Why Blockchain — Trust Disrupted

#Internet #Money #Data #Blockchain

Part II

Why we need Bitcoin and Blockchain

Blockchain is the underlying technology in Cryptocurrencies like Bitcoin, Ethereum, Stellar and we are now finding many other use cases that require trustless system. Most conversations I have had over the last year trying to explain Blockchain, it usually ends up with me having to explain the concept of Money itself.

What is Money? It is those pieces of Paper with faces of dead people on it that we use to buy Coca Cola and other services. These currencies are broadly called Fiat Currencies. Who defines the value of Coca Cola and how much of said Paper do you give for it ?

There are various limitations with Fiat Currencies. For one, it’s centralized. There is an authority deciding the final value that I can exchange a unit of x currency for what ever goods or service I am in need of. The value of this currency and the authority is decided by our collective consciousness. The difference between say Singapore Dollar and Venezuela Bolívare is our belief that the government of Singapore is more stable than the Venuzuelan government. Hence we trust the Central Banks to control inflation and maintain the value of such currencies.

With Internet Money, this trust is disrupted. We are able to program into the money the specific functionalities we require from each individual currency/token. In centralised currencies, there are often players who take up lot of commission for very little work. Why should banks charge us so much for reducing money from one account and reflecting in another (transfers) or charge a merchant percentage of purchase value for enabling the transaction.

While most people think banks are stable and trusted, they actually operate based on a zero-trust assumption (or simply trust no one). Every employee is constantly under check and control (there have been too many stories of insider hacks, misuse of customer money, and money laundering).

Running a zero-trust organization is costly and inefficient, and internet banking doesn’t solve this crucial and fundamental problem (in some cases, it even amplifies distrust). But blockchain, when taken together with distributed ledger technology (DLT), can. With Internet Money, we can define such parameters. How much should the transaction enabler make etc.

Trusted System

The problem blockchain is trying to solve is how to run a trusted system with trustless people. To be more precise, a trusted system refers to a transactional system that produces results according to a rule book. It’s not always legal (i.e. in compliance with the law), but it has to be resilient and stable/predictable. A trusted system gives a consistent truth that can be verified without relying on another system.

Transactions in a trusted system can’t be repudiated — which depends on record immutability — and are irrevocable. However, immutability in software before DLT was vulnerable because of the human factor (e.g. system administrator misconducts). System administrators had all-access rights and were able to alter system parameters.

But a system can only be as good as the people running them in terms of their trustworthiness, diligence, and capabilities. A few malicious or careless human actors can circumvent all advanced security controls. They are the Achilles heel of a secure system.

Immutability alone does not produce a trusted system; it has to decouple from the operating team. Humans, with souls and feelings, are just too erratic to produce consistent and predictable results.

That remedy is not yet visible in any product that would be intelligible to an ordinary tech consumer. The only blockchain project that has crossed over into mainstream recognition so far is Bitcoin, which is in the middle of a speculative bubble that makes the 1990s internet I.P.O. frenzy look like a neighborhood garage sale.

There is also no hierarchy of users in a DLT system, no super-administrators or privileged accounts that can delete transactions in the system. Each transaction must be endorsed by other users. The system follows self-governance according to the rules defined by the software developers.

But how can hundreds of trustless people achieve self-governance and build a trusted system together?

In some weird way Bitcoin($btc) managed to do that followed by hundreds of others.