Photo One
What happened in 1989, was that a quirky Englishman with an odd sense of humour finally got his boss to agree to an idea he’d been batting around for a few years. He had been working for CERN, the European Nuclear Research Agency that decided to use the initials from its French name just to annoy the rest of the world. CERN is most famous in recent times for the Hadron Collider, a very big machine that’s used to bang very small things together so that nerds can watch what happens.
Way back in 1989, CERN was one of the leading users of the internet, which at that time was essentially a whole bunch of computers connected together to allow nerds to talk to each other with keyboards rather than being forced to use a telephone. I love nerds, but they do seem to prefer to avoid interacting with other humans whenever possible.
The internet at that time essentially consisted of great swathes of text that various people tried desperately to sort into some sort of coherent order. Nerds not being good at order, everyone failed. Having failed to sort things into any sort of order, various people tried to come up with easy ways to search for the document you’re looking for and largely they failed too.
Tim Berner-Lee had the remarkable idea of using “hyper-links” which was another way of giving up on the whole idea of order and just deciding that people only need to sort out the bits that they actually want to use and everything else can be damned.
A hyperlink is that little blue or purple piece of text that you can click on with your mouse and then be carried off to an entirely other place. Like most brilliant inventions, it seems mind bogglingly obvious after it’s been thought of, but requires real genius to come up with in the first place. Using electricity to make light doesn’t sound like an especially clever idea unless you’re the first person to think of it.
So Tim Berners-Lee came up with this wildly exciting idea (well it was wildly exciting to nerdy Englishmen with a quirky sense of humour) that he could write a page of text about bobbing for apples and when he wrote the word “apple” he could put a “hyper-link” to another document about the Beatles’ record company. He called the language he invented to write these languages “HyperText Markup Language” which was inevitably abbreviated to HTML.
He imagined people all over the world using this HTML to develop a huge library of interlinked information, which he started to think of as an ‘information mesh’ and for a time he actually considered calling the whole thing “The Information Mesh” purely on the basis that it would spell out his first name when it too was inevitably abbreviated to an acronym.
Eventually, over tea and scones in the CERN cafeteria, a Belgian colleague pointed out to him that it was more of a web than a mesh and by the time the last scone was eaten, the two of them had settled on “World Wide Web” as the name of the thing and we had a world typing WWW rather than TIM.
Photo 2, the first ever web server. A NeXT conputer that had been sent to Tim Berners-Lee to fiddle around with.
Over the next few months, Berners-Lee put together a piece of software that would allow the user to browse through the various hyperlinks and having gotten sick of clever names, called this piece of software a browser. The page files that this browser would browse would be named “something.html” (or more often, “something.htm” due to limitations with DOS but that’s another story).
Then he came up with an address system for visiting the various HTML pages on his infant web. The address system always started with “http://” with the http standing for HyperText Transfer Protocol and years later when he was asked why there were two forward slashes in the naming convention, he replied that couldn’t remember why he did it and by the time it was annoying him it was too late to go back and change it. Then he apologised to the world for forcing those two forward slashes on them for eternity.
The first ever website. You can still see it at http://info.cern.ch/hypertext/WWW/TheProject.html
Over the next few years the whole world wide web thing captured the imagination of most of the world. Everyone seemed to know that there were possibilities, but nobody seemed to quite know how to make it work for them.
The feeling was pretty much summed in 30 seconds by an IBM advert from around that time. A slightly nerdy, younger guy is explaining to a slightly more serious older guy about “internet” things and how he could make a spinning logo or a burning logo. Older guys looks wistfully at the screen and says;
“You know what’d be a great idea? If people with PCs, anywhere, could order our products and that was all tied together. Inventory, vendors, billings, you know the works? Then that would change everything.”
Younger guy stares at older guy as though he had just suggested that pickled aardvark feet might make a nice afternoon snack and says “I can’t do that.”
It summed up the mainstream business view because most people in business had this vague inkling that there were possibilities, that maybe this internet thing could actually be good for them, but they couldn’t do any more than express these possibilities in high-level, notional terms. Stumbling indications of the things that would be valuable to them.
Most of the techies meanwhile, knew for an absolute fact that everything would change, that the internet would touch everyone’s life and everyone’s business in ways that couldn’t be imagined. They knew this because they could make the logo spin and they could make it so that when you put your mouse on the spinning logo and clicked it, you would see an entirely different page. That was cool and it opened up possibilities that they would need to think about for a while, but the possibilities generally involved role playing a medieval wizard or having alliteratively named characters wearing a polyester leisure suit trying to pick up women.
The curious thing in all this was that nobody really talked about hypertext as being a thing. Everyone banged on about the internet (which had been around since the 1960s) or the “web” which was essentially just a collection of documents, but nobody talked about the fundamental thing that had made it all possible: hypertext.
Nonetheless, our serious guy in the 1990s was right. Whatever you want to call it, it did change everything. Absolutely everything.
I can tell you that in 20 years or so, probably less, someone will write something very similar to this article about the derivatives of blockchain. They won’t call it blockchain of course, there’ll be a neologism that will enter the public consciousness in the next year of two that will become our shorthand way of referring to “stuff related to blockchain in some way” but the principle remains.
Because once again, everything is gonna change.
If you have not the foggiest idea what blockchain means or how it works, then I’m here to help, because I understand it only a little more than you and I’m not about to try to explain in any but the broadest detail how it works. I’m interested in what it can do. I’m the older guy staring wistfully at the screen and mumbling about the possibilities.
The first thing to understand is that blockchain is not like the “internet” or “the web” as much as it’s like hypertext or maybe HTML. It’s not the thing that is going to set people’s imagination on fire, but it is the thing that is going to change the world.
Late in 2009, an anonymous chap going by the pseudonym of Satoshi Nakamoto released a whitepaper on an obscure mailing list for cryptographers that described an approach to “distributed ledgers”. If you didn’t already know, cryptographers are possibly the one group of people even more nerdy than physicists. A cryptographer called Alan Turing was so much of a nerd that he invented the modern computer simply in order to reduce the amount of time he had to spend speaking to humans. There may have been something about decoding German military secrets, but I’m pretty sure that the main driver was avoiding humans.
Nobody knows who Satoshi Nakamoto is beyond the fact that he released an improbably brilliant paper onto an unsuspecting world via an obscure mailing list. In the time since it’s been fairly well established that he’s not Japanese (his English is too good) that he’s probably from a commonwealth country (he uses British style slang) and he probably lives somewhere toward the east coast of the US (someone charted all his internet posts and guessed him to be usually asleep between about 05:00 GMT and 11:00 GMT).
One thing seems fairly certain is that Nakamoto must be relatively wealthy as he owns about 1,000,000 bitcoins (worth up to $1,000,000,000) but he never seems to spend them. Personally, I suspect that he is another of those folk with a quirky sense of humour and he's just amused about all the speculation on his real identity. I further suspect his wife is going to be alternately thrilled and furious when she finds out that he has never cashed in any of those 1,000,000 bitcoins because it would reduce his amusement levels.
In any case, three months after the paper was released, Nakamoto released the software that would go on to allow Bitcoin to not merely exist, but to flourish. The cleverest thing about the whole blockchain technology was that where people had previously relied on a “Trusted Third Party” in order to exchange transactions, blockchain provided a way for transactions to be exchanged anonymously and securely.
Think of it like this;
This sort of arrangement is very common, especially when the parties don’t know each other or when they live in separate jurisdictions. It’s also a situation that has vexed cryptographers for many years, how to make a transaction without using a TPP?
Perhaps the most common way you see this every day is when you pay for something with a credit card or debit card. The “Trusted Third Party” (TTP) in that case is the issuing bank. You walk into the supermarket, collect all the things you want to buy and then when you get to the counter you hand over the card. The bank verifies that your card has enough money available and then deducts that money from your balance and adds the money to the supermarket’s balance. The fee is generally deducted from the supermarket’s share and so you never hear about it.
Blockchain overcomes the TTP problem by making the network itself the TTP. (For various reasons, the network is not a TPP. For example, the network is incapable of making a refund or reversing a transaction, but let’s not quibble.)
Exactly what happens within the network is not as complicated as you might think and if you really want I can explain it to you later, but the key point is that it creates a safe, reliable, irreversible and unfalsifiable transaction. For very clever reasons, it’s almost impossible to breach, mainly because anyone with the power to breach it would make a lot more money by processing transactions, but also because it would require one actor to have more processing power than the rest of the network combined.
It’s - really - cool.
Now if you’ve read this far and you’re like most folks in the world, you might well be thinking this is not such a big deal. I mean, it's cool and good job, well done 'A' for effort and so on, but banks do this job pretty well already and the transaction fees are minimal and this is not exactly the world’s most pressing problem at the moment. You’d be right in a way. Transactions done using a TTP are reasonably efficient and the fees are relatively minor in the general scheme of things. Bitcoin did indeed take off and some people made some good money out of it, but it hasn’t exactly turned the world on its head. Where’s the “everything’s changing” and the “end of the world as we know it”?
Well that only happened a couple of years ago, so I’m not up to that yet.
Sometime during 2012 or 2013, one of the bitcoin developers, a teenage Russian chap called Vitaly Buterin, who had spent his early youth determining who at his “school for gifted children” could multiply 3 digit numbers the fastest (it was him), had an idea. His idea was that as well as sending transactions over the blockchain, it might be possible to send instructions or scripts. In the time-honoured fashion, he wrote a whitepaper and released it onto an unsuspecting world in a slightly obscure part of the internet.
Photo 3: Vitaly Buterin contemplates whether he would rather multiply 5 digit numbers in his head, have a decent meal or chase girls.
The whitepaper is called “A Next-Generation Smart Contract and Decentralized Application Platform” and within that heading is the tiniest hint of what is to come when he mentions “smart contract”. A smart contract is a contract that distributes itself, that triggers itself when agreed conditions are met and that terminates itself after everything is over. Imagine if you will that a brand new vehicle is parked on the lot and you hop in. On the dashboard a small touch screen shows you various options for buying the vehicle, including maintenance options (do it yourself or buy a maintenance package?) insurance options (who, what, by the year, quarter or month? etc), registration options and so on. You sit in the car, make your decisions and drive away in your new car with your lease arranged and signed and all sorts of other bits agreed with a leasing company you’ve never met.
The cute this is that all this lives with the car forevermore. All of the vehicle details live on in the blockchain and they cannot be undone. There can be no more odo winding, no more resurrected write-offs and no more dodgy maintenance books. It will all be there for future owners to peruse.
There are more possibilities. Imagine your leasing company says, “Hey! We’ve got this thing called credit risk. It means we have to charge more because we often have to chase people for payment. If you agree that you’ll never miss a payment, we’ll reduce you interest rate by 1%”
“Sure,” you say, snickering internally until you see that the deal works like this. If you miss a payment, by even one day, the car disables itself and the leasing company owns it. It’s all in the contract, the contract is a smart contract and so it automatically triggers when certain conditions are met.
Now maybe you think that’s a bad deal and maybe you think it’s a good deal. The point is that it’s possible. In fact it’s also possible that you might want to make all sorts of changes to your lease and they’re already there in the blockchain. You just need to trigger them. The leasing company agreed in advance and bunged it in the smart contract.
The really cool thing about smart contracts is that the leasing company might not even be necessary because peer-to-peer contracts are where smart contracts really become awesome. It might not be a leasing company that you do the deal with, it might be Freda Knurklesen from 27 Woodbine Road Moorabbin that does the deal. You don’t care as long as everything is in the contract. Freda’s set up the maintenance through a major network, she’s lined up insurance that you’re happy with and she’s happy to sell you the car by instalments. Why pay someone else a commission to stand in the middle?
The world of insurance opens up to some interesting possibilities for smart contracts too. The option of peer to peer insurance means that potentially you won’t even *need* an insurance company. A group of people agree on a type of insurance and a premium and away you go. The smart contracts automatically adjust the premium to ensure that (say) 95% of premiums are paid out in claims and away you all go. Keeping in mind that insurance companies generally aim for about 80% (or less) of premiums to be paid out in claims, you can see why this looks pretty good.
There’s more. Oh so much more, but this should give you a taste.
Well then, you say, if it’s so damned funky, why haven’t all the banks and leasing companies and insurance companies already bought it out to preserve their dominance? Well they’d like to but they can’t. The whitepaper is out there and it’s in the public domain and the technology isn’t and can’t be patented. Cool huh?
On the other hand, there have been quite a few investors throwing some money at the technology hoping they can figure out a way to turn a dollar from it, or better still that they can come up with an even funkier version that they can patent or copyright or generally make money from. Just about every technology company you have heard of has a blockchain division now and they’re pumping obscene amounts of cash into it. Three little companies called Toyota, Microsoft and Intel have banded together to see what they can do about blockchain applications for cars and a consortium of the world’s largest banks have clubbed together to form a company called R3, which is solely dedicated to blockchain and smart contract technology. How many banks? About 75 of the world’s largest banks as of a couple of days ago. More tend to get on board as their in-house nerds manage to convince the board that this really is an “oh shit” moment. Remember that we are talking about a technology less than 4 years old.
Despite all this, the major company in the world of smartcontracts is probably still Ethereum, the business started by vunderkind Buterin back in the early days of smart contracts, 2014. As Buterin’s company approaches its 3rd birthday it sits proudly as the grand old man of the industry and Buterin, now in his dotage at 23 years of age, the industry’s elder statesmen. I have a sneaking suspicion that you will come to know his name quite well over the next 20 years.
The smart contract technology will turn the “Internet of Things” from a pipedream mentioned on slide 17 of your company presentation to a reality. It will give binding decision making power to your refrigerator and your washing machine. It will allow you to strike a deal directly with Wilhemina Gordsdorf in Trondheim from the comfort of your sofa in Rooty Hill NSW, both of you secure in the knowledge that the transaction is done and binding.
It really is the end of the world as we know it. And I feel fine.
Photo 1: Photo courtesy of National Nuclear Security Administration / Nevada Site Office [Public domain], via Wikimedia Commons
Photo 2: Coolcaesar at the English language Wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons
Photo 3: By Romanpoet (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons
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