Blockchain Technology Explained (2 Hour Course)

the blockchain is a term that has come to mean many things to many people for developers it is a set of protocols and encryption technologies for securely storing data on a distributed network for Business and Finance it is a distributed ledger and the technology underlying the explosion of new digital currencies for technologists it is the driving force behind the next generation of the Internet for others it is a tool for radically reshaping society and economy taking us into a more decentralized world whichever way you look at it blockchain has become a term that captures the imagination and fascinates many as the implications of such technology are truly profound for the first time in human history people anywhere can trust each other and transact with in large peer-to-peer networks without centralized management trust is established not by centralized institutions but by protocols cryptography and computer code this greatly strengthens our capacity for collaboration and cooperation between organisations and individuals within peer networks enabling us to potentially form global networks of collaboration without centralized formal institutions unprecedented but hugely relevant in an age of globalization and a new set of 21st century challenges that require mass collaboration Chane is a complex technological economic and social phenomenon it calls into question what might have seemed to be established parameters of the modern world like currency economics trust value and exchange to make sense of this one needs to understand it in a holistic context all the way from its technicalities to it's aspirational potential this course is designed to do exactly that by giving a 360-degree overview to the different dimensions of the technology its potential application within various industries and its far-reaching implications for society and economy in the first section of the course we give an overview to the blockchain both on a technical and non-technical level we also discuss the importance of the blockchain within the context of the emerging next-generation Internet in the second section we talk about the blockchain as a so-called trust machine and how it enables transparency and collaboration we will look at distributed ledger technology talking about smart contracts etherium and decentralized applications in the third section we introduce you to the workings of token economies illustrating how the blockchain and distributed Ledger's can work to build vibrant ecosystems through the use of tokens to incentivize behavior section of the course we will be looking at specific applications of the blockchain to economy society technology and environment looking at both existing practical applications and potential future applications the blockchain is a so-called emerging technology that is currently experiencing very rapid evolution within the space of just two or three years it has already gone through changes in its technical implementation and our understanding of what it is and can be as such our aim is to future-proof this course by not dwelling excessively on existing technical implementations but presenting a more conceptual understanding of the blockchain within the broader process of change of the emerging next-generation Internet is much more than a technology it is also a culture and community that is passionate about creating a more equitable world through decentralization it is a movement to disrupt the disruptors to redesign the Internet and in so doing shake up existing centralized incumbents throughout the course we will introduce you to this culture and its aspirations this course is non technical in nature it is an introductory course and thus all terms will be explained it should be accessible to anyone with a basic understanding of web technologies and economics in this video we're going to give a high-level overview looking at the primary dimensions of this technology that we call the blockchain will first talk about the underlining technology then the distributed edges that this technology supports then the token economies that can be built on top of that ledger system will only touch on these topics here to get an overview before going into them in more detail in future videos on its most basic level the blockchain is a new class of information technology that combines cryptography with distribute computing both of which existed for a number of decades it was the genius of Satoshi Nakamoto to combine them in new ways to create a model where a network of computers collaborate towards maintaining a shared and secure database as such we can say the blockchain as the technology is simply a distributed secure database this database consists of a string of blocks each one a record of data that has been encrypted and given a unique identifier called the hash mining computers on the network validate transactions add them to the block they're building and then broadcast the completed block to other nodes so that all have a copy of the database because there is no centralized component to verify the alterations to the database the blockchain depends upon a distributed consensus algorithm in order to make an entry onto the blockchain database all the computers have to agree about his state so that no one computer can make an alteration without the consensus of others once completed a block goes into the blockchain as a permanent record each time a block gets completed a new one is generated there is a countless number of such blocks in the blockchain all connected to each other by links in a chain in proper linear chronological order the blockchain was designed so that transactions are mutable meaning they cannot be deleted each block contains a hash value that is dependent upon the hash of the previous block so they're all linked together meaning if one is changed then all the other blocks linked to it going forwards will be altered this works to make the data entered tamper proof what we've described here is the workings of the first generation of block chains which function largely simply as databases but the technology is currently evolving to become much more than this as the second generation already provides the capacity to execute any computer code on the blockchain the system is evolving to become a globally distributed tile computing infrastructure and as we'll discuss in a future video it remains very much a work in progress when seen from this perspective blockchain technology works to create a permanent and secure database this makes blockchain suitable for the storage of a record or transaction that involves value or in some way it needs to be a secure and trusted source of information these secure distributed records are called distributed Ledger's a distributed ledger is a consensus of replicated shared and synchronized digital data geographically dispersed across multiple sites countries or institutions without centralized administration or centralized data storage being maintained instead by a distributed network of computers such Ledger's can be used for any form of asset registry such as inventory or monetary transactions this might include the recording of hard assets such as physical property cars homes etc or intangible assets such as currencies patents votes identity healthcare data or any other form of valuable information this distributed ledger technology enables us to replace a multiplicity of private databases within each organization with one shared database that is trusted and accessible by all parties involved in this respect the blockchain enables trust between parties that may otherwise not trust each other the results greatly strengthen our capacity for collaboration between organizations or between individuals peer to peer without dependency on third parties centralized institutions likewise their results in transparency and many other efficiencies this is of major significance as we currently have many centralized organizations that may be internally optimized but the inter organizational space in between them is really inefficient with huge amounts of border friction redundancy arbitrage and resources wasted on competition by enabling trusted into organizational networks these Ledger's enable the formation of organization and collaboration where previously there was none such as across whole supply chains or for different healthcare providers to collaborate around the patient's needs or for different transport providers to collaborate in delivering and integrated logistics network likewise second-generation blockchains offer the possibility to automate the workings of these networks through what we call smart contracts smart contracts are computer code that is stored inside a blockchain which encode contractual agreements these smart contracts are self executing contracts with the terms of the agreement or operation directly written into lines of code which are stored and executed on the blockchain like normal computer programs these containers hold algorithms that take an input of data and depending on the value of the input trigger certain events for example this might be a financial contract that takes as the input the amounts of money in a person's accounts if it is above a certain level then it increases the interest rate that they earn on their deposits such smart contracts can be used for automating and many basic operations on the network once again working to remove the need for intermediary third party institutions as smart contracts can be trusted a tamper-proof and executes automatically much of the current discussion surrounding blockchain remains at the level of the technology and the possibilities of distributed edges as he shared trusted database enabling the collaboration between organizations with the resulting disintermediation of centralized institutions and market exchanges however its implications go far beyond this as the blockchain concepts is more than just a database or ledger it is a new organizing paradigm for the discovery validation and transfer of all discrete units of value and the developments of distributed organizations via token market systems a token is a quantified unit of value that is recorded on the blockchain this value may be of any kinds it may be likes on social media it might be a currency it might be the integrity of an ecosystem or might be an electrical units token networks consists of a network of independent nodes that act autonomously but through incentive structures and the signaling system of the market self-organized to create emergent coordination and thus a distributed management system for example we might create a clean air token where anyone who provides a service that contra buttes to the maintenance and provision of clean air can earn tokens for example by planting a tree while those who pollutes by say operating a combustion engine have to pay in air tokens thus instead of having a centralized Authority and a Clean Air Act's we have a token market that works to create signals that align people's incentives with maintaining and growing the underlining resource likewise the same model could be applied to the management of technology infrastructure as an example we could think of traffic control we currently have traffic control systems in cities whose operations are monitored by centralized control centers but in a world of autonomous vehicles and the blockchain cars could signal to each other its appear bidding tokens to see which gets priority in such a way the system has dynamically allocated resources and self-organized via distributed token networks in short blockchain is not just an information technology but also an institutional technology in that it enables us to design incentive structures in the form of token economies and in such a way converts centralized organizations into distributed markets via token economics this is where things start to get quite complex as you move into the realm of designing economies and incentive systems for coordinating human activity in a decentralized fashion something that could potentially enable the coordination of human activity at a much larger scale than has been possible before the great design innovation of the blockchain is really its capacity to coordinate a network of autonomous nodes towards maintaining a shared infrastructure and this is done not just through innovations in information technology but also through the design of incentive systems which has traditionally been the domain of economics through adding a layer of trust and value exchange to the Internet the blockchain merges our newly developed information networks with the institutional structures that sit on top of them in so doing it greatly strengthens the capacity of those networks as a new mode for organizing society and economy by merging economics and technology it enables us to redesign institutional structures and ultimately reconceptualize how we organize virtually every aspect of society economy and even technology infrastructure based on networks of autonomous nodes that are incentivized to collaborate of course it does not do this alone such claims can only be realized in combination with other technologies and broader processes of change as such the blockchain has to be understood in the context of a broader set of technological transformations taking place with the current evolution of the internet most notably much what the blockchain promises will only be possible given parallel developments in the Internet of Things data fication and advanced analytics all of which are combining to form the next generation of Internet of which the blockchain will be a critical infrastructure in this video we're going to talk about the basics of the blockchain as the technology on its most basic level the blockchain can be understood as a new kind of database at least this was its original design what's different about this database is that it's distributed digital databases have been around for a while now but until recently they've been designed to centralize information on one computer or within one organization the blockchain though uses a distributed network of computers to maintain a shared database the blockchain is then a set of protocols and encryption methods than enable a network of computers to work together in securely recording data within a shared open database this database consists of a series of encrypted blocks that contain the data the blockchain is a continuously growing list of these blocks of data which are linked and secured using cryptography this makes it a trusted database with this trust being maintained by open secure computer code an encryption instead of any single institution the database stores information in blocks that are linked together through hash values with entries to this database being made by computers that all have a copy of the database and all must come to consensus about its state before they can update it so these are three central concepts to understanding the system's workings that of blocks and hashing mining and proof of work and distributed consensus we'll go over each of these separately in terms of its structure a block chain may be considered as a series of blocks of data that are securely chained together new blocks are formed as participants create new data or wish to update existing data these blocks are encrypted and given a hash value that represents a unique identifier of the data within that block this hashing works by a standard algorithm being run over the blocks data to compress it into a code which is called the hash which is unique to that documents no matter how large the file or what information is contained it is compressed into a 64 character secure hash this hash value can be recalculated from the underlining file confirming that the original contents have not changed but the reverse is not possible given just the hash value you cannot recreate the blocks data contained within it which is encrypted all blocks of data which are formed after the first block are securely chained to the previous one this means that the hash value of the next block in the chain is dependent upon the previous one thus once recorded the data in any given block cannot be altered afterwards without the alteration of all subsequent blocks as well as this hash pointer linking to the previous block each block typically contains as well a timestamp so that we know what happened and when it happens this hashing and linking of blocks makes them inherently resistant to the modification of their data making them immutable records you can only write data to the database and once it's there it's very hard to change almost impossible thus data is stored on the blockchain is generally considered incorruptible blockchain security methods include the use of what we call public key cryptography a public key which is a long random looking string of numbers is an address on the blockchain value tokens sent across the network are recorded as belonging to that address a private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the corresponding data a public key is associated with the private key so that anyone can make an encrypted transaction to the public key address but that encrypted message can only be deciphered with the private key that corresponds to that public key in such a way effective security only requires keeping the private key privates the public key can be openly distributed without compromising security for example on the Bitcoin blockchain to receive funds from another person you use a piece of software called the wallets which creates a public key that you give to someone else for them to send bitcoins to that address with your corresponding private key you can then access that address with those bitcoins on it the blockchain is a distributed system this means there is no centralized organization to maintain and verify the entries on the database this database is instead maintained by a large number of computers that are incentivized to provide computing resources by earning some form of tokens in exchange but these computer nodes in the network themselves cannot be trusted individually the city's required that the system provide a mechanism for creating consensus between scattered or distributed parties that do not need to trust each other but just need to trust the mechanism by which their consensus has been arrived down any computer that is connected to the blockchain network and using a client can perform the task of validating and relaying transactions each of these so-called minor computers gets a copy of the blockchain which gets downloaded automatically upon joining the network when new entries into the database are made these changes are automatically broadcast across the network mining nodes validate transactions add them to the block their building and then broadcast the state of the complete block to other nodes on the network in order to randomize the processing of blocks across the nodes and to avoid certain service abuses block chains use various time stamping schemas such as proof of work proof of work describes a system that requires a certain amount of resources or effort to complete an activity typically this resource is computing time as in the case of the Bitcoin blockchain this is realized on some form of challenge such that no one actor on the network is able to solve this challenge consistently more than everyone else on the network miners compete to add the next block in the chain by racing to solve a very difficult cryptographic puzzle the first to solve the puzzle wins the lottery as a reward for his or her efforts the miner receives the small amounts of newly minted bitcoins and a small transaction fee it can sense this algorithm like bitcoins proof-of-work functions to ensure that the next block in the blockchain is the one and only version of the truth and it keeps powerful adversaries from derating the system block chains are trying to create a secure trusted shared database and do this through encryption and hashing proof of work and network consensus the hashing and linking of blocks makes it difficult to go back and change a previous block once it's entered but this alone would not be suffice to ensure that the data is truly tamper proof so then the proof of work system intentionally makes it computationally more difficult to alter the database thus making it extremely difficult to alter all the blocks on top of this it places that distributed consensus mechanism so that even if someone did manage to do this their record would not match that of others and thus would not be accepted as a valid record so to successfully tamper with the block chain you would need to alter all the blocks on the chain redo the proof of work for each block and take control of more than 50% of the peer-to-peer network only then would your altar block become accepted by everyone else on a block chain of almost any size this would be almost impossible to do indeed the Bitcoin blockchain is very good proof of this given that it now secures hundreds of billions of dollars using this method without the network having yet been compromised at the end of the day what this technology enables is a database that is secured with automatic trusts that is enabled by open source code and encryption the data is tamper proof once information is put into the database it cannot be altered afterwards it is a shared database as many people across a network have a copy which is continuously being updated so that all have a single source of truth likewise it is transparent meaning that everyone can see all of the transactions and alterations made to the database if needed data quality and the resilience of the network is maintained by massive database replication across many different nodes on the network no centralized official copy exists and no user is trusted more than any other having started out life is simply a mechanism to enable Bitcoin it has become increasingly recognized that this system is secure enough to work as a ledger for the recording and exchange of any value what we now call a distribution there germ over the past years blockchain evolving fast from the original Bitcoin protocol to the second generation aetherium platform to today to where were in the process of building the third generation of block chains in this evolution we can see how the technology is evolving from its original form as essentially just a database to becoming a fully fledged globally distributed cloud computer in this video we're going to trace the past present and future of blockchain technology the first blockchain was conceptualized in 2008 by an anonymous person or group known as Toshi Nakamoto the concepts and technicalities are described in an accessible white paper termed Bitcoin a peer-to-peer electronic cash system these ideas were then first implemented in 2009 as a core component supporting Bitcoin where it served as the public ledger for all transactions the invention of the blockchain for Bitcoin made it the first digital currency to solve the double spending problem without the need of a trusted Authority or central server it was only later that we came to really separate the concept of the blockchain from that of its specific implementation as a currency in Bitcoin we came to see that the underlining technology had a more general application beyond digital currencies in its capacity to function as a distributed ledger tracking and recording the exchange of any forms of value the Bitcoin design has been the inspiration for other applications and has played an important role as a relatively large scale proof-of-concept within just a few years the second generation of blockchains emerged designed as a network on which developers could build applications essentially the beginning of its evolution into a distributed virtual computer this was made technically possible by the development of the etherium platform aetherium is an open-source public blockchain based distributed computer platform featuring smart contract functionality it provided a decentralized turing-complete virtual machine which can execute computer programs using a global network of nodes aetherium was initially described in a white paper by the italic Bertrand in late 2013 with a goal of building distributed applications the system went live almost two years later and has been very successful attracting a large and dedicated community of developers supporters and enterprises the important contribution of etherium as the second generation of blockchains is that it worked to extend the capacity of the technology from primarily being a database supporting Bitcoin to becoming more of a general platform for running decentralized applications and smart contracts both of which we'll discuss in coming videos as of 2018 aetherium is the largest and most popular platform for building distributors applications on many different types of applications have been built an app from social networks to identity systems to prediction markets and many types of financial applications aetherium has been a major step board and with its advent it has become ever more apparent where we're heading with the technology which is development of a global distributed computer a massive globally distributed cloud computing platform on which we can run any application at the scale and speed of today's major websites with the assurance that it has the security resilience and trustworthiness of today's block chains however the existing solutions that we have are like extremely inefficient Computers the existing blockchain infrastructure is like a really bad computer that is not able to do much except proof of concepts getting to the next level remains still a huge challenge that involves some original and difficult computer science game theory and mathematical challenges scalability remains at the hearts of the current stage in the journey that were on and this is what the third generation of blockchain technologies are trying to solve the mining required to support the Bitcoin network currently consumes more energy than many small nations being equal to that of Denmark and costing over 1.5 billion dollars a year in the lectures deem a lot of this is being fueled by cheap but dirty coal energy in China where almost 60% of the mining is currently being done this high energy consumption is simply not scalable to mass adoption etherium and Bitcoin use a combination of technical tricks and incentives to ensure that they accurately record who owns what without a centralized Authority the problem is it's difficult to preserve this balance was also growing the number of users currently blockchain requires global consensus on the order an outcome of all transfers in aetherium all smart contracts are stored publicly on every node of the blockchain which has its trade-offs the downside is that performance issues arise in that every node is calculating all the smart contracts in real time which results in those speeds this is clearly a cumbersome task especially since the total number of transactions is increasing approximately every 10 to 12 seconds with each new block added the volume of transactions is likewise an existing constraint with cryptocurrency speed is measured by TPS transaction per second the Bitcoin network theoretical maximum capacity is up to seven transactions per second while the ethereum blockchain as of 2018 can hand about 15 transactions per seconds by comparison a credit card network is capable of handling more than 20 thousand transactions per seconds equally Facebook may have about 900 thousand users on the site in any given minutes meaning that its handling about a hundred and seventy thousand requests per second another issue is that of cost the fact that it costs some small amount to run the network so as to pay the miners for maintaining the ledger what we have is okay for a limited number of large transactions such sending money but making a small transaction by purchasing a coffee could not be done by most block chains they simply can't in their existing form deal with a very large amount of micro transactions such as will be required to enable high-volume machine-to-machine exchanges it would prove too expensive to operate these kind of economies that involve many small exchanges but this is exactly what many people will want to use the blockchain for in the future in response to these constraints a third generation of blockchain networks are currently under developments many different organizations are currently working on building this next-generation blockchain infrastructure such projects include Definity Neo Geo's iota and a theorem itself they're each using different approaches to try and overcome existing constraints going into the details of how these different networks work is a bit advanced for this course so we'll just give a brief overview to two of them the Lightning Network is one such project that seeks to extend the capacities of existing block chains the main idea is that small and non significant transactions do not have to be stored on the main blockchain this is called an off chain approach because small transactions happen off of the main goal chain it works by creating small communities where in transactions can take place without each of those transactions being registered on the main blockchain a payment channel is opened between a group of people with the funds been frozen on the main blockchain those members can then transact between each other using their private key to validate the transactions this is a bit like having a tab or an IOU with the shop where you just mark down what you've exchanged so that you don't have to update the main record in the bank each time you make a purchase the record stays local between the members involved before at some time setting the finances and updating the main bank record this only requires two transactions on the main blockchain one to open the transaction channel and once closed here all other transactions happen just within the network without it being registered on the main blockchain this both reduces the workload on the main blockchain and makes it possible to run a very many very small transactions within the sub network as of the start of 2018 there is a proof-of-concept running live on the Bitcoin test net but the system will not be fully operational until later in the year as is the case with most of these projects IATA is another example where as existing block chains are sequential chains where blocks are added in a regular linear chronological order the data structure of the iota system is able to achieve high transactional throughput by having parallel operations the data structure is more like a network rather than a linear chain wherein processing and validation can take place alongside each other the other big difference is that there are no specialized minors in this network every node that uses the network functions as a minor in the i/o to network every node making a transaction also actively participates in forming the consensus that is to say everyone does the mining this means that there is no centralization of mining within the network which is what creates bottlenecks and demands lots of energy likewise with this network there are no transaction fees for validation and with iota because it is more user generated the more people that use the network the faster becomes which is the opposite of existing systems and obviously makes it very scaleable there are lots of other possible approaches to overcoming existing constraints but suffice to say the blockchain should be understood as an emerging technology whose existing implementation is like a large-scale proof-of-concept running on a very inefficient system but through lots of experimentation and iteration well hopefully in the coming years evolved into this global distributed computer as nan Lee Swan writes in her book first there was the mainframe PC personal computer paradigms and then the internet revolutionized everything mobile and social networking were the most recent paradigm the current emerging paradigm for this decade could be the connected worlds of computing relying on blockchain cryptography to understand this better in the next section we're going to talk about the blockchain in the context of the broader technological changes that are currently underway as we build the next generation of the Internet's what we call the decentralized web or web 3.0 how we understand the blockchain and where we are with it today is extremely transitory in this respect what we're talking about in this course when we talk about the blockchain is ready this emerging IT infrastructure of a distributed global cloud computer the next generation of block chains will take us a step further on that journey what we called the blockchain today is really just a very limited and often very inefficient version of this we still have many very difficult problems to solve before we'll get there possibly that end stage will look something like the blockchain of today but possibly it would look very different people will make big claims about the potential of the blockchain to revolutionize the foundations of social and economic organization but the blockchain can only have such potential as part of a broader ecosystem of technologies that are emerging as the next generation of the Internet's what may be called web 3.0 or the decentralized web today powerful technological changes are coalescing to take us into a new technology paradigm these include the rise of advanced analytics coupled with data fication and the Internet of Things the blockchain will have to work synergistically with these if it's true capacities are to be realized but to understand this next generation web we need to understand a bit about the history of the Internet going back to the early 90s web 1.0 was the first generation of the world wide web it was based primarily on the technology of HTTP which worked to link documents on different computers and make them accessible over the Internet HTML was then used to display these documents so that any connected computer with a browser could access and read a web page this first iteration of the web was all about information as it enabled us to exchange information much more efficiently and head Sagat the name information superhighway even though it was a revolution in information exchange content creators were few with the vast majority of users simply acting as consumers of contents it was really very static and lacked interactivity whereas in the web 1.0 era people were limited to pass a viewing of contents with web 2.0 websites allowed users to interact collaborates and become the creators of contents with web 2 people could not only read from the web but also write to it and thus it got the nickname the readwrite web by the early 2000s new server-side scripting technologies such as PHP enabled developers to easily build applications where people could write information to a database with that information then being dynamically updated every time they refresh the page almost all of the websites that dominate the web today are based on this server-side scripting technology it gave the social networking blogging video sharing obey YouTube Facebook and all the other large platforms the most people spend most of their internet time using the idea of web 3.0 has been around for a while but it's only very recently with the development of the blockchain that it is actually starts to become something real web 2.0 has evolved to become highly centralized around very large platforms running out of ever larger data centers creating many issues surrounding security privacy control and concentration of power in the hands of large enterprises it's only today that these issues are starting to enter into mainstream discourse web 3 is set to disrupt this whole technology paradigm as the critical change that is coming about is the word D centralizing the web the blockchain provides the protocols and cryptography for a globally distributed network of computers to collaborate on maintaining a public secure database and with a virtual machine like aetherium we can run code on this creating a new set of distributed applications these new technologies of the blockchain ipfs and the distributed web enabled us to reconfigure the internet into a distributed global computer so that we're no longer dependent upon the web platforms and data centers of web 2.0 to run the internet but now can build and run applications on this shared global computing infrastructure as might be polled of the Institute for the future noted it starts with the realization that the internet that we know today is only one possible interpretation of the original vision of an open clear to peer network independent of any centralized technology commercial entity or sovereign governments think of it as a first curved internet one that is increasingly vulnerable to abuse and even collapse to date we've largely taken the infrastructure of the internet for grants it's all of the innovation and action has been focused on the application layer that sits on top of it on web applications like social networking or e-commerce with the developments of blockchain and particularly with this third generation we're starting to innovate on the low level protocols asking not if we can build a better web application but if we can build a better internet the implications of the decentralized web are indeed radical in that it enables us to create automated services disintermediate existing incumbents and enable people to set up their own secure networks of exchange empowering them in new ways the blockchain will be a core part of web 3.0 but the next-generation internet would also see the convergence of the Internet of Things and big data analytics the ongoing fundamental process of data fication will be a key aspect to this next-generation Internet as we increase in the instrument our world's data will flow from all sources about everything data fication is the term given to our newly found ability to captures data many aspects of the world in our lives that have never been quantified before this process results in what we call big data vast amounts of unstructured data that can be mined by advanced analytical methods to gain new insight into the world around us this is important with respect to the blockchain because firstly it means we'll have a lot of sensitive data that we want to store secondly we will be quantifying accounting for and exchanging all sorts of value that we did not or could not in the past thirdly such a diversity of sources of data combined with advanced analytics which could find cross correlations and patterns within it can provide a new source to verify the data that is being inputted to the blockchain without depending on a centralized Authority for validation the next-generation internet will be much smarter whereas web 1 was dumb and web 2 was dynamic web 3 will incorporate various aspects of machine learning and cognitive computing as a service as it becomes infused into almost all applications making the web truly adaptive responsive and personalized whereas web 1 and web 2 were largely about people exchanging information in web 3 machines will come online and the internet will become something much more physical as billions of devices and actuators connected to all sorts of things from tractors to watches to factories and drones enabling them to interact and coordinate machine to machine the value of the Internet of Things IOT will not be in making one device or system smart it will be in enabling seamless processes across systems this will require open networks that can communicate and coordinate components on demand across domains organizations and systems the envision of IOT is not to have our lives populated with thousands of smart things but instead to change our world from discrete things to service processes to do this these technologies will have to communicate securely it appear dynamically allocating resources and this will require some kind of distributed secure infrastructure like the blockchain and likewise micro economies this ties in with the broader process of change which comes about as we move into a services economy called services ation which is the shift from products and the ownership of things to the access of services on demands for example instead of only a car you simply have access to a car sharing service this economy of temporary usage VA services requires the formation of frictionless markets and automated exchanges that the blockchain is well-suited to support as we'll discuss in a future video these components of the next generation internet the blockchain the Internet of Things and advanced analytics are each of them very powerful technologies that will have a profound effect on society they will take us much further into this new worlds of the information age as power shifts in a radical way from people in hierarchical institutions to automated networks and the algorithms that coordinate them in the coming decades more and more of our systems of organization will move to the Internet and it will become vastly more complex than today in web-one and web 2 we develop the internet from small to large through a client-server architecture the work decentralized the web around large data centers but the internet after data fication and all these IOT devices have come online will not be large it will be more like infinite you can get from small to large by centralizing but you get from large to infinity through distributing and that's what the blockchain can do for this next generation Internet technologies are just tools that enable us to do things the interesting part of the blockchain is really what it enables in terms of new forms of distributed organization as one commentator noted the blockchain is an institutional technology not an information technology there's an enormous difference between the two institutional revolutions are things that don't happen very often blockchain technology enables new forms of network distributes to organizations something that runs very much contrary to our existing organizational paradigm and that's what makes it somewhat difficult for us to understand the organizational model of the Industrial Age that we inherit today was one of centralization in order to achieve economies of scale through mass production thus reducing unit cost and providing for a mass society the technologies of the Industrial Age selectively favored centralization of production within closed hierarchical organizations manufacturing is in centralized factories transport systems are centralized around transport hubs education within schools and universities entertainment centralized within mass media organizations and governance centralized within state-run organizations and so on the information revolution is in the process of taking us into a new world of distributed networks as the organizational paradigm of the Information Age the combination of telecommunications networks and computerized coordination enables us to replace centralized management with enclosed hierarchies with open networks as the underlining technology matures were able to convert more and more systems that were previously closed and centralized and have them managed through automated networks and the blockchain is just one more stage in this process we saw this with the rise of the online platforms like eBay uber or Alibaba social networks blogging etc that built massive networks of uses exchanging goods and services but these platforms were still dependent upon the centralized organization to manage the shared database for the computing infrastructure for the algorithms for financial transactions and to enable trust and authentication in the network the decentralized web takes these platforms a step further by offering a shared open and secure database that can be trusted by all parties and a set of protocols for the secure exchange of value between organizations and individuals peer-to-peer the web platforms are open networks this means they do not just optimize within a given organization but can enable coordination across whole industries indeed this is why and how they're quickly supplanting the closed organizations what centralized organizations enabled was trust cooperation and coordination within organizations but what the blockchain enables is trust coordination and cooperation between organizations and between individuals if we look at how our society and economy is currently organized we'll see many closed organizations that are internally optimized but when we look at the inter organizational space it's extremely inefficient along many dimensions if we look at the way businesses coordinate along a supply chain or the way nation-states interoperate in the global political system we will see there is huge redundancy and friction caused by discontinuities a classical example of this is the border system between nation-states and the bureaucratic procedures for obtaining a visa for moving from one nation to another which creates a massive amount of friction at the inter organizational space and it's because those organizations don't have an effective into organizational infrastructure for collaboration and coordination this greatly reduces the overall effectiveness of these systems and the delivered outcome for the end user when we look internal to these organizations they look like efficient well-oiled machines but when we look between them the whole space is very inefficient the whole space is very ineffective at delivering overall outcomes and this is part of the significance of the blockchain because it provides a shared trusted database between organizations it has the potential to switch to dynamics within economy and society from competition between close centralized organizations to collaboration between organizations and greatly strengthened working capacities across organizational boundaries the results of this would be much more efficient overall societal and economic outcomes indeed we can note that achieving coordination across organizations could result in quantum leaps in delivering outcomes and our capacity to tackle major global challenges of today such as environmental degradation where weak existing into organizational institutional infrastructure has gained little traction in this respects the blockchain has the potential to give us not just incremental improvements but an order of magnitude greater capacities within society through collaboration within whole ecosystems it is precisely this coordination across organizations industries nations and people that is required to provide the resources needed to tackle some of today's most complex challenges and it's precisely this that is significantly absent within existing institutional structures because of the centralizing forces prevalent within the industrial age we live in societies that are operated by many different closed organizations many different companies all producing cars and competing for market share many different governments that all focus on the interests of their citizens over those of others many different health care providers transport providers at cetera the results of this is though a huge amount of inefficiency in redundancy when taken as a whole many different companies all recreating the wheel within their own organizations and expending huge amounts of time and energy on trying to get ahead of their peers we assume that this is the normal state of operations that it's just human nature in some way but in fact it's really just a function of the institutional structures we have built over the past centuries as game theory will tell us people respond to the incentives and the socio-economic forces acting on them in the absence of cooperative structures competition is often the optimal strategy for individuals and organizations but once there is the institutional structures to enable trust and coordination between members cooperation can become a much more viable strategy for the agents involved because the blockchain enables this shared and trusted database that doesn't belong to any single organization it makes it greatly more possible and viable for organizations to collaborate on a single solution or single source and achieve much better results for each organization and the economy as a whole as an example of this cooperation across different closed organizations we could think about the design and construction of a building there may be many different companies involved in this process or creating their own designs and diagrams for the building with each having to continuously contact each other to access exchange and cross-reference all this information given a single shared database they could though or collaborate on a single design of the building making for a greatly more efficient overall process while at the same time each organization would benefit and thus the overall results are more efficient likewise the same is true for identity we currently have many different copies of our identity spread across many different organizations governments social networks employees etc but each of these only has a partial understanding of us currently we're recreating the will for each organization while data and reputation does not move well between them instead a single identity could be created on the blockchain that belongs to the individual with each organization then contributing to this data as they work together to create a more complete record of identity and reputation in so doing we've moved from all those frictions between these closed organizations to collaboration and synergies between them creating something that is greater than any of the parts they had before the same for a supply chain instead of each participant holding their own documents and records during each stage in supply chain a single record for the item could be created on the blockchain with each organization then contributing their information to it to create a single source of truth that is accessible to always need it while at the same time being more secure than having separate records in each centralized database the end results of this new institutional technology is a much greater capacity for inter organizational collaboration and powerful ecosystems that are greater than the sum of their parts given that all our current systems of organization that are centralized could be decentralized in this fashion using blockchain technology we can see how it really could enable every organization of society and economy organizations within society rarely operate in isolation they function as parts of ecosystems and the value for society is not created by anyone but instead by the flow of value across the ecosystem it's not Apple that delivers our iPhones it's a massive global supply chain of hundreds of different organizations collaborating whereas our previous institutional structures optimized for individual organizations the blockchain optimizes for the value within the whole ecosystem and thus potentially a much greater value for society as a whole the information revolution is changing the world from disconnected to connected the genie of hyper-connectivity is out of the bottle and connectivity along virtually all dimensions is proliferating daily as a consequence our systems of organization will change from being based around fixed structures and boundaries to being coordinated via connections instead of the controller components through fixed higher structures organization would emerge out the interaction and the exchange of value along those interactions enabling that will require a massive build-out of secure frictionless information networks this global cloud computer of blockchain to understand better how this shared database that enables inter organizational collaboration works we'll talk about distributed ledger technology as we've been talking about the blockchain is like another layer to the Internet that enables secure trusted records and transactions between people who may not otherwise trust each other the trust is in the technology computer code in mathematics rather than people and centralized institutions in this respect people sometimes talk about the blockchain as a trust machine in its capacity to enable a network where Trust is created by design it's built into the system automatically because the blockchain creates a trusted database it can function as a record of value storage in exchange these records of value and transactions may be called Ledger's since ancient times Ledger's have formed the backbone to our economies to record contracts and payments for the buying and selling of goods or the exchange of assets like property these ledges started out as records in stone clay tablets and papyrus and later paper as they evolved into the ledger books supporting modern accounting these Ledger's enabled the formation of currencies trade lending and the evolution of banking over the last couple of decades though these records have moved into the digital realm as whole rooms of people working to maintain accounts have been replaced by digital computers which have made possible the complex global economic system we live in today this record-keeping system is once again being revolutionized as these Ledger's are shifting to a global network of computers which is cryptographically secure fast and decentralized what we call distributed ledger or distributed ledger technology DLT for shorts a distributed ledger can be described as a ledger of any transactions or records supported by a decentralized network from across different locations and people eliminating the need of a centralized Authority all the information on ledger is securely and accurately stored using cryptography and can be accessed using keys and cryptographic signatures any changes or additions made to ledger are reflected and copied to all participants in a matter of seconds or minutes the participants at each node of the network can access the recording shared across the network and can own an identical copy of it at the same time these networks make constantly available for examination a full audit trail of the information history which can be traced back to the moment when a piece of information was created and every participant in the network can get simultaneous access to a common few of the information these Ledger's can be used for the recording tracking monitoring and transacting of all forms of assets all asset registries inventories and exchanges including every area of economics finance and currencies physical assets such as cars and houses and intangible assets such as votes ideas health data reputation etc in this case the blockchain can serve as a public record repository for whole societies including the registration of all documents events identity and assets in this system all property could become smart property this is the notion of encoding every assets of the blockchain with the unique identifier such that the asset can be tracked controlled and exchanged on the blockchain for example distributed edges could be used to replace or supplement all existing intellectual property management systems as they can register the exact content of any digital asset such as a file image health record or code to the ledger and give it a unique identifier in the form of the hash values that we discussed earlier there are two main classes of distributed ledger public Ledger's and permission Ledger's the former type is maintained by public nodes and is accessible to anyone Bitcoin is a well-known example of a public blockchain where anyone can read the chain anyone can make legitimate changes and anyone can write a new block into the chain ripple is an example of a permission blockchain where the creators of the network determine who may act as transaction validators on that network distributed ledger platforms in each category have their own unique features some are designed for specific types of application and others for more general use for instance in the quarter DLC platform which is a consortium of more than 70 of the world's largest financial institutions the sharing of individual ledger data is limited to parties with the legitimate need to know which is not the case for public platforms DLT technology can have a powerful disintermediation effect as data can be put directly onto the shared database by the nodes in the network there is no longer need for a centralized organization to provide this service a developer can create a DLT on a blockchain and use public/private key cryptography to give people secure storage space on that ledger allowing people to own their own data which creates a very different scenario to the world we live in today currently centralized organizations like Google and Facebook suck up all of the little bits of data we need behind us and use it to serve us customized advertisements from which they create their revenue this results in a huge power imbalance within society where centralized organizations armed with teams of mathematicians and computer scientists use mountains of data to influence people's behavior towards purchasing with products of their appetizers data that is a very valuable asset and the information society and of critical importance to tackling major societal challenges is being used against us in many ways creating a stumbling the societies are becoming increasingly aware of in a world of distributed edges people have their own little databases on the blockchain and can own their own data giving it to organizations to use when and where needed fundamentally reversing the current dynamic and truly empowering individuals your health records reside in your health ledger and different health care providers can access and update that single record but only with the permission of the end-user as the data remains theirs and they choose who can have access to it likewise when people own their own data on a distributed their germ they can transact directly its appear as is the case with Bitcoin with the existing traditional system when you pay for a ride in a taxi with a credit card it looks like you're paying the driver directly when in fact what is happening is that a database record belonging to my bank is being debited and a database belonged to the bank of the company that the driver works for is being credited in this respect we can note that in our society value and data do not really belong to individuals all the time they're being held behind the walls of some centralized organization and we are dependent upon them to secure and validate it's creating huge power imbalances within society in contrast with the Bitcoin blockchain the individual has a ledger record and a secure key with which they can access their records when they send money they send it directly to the other person's record it simply gets debited from your record and added to theirs directly peer-to-peer no centralized organization holds that data distributed ledger technology can greatly improve transparency reduce corruption and improve security while reducing overhead costs of auditing accounting and legal issues currently records of value are hidden within the databases of centralized organizations where they're largely in excess for their many possible uses within other systems they are open to manipulation by members within those organizations which breeds corruption and because of that there has to be all sorts of regulation and legal requirements that create many overhead costs and it's this they are centralized points of failure for critical data sources as large concentrations of valued data proved very attractive for malicious actors likewise it is inefficient to be constantly updating and synchronizing data across many centralized databases by putting the information on a shared ledger it can be easily made accessible and visible on demand as needed because there is tamper proof we can remove many existing points of corruption and the associated need for regulation likewise it is made secure by distributed networks without a single point of failure and continuously synchronized across all nodes to create a single source of truth for all users one of the key technology innovations of second-generation blockchains has been the development of what are called smart contracts smart contracts are computer code that is stored inside of a blockchain which encode contractual agreements smart contracts are self executing with the terms of the agreement or operation directly written in two lines of code stored and executed on the blockchain computer a contract in the traditional sense is a binding agreement between two or more parties to do or not do something each party must trust the other parties to fill their side of the obligation they are a written or spoken agreement that is intended to be enforced by law a multiplicity of different contractual agreements form the institutional foundations to our modern society and economy which have evolved since ancient times if we think about something as seemingly simple as a cafe serving a cup of coffee we will see that this process is really enabled by a massive amount of contractual agreements between different parties that enable them to cooperate in delivering that outcome contracts between employees and employer of the coffee shop contracts that provide workers with health coverage contracts that ensure the coffee-shop contracts between suppliers along the supply chain contracts between property owner and tenant etc our economies are powered by a massively complex set of contractual agreements that are currently created and enforced by centralized organizations like insurance companies and banks which themselves are supported by the ultimate centralized authority in the system the nation-states institutions are societies and economies almost completely dependent upon third party organizations to maintain and enforce those contractual agreements smart contracts feature these same kind of agreements to act or not act but they removed the need for the trusted third party between members involved in the contracts this is because a smart contract is both defined by the computer code and executed or enforced by the code itself automatically without discretion at such blockchains as smart contract technology can remove the reliance on centralized systems and enable people to create their own contractual agreements that can be automatically enforced and executed by the computer code these smart contracts are decentralized in that they do not subsist on a single centralized server but are distributed and self executing across a network of nodes this means that untrusted parties can transact with each other in a much more fluid fashion without depending upon third parties to initiate and maintain the rules of the transaction likewise smart contracts enable autonomy between members meaning that after it is launched and running a contract in its initiating agents need not be in further contacts one illustration of this concept is offending machine unlike a person a vending machine operates algorithmically you provide the source input of money and product selection which the machine takes as input and simply execute on a rule automatically to produce the pre-specified output the same instruction set will be followed every time in every case when you deposit money and make a selection the item is released there is no possibility of the machine not wanting to or not feeling like complying with the contract or only partially complying as long as it's functional there's another example we can think about a situation where four people pool their money to make a joint investment that will return interests of them a smart contract could be programmed on the blockchain to take any interest that is created divided into four and sent each amount to the corresponding wallets of the different stakeholders a smart contract is then ready just an Accounts on the blockchain that is controlled by code instead of by user because it's on the blockchain it is immutable that means the code cannot be changed and thus all participants in this investment can be assured that they will get their fair share automatically the code dictates how the process will take place and no individual has the power to change it no individual no organization no government can censor alter or manipulate the contracts in this respect it's often said that code is law in the sense that the code will execute no matter what of course computer code has been for a while now acting as the law for example as services have gone online we're increasingly faced with web forms that strictly control what inputs are allowed if you want to buy an item on iTunes USA then you'll have to have a credit card with the US address the system will also enforce this by not letting you complete the purchase with an incorrect address as another example a logistics company could use smart contracts to execute code that says if I receive cash on delivery at this location then trigger a supplier request to stock a new item since the existing item was just delivered a combination of smart contracts with blockchain encoded property gives us the idea of smart property smart property is simply property whose ownership is controlled via blockchain encoded contractual agreements for example a pre-established smart contract could automatically transfer the ownership of a vehicle title from the holding company to the individual owner when all the loan installments have been cleared the key idea of smart property is controlling ownership and access to an asset by having it registered as a digital asset on the ledger and connecting that to a smart contract in some cases physical world hard assets could quite literally be controlled via the blockchain one example of such an IOT blockchain system is SLOC it a door lock that is connected to a smart contract on the blockchain which controls when and who can open the lock this enables anyone to rent sell or share their property without need of a middleman with such innovations parking spots can be subletted on-demand Airbnb accommodation could become fully automated or someone with twenty bikes in Bangladesh could rent them out with smart contract locks the bike could shut itself off if it is not been paid for or if it's stolen then there could be an automatic deposit system or likewise if the person wanted they could simply pay a certain price to purchase the bike at any time like all algorithms smart contracts require input values and only act if certain predefined conditions are met when a particular value is reached the smart contract changes its state and executes that programmatically predefined algorithms automatically triggering an event on the blockchain thus the workings of the overall contracts can only be as good as the inputted data if both data is imported to the system then false results will be outputted blockchains cannot access data outside of their network thus requires some form of trusted data feed as input to the system what may be called an Oracle an Oracle is a data feed provided by an external service and designed for use in smart contracts on the blockchain Oracle's provide external data and trigger smart contract executions when predefined conditions are met such conditions could be any data like weather temperature the quantity of items in stock the completion of a successful payments changes in the prices on the stock market etc an Oracle in the context of block chains and smart contracts is then an agent the finds and verifies real-world occurrences and provides this information to a blockchain to be used by smart contracts Oracle's are third-party services which are not part of the blockchain consensus mechanism thus whether it be a news feed website or a sensor the source of information needs to be trustworthy as an example we could think of an online betting platform based on the blockchain that uses smart contracts to automatically execute payouts to people who have placed bets on sports matches the smart contract system would then have to be connected to a trusted Oracle to provide it with the score of the matches as of present this Oracle would likely have to be associated with some trusted third party centralized organization like a sports channel or Bloomberg for stock prices however in the future through data fication an IOT pervasive sensing this might also be automated given the use of advanced analytics using automated Oracle's that draw data from a myriad of sources and complex analytics to find cross correlations that provide a statistical assurance that for example a given event occurred or did not occur the advantages of smart contracts are numerous firstly they are automatic which could remove the time and costs associated with managing and enforcing them making them more efficient as they can be cheaper and faster to run through this form of automation a much greater amount of exchange could take place that otherwise would have never happens in such a way we can see how distributive edges and smart contracts are key parts in enabling a true services economy where ownership is displaced by temporal usage through the on-demand provisioning of services secondly they could reduce corruption as code is both transparent in its workings and automatically executed this leaves the room for individuals or organizations to alter it to their advantage thirdly they can reduce dependency upon centralized organizations that people may be able to set up their own contractual agreements peer to peer thus limiting the arbitrary power of centralized organizations lastly they can also deliver certainty as smart contracts guarantee a very specific set of outcomes that are predetermined before hands enabling all parties know exactly what will happen but herein also lies some of their limitations by automating the execution of a contract they are dependent upon formal rules with well specified inputs and leave little room for a multiplicity of eventualities where the rules may need to be slightly altered because of unforeseen circumstances for example a car that's being used on demand that operates through a smart contract may simply shut the user out if they have not paid their bill and would take little accounts of the facts but it may be a life-or-death emergency usage in the real world many unpredictable and unforeseen events to occur and rules sometimes need to be flexible and adapt Sporto accommodates and this is one advantage of having human oversight as people are much more capable at judging such circumstances and responding appropriately to complex unforeseen eventualities so the degree to which we can automate contracts is relative the kind of environment that is being operated in and in more complex situations they will often need to be some form of governing body to intervene when needed and this creates new complications surrounding governance that are still yet to be figured out the advent of the etherion platform in 2015 has worked to provide a virtual computing infrastructure for running applications on the blockchain this new form of program is called a distributed application or DAP for short aetherium was the first developer platform for building distributed applications it was a foundational general-purpose blockchain based platform that is a turing-complete virtual machine meaning that it can run any computer code although etherium was the first and still the largest platform for building distributed applications there are now others such as block stack oreos all of which provided the underlining infrastructure for building DAB's our working definition of a DAP is an application that runs on a network in a distributed fashion with participant information securely protected and operations executed in a decentralized fashion across a network of nodes taps use open source code operate autonomously with data and records cryptographically stored on a blockchain on a technical level a tab is very much similar to a normal web application except unlike with the normal web app where the back-end code is running on a centralized server a dab has its code running on a distributed peer-to-peer network a tap can have front-end code and user interfaces written in any language just like a normal app as such taps will often look and feel very much like regular apps and people will soon be using them in the coming decade without even realizing him like all apps perform specific functions whereas bitcoin is the decentralized value exchange a decentralized application aims to achieve functionality beyond transactions the middie exchange value many types of decentralized apps are starting to emerge as the underlining technology continues to progress already we can see many tabs represent alternatives to the existing popular web applications probably the most successful DAP to date is steam it steam it is a blogging and social networking websites on top of the steam it blockchain database the general concept is very similar to other blogging websites or social news sites like Reddit but the text content is saved in a blockchain using a blockchain enables rewarding comments and posts with secure tokens value in this way users can earn currencies for their posts and comments likewise for existing marketplace applications like eBay and Craigslist we have the decentralized version open Bazaar open Bazaar is an open source project developing a protocol for e-commerce transactions in a fully decentralized marketplace because the application connects people directly via peer to peer network it cost nothing to download and use it unlike sites like eBay or Amazon there are no fees to list items and no fees when an item is sold open Bazaar is not a company like eBay but an open source projects each user contribution etwork equally and is in control of their own storage and private data another example is Storch which is the decentralized cloud storage application similar to job box storage is based on blockchain technology and peer-to-peer protocols to provide secure private and a-fishing cloud storage system the application incentivizes storage providers and connects them with those who require it each file saved on the application is free encrypted and spread across the network until you're ready to use it again the keys to the database remain with the owners meaning the data is not accessible by a centralized cloud provider there are many other examples of DAPs but the general concepts can be applied to any area that requires secure records and benefits from decentralization these applications are automated which means they can operate at very low or even zero cost because of their snaps may be used to disrupt the existing platform economy as whole platforms like uber or Airbnb may eventually be converted into dabs that run automatically without the need for the centralized platform the advantages of dabs is that they're fully automated have superior fault tolerance and trustless execution these decentralized apps potentially represent the next generation of computing because the blockchain is a secure system that enables a trusted network it's often described as a value exchange protocol in this respect people often say that what the web did for the exchange of information the blockchain will do for the exchange of value just as the web revolutionized the use an exchange of information within society disrupting whole industries based upon the centralization of information so to the blockchain is set to do the same for the recording and exchanging of all forms of quantifiable value this idea of value lies at the hearts of the blockchain if there is no value involved in the process then there is no need for trust and no need to use the blockchain the vision of the internet of value is for any quantum of value to be exchanged as quickly and as fluidly as multimedia is today on the web although multimedia can move around the world almost instantaneously a single payment from one country to another is slow expensive and unreliable often taking days and involving numerous intermediary third parties to validate and process transactions at a significant cost thus it is no accident that the first widespread use of the blockchain was for currencies because it is the most immediate and obvious source for quantified value within society however to truly understand the revolutionary potential of this technology is to appreciate how value and its exchange influences and regulates almost all aspects of human affairs as a consequence the control of how value gets defined measured and exchanged is the key source of power and control within society and has been since the origins civilization today value of almost any kind is defined quantified and regulated by centralized organizations whether this is a national government creating their own currency or one's role within a hierarchy defining one's economic status or the branded clothing that we wear to signal to others our social status and value in society however the move into the networked society shifts the locus of organization from closed institutions to individuals and networks but off chain technology is a key element enabling this process by creating a shared ledger where people can own their own data it also enables a shift in the locus of value within economy to the individual in networks in a world of limited connectivity limited transparency unlimited peer-to-peer trust it was necessary to have third party institutions to define quantify and authenticate sources of value within society and economy but in a world of pervasive peer-to-peer connectivity transparency and trusted low cost automated networks value can be defined through a negotiation between peers within distributed networks the rise of digital currencies about one such example of this the surprising thing for a lot of people is that most major currencies like the dollar yen and euro aren't backed by anything they're just pieces of metal paper and entries in a bank account that get their value from everyone simply believing that they have value and accepting them as a medium of exchange and that's all it's really necessary currencies and money work a little bit like languages they are subject to network effects to give them value the more people who agree to and understand the language the more valuable that that specific language has as a form of communications dollars remnant B euros and bitcoins have no intrinsic value they're all social protocols and they merely represent a way of supporting the value flows between individuals in the past because of low levels have trusted here connectivity we required centralized institutions like governments and banks to get these value exchange networks started to support them regulate them and maintain them and this gave those organizations a lot of power this is a critical aspect that the internet and the blockchain are changing the blockchain enables us to create trusted and automated peer networks of exchange which greatly strengthens the capacities of people to negotiate and define value via direct here to peer exchanges people can now set up their own currencies with the value of the currency depending simply on what others are willing to pay for it Veeran automated peer-to-peer network exchange but the internet of value is more than just currencies because value is of course a much broader concept than just pure economic utility in talking about the internet of value it's important to recognize that on a societal level were moving into a post-industrial services economy the traditional conception of what society values is being revisited as a new set of societal and environmental factors re-enter the equation people are less and less content with the traditional concept of GDP as the sole metric for how well they're doing and more and more demanding actual quality of life which of course engenders a broader spectrum of values beyond economic utility over the past decades we've increasingly begun the process of tracking and accounting for different forms of value whether this is green bonds social impact bonds company loyalty schemes carbon accounting or a multiplicity of other forms but simply the erosion and loss of social and environmental capital that occurred during the Industrial Age is generating a recognition and growing awareness to their value metrics for how well a society is doing increasingly take account of many more environmental and social parameters in combination with GDP along with this recognition to the importance of different forms of value comes also the technical means the quantify an exchange them through the process of data fication information technology lets us measure track and exchange evermore types of value at ever smaller increments likes on Facebook people's attention carbon emissions etc with the rise of big data and IOT will be quantifying an ascribed value to almost everything and the blockchain will provide the network infrastructure for tracking and exchanging all these micro and macro quanta of value this shift from the narrow form of economic value that dominated in the Industrial Age to a broader spectrum of values that emerges within a post-industrial society is enabled by the Tribute alleges system that supports what we call token economies wherein we can define a token as a measure of any form of value and then built an economy around that token economies and the internet of value built upon the current expansion of digital markets brought about by the rise of the platform economy over the past decades with web 2.0 we've begun the process of expanding markets to more and more spheres of life that were previously organized via centralized coordination after only ten years or so of this process the biggest accommodation service in the worlds is no longer a centralized organization like the Hilton it's now an online market the same is true for the taxi industry the same is true for commerce with 10 million merchants and 440 million active users the Alibaba network is now reported as the largest retailer in the worlds after just 19 years of existence markets are complex they typically require the aggregation of large amounts of information and peer-to-peer interactions without the technology it is much more viable to achieve coordination very centralized hierarchical model but has become to quantify an account for more and more areas of life blockchain based networks will expand the capacities of plug-and-play markets to all spheres of activity social economic technological and environments on the Internet of value will function as the infrastructure to the emergence of the services economy which is currently taking place within post-industrial economies the move into a services economy results in the conversion of industrial age products into services whereas the product based economic paradigm was about the production and consumption of more products as measured by GDP a services economy is about value delivered a service is an exchange of value you don't get the product you just get its function and the value that it delivers as such all spheres of economy become redefined away from the static conception of units of products towards the more fluid exchange of value you don't buy lift to put in your office building you get it as a service paying only for the functional value it delivers in some offices now they don't even buy the carpets on the floor the function of the carpet is delivered as a service and they pay only for the value that's exchanged the blockchain is a key infrastructure enabling this services economy as it requires a very fluid dynamic an automatic tracking an exchange of value smart property and smart contracts will form the technological infrastructure powering the services economy as they operate within large peer networks automatically allocating resources and processing the financial debits and credits of value exchanges behind the scenes this huge shift in our economy lets us reconceptualize every industry to really question what is the actual value that it delivers and then reconstructed by building token markets around that value where anyone can participate in the delivery of the service with web 2.0 and the platform economy we extended the capacities of markets so that many more people could participate as exemplified by uber enabling anyone to operate as a driver however these markets were centralized around the platform operators and they were dependent on traditional currency systems and the financial system for processing transactions in web 3.0 blockchain applications will function as distributed automatic plug-and-play markets were extremely small increments of value can be exchanged directly it appear with very high levels fluidity when this is coupled with IOT and data analytics we'll be able to track the real value that things deliver which will help us to make the much-needed move from our product based economies to an outcomes economy the better reflects the underlying value being created in exchange with the ongoing revolution in in technology our economic systems of organization are being transformed and disrupted by the rise of information networks it started with the advent of the personal computer World Wide Web and with the rise of online platforms the disruptive power of information networks to reshape economic organization became ever more apparent today this process of economic transformation continues with a new set of technologies as we are currently in the process of remaking the technology stack of the Internet building what is called web 3.0 a primary component of which is the blockchain the defining feature of this next stage of economic development is that it decentralizes our economy and shifts operations to global information based networks like never before this distributed internet technology stack that is currently being built enables a network of computers to maintain a collective database of value ownership and exchanges via internet protocols this bookkeeping is neither closed nor the control of one party rather it is public and available in one digital ledger which is distributed across the network the most mature example of this is what we call the blockchain in the blockchain all transactions are logged including information on the date time participants and amount of every single transaction on the basis of sophisticated mathematical principles the transactions are verified by the so called miners who run the computing infrastructure required to maintain the Ledger's the technology of web 3.0 enables a new form of decentralized economy as it removes the dependency on a centralized authority for managing the network instead replacing it with a distributed consensus model managed by many this shared securely encrypted database enables trustless peer-to-peer interactions via new internet protocols people can begin to set up their own networks for coordination and direct exchanges of value peer-to-peer and it enables the rules of these transactions to be automated in new ways at the heart of this system is the distributed ledger which records the exchanges of value these distributed Ledger's can account for and validate the exchange of any form of value it may be a currency it may be property it may be a kilowatt hour of energy the usage of a parking spot the number of followers a person has on social media these distributed Ledger's provide the infrastructure for building token economies a token is simply a quantified unit of value tokens are both generic and fungible it is generic in that it can be used to define any form of value and it is fungible meaning it is exchangeable between different specific forms of value traditional monetary currencies are not fully fungible as there are many circumstances when one cannot exchange a monetary currency for other forms of value for example likes on social media may have a certain value but typically cannot be directly exchanged for monetary currencies a token differs from our traditional monetary currency and that it is more generic our existing currencies define a particular type of monetary value what we call utility which is based upon the economic logic of the industrial economy while tokens because they are more generic can define a broader set of values social capital natural capital or cultural capital for example natural capital is the integrity of an ecosystem that enables it to function and provide ecosystems services to people in our traditional economic model we only quantify and account for the services that the ecosystem delivers such as food water materials etc however we do not account for the integrity of the ecosystem that enables it to function the generic nature of the token means it can be used to account for values such as this natural capital the capacity to differentiate between different forms of value is made possible by the programmability of token units because tokens are digital they are also programmable which enables one to specify certain rules for that token and have those rules executed when it is exchanged thus enabling certain constraints or possibilities in its usage one can specify that a certain token is only spendable under certain terms or specify how it can be converted for example one could program the token so that it cannot be exchanged for diamonds that are mined in a particular location of the world known for its use of slave labor in this way the token is not just a unit of utility but also expresses social values likewise one could create a health care allowance in dollars or Euros that could be programmed on the blockchain so that it can only be used to pay for health care at certified parties automating these measures leads to a considerable decrease in bureaucracy this programmable token system works to shift our economies from a single value model to a multi value model they create many different types of value and economies but still retain the possibility for exchange between them the distributed web is the convergence of the economic market system with information technology that enables us to convert traditional organizations into distributed markets based on tokens tokens define whatever is a value within that organization and the market system is used as a distributed coordination mechanism for managing and growing that resource by creating an expanded definition of value and converting closed organizations into open markets this means that we can vastly expand the scope and capacities of the economy the provisioning of services within the economy no longer becomes dependent upon a limited number of centralized organizations acting for profit but instead anyone can now provide the service via these open protocols this means we can harness the resources of the many in a distributed fashion instead of being dependent upon a few likewise the token economy can harness the motives of individuals not just for financial rewards but for a multiplicity of values to illustrate how this works let's think about the service of cloud data storage currently this is provided by a limited number of enterprises like Amazon and Microsoft these centralized organizations have huge data centers but still those data centers are only a very small fraction of the storage capacity in the world most of the storage is in the personal computing devices of end-users and most of that is not being used a file coin is one organization that works to create a distributed token economy for this storage file coin is a decentralized storage network that turns cloud storage into an algorithmic market the market runs on a blockchain with a native protocol token also called file coin which miners earned by providing storage to clients conversely clients spend file coins hiring miners to store or distribute data the sum of all these computers that are coordinated through an automatic market system on the blockchain can provide a much larger more resilient system than the centralized model while reducing redundancy and inefficiencies in the overall system it also pushes the provision of the service out to the location where it is demanded as people are connecting peer-to-peer locally instead of going to the centralized server that may be on the other side of the planet tokens such as file coins can be exchanged for other currencies or members can hold on to their tokens whose value may appreciate as the networks grow over time this illustrates a very interesting aspect to tokens anyone who uses the system is also an investor in the system thus tokens merge investment capital and liquid exchange capital in new ways in the traditional capitalist model we have a divide between owners of capital and workers a divide between a more fixed investment capital and liquid exchange currencies the shares in a company are not the same thing as what people get paid with for working in that enterprise and use for everyday exchanges in the market this creates the notorious divide within the industrial economy described by Karl Marx between the capitalists that make money off their investments in the workers that have to stay selling their labor for money without ownership tokens represent both the inherent value of the community which is its capital investment and they are also units of exchange within that ecosystem the founders of the project issue a number of tokens at inception and sell those for someone to use the system they have to buy the tokens in so doing they become part investors in the project but they also use those same tokens to make exchanges within the market thus the people creating the value in the ecosystem are also getting paid in tokens meaning the workers that are creating the value through their work also have ownership within the organization in the traditional utility-based exchange of cash people have no ownership in the organization they just try to make money and this can create divides between the owners and the users the token system works to better align the incentives of the individuals with the overall system because the value of the tokens they earn is also dependent upon the value of the whole when you are working for a token network you are both working for yourself and for the whole organization as the to become more aligned unlike the traditional divide between capitalist and worker the token system enables networks to overcome the chicken-and-egg problem if you are the first user of a network like eBay then the value would be very low thus it is difficult to get the network started because it has to reach a critical mass before it will be of value to the users this means that it may require a large investment to create a network the Silicon Valley model worked by having large initial venture capital backing that enables them to overcome this but it means that most networks don't get off the ground and that once a network reaches scale and has value it becomes dominant and very difficult to compete with resulting in a lock-in effect and making it easy for large incumbent organizations to become extractive over time it also means that those who founded the organization win big time if the network takes off it creates a winner-takes-all dynamic with most people losing because of the threshold the token system extends the benefits of being an early adopter of a new network to all the users and thus helps to solve this issue it does this by issuing tokens for anyone to purchase at the beginning of the project as the project grows the tokens come to have greater value for all of the holders this also works to make the users of the network promoters of that organization because as it grows the tokens that they hold become more valuable it incentivizes people to join networks early so as to gain the benefits of the increase in their token value as it grows which reduces the problem of thresholds with this technology companies no longer have to go to traditional capital markets through an initial public offering of shares in the company in exchange for money but instead they simply sell tokens directly on the Internet to raise initial capital for the project in what is called an initial coin offering or IC o---- this means that founders can monetize their networks directly by simply holding their tokens and making the network useful to date we have had an Internet patched onto the side of an economy operated through the many centralized organizations of the Industrial Age creating a strong contradiction between the underlying technology and the institutional arrangements the distributed web will work to transform this by merging information networks and economic organization as the flow of information an economic value becomes one this will greatly reduce our dependency on centralized organizations expanding markets as systems of organization the global market economy will become available to the many through small distributed peer-to-peer interactions running through web protocols as the decentralized internet takes us a step further into the networked economy [Music]

Channel: Coding Tech

Views: 943,250

Rating: 4.8773804 out of 5

Keywords: blockchain, blockchain technology, bitcoin, dapps, decentralized web, decentralized applications

Id: qOVAbKKSH10

Length: 114min 53sec (6893 seconds)

Published: Wed Feb 07 2018