The meaning of the blockchain


THE BLOCKCHAIN, the technology that underlies bitcoin, must still be at the height of the clamor surrounding it. Promising blockchain-based projects, such as a land registry in Honduras, were lower than expected. The lists of Ersatz securities, called "initial offerings of coins", have attracted unfavorable attention from regulators.

Kevin Werbach is a legal scholar at the Wharton School of Business at the University of Pennsylvania and an expert in digital technology. In the 90s he was one of the leading thinkers, from his roost at the Federal Communications Commission of America, on how the internet would reshape regulatory policy. In his latest book, "The Blockchain and the New Architecture of Trust" (MIT Press, 2018), Werbach explains how, far from being a radical technology that makes government obsolete, the blockchain is based on social cohesion, political stability and the rule of law that governments often provide.

The Economist & # 39; s The Open Future initiative asked Mr. Werbach to answer five questions, with answers of about 100 words apiece. His answers are below, and are followed by an excerpt from the book, from the idea of ​​"law and quantum thinking".

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L & # 39; Economist: There is so much clamor about organizations that use blockchain to "solve problems" in which ordinary databases or non-blockchain systems would do, which is hard to appreciate its real importance. In what kind of situations does blockchain technology apply?

Kevin Werbach: Blockchains are trusted machines, as The Economist recognized in a cover story over three years ago. They are useful when trusted institutions and intermediaries are problematic or to overcome a trust gap between organizations that operate transactions. The problem is not whether a centralized database can be used in theory; it's if one would be in practice. In contexts such as supply chain management, sourcing and commercial finance, companies do not have a unified view of information because they do not fully trust their business partners. Blockchain enables what I call "translucent collaboration": sharing data without giving up control. However, the fact that this is an improvement over the status quo is highly specific to the context.

The Economist: You argue in the book that blockchain does not eliminate the need for law or governance, but changes where it happens. Explain.

Mr. Werbach: To succeed, blockchains must be trusted. They can produce an unchanging consensus on a transaction history. They can not guarantee that you can trust who is transacting, what is being treated or who can change the rules. When someone used a hack to steal $ 60m from a blockchain-based crowdfunding system, or when $ 150m of cryptocurrency was irretrievably blocked by a programming bug, the blockchains themselves performed unwanted transactions immutably. Addressing these unavoidable problems is the rule of law, regulation and governance. These mechanisms must be called into play to help prevent conflicts, establish borders and resolve disputes.

The Economist: what is needed in terms of regulation to allow blockchain technology to become widely adopted in traditional areas?

Mr. Werbach: Regulation and innovation are not necessarily against. Regulatory authorities can foster the adoption of new technologies by removing barriers to competition, highlighting public policy objectives and fostering consumer confidence. Investors lost billions of dollars last year in scams and thefts of initial coin offerings (ICOs). A "Wild West" environment only benefits bad actors. Regulators can start going after easy cases through aggressive application. They should then identify where the existing rules can unintentionally limit activities, such as the application of the European Regulation on the protection of personal data to immutable decentralized registers, or financial regulations that require clearing and settlement processes that replace the blockchain.

The Economist: Will bitcoin still exist in ten years?

Mr. Werbach: Bitcoin is a cockroach. And I mean this as a compliment. It has proven incredibly resilient over the past decade, through technical problems, developer personality conflicts, business disputes, price bubbles and price collapses. Resilience could be the result of the bitcoin signal; certainly it has not become the widespread payment mechanism that its first supporters imagined. There will always be a community that pursues a non-censurable global digital currency, either for illegal activities, creating "sound money", subverting authoritarian regimes or simply making a quick pay. I expect that the bitcoin will represent a smaller share of the value of cryptocurrency in ten years, but it will not be zero.

The Economist: your book is about the crisis of trust in institutions. Can the blockchain overcome these cultural and human forms of lack of trust? Or that persistence of the "trust gap" between people and power, even if the use of blockchain expands?

Mr. Werbach: A blockchain by itself can not correct the structural power imbalances. It can even make them worse by circumventing protective rules and intermediaries. And if you can not trust those who put the data in a blockchain, it does not matter that nobody can change that data after the fact. Over time, however, new institutions based on trust in blockchain may arise. Some features requiring centralized power will transition to decentralized collaboration. As I stress in my book, blockchain is neither the end, nor the solution, the trust. It is a new form of trust that must develop and be evaluated according to its own terms.

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Law and quantum thinking

Excerpt from "The Blockchain and the New Architecture of Trust" (MIT Press, 2018), by Kevin Werbach

There is a factor that often lacks commercial reports from technological innovation: the law. Law's relationship with the blockchain is largely misunderstood both by its supporters and its critics. The blockchain is not a technology of radical irreparency, no more than an absolute lack of trust. Nor is it a complete alternative that will decisively reduce the enforcement of the law in the world. If and how blockchain-based systems will be regulated are important challenges to be solved, but more important is the question of how the blockchains regulate. These systems work as mechanisms of law and governance, which will interact with established ones. There will not be a universal answer. And in most cases, blockchain technology can integrate or supplement conventional legal schemes, not replace them.

"Quantum thinking" is Nick Szabo's term for considering two mutually contradictory ideas at the same time, analogous to the strange discovery in quantum mechanics that light exists simultaneously as a particle and a wave. Szabo is a computer scientist who conceptualizes smart contracts, an important element of blockchain-related systems. He argues that this mental approach is important when working at the margins of existing fields to create new concepts. Blockchain technology draws on cryptography, information technology, economics and political theory, among other knowledge bodies. Those who set themselves on a scale, either as a lawyer or a critic, tend to lose other critically important factors.

Lawyers are also familiar with alternative topics: "Your Honor, my client was miles away from the crime scene, but if he was there, he did not shoot the gun, and if he shot the gun, it was self-defense "This way of reasoning very mocking is a valid intellectual position in the face of uncertainty. The judge or jury will solve the result, but until this happens, the complete failure to evaluate each possibility is an error. Sometimes the unexpected happens. Sometimes it happens as a consequence of decisions based on other hypotheses. Technologists inhabit the worlds of deterministic logic and computable probabilities, but lawyers are at home with unpredictability, nonconformity, and even the possibility of catastrophe.

The law has much to offer the blockchain community. Concerns about money laundering, consumer protection and financial stability do not disappear even when cryptography works as promised. Taxation does not become useless when there is a new mechanism for moving money in secret. Disputes do not go away because a computer can perform a transaction without human intervention. Bad actors behave badly. All these scenarios will give rise to requests for legal or regulatory actions. Some will be justified. If the community categorically rejects every effort to ensure compliance with legal obligations, the blockchain will be an outlaw technology, active in obscure online spaces but largely irrelevant to the traditional economy. It would be a tragic waste of potential.

At the same time, the blockchain offers important lessons for the legal community. Bitcoin shows that a distributed network without anyone in charge can govern itself well enough to avoid the collapse and scalability of value over a prolonged period. Trust, which previously required the delegation of power or close relationships, can derive from a collection of independent actors running open source software. The most important contribution that the law can make here is not a particular set of rules, but the jurisprudential discipline of regulation and the application of rules, or what is often called "governance". Communities that build blockchain technologies and systems can in many ways govern themselves, but only if they take this challenge seriously. Regulators can also improve their effectiveness by exploiting technology. Alternatively, reckless regulatory actions could push blockchain activities to other countries, send it underground and stop valuable innovation in its tracks.

In rapidly changing environments, there is the danger of regulating too early and regulating too late. The best approach is to use quantum thinking to assess the risks of each. The law and the blockchain are obliged to engage in a changing dance. This raises the question about which values ​​should shape their relationship. The technology implemented in the world is never neutral. Transformative innovations can have various impacts based on their technical architectures and the legal regimes on which they operate. The decisions taken at the beginning have a huge impact. Once architecture and legal environments are implemented, they often become increasingly difficult to change.


From "The Blockchain and the New Architecture of Trust". Copyright © 2018 by Kevin Werbach. Used with permission from MIT Press, Cambridge, MA. All rights reserved.

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