digital cover for oldies. pyramid scheme.
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At a basic level, the blockchain is a tool for digital communication, a method of broadcasting and recording information. With a cryptocurrency like Bitcoin, the information you broadcast is your account balance. Different blockchains can support different types of broadcasting: media-based blockchains, such as Mirror, allow creators to broadcast short text to users; social media-based blockchains, such as Rally, allow users to broadcast reviews back to creators. There have even been clever ideas for applying blockchain to supply chains, as a way to reliably track products by broadcasting their location as they move from distributor to retailer. These ideas all play into an understanding of blockchain that exists in the same evolutionary track as the Internet, only with immunity to viruses, such as censorship and data mining.
An immediate consequence of the blockchain’s tenacity as a medium is its powerful capacity as a record keeper. As Balaji Srinivasan points out in his wonderful book The Network State, blockchain’s unique advantage over the information-distributing Internet is that it reduces the number of data silos – pockets of data hidden by intermediaries such as Facebook or Google. By doing so, it allows a network to come to consensus on a shared story; or, as Srinivasan suggests, a set of moral values. Since a blockchain’s past is always transparent, each can develop a certain purity and sense of social obligation that more Byzantine distributions of information tend to shy away from. Decentralized Autonomous Organizations, or DAOs (blockchains such as MakerDAO, Uniswap and Lido Finance) can organize around a single set of well-defined – literally codified – goals, maintaining an openness and purity of focus that is impossible in traditional business structures.
The Twitter bio of Vitalik Buterin, head of the Ethereum Foundation and probably the most influential figure in the industry, reads simply: “Abolish daylight saving time and leap seconds.” Since parts of the blockchain’s history are published periodically, blockchains slowly build their own calendar, with blocks instead of seconds and “epochs” (many blocks – the term has different meanings on different chains) instead of years. An original vision for NFTs was that they could represent deeds or copyrights in countries without the infrastructure to reliably process the papers. After all, a copy will always appear later than what it copies. Copyright on the blockchain bypasses red tape as well as the possibility of government corruption; philosophically minded crypto-proponents will sometimes refer to “immutable time” as blockchain’s sole innovation.
And this creation of uniqueness in time, or scarcity, is another possible development path. This usually leads back to the original vision of blockchain as the engine of a digital currency. The fact that there is a maximum number of Bitcoins that can be minted – making it deflationary, rather than inflationary – is widely debated in arguments about Bitcoin’s viability as a large-scale economic model. But the reason the number of Bitcoins can be limited is because each coin has an independent existence that cannot be imitated by any kind of technical wizardry. Sufficiently talented counterfeiters will always be able to recreate a physical currency – but it is a fact of the mathematics underlying the blockchain that individual elements on the blockchain are unique and unforgettable.
The four possibilities are closely related, but each inspires very different visions of blockchain’s role in a future society. The performance of large-scale blockchain currencies, such as Bitcoin in El Salvador, is an interesting test. However, if it proves unwieldy as a financial instrument, the potential of blockchain technology as a whole will not be greatly diminished.
Cryptocurrency, the original application of the technology, is only one part of a range of possible interpretations ranging from secret communication to a public marketplace, from anonymity and identity protection to the construction of new modalities for group decision-making and self-governance.
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