Blockchain Revolution

participate in creating a block and linking it to the previous block. Those who
complete a block first get a quantity of bitcoins for their efforts. Satoshi’s protocol
rewarded early adopters handsomely with bitcoin: for the first four years, miners
received 50 bitcoins (BTC) for each block. Every four years, the reward per block
would halve: 25 BTC, 12.5 BTC, and so on. Because they now own bitcoin, they have
an incentive to ensure the platform’s long-term success, buying the best equipment to
run mining operations, spending energy as efficiently as possible, and maintaining the
ledger. Bitcoin is also a claim on the blockchain, not just as an incentive to participate
in mining and transacting with others but through ownership in the platform itself.
Distributed user accounts are the most basic element of the cryptographic network
infrastructure. By owning and using bitcoin, one is financing the blockchain’s
development.
Satoshi chose as the economic set the owners of computing power. This requires
these miners to consume a resource external to the network, namely electricity, if they
want to participate in the reward system. Every so often, different miners find two
equally valid blocks of equal height, and the rest of the miners must choose which
block to build on next. They generally pick whichever they think will win rather than
building on both, because they’d otherwise have to split their processing power
between the forks, and that’s a strategy for losing value. The longest chain represents
the greatest amount of work and therefore participants choose it as the canonical state
of the blockchain. In contrast, Ethereum chose owners of coin as its economic set.
Ripple and Stellar chose the social network.
The paradox of these consensus schemes is that by acting in one’s self-interest,
one is serving the peer-to-peer (P2P) network, and that in turn affects one’s reputation
as a member of the economic set. Before blockchain technologies, people couldn’t
easily leverage the value of their reputation online. It wasn’t only because of Sybil
attacks, where a computer could inhabit multiple roles. Identity is multifaceted,
nuanced, and transient. Few people see all sides, let alone the subtleties and the arc of
our identity. For different contexts, we have to produce some document or other to
attest to some detail of our identity. People “without papers” are confined to
collaborating with their social circle. On blockchains like Stellar, that’s an excellent

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start, a means of creating a persistent digital presence and establishing reputation that
is portable well beyond one’s geographic community.
Another breakthrough to preserve value is the monetary policy programmed into
the software. “All money mankind has ever used has been insecure in one way or
another,” said Nick Szabo. “This insecurity has been manifested in a wide variety of
ways, from counterfeiting to theft, but the most pernicious of which has probably
been inflation.”
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Satoshi capped the supply of bitcoins at 21 million to be issued over
time to prevent arbitrary inflation. Given the halving every four years of bitcoins
mined in a block and the current rate of mining—six blocks per hour—those 21
million BTC should be in circulation around the year 2140. No hyperinflation or
currency devaluation caused by incompetent or corrupt bureaucracies.
Currencies are not the only assets that we can trade on the blockchain. “We’ve
only begun to scratch the surface on what’s possible,” said Hill of Blockstream.
“We’re still at that 1994 point in terms of applications and protocols that really take
advantage of the network and show the world, ‘Here’s what you can do that is totally
groundbreaking.’”
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Hill expects to see different financial instruments, from proof-of-
asset authenticity to proof-of-property ownership. He also expects to see bitcoin
applications in the Metaverse (a virtual world) where you can convert bitcoin into
Kongbucks and hire Hiro Protagonist to hack you some data.
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Or jack yourself into
the OASIS (a world of multiple virtual utopias) where you actually do discover the
Easter egg, win Halliday’s estate, license OASIS’s virtual positioning rights to
Google, and buy a self-driving car to navigate Toronto.
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And, of course, there’s the Internet of Things, where we register our devices,
assign them an identity (Intel is already doing this), and coordinate payment among
them using bitcoin rather than multiple fiat currencies. “You can define all these new
business cases that you want to do, and have it interoperate within the network, and
use the network infrastructure without having to bootstrap a new blockchain, just for
yourself,” said Hill.
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Unlike fiat currency, each bitcoin is divisible to eight decimal places. It enables
users to combine and split value over time in a single transaction, meaning that an
input can have multiple outputs over multiple periods of time, which is far more
efficient than a series of transactions. Users can set up smart contracts to meter usage
of a service and make tiny fractions of payments at regular intervals.