Expert Explains One Concept in 5 Levels of Difficulty - Blockchain

My name is Bettina Warburg.

I'm a researcher of transformative technologies

and co-founder of Animal Ventures.

Today, I've been challenged to explain

one concept at five levels of increasing complexity.

My topic is blockchain technology.

Blockchain is a new network, and it's going to help us

decentralize trade, allowing us to do a lot

of our transactions much more peer to peer directly

and lower our use of intermediaries

like companies or banks maybe.

I think today everyone can leave understanding

something about blockchain at some level.

Do you know what we're gonna talk about today?

It's called blockchain.

What's blockchain?

That's a really good question.

It's actually a way that we can trade.

Do you know what trade is?

Mmm-hmm, it's when you take turns doing something.

It's when you give up most of what you want, right?

When you give up most of what you want?

Well, sometimes that definitely happens for sure.

What if I told you that this is the kind of technology

that I work on that means you could trade

with any kid all over the world?

Really?

Yeah.

If I could trade with any kid, I would trade,

well, I would trade something I don't like so much.

That's probably a good idea, maybe somebody else

likes it more than you do.

So normally, when people trade, they have to go

to the store, or they have to know the person

so they can get what they asked for.

With blockchain, you can make that exact same trade,

but you don't need the store, and you don't even

necessarily need to know the other person.

Really?

Really.

(light instrumental music)

[Bettina] So Ian, do you know what blockchain is?

No.

Have you ever traded or sold anything?

Actually, I'm selling my computer on eBay right now.

That's amazing.

What made you decide to trade on eBay?

Well, I mean, I've heard of it,

and I trust it a lot because they have

all of their guarantees, so I know that I'm gonna

get money and the person's gonna get what they want.

So what if I told you that blockchain technology

is basically a tool where you can do the exact same thing,

but it goes to you and I directly?

You wouldn't need an eBay or a brand in between.

That's cool.

And there's a lot of those kinds of middlemen

in our society today, right?

We have a lot of banks.

Yeah.

We have a lot of companies that sort of help us

make sure that our trades happen,

but if we could guarantee the same trade

using technology as sort of a technological trust,

then we wouldn't really need

all those middlemen in between.

So how does it work?

It's basically a network of computers

that all have the same history of transactions.

And so instead of sort of there being one company

with one database that holds all the information,

the same sort of list is held by all these different people.

Like, you could have it on your computer.

And then it gets validated by everyone,

and basically, that turns into the next part of the list.

So it's sort of constantly updating itself.

So like, how do you make sure that it's secure?

So it use cryptography, and that helps it basically

encode all of the transactions.

So you can't really see exactly what happened,

but you can know it happened because it's like a marker.

So you could kind of like, I don't know,

say trade apples, but you would just

see like random letters for it?

Yeah, exactly.

So you wouldn't be able to track it, I guess?

[Bettina] Exactly.

That's cool.

So it's kinda this like really big ledger

or accounting system for all sorts of things

that get traded, but instead of being owned

by one company, it's owned by everybody.

That's cool.

Yeah.

We're gonna talk about blockchain technology.

Have you heard of blockchain?

I've heard of the words blockchain,

but I'm not sure I know what it is.

When we were much smaller societies,

you and I could trade in our community pretty easily.

As the distance in our trade grew,

we ended up inventing institutions, right?

If you Uber or you use Airbnb or you use Amazon even,

these are just digital marketplaces and platforms

that help us facilitate an exchange of value.

But today, we actually have a technology

that allows us to trade one to one but at scale,

and it's called blockchain technology.

There is some kind of interface for it.

You could have an app, or you could use a computer

to do it, but instead of there being a company

in the middle that's helping you make that transaction,

it's a bunch of software code.

Okay.

And so it's being run by all of these different computers

that have like a node.

So they're all running the same software

and guaranteeing your transactions as they happen.

I mean, I would assume this technology

is taking away business or activity from these middlemen.

In some cases, yeah, it is.

And a lot of people in the financial industry,

in particular, are looking at it from the banking side

of how do we use this technology to trade things

like Bitcoin or other tokens that are easier to use

instead of today's currency.

A lot of people think about blockchain as Bitcoin

because it's sort of in the news a lot,

and it's this new cryptocurrency.

And it's kind of exciting.

But we're actually seeing a lot more use cases

for blockchain that aren't around the currency side.

They're more around, how do you take any asset

and be able to trade that using this same technology.

Is there a mechanism for verifying that person A

is a legitimate seller or producer of the item?

So today, a lot of people are working on how to create

identity structures that leverage blockchains.

And one of the tools for doing that is being able

to cryptographically sign for a given attribute.

So your government could sign that you have a US passport

or a university could sign that you are

a currently enrolled student.

And you could then dole out that information

and control it yourself and be able to show people

those certifications on an as needed basis.

So today, we're gonna talk about blockchain technology.

Okay.

[Bettina] Have you ever heard of blockchain?

I have.

Whenever we have a transaction, and let's say

I buy something from you, this information gets logged.

And it gets verified by a third person or third party.

And then if like all this information verified

and it all matches, right, the transaction goes through

without any intermediary basically, right?

It gets stored, and when you make further transactions,

this information is ready, embedded.

It's in the ledger.

Yeah, that's exactly right.

And you can append it.

You can sort of add new information that's more current,

but you can't actually go erase anything.

Absolutely.

The way the technology's changing,

nothing's gonna be like it used to be.

And there's no like firm, and then the buyer

and the seller, it basically, we'll have

to rewrite a lot of rules in economics as well.

For sure.

A lot of the assumptions won't hold true.

Absolutely.

Same with, who are the actors?

It's not just people anymore.

It's machines.

[Valentinas] Absolutely.

We're gonna have to create entire new concepts

of how they do trade and how they work with us, too.

What kind of barriers or road blocks would you imagine

are gonna happen in the blockchain space?

So at least when we talk about Bitcoin,

there are some trust issues and some hacks.

So there's obviously a need to work on trust

and feeling that it's a safe technology.

Yeah.

One of the problems that Bitcoin has faced

is Bitcoins getting stolen or lost.

But a lot of that actually comes from people

trying to recentralize Bitcoin in different ways

making themselves actually a pretty easy target.

Absolutely, so education will be a big part

before we actually can use the technology in a wide sense.

Right?

Yeah.

To actually transition into the mainstream

and make it useful for average people to use,

we're going to need to make sure we have

a lot more education, a lot more standards

and probably work with a lot of enterprises

to create sort of a user experience around

this being a technology that is safe

and usable and understandable.

What is the current state of blockchain

in your understanding?

What's gonna have to happen next?

The current state is in the research state,

and it's being developed to be applied in many, many areas.

It must be used almost everywhere

to where we won't even imagine how we lived without it.

But I'm not sure where it's going to go.

I mean, no one really knows, right.

We have a lot of public blockchains.

Like we have Bitcoin.

We have the Ethereum network and XT,

but a lot of companies and consortiums

are getting together to build private blockchains,

so ones that are more closed off at first

and then may evolve into a public network

where people feel comfortable using it.

And some are also proof of concept out in the real world,

projects in energy and in pharmaceuticals

and in retail and lots of different fields

are starting experiments.

And we'll see in the next few years

how all of those interact and what we learn

about the best use cases for blockchain

and what it means for trade.

So tell me your version of a technical

definition of blockchain.

A technical definition of blockchain

is that it is a persistent, transparent,

public, append-only ledger.

So it is a system that you can add data to

and not change previous data within it.

It does this through a mechanism for creating consensus

between scattered, or distributed, parties

that do not need to trust each other

but just need to trust the mechanism

by which their consensus is arrived at.

In the case of blockchain, it relies on some form

of challenge such that no one actor on the network

is able to solve this challenge consistently

more than everyone else on the network.

So it randomizes?

Yes, it randomizes the process and, in theory,

ensures that no one can force the blockchain to accept

a particular entry onto the ledger that others disagree

with, one that relies on a mechanism

for a peer to peer network that can maintain updates

to the ledger and then verify those updates

in such a way that it is impossible to defraud

and impossible to alter after the fact.

Do you see it as defining a new discipline of kinds,

or where are we gonna see blockchain emerge

in the real world first?

I mean, just like an example, one thing that I think

about a lot in terms of possible blockchain

applications is electricity, right.

The next generation of distributed smart grid

technology effectively--

Sure, and people are working on that already.

Yeah, yeah, exactly.

And it's this very fruitful area of research,

and you can find yourself looking like 20 years out, right,

where you have an enormous number of electric cars.

You have all of these batteries.

That's essentially a distributed

peak load power grid, right.

Like, the cars are getting plugged in

and unplugged at different times.

If you have a mechanism that's able to automatically

and autonomously be distributing power

based on batteries that are scattered throughout

the grid that are being used for other purposes.

Their owners don't even necessarily need to be aware.

I mean, to have something that looks like a much more

viable society that still has a lot of electricity needs

but is able to base that much more on renewables,

is able to make up the difference during peak load periods

or during differences in weather, that is able to have

power much closer to where it is needed

rather than having to be distributed over great distances.

It's like, that's something that would be

an enormously hard problem to solve.

And it's not that the blockchain makes it easy,

but it makes it possible.

A lot of people are seeing blockchain in the news

and maybe seeing a lot of sort of initial coin offerings

(laughs)

and sort of monetization opportunity around blockchain

and getting very excited about it.

And some of that excitement is real and should be,

you know, encouraged, but some of it is also hype.

How do you feel about the hype cycle

around blockchain today?

I'm glad you mentioned initial coin offerings

because for me, those really exemplify

the sort of problem that we're having at this exact moment.

They are an idea with enormous potential

significance down the road.

However, the promise of the initial coin offering

has been kind of hijacked into this string

of like basically pump and dump scams

or sort of desperate gold rush schemes.

The faster that we can shift from this fantasy

that it is going to make you rich in a sort of,

you know, 1920s tulip bubble kind of way,

is the sooner that we can get into people,

honestly, and I mean this like with all the hope

in the world, people being disappointed in blockchain.

It's like, oh, I didn't get rich.

It's just being used now to make it easier

to transact goods and services safely across borders.

This isn't exciting at all.

And then we'll see that become part

of the everyday infrastructure of the world

in a way that I think will be very significant.

But I think it is now, almost every aspect of it

that's connected with the concept of money

is wildly over-hyped, and--

And it also creates a problem, which is people

get a lot of excitement around it.

[Finn] Yes.

And then they're waiting for the world to change, right?

[Finn] Yeah, yeah.

Where is this technology?

Why haven't I seen any change yet?

(laughs) Yes, yes, yes.

And it's because we've had a lot of PR,

a lot of proof of concept, but truthfully,

this is more like a science, right?

Yes.

It will develop.

It will take five years.

It will take 10 years.

That kind of time is necessary.

One of the areas that brought me to supply chain research

is the fact that we're not just gonna see blockchain emerge.

We're gonna see artificial intelligence

continue to evolve.

We're gonna see connective devices

and this sort of growing internet of things

and machinery that can do a lot more

and have a wallet and transact on their own.

And so I actually think a lot of where blockchain

and other technologies are headed

is this interesting synergy that will help us

elevate the kinds of institutions we've used in the past

and cobbled together to create

that identifiable, verifiable trust.

Yes, and one of the most interesting ideas to me

that came out of the currency side of the blockchain

project was the notion around like coloring coins, right,

assign properties to a particular coin,

and in particular to assign those properties in ways

that would allow you to do things like bring

in the graph of previous transactions.

[Bettina] Right.

You know, there's sort of an obvious application for this,

which is something that would look a little bit like

an extreme version of like a boycott divestment

and sanctions kind of approach, right,

a model where it's sort of a like I will not touch money.

My wallet will automatically not touch money

that has been exchanged with the following

as a sort of very extreme way of cutting those things out.

But there's also ways in which, I think, that could be

applied to clearing out the entire logistics process

of many kinds of bad actors.

Trying to make a supply chain better, in some ways,

relies a lot on whose version of better that is

and exactly kind of what gets qualified

but also how that is quantified within say

some kind of like smart contract system.

There's multiple ways that I can see this backfiring.

One is the ways in which that is implemented,

for example, leaving certain kinds

of bad behavior untouched or unanalyzed.

Or one that feels even more dire to me in some ways

is creating an extremely inflexible, like 'cause human

contracts, legal contracts, are actually very flexible.

There's a lot of kind of room

to renegotiate. There's lots of conditions.

Yeah.

But we already have real world versions

of some of these nightmare scenarios

where like your kid has a medical emergency

and you can't unlock your car because you're two days

behind on payments for it, and so the car system

will no longer respond to the app mechanism

that you're supposed to be able to use to drive it.

So a barrier being sort of a rigidity in structures

that maybe don't accommodate real-life scenarios very well.

As you and I have been talking, one of the things

that keeps coming up is that we tend to hold novel

technologies to an unrealistically high standard

in terms of what they are supposed to deliver

rather than comparing them to actually existing systems

where we can begin to see the possibility

that even like a slight incremental improvement

would still be an enormous gain.

The system we have today is also broken.

(laughs)

Right?

Yes.

In that it's hard to compare it to some perfect future.

Just like you compare autonomous vehicles to this very

high standard because machines are doing it.

It should be perfect.

There should be zero car deaths.

(laughs) Yeah.

When you say, well, there's hundreds of thousands,

millions of car deaths on the road due to human error today.

I think we're in a similar place.

We're going to see problems with this technology,

and we are going to need to develop multiple kinds

of standards that also have some flexibility.

But it's going to also be a version, a system,

that allows us to fix some of the things

that are broken today.

Blockchain may sound complicated,

but at it's core, it's just another tool

for humans and eventually robots and other kinds

of identities to trade at scale

and make that trade more decentralized.

And it's part of our future, so it's important

that people have these kinds of conversations

and start to learn about it.