Blockchain Revolution

Implications for the Blockchain Economy: Perhaps such a platform could
enable new distributed models of wealth creation. Perhaps new kinds of peer-to-peer
collaborations could target humanity’s most vexing social problems. Perhaps we
could solve the crisis of confidence and even legitimacy in today’s institutions by
shifting real power toward citizens, equipping them with real opportunities for
prosperity and participation in society, rather than through PR trickery.
3.
Value as Incentive
Principle: The system aligns the incentives of all stakeholders. Bitcoin or some token
of value is integral to this alignment and correlative of reputation. Satoshi
programmed the software to reward those who work on it and belong to those who
hold and use its tokens, so that they all take care of it. Sort of the ultimate
Tamagotchi, the blockchain is a globally distributed nest egg.
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Problem to Be Solved: In the first era of the Internet, the concentration of power
in corporations, combined with their sheer size, complexity, and opacity, enabled them
to extract disproportionate value from the very networks that endowed them with
rights. Large banks exploited the financial system to its breaking point because
“incentive structures for most of the top executives and many of the lending officers
of these banks [were] designed to encourage short-sighted behavior and excessive
risk-taking,” according to economist Joseph Stiglitz. That included “preying on the
poorest Americans.” He summed up the problem: “If you give people bad incentives,
they behave badly, and they behaved just as one would have expected.”
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Large dot-coms dangled free services in retail, search, and social media in
exchange for user data. According to an Ernst & Young survey, nearly two thirds of
managers polled said they collected consumer data to drive business, and nearly 80
percent claimed to have increased revenues from this data mining. But when these
firms get hacked, it’s the consumers who have to clean up the mess of stolen credit
card and bank account information. It’s not surprising that, in the same survey, nearly
half of consumers said they’d be cutting off access to their data in the next five years,
and over half said they were already providing less data, including censoring
themselves on social media, than in the previous five years.
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Breakthrough: Satoshi expected participants to act in their own self-interests. He
understood game theory. He knew that networks without gatekeepers have been
vulnerable to Sybil attacks, where nodes forge multiple identities, dilute rights, and
depreciate the value of reputation.
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The integrity of the peer-to-peer network and the
reputation of its peers both diminish if you don’t know whether you’re dealing with
three parties or one party using three identities. So Satoshi programmed the source
code so that, no matter how selfishly people acted, their actions would benefit the

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system overall and accrue to their reputations, however they chose to identify
themselves. The resource requirements of the consensus mechanism, combined with
bitcoins as reward, could compel participants to do the right thing, making them
trustworthy in the sense that they were predictable. Sybil attacks would be
economically unviable.
Satoshi wrote, “By convention, the first transaction in a block is a special
transaction that starts a new coin owned by the creator of the block. This adds an
incentive for nodes to support the network.”
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Bitcoin is an incentive for miners to