Bitcoin and the Trust Web

I always try to share something that I found either valuable or interesting every day on this blog – even if it’s only of interest to me. Today, however, I’m pretty sure it should be of interest to everyone as the standout article was undoubtedly the one by David Cohen and William Mougayar published on Techcrunch entitled, ‘After the Social Web, Here Comes The Trust Web‘. William published one of my favourite articles on Bitcoin last year (here) and it’s great to see Techstar‘s Cohen also co-authoring the piece.

The article does a great job of summarising – and simplifying – the value of Bitcoin and the promise of blockchain-related developments for the newcomer. It frames the innovation that’s taking place as unstoppable force and one that represents a renaissance for technology, computer science and cryptography.

I couldn’t agree more.

It also helpfully distinguishes between the most visible revolution (the new manifestation of money) and the less-visible but even more important revolution that the blockchain is kickstarting, not least by virtue of the fact that the technology creates a new way to write software.

In case you don’t have time to read it (you should), here’s a few key points:-

Focus on new models, not old

If you truly want to see innovation in action, don’t see how Bitcoin fits uncomfortably within the existing paradigms. To understand the real potential, look at how Bitcoin and blockchain technology is forging a brand new path. Tackling regulatory concerns and obstacles placed by incumbents is ultimately futile in their view. Bitcoin does not require permission. Technology is neutral by definition and in this case simply functions as a low-level protocol (a set of rules that govern how a network communicates), just as the Internet relied on the TCP/IP protocol. The real magic happens when clever people build useful things on top of it.

“It’s better to invent new things instead of fighting all things, and it’s easier to create new systems that circumvent the old ones”.

The concept of decentralised consensus

Normal practice over the years has been to rely on one database to confirm whether a transaction is valid or not. With Bitcoin, the authority and trust that would otherwise be in one centralised database has been transferred to many nodes. These nodes record transactions publicly and sequentially, with the technology (cryptography and blockchain) ensuring that no duplication of recording takes place within the decentralised network.

The future of money?

Bitcoin provides a solution for half of the world that remains unbanked, with a simplicity that has been proved to be valuable by well over half of the population in Pakistan and Kenya (in easypaisa and M-Pesa respectively). Whilst legacy banking either can’t or won’t service this demographic, the $400bn + remittance industry will also be disrupted by the cost savings that Bitcoin brings.

In addition, with legacy infrastructure costs making small online payments uneconomic, Bitcoin and cryptocurrencies in general represent a far more cost-effective way of sending small amounts of money – whether that involves tipping or donations.  It’s hard to imagine anyone wanting to pay more over the medium-term when they have an option.

Finally, it’s a fact that when the Internet was created, there was no native currency created that could work in an integrated fashion with it. Bitcoin represents that solution.

Smart Property / Digital Rights

An asset that knows who owns it is known as ‘smart property’. By recording ownership on the blockchain, suddenly you can use your unique cryptographic signature to prove your ownership beyond doubt. Others can then confirm that you own this property by simply checking the blockchain, whilst your explicit consent is required before any such rights of ownership can be removed from you.

It’s not hard to understand just how powerful an auditable database is likely to be that enables you to “establish a persistent link between [your] identity, reputation, a digital file and its meta-data“.

Smart contracts based on proof of work

In one sense, proof of work is simply a right to participate in the blockchain system. Using the technology that underpins Bitcoin, it’s possible to create contracts that are self-executing, relying on the blockchain for verification as opposed to any centralised judge or court, for example.

Decentralised peer-to-peer marketplaces    

These days, semi-centralised businesses such as Amazon, eBay and Uber rule their niches. With Bitcoin and the innovations that are currently being developed within the ecosystem, person-to-person marketplaces are evolving quickly that make the role of middleman redundant. The nature of this technology is such that trust is not required for a transaction to take place between two peers and therefore this cost is saved.

As pointed out in the article, one of the fascinating areas of decentralisation technology comes from the shift that we are collectively starting to experience: we previously relied on the centralised organisation for a wide range of things that are now being delivered by the decentralised marketplace (think of trust, rules, identity, reputation and payment choices).

Cryptoequity and DAO’s

I’ve touched on both before but I’ll save the detailed explanation of the possibilities of issuing a reimagined form of share equity that is recorded permanently on the blockchain or Decentralised Autonomous Organisations (businesses that run autonomously without human involvement according to a strict set of rules enforced by software) for another time given the complexity of both topics. But it’s worth noting that both have the power to completely restructure certain industries.

Decentralised identity

As has been previously noted, we have a problem with online identity. Millions around the world currently rely on centralised institutions to log-in to services, mostly for the simple fact of convenience (Facebook or Twitter log-in’s, for example). But of course, doing so provides such companies with extensive data about our activities and interests that they then monetise. Bitcoin provides the start of a solution – an alternative way in using the blockchain to decentralise (and – crucially – control) our own identities and reputations.

It’s great to see a mainstream website such as Techcrunch put out an informed and detailed article about the potential in the area. Hopefully, there will be many more to follow. There’s no doubt it’s been a bumpy start to 2015 in the court of public opinion when it comes to Bitcoin – but then again, what’s new?