Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World

by Don Tapscott

From one perspective, all this electricity consumption makes sense. Erik Voorhees, founder of the coin exchange ShapeShift, said critics were unfair in calling the energy spent on bitcoin mining a waste. “The electricity is being burned for a purpose. There is a real service being provided, the securing of these payments.” He urged critics to compare it with the energy burned by the current financial system. Think of the big vaults, the bunkerlike architecture with majestic Grecian facades, HVAC systems pushing frigid air into bright lobbies, competing branches on every corner, and ATMs in between. “The next time you see a Brink’s armored truck pumping black soot into the air, compare that to the burning of electricity in bitcoining. It is not quite clear which is worse,” Voorhees said.

Artificial intelligence expert Steve Omohundro threw this phrase at us: the dictator’s learning curve, or how cave dwellers end up with space age technology. Think about all the AI labs out there staffed by the world’s smartest PhDs with access to the world’s most powerful computers. PhDs might fork the bitcoin code or write a smart contract that controls a drone’s delivery of a package, where bitcoin is held in escrow until that exact moment when the package arrives. Let’s say these PhDs post that software as open source code to the Internet, because that’s what they do to move their ideas forward; they share ideas. So now ISIS doesn’t need an AI lab, it doesn’t need a software development team. It just needs to substitute a grenade for the package. That’s the dictator’s learning curve, and it’s not steep. But don’t blame the code or the culture of sharing. It’s not necessarily what we do with the code; it’s what we don’t realize we’re doing with it—the unintended consequences of a friction-free world.

What’s to prevent China from aiming all its state processing assets and all its mining pools at the bitcoin blockchain to stage a 51 percent attack or at minimum destabilize the process? Let’s say some wealthy despot has decided that bitcoin, like the Internet before it, has become so influential that it is eroding his power. This despot could seize all the mining power within reach and purchase the rest from countries that still tolerate his bad behavior, to put him over the 50 percent hash rate threshold. He could then decide which transactions to include in blocks and which to reject. With controlling interest, he could also decide whether to fork the code and introduce a few prohibitions, maybe blacklisting addresses associated with gambling or free speech. So do honest nodes adopt this centrally controlled fork or do they fork over to a new code? Andrew Vegetabile, director of the Litecoin Association, said there was no escape from such a scenario because the despot controlled 51 percent of the network. And he needn’t represent a government; he could be one of the world’s wealthiest people or an executive of a highly profitable company with substantial purchasing power.

None of these privacy challenges are true showstoppers. Continued Ceglowski: “The good news is, it’s a design problem! We can build an Internet that’s distributed, resilient, irritating to governments everywhere, and free in the best sense of the word,” as we wanted it to be in the 1990s. Ann Cavoukian of the Privacy and Big Data Institute outlined seven principles for design that are “good for business, good for government, good for the public.” The first is critical: make privacy the default setting. Reject false dichotomies that pit privacy against security; every IT system, every business practice, and all infrastructure should have full functionality. Leaders need to prevent rather than react to violations, maintain transparency in all operations, and subject their organizations to independent verification. Brands will earn people’s trust by respecting user privacy, keeping users at the center of design, and ensuring end-to-end security of their data, destroying it when no longer needed. She said, “It really is a win-win proposition, rejecting zero-sum and embracing positive-sum.”

At its peak in October 2013, Silk Road had 13,756 listings priced in bitcoin. Products were delivered by mail with a guide to avoiding detection by authorities. When the FBI seized the site, the price of bitcoin plummeted and digital currencies became synonymous with crime. It was bitcoin’s darkest hour.

After each mass shooting in America, U.S. representatives whose constituents and campaign funders are card-carrying members of the National Rifle Association are quick to say, “Don’t blame guns for all the gun violence in America!” It would be very rich indeed if these same people banned blockchain technology because of the crimes some people might commit on it. Technology does not have agency. It does not want for anything or have an inclination one way or the other. Money is a technology, after all. When someone robs a bank, we don’t blame the money that sits in the vault for the robbery. The fact that criminals use bitcoin speaks more to the lack of strong governance, regulation, advocacy, and education than to its underlying virtues.

Ethereum could create new opportunities for value creation and entrepreneurship. “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center,” he said. “Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Blockchain doesn’t eliminate jobs so much as it changes the definition of work. Who will suffer from this great upheaval? “I suspect and hope the casualties will be lawyers earning half a million dollars a year more than anyone else.”6 So Buterin knows his Shakespeare: “The first thing we do, let’s kill all the lawyers.”

Open source is a great organizing principle but it’s not a modus operandi for moving forward. As much as open source has transformed many institutions in society, we still need coordination, organization, and leadership. Open source projects like Wikipedia and Linux, despite their meritocratic principles, still have benevolent dictators in Jimmy Wales and Linus Torvalds.

His proposal, the BitLicense, was the first serious attempt to provide a regulatory lens onto this industry. A controversial piece of law, it revealed how even well-intentioned regulations can produce unintended consequences. When the BitLicense went into effect, there was a mass exodus of companies such as Bitfinex, GoCoin, and Kraken from New York; they cited the prohibitive cost of the license as a main cause. The few that stayed are well-capitalized and more mature businesses.

you have this world of technology, which is usually largely unregulated, colliding with probably the most regulated system in the world, the financial system. No one really knows what comes of that collision,” he said. “It’s all going to work out over the next five to ten years and I want to be in the middle of that collision.”