Maybe now we can do what we should have done with the Web in the first place.
I thought my mind was through getting blown until I heard in mid-June that Brave raised $35 million in less than thirty seconds, though an ICO (for Initial Coin Offering). I did know ICOs were hot stuff. I also knew Brave's ICO was about to happen, because Brendan Eich, the company CEO, said so over breakfast two days earlier. So my seat belt was fastened, but the acceleration of the ICO still left my mental ass on the pavement two counties back.
Since then I've worked constantly toward getting my head around digital currencies, tokens, distributed ledgers and the rest of that stuff. I'm not there yet, and I'll bet you're not either. I'm not sure anybody is, even if they're making, selling or investing in cryptocurrencies or distributed ledgers such as blockchain. It's too early to say, and there's no telling where this will all go, since it's already going in many directions at once.
The one clear thing is that there is a craze going on. See here:
Source: http://coinmarketcap.com/charts/
Look at that as an indicator rather than a bubble.
What it indicates for me is that we are once again free to imagine that full agency for individuals as peers on the Internet is possible, and that countless positive personal, social, economic, political and other transformations will arise from that agency.
Phil Windley, who now chairs the Sovrin Foundation, told me yesterday that this is the third tech revolution of his lifetime. "The first was the PC, and the second was the Internet. This is the third," he said. I'm inclined to agree, simply because so many of us are seeing a wide open future where before there was just a wall of silos. I lamented that wall here in Linux Journal, way back in September 2011:
As entities on the Web, we have devolved. Client-server has become calf-cow. The client—that's you—is the calf, and the Web site is the cow. What you get from the cow is milk and cookies. The milk is what you go to the site for. The cookies are what the site gives to you, mostly for its own business purposes, chief among which is tracking you like an animal. There are perhaps a billion or more server-cows now, each with its own "brand" (as marketers and cattle owners like to say).
This is not what the Net's founders had in mind. Nor was it what Tim Berners-Lee meant for his World Wide Web of hypertext documents to become. But it's what we've got, and it's getting worse.
So I want to share what I'm thinking about this whole new thing (which has no one label), as I am in the midst of learning about it (1.3 months before this is published), in faith we might bring a Linux-ish sensibility to it.
I am also encouraged that the Linux Foundation is already ahead of the curve with the Hyperledger Project: "an open source collaborative effort created to advance cross-industry blockchain technologies." Those industries already include "leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology".
The aspirations for new currencies, tokens, distributed ledgers and programming environments in this emerging mega-space are also in some ways similar to those of Linux, early on. Remember Linus' talk about "world domination" two decades before it came true? It's like that, without the Linus.
Both the Internet and Linux were easy calls in the early '90s, even if relatively few people called them. On the network side, closed "online services" such as AOL and Compuserve were their own best argument for a network-of-networks that supported everybody and favored nobody. So did the closed, isolated and doomed networks inside every large enterprise. On the operating system side, BSD was already proving itself as an open alternative to countless warring and closed Unixes (and was busy forking into three different branches, helping open the way for Linux).
Now the one clear thing is that the Internet's original promise of supporting everybody and favoring nobody is still under-fulfilled, meaning the opportunities are still vast, regardless of how much of life on the Net is lived inside the feudal castles of what in Europe they call GAFA: Google, Amazon, Facebook and Apple.
In his blog post about Protocol Labs in May, Brad Burnham wrote "all of us at Union Square Ventures believe in the decentralized, emergent, permission less innovation that was so central to the vitality of the early Internet." (Protocol Labs "aims to replace HTTP and build a better web for all of us", says its website.) He continues,
The key to mitigating the market power of the web giants is open protocols further up the stack. If an open public communications network (the Internet) unlocked the distribution bottlenecks that characterized the media industry, an open public data layer is the key to and unleashing another wave of innovation. It is the mission of Protocol Labs to coordinate the efforts of a large and passionate community of open source contributors to create these protocols.
It is an audacious mission. As you move higher in the stack the complexity of the protocols is exponentially greater. Luckily, they are not starting from scratch. Juan Benet, the founder of Protocol Labs, is the creator of IPFS (the Interplanetary File System) an increasingly popular protocol that allows content on the web to be addressed directly instead of by reference to a file located on a specific server. This subtle but profound change means that a provably unique piece of content is no longer tied to a specific server but can exist anywhere there is a little surplus storage capacity on the web. Protocol Labs and everyone else working on open protocols today has another advantage that was not available to the creators of the original Internet protocols. They have blockchains.
Blockchain based crypto tokens have been have been described as the native business model of open source software. They have the promise of being able to fund the critical shared infrastructure of the information economy in a way that equity can not. Protocols are more valuable when they are open and shared broadly. But equity is most valuable if a company can extract monopoly profits from a resource they exclusively control. When a protocol incorporates an incentive in the form of a crypto token it can resolve this inherent contradiction.
But will it? Nobody knows, but that shouldn't stop us from trying to get the clearest possible picture of an emerging braidwork of paths, while looking through a blizzard of money flying toward hoped-for outcomes. To help us get started, here's a provisional glossary, arranged in a way I hope helps make sense of each topic—
Bitcoin. "A cryptocurrency and a digital payment system invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. It was released as open-source software in 2009. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Since the system works without a central repository or single administrator, bitcoin is called the first decentralized digital currency." (Wikipedia.)
Cryptocurrency. "A digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies. Bitcoin became the first decentralized cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created. These are frequently called altcoins, as a blend of bitcoin alternative. Bitcoin and its derivatives use decentralized control as opposed to centralized electronic money/centralized banking systems. The decentralized control is related to the use of bitcoin's blockchain transaction database in the role of a distributed ledger." (Wikipedia.)
"A cryptocurrency system is a network that utilizes cryptography to secure transactions in a verifiable database that cannot be changed without being noticed." (Tim Swanson, in Consensus-as-a-service: a brief report on the emergence of permissioned, distributed ledger systems.)
Distributed ledger. Also called a shared ledger, it is "a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions." (Wikipedia, citing a report by the UK Government Chief Scientific Adviser: Distributed Ledger Technology: beyond block chain.) A distributed ledger requires a peer-to-peer network and consensus algorithms to ensure replication across nodes. The ledger is sometimes also called a distributed database. Tim Swanson adds that a distributed ledger system is "a network that fits into a new platform category. It typically utilizes cryptocurrency-inspired technology and perhaps even part of the Bitcoin or Ethereum network itself, to verify or store votes (e.g., hashes). While some of the platforms use tokens, they are intended more as receipts and not necessarily as commodities or currencies in and of themselves."
Blockchain."A peer-to-peer distributed ledger forged by consensus, combined with a system for 'smart contracts' and other assistive technologies. Together these can be used to build a new generation of transactional applications that establishes trust, accountability and transparency at their core, while streamlining business processes and legal constraints." (Hyperledger.)
"To use conventional banking as an analogy, the blockchain is like a full history of banking transactions. Bitcoin transactions are entered chronologically in a blockchain just the way bank transactions are. Blocks, meanwhile, are like individual bank statements. Based on the Bitcoin protocol, the blockchain database is shared by all nodes participating in a system. The full copy of the blockchain has records of every Bitcoin transaction ever executed. It can thus provide insight about facts like how much value belonged a particular address at any point in the past. The ever-growing size of the blockchain is considered by some to be a problem due to issues like storage and synchronization. On an average, every 10 minutes, a new block is appended to the block chain through mining." (Investopedia.)
"Think of it as an operating system for marketplaces, data-sharing networks, micro-currencies, and decentralized digital communities. It has the potential to vastly reduce the cost and complexity of getting things done in the real world." (Hyperledger.)
Permissionless system. "A permissionless system [or ledger] is one in which identity of participants is either pseudonymous or even anonymous. Bitcoin was originally designed with permissionless parameters although as of this writing many of the on-ramps and off-ramps for Bitcoin are increasingly permission-based. (Tim Swanson.)
Permissioned system. "A permissioned system -[or ledger] is one in which identity for users is whitelisted (or blacklisted) through some type of KYB or KYC procedure; it is the common method of managing identity in traditional finance." (Tim Swanson)
Mining. "The process by which transactions are verified and added to the public ledger, known as the blockchain. (It is) also the means through which new bitcoin are released. Anyone with access to the Internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin." (Investopedia.)
Ethereum. "An open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality, which facilitates online contractual agreements. It provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes. Ethereum also provides a cryptocurrency token called "ether", which can be transferred between accounts and used to compensate participant nodes for computations performed. Gas, an internal transaction pricing mechanism, is used to mitigate spam and allocate resources on the network. Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowdsale during July–August 2014. The system went live on 30 July 2015, with 11.9 million coins "premined" for the crowdsale... In 2016 Ethereum was forked into two blockchains, as a result of the collapse of The DAO project. The two chains have different numbers of users, and the minority fork was renamed to Ethereum Classic." (Wikipedia.)
Decentralized Autonomous Organization. This is "an organization that is run through rules encoded as computer programs called smart contracts. A DAO's financial transaction record and program rules are maintained on a blockchain... The precise legal status of this type of business organization is unclear. The best-known example was The DAO, a DAO for venture capital funding, which was launched with $150 million in crowdfunding in June 2016 and was immediately hacked and drained of US$50 million in cryptocurrency... This approach eliminates the need to involve a bilaterally accepted trusted third party in a financial transaction, thus simplifying the sequence. The costs of a blockchain enabled transaction and of making available the associated data may be substantially lessened by the elimination of both the trusted third party and of the need for repetitious recording of contract exchanges in different records: for example, the blockchain data could in principle, if regulatory structures permitted, replace public documents such as deeds and titles. In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.(Wikipedia)
Initial Coin Offering. "A means of crowdfunding the release of a new cryptocurrency. Generally, tokens for the new cryptocurrency are sold to raise money for technical development before the cryptocurrency is released. Unlike an initial public offering (IPO), acquisition of the tokens does not grant ownership in the company developing the new cryptocurrency. And unlike an IPO, there is little or no government regulation of an ICO." (Chris Skinner.)
"In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin...During the ICO campaign, enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction." (Investopedia.)
Tokens. "In the blockchain world, a token is a tiny fraction of a cryptocurrency (bitcoin, ether, etc) that has a value usually less than 1/1000th of a cent, so the value is essentially nothing, but it can still go onto the blockchain...This sliver of currency can carry code that represents value in the real world — the ownership of a diamond, a plot of land, a dollar, a share of stock, another cryptocurrency, etc. Tokens represent ownership of the underlying asset and can be traded freely. One way to understand it is that you can trade physical gold, which is expensive and difficult to move around, or you can just trade tokens that represent gold. In most cases, it makes more sense to trade the token than the asset. Tokens can always be redeemed for their underlying asset, though that can often be a difficult and expensive process. Though technically they could be redeemed, many tokens are designed never to be redeemed but traded forever. On the other hand, a ticket is a token that is designed to be redeemed and may or may not be trade-able" (TokenFactory.)
"Tokens in the ethereum ecosystem can represent any fungible tradable good: coins, loyalty points, gold certificates, IOUs, in game items, etc. Since all tokens implement some basic features in a standard way, this also means that your token will be instantly compatible with the ethereum wallet and any other client or contract that uses the same standards. (Ethereum.org/token.)
"The most important takehome is that tokens are not equity, but are more similar to paid API keys. Nevertheless, they may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing — like a Kickstarter on steroids." (Thoughts on Tokens, by Balaji S. Srinivasan.)
"A blockchain token is a digital token created on a blockchain as part of a decentralized software protocol. There are many different types of blockchain tokens, each with varying characteristics and uses. Some blockchain tokens, like Bitcoin, function as a digital currency. Others can represent a right to tangible assets like gold or real estate. Blockchain tokens can also be used in new protocols and networks to create distributed applications. These tokens are sometimes also referred to as App Coins or Protocol Tokens. These types of tokens represent the next phase of innovation in blockchain technology, and the potential for new types of business models that are decentralized - for example, cloud computing without Amazon, social networks without Facebook, or online marketplaces without eBay. However, there are a number of difficult legal questions surrounding blockchain tokens. For example, some tokens, depending on their features, may be subject to US federal or state securities laws. This would mean, among other things, that it is illegal to offer them for sale to US residents except by registration or exemption. Similar rules apply in many other countries. (A Securities Law Framework for Blockchain Tokens.)
In fact tokens go back. All the way.
In Before Writing Volume I: From Counting to Cuneiform, Denise Schmandt-Besserat writes, "Tokens can be traced to the Neolithic period starting about 8000 B.C. They evolved following the needs of the economy, at first keeping track of the products of farming...The substitution of signs for tokens was the first step toward writing." (For a compression of her vast scholarship on the matter, read Tokens: their Significance for the Origin of Counting and Writing.
I sense that we are now at a threshold no less pregnant with possibilities than we were when ancestors in Mesopotamia rolled clay into shapes, made marks on them and invented t-commerce.
To start imagining where this goes, it may help to revisit Marshall McLuhan's framework for understanding the effects of a new technology in the world, which I wrote about in the May 2017 EOF. Every new medium (read: technology) has four sets of effects, he said, which can be best discovered in answers to four questions:
He also provided this graphical frame for the answers:
So let's drop cryptocurrency in the middle of that. My first Hmm says it—
For distributed ledgers—
Remember that this is a heuristic exercise, posed as questions to encourage many different answers.
The one thing I'm sure about is that we do need to ask these kinds of questions, and keep revising our answers until it gets real.
Until then the only thing we see for sure is the money, and if all we do is follow that, we miss what really matters.
To help us all ask and answer questions about this stuff, here is a list of the sources I visited in the course of writing what you just read:
William Mougayar's Google spreadsheet includes many of the above, and is open to additions and corrections. The same goes for everything I've written here.