The 5 Pillars of Open [Blockchains]

What I want to talk about today is the five pillars of cryptocurrencies.

You've probably heard about Bitcoin and Blockchain before.

There are the blockchains that are open, public, borderless, neutral, and censorship-resistant.

There are a lot of companies trying to sell things and attach the word "blockchain" to make their proposition more palatable, right?

No matter what you are doing, they will find ways to connect a blockchain to it.

My favorite example was Kodak. Do you remember Kodak? They used to make film.

They invented the digital camera and then didn't use it or sell it for 20 years, until Nokia took over their industry. In 2017, they launched a blockchain project.

With enough imagination, you can attach anything to a blockchain. Let's try it.

The idea here is, you need to understand what is important and what is not important in this space because there is so much money flowing in and so much opportunity, there are also a lot of sharks.

In the business world, just like sharks can smell blood from kilometers away, MBAs can smell venture capital money.

If you put some VC money in the room, they will show up and start attaching the word "blockchain" to everything, trying to get funding.

We need to understand what is important versus not important in this space. How will we do that?

I set up these criteria, these ideas of what is important about the Bitcoin blockchain.

Why this all started with the Bitcoin blockchain, what made it important, and how you can tell... if something really needs a blockchain.

The characteristics of a real blockchain are: open, public, borderless, neutral, and censorship resistant.

Let's talk about each one of those.

1. "Open" means that anyone can access it.
Anyone can participate without authorization, identity verification of nationality, ethnic origin, etc.
The funny thing is, you don't even need to be human to use a blockchain. That is not required.
Software agents can use blockchains. The blockchain doesn't know if you are a human or piece of software.

2. "Borderless." Like the internet, there are no borders.
This is a truly international phenomenon. That means, it doesn't matter where you are, where you live, where you travel. The blockchain is already there.

Sometimes I go through international airports. By "sometimes," When I cross borders, they have signs which say, "If you are transporting more than $10,000 worth in currency, instruments, or convertible instruments, you must declare them." There is an interesting question.

I mean, I have some bitcoin, but am I "transferring" or "transporting" anything?

I have some keys, which are just numbers. Those are not bitcoin. They are like a PIN, right?

I look at the other travelers next to me, walking across the international border; they probably have a credit or debit card in their pocket.

They are transporting that credit card number across the border. If you asked them if they are moving money, they would say, "No." But there is a credit card in your pocket. "Yes, but the credit card is not money."

"The money is in the bank. I just know the PIN. I am not transporting money." That is a good approach.

I am not transporting bitcoin. My bitcoin is already in the country where I am going.

Somebody downloaded the blockchain there. When I arrived in Korea, my bitcoin was already there. I am just transporting my keys.

I don't want to have that conversation with an actual border official; they may disagree about the analysis.

I also make sure that, when I am traveling, my wallet has less than $10,000 worth of bitcoin. Then I don't really need to have that conversation but that would create an interesting situation.

You would suddenly realize that our laws, practices, customs and borders are based on the idea that money is located somewhere. It is either here or there. If you take it from here and put it there, you are "transporting."

But what if it isn't here or there? What if it is everywhere?

You are not transporting. This is a really weird problem.

Nobody writing that law could even think of money that was everywhere all the time. It didn't even occur to them, so none of that makes sense anymore.

What does it mean to transmit money when money isn't somewhere but everywhere?

What does it mean to transmit money when
money is simply a number, a piece of information?

For example, I did a demonstration. I took a Bitcoin transaction, wrote a little script, six lines of Python.

I took every byte of that transaction and replaced it with an emoji character from the Unicode set.

The transaction hash starts with many zeros and random hex code.

That became smiley face, frowny face,rocket, asparagus, broccoli, banana, monkey face… All the little emojis. Then I tweeted that.

Did I transmit money?
I don't know. I am not quite sure if I transmitted money. I sent a bitcoin transaction as a tweet, consisting of monkey, banana, asparagus, broccoli,
smiley face, frowning face, and heart emojis.

Is that money transmission? Do I need a banking license? 
That would be very weird but Bitcoin does create these weird situations.

"Borderless" means a lot more than you think.
Money has become information with no physical form. It does not exist in any one place. It is not a thing of place. It is a thing of the mind.
3. "Neutral." What does neutral mean?
If you operate a business and want to transmit money across borders you will have interesting conversations with your bankers.

For example, I recently had my books translated into Russian.

I sold translation rights to a Russian publishing company, which sent me a small amount of money.

It was about $500, something like that. It wasn't enough to buy a nuclear weapon, right?

Well, they tried to send me $500, but it never arrived. They said, "We sent it." I said, "Let me call my bank."

I called my bank and asked, "Where is the money?"
They said, "We don't know. We don't have any money."

Well, okay. I went back to the Russian publisher and I asked them. They sent me a receipt that showed my bank had received it.

I took that to the bank and they said, "Oh. Our security department has stopped it. They don't tell us ."

"Why they don't tell you?"
"Don't you think that it would be important...

Tell the person who owns / owned this
money that you are holding their money?"

"No, we can't tell you. There is an investigation happening." Oh. This sounds exciting. Tell me more.

Then they had some questions. For example,
"who is sending you money?"
I said, "My publisher in Russia."

"And why are they sending you money?"
"Because I published a book."

"What is the title of the book?"
"Uh, it is 'The Internet of Money, Volume One.'
The internet of money is- nevermind."

"Who owns the publishing company?"
"I don't know." "Have you confirmed that the publishing company is not owned by one of these seventeen Russian oligarchs, currently under sanctions by the State Department?"

"No. It didn't really occur to me that, in order to receive $500, I must check their names against a watchlist."

"Now that I know this is my patriotic duty, let us all check the database while singing 'USA! USA!'"

"I'm sure we will find out." So I checked. The first name of the person who sent me the money was "Oleg."

They said, "Oleg is a name that is listed on our list."

I said, "Oleg is the fourth most common name in Russia.

That is like if I received money from someone in South America called 'Pablo,'
 and then they say, "We have a Pablo on our list." I know that - I have seen the Netflix show...

I know that you probably have a Pablo on your list but this is the different Pablo. Pablo is a common name. So throughout this entire conversation with my banker, I'm dying with laughter.

I'm thinking, 'I have read this in a book. Is this from George Orwell's 1984 or Kafka's Trial?'

Because this whole conversation is crazy. Long story short... Well, long story long, because it is funny.

It took me seven months to receive $500 from the highly suspicious Oleg for my book.

Needless to say, the next time I dealt with the publisher, I said, "You are paying me in bitcoin. Are we clear?"

What does "neutral" mean?
Neutral means that it is my money.

At some very basic level, as someone who lives in a country that has the word "free" printed on everything, I would like to say to the people of my bank, "It is none of your business why I am receiving $500. It is my money."

But I can't say that. If I say that, they will close all my bank accounts and I will get a knock on the door.

Then I must explain to more people who Oleg is and these people from the FBI are less friendly.
Anyway, "neutral" means that a system of money should not care who the sender or the recipients is.
  • It should not care what the purpose is.
  • It should only get the transaction through.
  • It is about the communication of value.
This seems like a very radical idea. Radical as in politically unfavorable or radical as in dangerous.

What if people could give other people money, without anyone else knowing about it

That sounds like a pretty dangerous idea. Oh no, wait. That is how the world worked for thousands of years. In fact, until the 1990s, that is how the world worked.
People could give other people money without anybody else knowing what purpose it was for. People still can, it is called cash. Even internationally.
What happened that was so bad, that now we have decided we need to check everything?

I am pretty sure Oleg isn't the main source of funding for terrorism. At least, I hope not. I would get in trouble.

4. "Censorship-resistant." Censorship resistant means, if someone wants to stop me from sending money, they can't because this is a system of speech.
Money is communication. Whether others believe that I have a human right to speak, a human right to associate, to express myself to support political causes and organizations... that I choose.

I have those human rights. I didn't ask for them. They weren't given or granted to me. I have them. There is a hint in the actual term: human right.

The idea is money like any system of communication is part of human rights.

There are a lot of governments who disagree with that idea.

There were a lot of governments who disagreed with the idea of separating church and state.

There were a lot of governments who disagreed with the idea of people voting, especially women.

Governments have disagreed with a lot of ideas but they have changed because we know better.

Hopefully, in thirty to fifty years, we will come to understand why we should separate money and state for exactly the same reasons that we should separate church and state.

If money has a purpose in commerce and you turn it into a police or militarized control system, a system of war, it will stop working as money.

That is a problem. If you start destroying your economy in order to do law enforcement, to support war, you will destroy your economy.

But there is a bigger problem. If you give other people control over where you can or cannot spend money, those other people may decide that you shouldn't spend money financing their political opposition.

Pretty soon, that kind of power turns into corruption.

That is why we separated church and state in most civilized countries because they corrupt each other.

If you bring the banks and the government a bit too close together, they become very corrupt. The banks corrupt the government; the government corrupts the banks. Then they all destroy the economy together.

These crazy radical ideas, we call them the Enlightenment. Classical liberalism.

Human rights. From this, we got this crazy idea that we could also apply it to money.

We now have this system that is open, public, borderless, neutral, and censorship-resistant.

5. "Public," where everything you do is verifiable on the network by everybody else. No one can cheat.
You can run software which can tell you definitively if a transaction has been confirmed or not. With these principles, we built a new system of money.

The question is, what happens next?

Who needs this? Who uses this? How will it develop? Will governments allow it?

Will governments try to stop it?
They can't stop it, but we don't know the answers to those questions.

What we do know is, for the first time in history, we have these capabilities.

We have taken them a bit further. It is not just money with Smart Contracts in systems like Ethereum...

These concepts now extend to more complicated, more sophisticated systems that allow for other things.

For example, build corporations that are not registered by the state or domiciled in a specific location, but operate as independent entities on the blockchain.

We call these "Decentralized Autonomous Organizations" or DAOs.

Anybody who hears that name thinks, "What?"
It doesn't really tell you what this thing is.

It is a cross between an association like any meetup and a corporation or company.

They could range from your local neighborhood association up to the most powerful company.

You can express them as a network-based entity that exists outside of borders.

What if we made a company open, public, borderless, neutral, and censorship-resistant.

Interesting things could happen. Interesting things are happening.

I want to focus a bit more on "open." Most people misunderstand what that means.

One layer of "open" is the idea that anyone can participate in any way they want simply by downloading the software. We understand what that means.

But there is another interesting aspect. We are not operating these blockchains in isolation.

We are operating them in a competitive environment against existing financial services and systems.

Lots of people use PayPal, Venmo etc. Those systems are not open, for two reasons.

In order to use the system, I must be authorized with something as an identity. I can't just download software and operate on the network.

There is another much more interesting aspect of "open."

Can you write an app that runs on PayPal?

A library, a protocol, a network, a platform?
You can connect to it and make payments but you can't extend or modify it.

You can't build something different something unauthorized.

I can't build an application that handles Paypal for people who don't have any authorized identity.

Why not? That is where the second aspect of "open" comes into play. You might think this a small thing.

Obviously, it is their network. Why would they allow me to build applications that change the network?

Think about it in a different way. That means all new features must come from them.

If I come up with a great idea, I can't implement it on their network.

I must build a completely separate payment network just to run my idea on top of it.

I can't simply run it on top of theirs. Their system is closed in another way.

It only allows innovation from the inside and they think that is a good thing.

I think that is a great thing because that crutch will allow us to win.

With open blockchains, any one of you can create an application for it, even change how the system works. It can do something that nobody authorized.

You could create something very different, weird and no one can stop you.

This is a type of radical openness not simply because you are allowed to access the platform.

It is the opposite; you cannot be stopped from accessing it. It is not just open, but uncloseable.

Does that make any sense? This is a really radical idea.

You can write an application, connect to this network and do things that nobody had considered before.

You don't need too many users. You only need one other person to run that application.

Between the two of you, there is innovation for a market of one or two people.

Then you can do something even more radical. Make your application open.

Somebody else can build on top of your application. Then they can make their application open too.

Then somebody else can come along and now everybody is building on top of each other's ideas without asking for anyone's permission.

What happens then is really astonishing. We have seen it once before with the internet.

This is what happened with the Internet which wasn't that we had some companies make great platforms.

You didn't need anyone's permission to launch an application. You could launch, let other people use it to launch another and another.

It created this tsunami of innovation that completely overwhelmed all possible competitors.

This will happen to banking. They cannot compete against that.

Inside a company, there is no way you can produce the amount of innovation of the entire world put together. All operating to serve their own special purpose without asking for anybody's permission.

This is a really important point. At first most people don't understand the difference between PayPal, Venmo, and Bitcoin.

They think, 'It is an app on your phone that reads QR codes to make payments.'

'So what? I have been able to do that with PayPal since 1995.' That is where they are missing the point.
It is not an app. It is a platform. A radically open, public, borderless, neutral, and censorship-resistant platform.
Thank You!