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  • Economists have been exploring people's behavior for hundreds of years:

  • how we make decisions,

  • how we act individually and in groups,

  • how we exchange value.

  • They've studied the institutions that facilitate our trade,

  • like legal systems,

  • corporations,

  • marketplaces.

  • But there is a new, technological institution

  • that will fundamentally change how we exchange value,

  • and it's called the blockchain.

  • Now, that's a pretty bold statement,

  • but if you take nothing else away from this talk,

  • I actually want you to remember

  • that while blockchain technology is relatively new,

  • it's also a continuation of a very human story,

  • and the story is this.

  • As humans, we find ways

  • to lower uncertainty about one another

  • so that we can exchange value.

  • Now, one of the first people to really explore the idea

  • of institutions as a tool in economics

  • to lower our uncertainties about one another

  • and be able to do trade

  • was the Nobel economist Douglass North.

  • He passed away at the end of 2015,

  • but North pioneered what's called "new institutional economics."

  • And what he meant by institutions were really just formal rules

  • like a constitution,

  • and informal constraints, like bribery.

  • These institutions are really the grease

  • that allow our economic wheels to function,

  • and we can see this play out over the course of human history.

  • If we think back to when we were hunter-gatherer economies,

  • we really just traded within our village structure.

  • We had some informal constraints in place,

  • but we enforced all of our trade with violence

  • or social repercussions.

  • As our societies grew more complex

  • and our trade routes grew more distant,

  • we built up more formal institutions,

  • institutions like banks for currency,

  • governments, corporations.

  • These institutions helped us manage our trade

  • as the uncertainty and the complexity grew,

  • and our personal control was much lower.

  • Eventually with the internet, we put these same institutions online.

  • We built platform marketplaces like Amazon, eBay, Alibaba,

  • just faster institutions that act as middlemen

  • to facilitate human economic activity.

  • As Douglass North saw it,

  • institutions are a tool to lower uncertainty

  • so that we can connect and exchange all kinds of value in society.

  • And I believe we are now entering

  • a further and radical evolution

  • of how we interact and trade,

  • because for the first time, we can lower uncertainty

  • not just with political and economic institutions,

  • like our banks, our corporations, our governments,

  • but we can do it with technology alone.

  • So what is the blockchain?

  • Blockchain technology is a decentralized database

  • that stores a registry of assets and transactions

  • across a peer-to-peer network.

  • It's basically a public registry

  • of who owns what and who transacts what.

  • The transactions are secured through cryptography,

  • and over time, that transaction history gets locked in blocks of data

  • that are then cryptographically linked together and secured.

  • This creates an immutable, unforgeable record

  • of all of the transactions across this network.

  • This record is replicated on every computer that uses the network.

  • It's not an app.

  • It's not a company.

  • I think it's closest in description to something like Wikipedia.

  • We can see everything on Wikipedia.

  • It's a composite view that's constantly changing and being updated.

  • We can also track those changes over time on Wikipedia,

  • and we can create our own wikis,

  • because at their core, they're just a data infrastructure.

  • On Wikipedia, it's an open platform that stores words and images

  • and the changes to that data over time.

  • On the blockchain,

  • you can think of it as an open infrastructure

  • that stores many kinds of assets.

  • It stores the history of custodianship,

  • ownership and location

  • for assets like the digital currency Bitcoin,

  • other digital assets

  • like a title of ownership of IP.

  • It could be a certificate, a contract,

  • real world objects,

  • even personal identifiable information.

  • There are of course other technical details to the blockchain,

  • but at its core, that's how it works.

  • It's this public registry that stores transactions in a network

  • and is replicated so that it's very secure and hard to tamper with.

  • Which brings me to my point

  • of how blockchains lower uncertainty

  • and how they therefore promise to transform our economic systems

  • in radical ways.

  • So uncertainty is kind of a big term

  • in economics,

  • but I want to go through three forms of it

  • that we face in almost all of our everyday transactions,

  • where blockchains can play a role.

  • We face uncertainties like not knowing who we're dealing with,

  • not having visibility into a transaction

  • and not having recourse if things go wrong.

  • So let's take the first example, not knowing who we're dealing with.

  • Say I want to buy a used smartphone on eBay.

  • The first thing I'm going to do is look up who I'm buying from.

  • Are they a power user?

  • Do they have great reviews and ratings, or do they have no profile at all?

  • Reviews, ratings, checkmarks:

  • these are the attestations about our identities

  • that we cobble together today

  • and use to lower uncertainty about who we're dealing with.

  • But the problem is they're very fragmented.

  • Think about how many profiles you have.

  • Blockchains allow for us to create an open, global platform

  • on which to store any attestation about any individual

  • from any source.

  • This allows us to create a user-controlled

  • portable identity.

  • More than a profile,

  • it means you can selectively reveal

  • the different attributes about you

  • that help facilitate trade or interaction,

  • for instance that a government issued you an ID,

  • or that you're over 21,

  • by revealing the cryptographic proof

  • that these details exist and are signed off on.

  • Having this kind of portable identity

  • around the physical world and the digital world

  • means we can do all kinds of human trade

  • in a totally new way.

  • So I've talked about how blockchains could lower uncertainty

  • in who we're dealing with.

  • The second uncertainty that we often face

  • is just not having transparency into our interactions.

  • Say you're going to send me that smartphone by mail.

  • I want some degree of transparency.

  • I want to know that the product I bought is the same one that arrives in the mail

  • and that there's some record for how it got to me.

  • This is true not just for electronics like smartphones,

  • but for many kinds of goods and data,

  • things like medicine, luxury goods,

  • any kind of data or product that we don't want tampered with.

  • The problem in many companies,

  • especially those that produce something complicated like a smartphone,

  • is they're managing all of these different vendors

  • across a horizontal supply chain.

  • All of these people that go into making a product,

  • they don't have the same database.

  • They don't use the same infrastructure,

  • and so it becomes really hard to see transparently a product evolve over time.

  • Using the blockchain, we can create

  • a shared reality across nontrusting entities.

  • By this I mean

  • all of these nodes in the network do not need to know each other

  • or trust each other,

  • because they each have the ability

  • to monitor and validate the chain for themselves.

  • Think back to Wikipedia.

  • It's a shared database,

  • and even though it has multiple readers

  • and multiple writers at the same time,

  • it has one single truth.

  • So we can create that using blockchains.

  • We can create a decentralized database that has the same efficiency of a monopoly

  • without actually creating that central authority.

  • So all of these vendors, all sorts of companies,

  • can interact using the same database without trusting one another.

  • It means for consumers, we can have a lot more transparency.

  • As a real-world object travels along,

  • we can see its digital certificate or token move on the blockchain,

  • adding value as it goes.

  • This is a whole new world in terms of our visibility.

  • So I've talked about how blockchains can lower our uncertainties about identity

  • and how they change what we mean about transparency

  • in long distances and complex trades, like in a supply chain.

  • The last uncertainty that we often face

  • is one of the most open-ended, and it's reneging.

  • What if you don't send me the smartphone?

  • Can I get my money back?

  • Blockchains allow us to write code,

  • binding contracts,

  • between individuals

  • and then guarantee that those contracts will bear out

  • without a third party enforcer.

  • So if we look at the smartphone example, you could think about escrow.

  • You are financing that phone,

  • but you don't need to release the funds

  • until you can verify that all the conditions have been met.

  • You got the phone.

  • I think this is one of the most exciting ways

  • that blockchains lower our uncertainties,

  • because it means to some degree

  • we can collapse institutions and their enforcement.

  • It means a lot of human economic activity

  • can get collateralized and automated,

  • and push a lot of human intervention to the edges,

  • the places where information moves from the real world to the blockchain.

  • I think what would probably floor Douglass North

  • about this use of technology

  • is the fact that the very thing that makes it work,

  • the very thing that keeps the blockchain secure and verified,

  • is our mutual distrust.

  • So rather than all of our uncertainties

  • slowing us down

  • and requiring institutions

  • like banks, our governments, our corporations,

  • we can actually harness all of that collective uncertainty

  • and use it to collaborate and exchange more and faster and more open.

  • Now, I don't want you to get the impression

  • that the blockchain is the solution to everything,

  • even though the media has said that it's going to end world poverty,

  • it's also going to solve the counterfeit drug problem

  • and potentially save the rainforest.

  • The truth is, this technology is in its infancy,

  • and we're going to need to see a lot of experiments take place

  • and probably fail

  • before we truly understand all of the use cases

  • for our economy.

  • But there are tons of people working on this,

  • from financial institutions

  • to technology companies, start-ups and universities.

  • And one of the reasons is that it's not just an economic evolution.

  • It's also an innovation in computer science.

  • Blockchains give us the technological capability

  • of creating a record of human exchange,

  • of exchange of currency,

  • of all kinds of digital and physical assets,

  • even of our own personal attributes,

  • in a totally new way.

  • So in some ways,

  • they become a technological institution

  • that has a lot of the benefits

  • of the traditional institutions we're used to using in society,

  • but it does this in a decentralized way.

  • It does this by converting a lot of our uncertainties

  • into certainties.

  • So I think we need to start preparing ourselves,

  • because we are about to face a world

  • where distributed, autonomous institutions

  • have quite a significant role.

  • Thank you.

  • (Applause)

  • Bruno Giussani: Thank you, Bettina.

  • I think I understood that it's coming,

  • it offers a lot of potential,

  • and it's complex.

  • What is your estimate for the rate of adoption?

  • Bettina Warburg: I think that's a really good question.

  • My lab is pretty much focused

  • on going the enterprise and government route first,

  • because in reality, blockchain is a complex technology.