The blockchain is primarily a distributed database. Think of a huge, worldly spreadsheet which is distributed. It is open source, that runs on millions and millions of computers. So anyone can change the underlying code, and they can see what’s going on. It’s truly peer to peer; it doesn’t need powerful intermediaries to authenticate or to settle transactions.It uses state-of-the-art cryptography, so if we have a global, distributed database that can record the fact that we’ve done this transaction, what else could it record? Well, it could record any structured information, not just who paid whom but also who married whom or who owns what land or what light bought power from what power source. In the case of the Internet of Things, we’re going to need a blockchain-settlement system underneath. Banks won’t be able to settle trillions of real-time transactions between things.So this is an extraordinary thing. An immutable, unhackable distributed database of digital assets. This is a platform for truth and it’s a platform for trust. The implications are staggering, not just for the financial-services industry but also right across virtually every aspect of society.Most blockchains—and Bitcoin is the biggest—are what you call permission-less systems. We can do transactions and satisfy each other’s economic needs without knowing who the other party is and independent from central authorities. These blockchains all have a digital currency of some kind associated with them, which is why everybody talks about Bitcoin in the same breath as the blockchain, because the Bitcoin blockchain is the biggest.But to me, the blockchain, the underlying technology, is the biggest innovation in computer science—the idea of a distributed database where trust is established through mass collaboration and clever code rather than through a powerful institution that does the authentication and the settlement.
The way it works is, if I owe you $20, we do the transaction. There’s a big community called miners, and they have a strong computing resource. Some people have estimated that the entire computing power of Google would be 5 percent of this blockchain-computing power, for the Bitcoin blockchain. That platform solves this biggest problem called the double-payment problem. If I send you an MP3 file and I send it to somebody else, it’s a problem for the record industry, but it’s not a massive problem. If I send you $20, and I send the same file to somebody else, that’s a big problem. It’s called fraud, and the economy stops if you have a monetary system based on that. What happens is, I send you the $20, and these miners, to make a long story short, go about authenticating that the transaction occurred.Each miner is motivated to be the first one to find the truth, and once you find the truth, it’s evidence to everybody else. When you find the truth and you solve a complex mathematical problem, you get paid some money, some Bitcoin. For me to hack that and try and send the same money to somebody else, or for me to come in and try and take your $20 worth of Bitcoins, is not practically possible because I’d have to hack that ten-minute block. That’s why it’s called blockchain, and that block is linked to the previous block, and the previous block—ergo, chain. This blockchain is running across countless numbers of computers. I would have to commit fraud in the light of the most powerful computing resource in the world, not just for that ten-minute block but for the entire history of commerce, on a distributed platform. This is not practically feasible.So, sure, there have been lots of problems with Bitcoin. You had big exchanges like Mt. Gox fail. You had the Silk Road, where Bitcoin was the payment system for all kinds of horrific, illegal activity. But don’t be confused by that. Many people make the mistake of thinking, “Bitcoin? Well, that’s an asset. Should I invest? Is it going to go up or down?” Well, that’s not of interest to me, just like speculating in gold is not of interest to me.Something that’s of bigger interest is Bitcoin as a digital currency that enables us to do these kinds of transactions. A cryptocurrency that’s not based on nation-states. The most important thing that we focus on in our work, is the much bigger question, this underlying, distributed-database technology that enables us to have a truthful and immutable record of everything.