Blockchain Revolution (updated) Read online

  Bruce Cahan, Visiting Scholar, Stanford Engineering; Stanford Sustainable Banking Initiative

  James Carlyle, Chief Engineer, MD, R3 CEV

  Nicolas Cary, Cofounder, Blockchain Ltd.

  Toni Lane Casserly, CEO, CoinTelegraph

  Christian Catalini, Assistant Professor, MIT Sloan School of Management

  Ann Cavoukian, Executive Director, Privacy and Big Data Institute, Ryerson University

  Vint Cerf, Co-creator of the Internet and Chief Internet Evangelist, Google

  Ben Chan, Senior Software Engineer, BitGo

  Robin Chase, Cofounder and Former CEO, Zipcar

  Fadi Chehadi, CEO, ICANN

  Constance Choi, Principal, Seven Advisory

  John H. Clippinger, CEO, ID3, Research Scientist, MIT Media Lab

  Bram Cohen, Creator, BitTorrent

  Amy Cortese, Journalist, Founder, Locavest

  J-F Courville, Chief Operating Officer, RBC Wealth Management

  Patrick Deegan, CTO, Personal BlackBox

  Primavera De Filippi, Permanent Researcher, CNRS and Faculty Associate at the Berkman Center for Internet and Society at Harvard Law School

  Hernando de Soto, President, Institute for Liberty and Democracy

  Peronet Despeignes, Special Ops, Augur

  Jacob Dienelt, Blockchain Architect and CFO, itBit and Factom

  Joel Dietz, Swarm Corp

  Helen Disney, (formerly) Bitcoin Foundation

  Adam Draper, CEO and Founder, Boost VC

  Timothy Cook Draper, Venture Capitalist; Founder, Draper Fisher Jurvetson

  Andrew Dudley, Founder and CEO, Earth Observation

  Joshua Fairfield, Professor of Law, Washington and Lee University

  Grant Fondo, Partner, Securities Litigation and White Collar Defense Group, Privacy and Data Security Practice, Goodwin Procter LLP

  Brian Forde, Former Senior Adviser, The White House; Director, Digital Currency, MIT Media Lab

  Mike Gault, CEO, Guardtime

  George Gilder, Founder and Partner, Gilder Technology Fund

  Geoff Gordon, CEO, Vogogo

  Vinay Gupta, Release Coordinator, Ethereum

  James Hazard, Founder, Common Accord

  Imogen Heap, Grammy-Winning Musician and Songwriter

  Mike Hearn, Former Google Engineer, Vinumeris/Lighthouse

  Austin Hill, Cofounder and Chief Instigator, Blockstream

  Toomas Hendrik Ilves, President of Estonia

  Joichi Ito, Director, MIT Media Lab

  Eric Jennings, Cofounder and CEO, Filament

  Izabella Kaminska, Financial Reporter, Financial Times

  Paul Kemp-Robertson, Cofounder and Editorial Director, Contagious Communications

  Andrew Keys, Consensus Systems

  Joyce Kim, Executive Director, Stellar Development Foundation

  Peter Kirby, CEO and Cofounder, Factom

  Joey Krug, Core Developer, Augur

  Haluk Kulin, CEO, Personal BlackBox

  Chris Larsen, CEO, Ripple Labs

  Benjamin Lawsky, Former Superintendent of Financial Services for the State of New York; CEO, The Lawsky Group

  Charlie Lee, Creator, CTO; Former Engineering Manager, Litecoin

  Matthew Leibowitz, Partner, Plaza Ventures

  Vinny Lingham, CEO, Gyft

  Juan Llanos, EVP of Strategic Partnerships and Chief Transparency Officer, Bitreserve.org

  Joseph Lubin, CEO, Consensus Systems

  Adam Ludwin, Founder, Chain.com

  Christian Lundkvist, Balanc3

  David McKay, President and Chief Executive Officer, RBC

  Janna McManus, Global PR Director, BitFury

  Mickey McManus, Maya Institute

  Jesse McWaters, Financial Innovation Specialist, World Economic Forum

  Blythe Masters, CEO, Digital Asset Holdings

  Alistair Mitchell, Managing Partner, Generation Ventures

  Carlos Moreira, Founder, Chairman, and CEO, WISeKey

  Tom Mornini, Founder and Customer Advocate, Subledger

  Ethan Nadelmann, Executive Director, Drug Policy Alliance

  Adam Nanjee, Head of Fintech Cluster, MaRS

  Daniel Neis, CEO and Cofounder, KOINA

  Kelly Olson, New Business Initiative, Intel

  Steve Omohundro, President, Self-Aware Systems

  Jim Orlando, Managing Director, OMERS Ventures

  Lawrence Orsini, Cofounder and Principal, LO3 Energy

  Paul Pacifico, CEO, Featured Artists Coalition

  Jose Pagliery, Staff Reporter, CNNMoney

  Stephen Pair, Cofounder and CEO, BitPay Inc.

  Vikram Pandit, Former CEO, Citigroup; Coinbase Investor, Portland Square Capital

  Jack Peterson, Core Developer, Augur

  Eric Piscini, Principal, Banking/Technology, Deloitte Consulting

  Kausik Rajgopal, Silicon Valley Office Leader, McKinsey and Company

  Suresh Ramamurthi, Chairman and CTO, CBW Bank

  Sunny Ray, CEO, Unocoin.com

  Caterina Rindi, Community Manager, Swarm Corp

  Eduardo Robles Elvira, CTO, Agora Voting

  Keonne Rodriguez, Product Lead, Blockchain Ltd.

  Matthew Roszak, Founder and CEO, Tally Capital

  Colin Rule, Chairman and CEO, Modria.com

  Marco Santori, Counsel, Pillsbury Winthrop Shaw Pittman LLP

  Frank Schuil, CEO, Safello

  Barry Silbert, Founder and CEO, Digital Currency Group

  Thomas Spaas, Director, Belgium Bitcoin Association

  Balaji Srinivasan, CEO, 21; Partner, Andreessen Horowitz

  Lynn St. Amour, Former President, The Internet Society

  Brett Stapper, Founder and CEO, Falcon Global Capital LLC

  Elizabeth Stark, Visiting Fellow, Yale Law School

  Jutta Steiner, Ethereum/Provenance

  Melanie Swan, Founder, Institute for Blockchain Studies

  Nick Szabo, GWU Law

  Ashley Taylor, Conensys Systems

  Simon Taylor, VP Entrepreneurial Partnerships, Barclays

  David Thomson, Founder, Artlery

  Michelle Tinsley, Director, Mobility and Payment Security, Intel

  Peter Todd, Chief Naysayer, CoinKite

  Jason Tyra, CoinDesk

  Valery Vavilov, CEO, BitFury

  Ann Louise Vehovec, Senior Vice President, Strategic Projects, RBC Financial Group

  Roger Ver, “The Bitcoin Jesus,” Memorydealers KK

  Akseli Virtanen, Hedge Fund Manager, Robin Hood Asset Management

  Erik Voorhees, CEO and Founder, ShapeShift

  Joe Weinberg, Cofounder and CEO, Paycase

  Derek White, Chief Design and Digital Officer, Barclays Bank

  Ted Whitehead, Senior Managing Director, Manulife Asset Management

  Zooko Wilcox-O’Hearn, CEO, Least Authority Enterprises

  Carolyn Wilkins, Senior Deputy Governor, Bank of Canada

  Robert Wilkins, CEO, myVBO

  Cameron Winklevoss, Founder, Winklevoss Capital

  Tyler Winklevoss, Founder, Winklevoss Capital

  Pindar Wong, Internet Pioneer, Chairman of VeriFi

  Gabriel Woo, Vice President of Innovation, RBC Financial Group

  Gavin Wood, CTO, Ethereum Foundation

  Aaron Wright, Professor, Cardozo Law School, Yeshiva University

  Jonathan Zittrain, Harvard Law School

  Also special thanks to a few people who really rolled up their sleeves to help. Anthony Williams and Joan Bigham of the GSN project worked closely with Alex on the original digital currencies governance paper. Former Cisco executive Joan McCalla did deep research for the chapters on the Internet of Things and also Government and Democracy. We received a lot of familial support. IT executive Bob Tapscott spent many days downloading and getting under the hood of the entire bitcoin blockchain to give us firsthand insights on some of the technical issues. Technology entrepreneur Bill Tapscott came up with the revolutionary idea of a blockchain-based p
ersonal carbon credit trading system, and technology executive Niki Tapscott and her husband, financial analyst James Leo, have been great sounding boards throughout. Katherine MacLellan of the Tapscott Group (conveniently a lawyer) tackled some of the tougher issues around smart contracts as well as managing the interview process. Phil Courneyeur was on the lookout daily for juicy material, and David Ticoll provided helpful insights about the state of the digital age so far. Wes Neff and Bill Leigh of the Leigh Bureau helped us craft the book concept (how many books is this, guys?). As always (now more than twenty years), Jody Stevens flawlessly managed the administration for the entire project including databases, finances, and document management, as well as the proofreading and production process—a full-time job, in addition to her other full-time jobs at the Tapscott Group.

  Special thanks to Dino Mark Angaritis, the CEO of blockchain company Smartwallet; Joseph Lubin, CEO of the Ethereum development studio Consensus Systems; and Carlos Moreira of fast-growing security company WISeKey—who each spent considerable time with us brainstorming ideas. They are each brilliant and so kind to help us out. Now we get to enjoy witnessing the success of each of their businesses in this space. Also big thanks to the great team at Penguin Random House led by our editor Jesse Maeshiro and overseen by Adrian Zackheim.

  Most important, we’d like to give our heartfelt thanks to our wives, Ana Lopes (Don) and Amy Welsman (Alex), who more than tolerated our obsession with cracking this big nut over the better part of a year. We are both very fortunate to have such wonderful life partners.

  Writing this book has been a joyous experience for both of us and it’s fair to say that we loved every minute of it. As someone famous once said, “If two people agree on everything, one of them is unnecessary.” We challenged each other daily to test our beliefs and assumptions, and this book is living proof of that healthy and vigorous collaboration. Mind you, collaborating does seem effortless when you share so much DNA and have a shared thirty-year history of exploring the world together. We do hope you find the product of this collaboration important and helpful.

  Don Tapscott and Alex Tapscott, January 2016

  PART I

  SAY YOU WANT A REVOLUTION

  CHAPTER 1

  THE TRUST PROTOCOL

  It appears that once again, the technological genie has been unleashed from its bottle. Summoned by an unknown person or persons with unclear motives, at an uncertain time in history, the genie is now at our service for another kick at the can—to transform the economic power grid and the old order of human affairs for the better. If we will it.

  Let us explain.

  The first four decades of the Internet brought us e-mail, the World Wide Web, dot-coms, social media, the mobile Web, big data, cloud computing, and the early days of the Internet of Things. It has been great for reducing the costs of searching, collaborating, and exchanging information. It has lowered the barriers to entry for new media and entertainment, new forms of retailing and organizing work, and unprecedented digital ventures. Through sensor technology, it has infused intelligence into our wallets, our clothing, our automobiles, our buildings, our cities, and even our biology. It is saturating our environment so completely that soon we will no longer “log on” but rather go about our business and our lives immersed in pervasive technology.

  Overall, the Internet has enabled many positive changes—for those with access to it—but it has serious limitations for business and economic activity. The New Yorker could rerun Peter Steiner’s 1993 cartoon of one dog talking to another without revision: “On the Internet, nobody knows you’re a dog.” Online, we still can’t reliably establish one another’s identities or trust one another to transact and exchange money without validation from a third party like a bank or a government. These same intermediaries collect our data and invade our privacy for commercial gain and national security. Even with the Internet, their cost structure excludes some 2.5 billion people from the global financial system. Despite the promise of a peer-to-peer empowered world, the economic and political benefits have proven to be asymmetrical—with power and prosperity channeled to those who already have it, even if they’re no longer earning it. Money is making more money than many people do.

  Technology doesn’t create prosperity any more than it destroys privacy. However, in this digital age, technology is at the heart of just about everything—good and bad. It enables humans to value and to violate one another’s rights in profound new ways. The explosion in online communication and commerce is creating more opportunities for cybercrime. Moore’s law of the annual doubling of processing power doubles the power of fraudsters and thieves—“Moore’s Outlaws”1—not to mention spammers, identity thieves, phishers, spies, zombie farmers, hackers, cyberbullies, and datanappers—criminals who unleash ransomware to hold data hostage—the list goes on.

  IN SEARCH OF THE TRUST PROTOCOL

  As early as 1981, inventors were attempting to solve the Internet’s problems of privacy, security, and inclusion with cryptography. No matter how they reengineered the process, there were always leaks because third parties were involved. Paying with credit cards over the Internet was insecure because users had to divulge too much personal data, and the transaction fees were too high for small payments.

  In 1993, a brilliant mathematician named David Chaum came up with eCash, a digital payment system that was “a technically perfect product which made it possible to safely and anonymously pay over the Internet. . . . It was perfectly suited to sending electronic pennies, nickels, and dimes over the Internet.”2 It was so perfect that Microsoft and others were interested in including eCash as a feature in their software.3 The trouble was, online shoppers didn’t care about privacy and security online then. Chaum’s Dutch company DigiCash went bankrupt in 1998.

  Around that time, one of Chaum’s associates, Nick Szabo, wrote a short paper entitled “The God Protocol,” a twist on Nobel laureate Leon Lederman’s phrase “the God particle,” referring to the importance of the Higgs boson to modern physics. In his paper, Szabo mused about the creation of a be-all end-all technology protocol, one that designated God the trusted third party in the middle of all transactions: “All the parties would send their inputs to God. God would reliably determine the results and return the outputs. God being the ultimate in confessional discretion, no party would learn anything more about the other parties’ inputs than they could learn from their own inputs and the output.”4 His point was powerful: Doing business on the Internet requires a leap of faith. Because the infrastructure lacks the much-needed security, we often have little choice but to treat the middlemen as if they were deities.

  A decade later in 2008, the global financial industry crashed. Perhaps propitiously, a pseudonymous person or persons named Satoshi Nakamoto outlined a new protocol for a peer-to-peer electronic cash system using a cryptocurrency called bitcoin. Cryptocurrencies (digital currencies) are different from traditional fiat currencies because they are not created or controlled by countries. This protocol established a set of rules—in the form of distributed computations—that ensured the integrity of the data exchanged among these billions of devices without going through a trusted third party. This seemingly subtle act set off a spark that has excited, terrified, or otherwise captured the imagination of the computing world and has spread like wildfire to businesses, governments, privacy advocates, social development activists, media theorists, and journalists, to name a few, everywhere.

  “They’re like, ‘Oh my god, this is it. This is the big breakthrough. This is the thing we’ve been waiting for,’” said Marc Andreessen, the cocreator of the first commercial Web browser, Netscape, and a big investor in technology ventures. “‘He solved all the problems. Whoever he is should get the Nobel Prize—he’s a genius.’ This is the thing! This is the distributed trust network that the Internet always needed and never had.”5

  Today thoughtful people everywhere are trying to understand the implications of a protocol that enables mere mortal
s to manufacture trust through clever code. This has never happened before—trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.

  It may not be the Almighty, but a trustworthy global platform for our transactions is something very big. We’re calling it the Trust Protocol.

  This protocol is the foundation of a growing number of global distributed ledgers called blockchains—of which the bitcoin blockchain is the largest. While the technology is complicated and the word blockchain isn’t exactly sonorous, the main idea is simple. Blockchains enable us to send money directly and safely from me to you, without going through a bank, a credit card company, or PayPal.

  Rather than the Internet of Information, it’s the Internet of Value or of Money. It’s also a platform for everyone to know what is true—at least with regard to structured recorded information. At its most basic, it is an open source code: anyone can download it for free, run it, and use it to develop new tools for managing transactions online. As such, it holds the potential for unleashing countless new applications and as yet unrealized capabilities that have the potential to transform many things.

  HOW THIS WORLDWIDE LEDGER WORKS

  Big banks and some governments are implementing blockchains as distributed ledgers to revolutionize the way information is stored and transactions occur. Their goals are laudable—speed, lower cost, security, fewer errors, and the elimination of central points of attack and failure. These models don’t necessarily involve a cryptocurrency for payments.

  However, the most important and far-reaching blockchains are based on Satoshi’s bitcoin model. Here’s how they work.

  Bitcoin or other digital currency isn’t saved in a file somewhere; it’s represented by transactions recorded in a blockchain—kind of like a global spreadsheet or ledger, which leverages the resources of a large peer-to-peer bitcoin network to verify and approve each bitcoin transaction. Each blockchain, like the one that uses bitcoin, is distributed: it runs on computers provided by volunteers around the world; there is no central database to hack. The blockchain is public: anyone can view it at any time because it resides on the network, not within a single institution charged with auditing transactions and keeping records. And the blockchain is encrypted: it uses heavy-duty encryption involving public and private keys (rather like the two-key system to access a safety deposit box) to maintain virtual security. You needn’t worry about the weak firewalls of Target or Home Depot or a thieving staffer of Morgan Stanley or the U.S. federal government.