An Economic and Historical Approach of Blockchain

Now that you grasp the general and technical concepts of a blockchain, let's understand the fundamental problem blockchain tries to solve and how it came to us. Adopting a social and economic approach to understand blockchain can be very helpful to recognize projects that have a solid foundation and identify business opportunities.

With new technologies such as blockchain, we can imagine the next Uber relying on a distributed and decentralized infrastructure, where full remuneration would go to drivers and small fees retrieved to run the blockchain and reward the nodes empowering the network. In fact, that is what is already developing Eva, a blockchain-based Uber-like startup that has truly decentralized how drivers and customers interact to provide car-sharing services. But the case of Uber is just the tip of the iceberg...

The economic global picture

There have always been issues regarding trust between people. Using this as context, we created central authorities that can state the truth, and middlemen who can facilitate certain actions. This is part of the social contract: to solve trust issues between one another, there must be rules ensured by entities to which people must give up part of their freedom.

In most democracies, powers in the state are separated from centralized entities that govern the citizens: judicial, executive, and legislative. Each one has control over the other to avoid the abuse of power. But that is sometimes not enough to avoid wrongdoings or mistakes and keep the system entirely power balanced.

So, how can we achieve trust between individuals without trusted third parties?

Bitcoin provided the first answer in 2008 but the story dates back to before our era, 3,600...

Blockchain as the missing tool for a collaborative economy

Other challenges are rising for Bitcoin but it has already proven what it is capable of and what issues it is solving. By aiming to provide a digital payment system for the 1.7 billion unbanked people, Bitcoin has shown the world that cryptography, consensus protocol, and decentralized databases are powerful enablers for a paradigm shift rendering the power to the crowd instead of a given central authority or third party.

"We need better cross-border payments … because it's good for development, it's good for financial inclusion, so Bitcoin can help us."

- Benoit Coeure, European Central Bank executive board member in January 2018

In a world where the social, circular, and collaborative economy is flourishing, having a technology that allows anybody to share, trade, pay for, or sell...

Exchanging value in the digital world

In the digital world, the million dollar question is: how do you ensure that one digital asset cannot be replicated?

To answer this question, it is important to understand that the internet was built to exchange information. This information is copied from computer to computer, replicated across the network. Each bit of data that goes through a node can be replicated or stored. In other words, once a piece of information is injected into the internet, it replicates and spreads quickly through the network that erases its uniqueness. This is how information transmission works—by replication.

The problem is that, in commercial transactions, we do not pass along information for free; we transact value that shouldn't be replicated. If I send you a dollar, I'm not supposed to hold it anymore because if I did, it would be worthless...

Summary

Hopefully, throughout this chapter, you understood what kind of social and economic concepts blockchain entails. From a modern currency to a digital payment system, we explained how Bitcoin has been playing the role of economic turmoil and how it now threatens some well-established public policies. We covered the main impact that Bitcoin is trying to achieve by giving money access to unbanked people and the technical limits it faces to do so. Eventually, we addressed a bigger challenge that blockchain can foster, the fulfillment of a more collaborative and responsible economy.

In the next chapter, we will stand alongside regulatory bodies and financial authorities to understand how governments and public institutions are facing the technological upheaval brought by blockchain and cryptocurrencies. We will see what legal, tax, and accounting aspects should be taken into...