A conversation I recently had made me realize many in the public genuinely don’t understand the ‘need’ for blockchain. Not only that, basic questions such as “what is a blockchain” lack concrete answers for many.
A friend and I were talking about the future of crypto and blockchain, and they were convinced that blockchain had no future because it was “too heavily tied to currency.” He argued this need for secure decentralized ledgers can easily be filled by cloud computing. If this space is going to grow, I need to delve further into this topic. In a previous article, Bitcoin Is Not The Internet Of Money, I covered the idea of crypto being “too heavily tied to currency”, so feel free to check out my thoughts there.
What Is Cloud Computing?
Cloud computing is the ability for users to access a conglomerate of computational resources and storage without having a firm grasp of the underlying technologies; effectively, the internet as we use it today. When the term was coined in the late 90s, it was done so with a vision of the future in mind. A future where network technology was intuitive and didn’t require high levels of technical proficiency to operate. Later, Amazon popularized the term cloud computing, and is generally considered the current frontrunner with their AWS service.
What makes cloud computing distinct is how it relies on centralized servers to connect separate technologies and deliver them to end users. There is centralized physical device then via a virtual machine users can access the device away from the central system.
That should not sound particularly glamourous to you because it is now the norm. Most of our interactions with the internet are done via the cloud; I can hardly remember what it was like before cloud computing. All of my devices share my login information and history. I know I can access the documents in my drive from home, the office, the Uber, etc. It would be a ridiculous notion for me to have to store all of my email locally on my phone in order to access them (especially considering the 30k unread emails in my inbox).
The key point to remember about cloud computing is it’s decentralized “access” to a centralized computational conglomerate. Google or Amazon give provide many access points to a myriad of services. They host these services on their servers and you can also use their servers to store your information, but end of the day, the servers are their property.
This is much different than the blockchain.
The blockchain not only has a decentralized userbase, it has a decentralized technological base as well. There is no centralized machine distributing the information. The “machine” network, is scattered throughout the world. Any one of us can go and install a full copy of the Bitcoin blockchain locally and run our own node. In fact, this decentralized access and transparency is the point.
The blockchain, uses “competition” between different nodes, to generate an outcome. In the original blockchain, Bitcoin, the different nodes “mine” cryptocurrency and these nodes compete to verify the blocks in exchange for payment. Blockchain companies are playing with this idea to create different emergent phenomena. For example, Golem has created a blockchain that acts as a decentralized supercomputer. Consider trying to render a movie with CGI animation, historically, you would have had to wait for your local machine to render the film or use expensive cloud computing services. With the aid of the blockchain and market dynamics, nodes that have allowed their computational power to be rented out will bid against one another. Thanks to market efficiency, you will receive the lowest price for the task. By not competing within a centralized resource for their limited space, you wind up paying significantly less for an equally or more efficient outcome.
To clarify, this is the difference between living in a town with one mechanic versus many. A town with one mechanic has to accommodate every single car in the town. Therefore, the mechanic is going to charge more because his time and space are scarce. The mechanic is forced to charge each customer more in order to triage the demand. Additionally, the lack of competition incentivizes the mechanic to underperform. They benefit from performing quicker lower quality jobs; you will have to return more often. Contrast this with that same town having five mechanics. Now, there are more than enough mechanics per car. You, the consumer, have the leverage in this situation because each mechanic will be forced to provide the best service for the cheapest price otherwise you will take your business elsewhere.
Blockchain is so revolutionary because it is the technology that enables cooperation between self-interested entities and networks. In the above example, you wouldn’t say that the mechanics are “working together” to give you the best performance for the lowest price, yet, due to their own self-interest and market competition, they are forced into this outcome. You benefit from their motivated self-interest. The blockchain technologically applies this same concept. The nodes aren’t “working together” per se, the blockchain rewards self-interested nodes in the same way that you reward the self interested mechanic.
What is often lost from the discourse is the INTRA-network cooperation afforded by blockchain.
All of the talk of “decentralization” in blockchain as the collectivist/populist movement of the future, really misses the point. This is not a kumbayah movement.
The blockchain works because it is not idealistic. It understands that humans are never going to remove themselves from their tribalism; we cant. The “civilized” liberal individual is never going to transcend their “rational self-interest.” So, instead of trying to reinvent the wheel, the blockchain utilizes the system which has proven itself, time and again, to be the most effective cooperative force in human history: capital markets. Blockchain uses market dynamics to steer the engine of rational self-interest towards a productive end. This, in combination with cryptography, provides a method of governance and security to supplement the lack of trust between entities.
“Why Would I Use Bitcoin When I Could Use Venmo Or Cash App?”
Apps like Venmo require a level of familiarity between the persons in the transaction. You can only transact with people you trust enough to have a non-trivial amount of your intimate details. You could be doing business with someone in Russia who is trying to get enough of your data to hack your accounts, steal your identity, etc. This is a bit of hyperbole, but it is definitely a real possibility. It’s not like identity theft is rare in an age where we are effectively only as secure as your shitty “password1234” passcode. Encryption is as important as ever.
To bring this all together, that means, you cannot remove the “currency” part of the blockchain. This is precisely the mechanism that generates incentivization for the underlying mechanism. The “market” is what brings about decentralized consensus. Furthermore, cloud computing works when there is trust within the system. The users trust the system and the system trusts the users to some extent. The blockchain is what will allow for global cooperation; it facilitates cooperation WITHOUT trust.