I wrote this for Twitter and since that may implode at any moment, here is my clear, simple, no-BS explanation of Bitcoin and blockchain for civilians.
I promise not to explain any math. You do not need it.
The basic thing
Think about the Visa card people. When you use your card to take some of your money and give it to that Etsy account to buy a cool Whatever, Visa records the change in a database in a secret cave somewhere:
- –$25 you
- +$25 them
You have to trust the honesty of Visa. In theory they could give money to their friends in the database, which is bad for obvious (and not-so-obvious) reasons. Ultimately, the government checks to make sure.
OK, let’s say you are a libertarian goldbug. You want government entirely out of the money business. But how? Someone has to make sure the ledger of Who Has How Much Money is honest, right?
Bitcoin solves this using a new technology called a “blockchain”. It means that no, we do not need to trust the people who maintain the database with the list of who has how many Bitcoins, the way we have to trust the Visa people. The blockchain uses multiple synchronized databases checked against each other. They prevent cheating with the same basic cryptographic math which already makes it possible to safely send data like your credit card number over the internet.
Blockchain technology can maintain a trustworthy ledger of any shared information, not just Bitcoin, without needing a trusted agent to maintain the database. It seems like this must be useful for something, right?
A lot of nerds who understand the math are working on potential applications. Many are goofy. Many are scams. Many — like Bitcoin — are based on trying to create a scarce commodity so that early players win at a gold rush. And a few are … intriguing. It may be that none of these pan out. If one does, it could be huge.
That’s it.
Must a blockchain wreck the Earth?
Bitcoin uses an approach to the necessary math called “proof-of-work”. This makes computers sweat hard, which uses a lot of energy. And a lot of our legacy electrical generators put carbon in the air, contributing to climate change. The energy cost of Bitcoin is not just high; it increases with every transaction, making it unsustainable as a widely-used currency. (This is one reason why I am not a millionaire now. I knew early on about Bitcoin and expected that it would get big — though I had no idea how big — and concluded that investing in it was not ethical.)
In theory, blockchain tech does not necessarily have to work in such a compute-intensive (and thus energy-intensive) way. There are alternatives to proof-of-work, like proof-of-stake, which should use far less energy. But proof-of-work has a big head start, alternatives have not yet proved themselves, and many existing blockchain applications — notably including Bitcoin — cannot migrate away from it.
NFTs: non-fungible tokens
Bitcoin is designed as an artificial commodity which shares many of the characteristics of gold. It is fungible: one Bitcoin is the same as another, just as any ounce of gold is equivalent to another. But one could create a ledger listing unique things: non-fungible tokens with unique IDs.
In theory, one could use an NFT blockchain to assign a unique ID to any set of unique things: say, a database which knows who owns each Vermeer painting. For now, most NFT ledgers have no enforcement mechanism at all, so “owning” an NFT has as no more significance than the hokey certificate I have from a registry saying that there is a star named after me. Many scammy NFT systems do not even attempt to point to physical things, just invented commodities like ugly digital images.
Blockchain enthusiasts imagine that someday we will use NFTs to keep track of every thing in the world. No more arguments about whose soda that is in the fridge, who holds the title to that abandoned lot on the edge of town, et cetera; the database will know all.
A word about geeky politics
One can recognize in blockchain technology an idea familiar from decades of idealistic and naïve tech geek politics. Consider John Perry Barlow’s breathless 1996 Declaration Of The Independence Of Cyberspace:
We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. [⋯] Cyberspace consists of transactions, relationships, and thought itself, arrayed like a standing wave in the web of our communications. Ours is a world that is both everywhere and nowhere, but it is not where bodies live. We are creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth. We are creating a world where anyone, anywhere may express his or her beliefs, no matter how singular, without fear of being coerced into silence or conformity.
I do not think I need to explain how that is not quite working out the way that Barlow and countless other tech nerds imagined.
Tech nerds have a longstanding tendency to assume that de-centralized technology structures inherently produce democratic, egalitarian, liberatory social consequences, protecting individual rights and freedom. An instructive 1995 essay, The Californian Ideology, explores and criticizes that assumption and others from the culture and cultural politics and politics politics of “tech”. and other assumptions.
On superficial reading, the writings of the Californian ideologists are an amusing cocktail of Bay Area cultural wackiness and in-depth analysis of the latest developments in the hi-tech arts, entertainment and media industries. Their politics appear to be impeccably libertarian - they want information technologies to be used to create a new ‘Jeffersonian democracy’ in cyberspace in its certainties, the Californian ideology offers a fatalistic vision of the natural and inevitable triumph of the hi-tech free market.
But history teaches otherwise. Aside from the example of Barlow’s failed dream of an internet without prejudice, or the way that Bitcoin created — by design! — its own inequality concentrating wealth in the hands of early enthusiasts, decentralized designs tend to not work even on the technical level.
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