Blockchain Revolution

CHAPTER 2

BOOTSTRAPPING THE FUTURE:

SEVEN DESIGN PRINCIPLES OF THE BLOCKCHAIN ECONOMY

reedom is predicated on privacy,” said Ann Cavoukian, executive director of the Privacy and Big Data Institute at Ryerson University. “I first learned that thirty

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years ago when I started going to conferences in Germany. It is no accident that Germany is the leading privacy and data protection country in the world. They had to endure the abuses of the Third Reich and the complete cessation of all of their freedoms, which started with the complete removal of their privacy. When that ended, they said, ‘Never again.’”¹

And so it is ironic—or totally fitting—that one of the first decentralized peer-to-

peer computational platforms to guarantee user privacy is called Enigma, also the name given to the machine developed by German engineer Arthur Scherbius to transcribe coded information. Scherbius designed Enigma for commercial use: through his device, global companies could quickly and safely communicate their trade secrets, stock tips, and other insider information. Within a few years, Germany’s military forces were manufacturing their own versions of Enigma to broadcast coded messages over radio to troops. During the war, the Nazis used Enigma to disseminate strategic plans, details of targets, and the timing of attacks. It was a tool of suffering and oppression.

Our contemporary Enigma is a tool of freedom and prosperity. Designed at MIT Media Lab by Guy Zyskind and Oz Nathan, the new Enigma combines the virtues of blockchain’s public ledger, the transparency of which “provides strong incentives for honest behavior,” with something known as homomorphic encryption and secure multiparty computation.² More simply put, “Enigma takes your information—any information—breaks it up, and encrypts it into pieces of data that are randomly distributed to nodes in the network. It doesn’t exist in one spot,” said Cavoukian. “Enigma uses blockchain technology to embed the data and track all the pieces of

information.”³ You can share it with third parties and those parties can use it in computations without ever decrypting it.⁴ If it works, it could reshape how we approach our own identity online. Imagine having a black box of your personal information that you alone control and can access.

No matter how cool it may sound, there are reasons to tread cautiously on the cryptographic frontier. First, it needs to bootstrap a large network of participants. Second, “cryptography is an area where you never want to be using the newest and greatest, because there is an entire history of an algorithm that everyone believes is secure, that’s out there for four or five years, and some very inspired scientist will come out and say, there’s a flaw, and the entire thing tumbles,” said Austin Hill of Blockstream. “That’s why we generally prefer conservative, very well-established, long-standing algorithms. This stuff is very, very well future-proofed, and bitcoin was designed with that in mind.”⁵

Still, the concept is worth taking very seriously, as it has profound implications for privacy, security, and sustainability. “Enigma is offering what they say guarantees privacy,” Cavoukian said. “That is a big claim, but that’s the kind of thing we increasingly need in this connected, interconnected world.”⁶

In our research, we came across a number of projects initiated on blockchain technologies whose developers had similar aspirations for enabling basic human rights—not only the rights to privacy and security, but also the rights to property, recognition as a person under the law, and participation in government, culture, and the economy. Imagine a technology that could preserve our freedom to choose for ourselves and our families, to express these choices in the world, and to control our own destiny, no matter where we lived or were born. What new tools and new jobs could we create with those capabilities? What new businesses and services? How should we think about the opportunities? The answers were right in front of us, compliments of Satoshi Nakamoto.

THE SEVEN DESIGN PRINCIPLES

We believe that this next era could be inspired by Satoshi Nakamoto’s vision, designed around a set of implicit principles, and realized by the collaborative spirit of many passionate and equally talented leaders in the community.

His grand vision was limited to money, not to some greater goal of creating a second generation of the Internet. There was no discussion of reinventing the firm, changing our institutions, or transforming civilization for the better. Still, Satoshi’s vision was stunning in its simplicity, originality, and insight into humankind. It became clear to those who read the 2008 paper that a new era of the digital economy

was about to begin. Where the first era of the digital economy was sparked by a convergence of computing and communications technologies, this second era would be powered by a clever combination of computer engineering, mathematics, cryptography, and behavioral economics.

Folksinger Gordon Lightfoot crooned, “If you could read my mind, love, what a tale my thoughts could tell.” Satoshi has been incommunicado since 2011 (though the name pops up on discussion boards from time to time), but we think the trust protocol he bootstrapped lends itself to principles for reconfiguring our institutions and economy.

Everyone we talked to has been eager to share insights into blockchain technology with us. Each conversation, each white paper, each forum thread has surfaced a number of themes that we’ve reverse-engineered into design principles—principles for creating software, services, business models, markets, organizations, and even governments on the blockchain. Satoshi never wrote about these principles, but they are implicit in the technology platform he unleashed. We see them as principles for shaping the next era of the digital economy, and an era of renewed trust.

If you’re new to this space, we hope these principles will help you understand the basics of the blockchain revolution. If you’re a die-hard skeptic of the bitcoin blockchain, they should still serve you as you contemplate your future as an entrepreneur, inventor, engineer, or artist who seeks creative collaborations with like- minded people; as an owner or investor in assets of all kinds; or as a manager who wants to reimagine your role in this nascent blockchain economy.

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   Networked Integrity