Blockchain isn’t a revolution: it’s two big innovations and one promising idea
Kevin Werbach provides a tutorial on the three key concepts that tend to be grouped under the word that increases stock prices: blockchain. It isn’t a revolution, he writes, but “two big innovations and one promising idea.”
The truth is that there isn’t a blockchain phenomenon to be for or against. There are three.
1. There is cryptocurrency: the idea that networks can securely transfer value without central points of control.
2. There is blockchain: the idea that networks can collectively reach consensus about information across trust boundaries.
3. And there are cryptoassets: the idea that virtual currencies can be “financialized” into tradable assets.
Demystifying blockchain
The New York Times Deal Book put its best and brightest business writers to the task in a recent special section giving you hours of by-the-pool blockchain reading. “Slowly and unsteadily, the mysterious blockchain is emerging from the shadows and making its way into a still murky future. Don’t count it out,” writes Andrew Ross Sorkin.
Crypto reference
If that isn’t enough blockchain and crypto reading for you, John Lothian launched CryptoMarketsWiki.com. You won’t find a better resource on all things crypto.
But wait, there’s more. It was just a matter of time before the University of Chicago economics researchers studied the bitcoin ecosystem. At this point, it just doesn’t add up, as explained by Eric Budish in his study “The Economic Limits of Bitcoin and the Blockchain (PDF):”
The amount of computational power devoted to anonymous, decentralized blockchains such as Bitcoin’s must simultaneously satisfy two conditions in equilibrium: (1) a zero-profit condition among miners, who engage in a rent-seeking competition for the prize associated with adding the next block to the chain; and (2) an incentive compatibility condition on the system’s vulnerability to a “majority attack”, namely that the computational costs of such an attack must exceed the benefits.
What meeting those two conditions means, in the end, he writes, is this: “The anonymous, decentralized trust enabled by the Nakamoto (2008) blockchain, while ingenious, is expensive.”