The diagnosis is two-tiered:
- Record-keeping scales society by constructing a centralised version of the truth large groups of people can agree on. Crucially, records are not truth itself but a tool for approximating it. Subjective valuation inevitably creeps in the process of 'recording'.
- Society can't trust the record keeper because the record keeper is human and humans are naturally selected to be self-interested. Bias is a given, manipulation an ever-looming shadow. The incentives don't line up.
The word 'trust' in itself suggests the possibility of fraud. They're two sides of the same coin.
How can we keep records that are objective and immune to human bias? The answer, as embodied in blockchain technology, is to remove humans from the equation altogether.
Minimum viable explanation
- The blockchain is a decentralised digital list (ledger) of who holds what in a network. This can be money, property titles, medical records. Anything someone would care to 'own'.
- Decentralised means every user in the network has an up-to-date copy of the ledger.
- This makes the records unchangeable. If someone messes with the ledger, the rest of the network rejects it.
- New records (blocks) are made unhackable with cryptography.
- Cryptography is impossibly complicated math that takes a lot of computing power.
- Users providing that computing power are "miners". They get paid in cryptocurrency (like Bitcoin) for securing the ledger.
- Mining makes the cryptocurrency scarce, giving it economic value.
Blockchains automate trust. Users don't need to trust records because they're verified by the network. Trust is coded into the system itself, distributed across all network participants. There is no flawed fee-charging central intermediary with an agenda. It's a self-governing networked community of strangers. The same way society pays you money for giving it what it needs, blockchains pay you coins for giving the network what it needs.
Different blockchains demand different value. It can be security, storage, computation, bandwidth, attention. The wild multitude of possible applications is beyond the introductory scope of this post. And bound only by your imagination.
Bitcoin — O.G. blockchain
Cryptodaddy Bitcoin makes for an intuitive case of how blockchains work. Its ledger keeps track of how much currency each user holds and rewards miners for securing the records.
- I pay you 1 Bitcoin (BTC)
- Everyone in the network updates their copy of the ledger with a new block that states our transaction.
- The new block is verified and cryptographically secured by miners, who get paid in Bitcoin for their computing power.
Think of Bitcoin as a giant spreadsheet that records every transaction.
Ethereum — Distributed global supercomputer
If Bitcoin is a spreadsheet, Ethereum is a spreadsheet with macros.
Macros are mini-applications you can use to automate tasks in Microsoft Excel. In other words, Ethereum is a blockchain with its very own programming language. Developers can build decentralised applications ("dapps") on top of it. As Bitcoin's blockchain pays BTC for securing the ledger, Ethereum pays Ether (ETH) for executing and verifying the code of decentralised applications. It's like a giant supercomputer made up of all the computers in the Ethereum network.
The idea of a network running applications should sound familiar. Ethereum is a decentralised alternative for the centralised Internet. A new Internet that is owned by all of its users instead of single corporate behemoth like Amazon.
Unhackable, uncensorable. Governed by its users and rewarding the work the network needs with a native currency. A trinity of Internet, free market and democracy. It's the original vision for the web come true.