I’m a Systems Engineer. Not the software type. The hardware type. Planes, trains and automobiles. The Michael Saylor type.
We’re a select group of engineers that can legitimately use the word “synergy” without it being buzzwordy. We ensure a system of components work to deliver an effect that is greater than the sum of its parts. We’re “systems thinkers”.
Certain things grab my attention for their potential to bring about widespread systemic change. And the blockchain has held my attention for a long time.
Bitcoin, and the underlying blockchain technology it runs on, have been around for 13 years now. Yet the public discourse I see consistently fails to capture the enormity of the system change it’s bringing about. There’s news articles about lost coins and scams, government warnings and pyramid schemes. Memes, toxic hustle culture and get-rich-quick schemes abound.
But all these microscopic interactions with the technology are missing a macro change away from a system that’s been in place for millennia, and we need a cool-headed view of it.
To understand the scale of this change, we need to go back and look at the concept of ownership, and how we assert ownership of something.
There are three fundamental ways of owning something. Just three. Let’s look at how those systems work:
Violence (Dawn of mankind to ~3000BC)
This is the fun one, the savage prehistoric one. Anything you can take from someone else is yours. Got a farm or a cow or a nice sheepskin? It’s only yours for as long as you can defend it from others.
2. Central trusted party (~3000BC to 3rd January 2009)
As the human race developed into larger and more complex communities, division of labour increased and it became burdensome for people to be cracking each other’s skulls open to steal their food instead of working together to farm and harvest.
Records of property and transactions start to pop up in Ancient Mesopotamia. The idea was an authority who could raise an army (a king, emperor etc) would write down what everyone owned and settle disputes once and for all. Any transactions had to be notified to the central authority, and if someone stole something (i.e. if their possession of a piece of property didn’t match what was held on the emperor’s register) the emperor could send in the army to enforce correct property possession.
So everyone lives in harmony and gets to keep their stuff without necessarily being able to defend it, so they can focus on farming instead of feuding.
That method still persists today. If someone steals my car, I will call the Queen’s enforcers (the police) who will check the number plate against the central register (the DVLA) and use force to apprehend the thief and return my property to me.
Whether it’s a Mesopotamian fig farm or a 2016 Corolla, it’s the same system of ownership.
3. Blockchain (3rd January 2009 to Present)
The blockchain uses software to create a public list (or “ledger”) of who owns what. When a transaction occurs, both the buyer and seller publicly announce the details of the transaction. Seller Bob announces “I’m sending one bitcoin to Mary”. Buyer Mary announces “I’m receiving one bitcoin from Bob”. Those two paired announcements form a transaction.
Anyone that hears that transaction checks it against their ledger and if it all makes sense, they write it down. Now everyone agrees that Mary has bought Bob’s bitcoin. The transaction is complete.
You can run this system with a few friends in the same room and a sheet of paper each. It’s very basic, it’s just that it requires constant vigilance for every transaction anywhere, it’s not really practical at scale without networked electronics doing the grunt work.
This simple system is surprisingly hard to break. Anyone trying to steal bitcoins by announcing a fraudulent purchase will fail, because they need the seller to announce it too. If Mary says “I’m receiving one bitcoin from Bob” and there is no corresponding announcement from Bob, everyone ignores it.
Anyone who edits their ledger with fake coins will find it doesn’t match everyone else’s ledger and their fraudulent transactions are similarly ignored.
Anyone that actually holds coins is incentivised to keep an accurate ledger and ignore fraud, otherwise the system will fail and their own property will become worthless.
There are tens of thousands of main nodes on the blockchain and several hundred million accounts. Whilst it’s possible to hack or attack individuals, each user is independent and motivated by self-interest to remain an active and honest participant to preserve their funds.
Individual scammers can make up whatever fraudulent ledger they want, the problem is it’ll be ignored because it doesn’t agree with everyone else’s ledgers. And even if a group of people large enough to make a majority decision mobilised themselves to endorse a fraudulent ledger (called a “51% attack”), the public nature of their fakery would see the value of their stolen assets drop to zero. Who would knowingly buy fake money on a discredited ledger?
Legacy security systems like bank vaults or internet banking apps require complete integrity across the system, one compromised interface can allow the whole vault to be emptied or the whole system shut down. The blockchain on the other hand, requires no shielding from fraud, instead it has immunity from attacks. Like a clownfish hanging out in the poisonous tentacles of a sea anemone — it’s not that it never gets stung, it’s that the stings don’t matter.
The genius of the blockchain is that is turns individual selfishness into collective digital honesty. It’s an accounting system that needs no accountant, no government, no auditor. It does all that itself. It’s a dynamically stable system.
That’s a brand-new method of ownership that only recently became possible with networked electronic devices, and it’s disrupted the system of property ownership that’s existed for the past five thousands years.
I truly believe that once you look past the price swings and clickbait headlines, you can see a new system of property ownership that’s likely to be our standard for the next few thousand years.
Even if bitcoin itself were to fail, that’s just one single example of blockchain technology. The cat is out the technological bag regardless.
The entire human race has exited with two systems of ownership. A third was invented in 2009. If that’s not systematic change, I don’t know what is. And we’re only a decade in to it.
Bitcoin and cryptocurrencies are just one of the technologies emerging out of this new system. Non-Fungible Tokens (NFTs) and Decentralised Autonomous Organisations (DAOs) are two other technologies that are starting to gain traction.
The point isn’t whether bitcoin will replace things like gold. Questions like that are like people in the 1990s asking whether the internet will replace postcards. The simple answer to that was “probably not” but it misses the enormity of the systematic change that’s coming.