Blockchain Revolution

Hash rate is a measure of the total processing power of the bitcoin network. The higher the total aggregate hash rate of the entire network, the more difficult it is to find the right nonce. When a miner finds a hash with the correct number of zeros, it shares its proof of work with all other miners on the network. This is the other big scientific breakthrough in distributed computing: using proof of work to achieve network consensus. It’s known as the Byzantine Generals’ Problem. The other miners signal their acceptance of the block by focusing on assembling the next block, which has to include the hash of the newly made block. Just as Don’s public and private keys are unique to him, the hash of each block is unique: it works like a cryptographic fingerprint that makes all the transactions in the block verifiable. No two block fingerprints are the same. The winning miner receives a set quantity of new bitcoins as a reward—the software itself mints and allocates the new coins—and the hashed block is appended to the chain.

So, within ten minutes of Don’s broadcasting his message, he and Artlery received a confirmation that Don’s bitcoin transaction created what is referred to as “unspent transaction output,” meaning that Artlery can spend it by doing what Don just did—broadcasting a message that specifies the amount to send and the address of the recipient, and authorizing the transaction with Artlery’s public key. If the artist and the patrons knew both Don’s and Artlery’s public keys, then they could see that the deal between them went through and could see the amount of the transaction.

That’s why we call it a public ledger—all transactions are transparent—and pseudonymous, in that we can see the parties’ addresses, though we can’t see the names of the persons behind them. Every subsequent block served as further confirmation of their transaction.

Profile of the Next-Gen Art Patron: Redefining Money

Now Don owns a percentage interest in the rights of an artistic rendering of a euro. When the physical work sells, the artist, the venue, Don, and his virtual patrons all receive a portion of the sale according to their level of participation. In other words, patron participation matters. Patrons who interact with the artist and the work, who share their appreciation in social networks, who spark others to engage with both

artist and art, and who essentially serve to promote the artist’s brand, receive more than does a passive patron who viewed it once online and bought a stake. We’re not sure whether writing about it in this book counts directly toward Don’s participation points. Artlery wants signals of appreciation—in the form of positive references to artists and their works—to correlate with the appreciation in value of the work itself, and so perhaps future platform releases will take examples like ours into account.

Artlery is initially concentrating on gifting a percentage of each piece’s sale. Future releases of the platform will allow patrons to purchase ownership stakes in artwork directly, perhaps sharing portions of subscription royalty revenue or copyright licensing of the work.

By involving multiple parties directly, including patrons, in the process, and engaging them as stakeholders, Artlery is focusing more eyes on accounting. The blockchain as a public, distributed ledger ensures open, accurate, and timely processing of transactions. As payouts expand beyond first sale, secondary sale, and subsidiary rights such as prints and merchandising, individual artists will never be acting alone. They will have a community of patron stakeholders behind them to negotiate and enforce their contractual rights.

Artlery utilizes the bitcoin blockchain in several ways. First, it registers the provenance of the art as metadata on the blockchain through a partnership and API integration with another bitcoin start-up, Ascribe.io, and it uploads the payout table so that all stakeholders are paid immediately according to their asset shares with immediate transparency for all parties. It is exploring various techniques for encoding this information, such as a bitcoin script inside transactions. While its initial target market is fine art, Artlery has significant traction in other copyright industries such as music, books, and movies, which it will target through the release of its own API.

PRIVACY, FREE SPEECH, AND FREE PRESS ON THE BLOCKCHAIN

Personal privacy, free speech, and free press are essential to an open, free, and prosperous society. On one hand, citizens must be able to communicate privately and anonymously. On the other hand, they must be able to speak freely and securely without fear of repercussion. Online censorship, the hacking of large institutions and civil society, and Edward Snowden’s revelations of mass and targeted surveillance and data fracking have driven citizens of well-established democracies to seek anonymity and encryption technologies. These tools enable them to disguise their identities and scramble their messages in transit and in storage so that only authorized persons may access them.

Here’s the rub—encryption technologies are either not legal for individual use or not readily available in those countries whose citizens need them most. The Wassenaar Arrangement, a multilateral export control regime that technologically advanced nations agreed to, governs the export of “dual use” products, that is, those that could be deployed for both good and evil. Wassenaar’s original goal was to keep high-tech products out of the hands of dictators in North Korea, Libya, Iran, and Iraq. Anonymity and encryption technologies such as public key infrastructure were considered dual use.

Today, in countries such as Russia and China, both individuals and corporations— including foreign firms—must seek authorization to use them. In countries where their use is discretionary, governments—even the Obama administration—have asked tech firms to include “backdoor access,” that is, a secret means of bypassing the normal authentication process (e.g., logging on with a password or other security code) and gaining remote access to a computer and its data without authorization or detection. It is far more insidious than Big Brother, because at least everybody knew that Big Brother was watching.³¹ Here, tech firms aren’t supposed to tell users that there’s a back door. No doubt hackers look for them, find them, and use them, too.

“The trend lines regarding security and privacy online are deeply worrying,” wrote David Kaye, Special Rapporteur of the Office of the United Nations High Commissioner for Human Rights. “Encrypted and anonymous communications may frustrate law enforcement and counter-terrorism officials, and they complicate surveillance, but State authorities have not generally identified situations—even in general terms, given the potential need for confidentiality—where a restriction has been necessary to achieve a legitimate goal.”³² He went on to say that law enforcement and counterterrorism agencies have come to downplay good old- fashioned detective work and deterrence measures, including transnational cooperation.³³

Not surprisingly, on global measures of the preservation of political and personal rights—that is, privacy and the freedoms of speech, assembly, and the press, and the tolerance of other religions, immigrants, political refugees, and homosexuals—Russia ranks 114th, and China second to last, at 160th.³⁴ For what it’s worth, the United States is no epitome: it ranks 28th.

Blocking Web sites without a court order has become customary in such

countries, and many censors have figured out how to thwart virtual private network software used to prevent censorship.³⁵ According to Reporters Without Borders, Russia has been curtailing freedoms of expression and information and blocking increasingly more sites since Vladimir Putin’s return to the presidency in 2012, among them Wikipedia.³⁶ China has mastered the art of the targeted data blackout,

censoring search terms related to Hong Kong’s “Occupy Central” prodemocracy movement and the twenty-fifth anniversary of the Tiananmen Square protests on Weibo, China’s Twitter clone. It managed to block nearly 90 percent of all Google services. Imprisonment is also popular in these countries when people post content deemed questionable by the government online. Following the Chinese stock market collapse in July 2015, authorities arrested more than one hundred people for using social media to spread rumors that “caused panic, misled the public and resulted in disorders in stock market or society.”³⁷

Governments that wish to repress the voices of citizens everywhere and have

captured technologies like the Internet to silence dissidents and block outside media will find blockchain technology significantly more challenging for several reasons. First, citizens and journalists could use public key infrastructure to encrypt information and conceal their identities from would-be censors and attackers. Second, where governments discourage and deprive good and honest journalism of funding, journalists could raise funds on the blockchain, casting a wider net for investors sympathetic to their cause, especially investors who preferred to remain anonymous. Finally, governments could not destroy or alter information recorded on the blockchain; therefore, we could use it to hold governments and other powerful institutions accountable for their actions.

Consider crowdfunding journalists on the blockchain. If we released them from the financial grip of state-controlled media, they could cover politics freely while preserving the anonymity of donors. Veteran Chinese journalists could try one of the distributed peer-to-peer crowdfunding platforms such as Koinify, Lighthouse, or Swarm that use PKI to protect the identities of sender and recipient better than Internet-only systems. Another great blockchain tool is the free mobile app GetGems, which both guards and monetizes instant messaging through bitcoin. Users can send all sorts of files securely, with GetGems functioning like private e-mail, not just SMS.³⁸ These apps are just the beginning of what is possible.

Another solution is a distributed platform for filing stories in an immutable ledger that makes the ledger unique, such as what Factom aims to accomplish in the developing world. Reporters could purchase entry credits—rights to create entries on Factom’s ledger. As with the bitcoin ledger, everyone would get the same copy, and anyone could add to it but no one could alter entries once they were filed. Factom has a commit/reveal commitment scheme that serves as an anticensorship mechanism: servers in China, for example, couldn’t prevent the filing of an otherwise valid entry because of its content. If the reporter had attached an entry credit to the filing, then it would get recorded. A government could identify certain entries as offensive but couldn’t delete or block them as the Chinese government has done on Wikipedia. If an

official court were to order a change in the ledger, an officer of the court could make a new entry to reflect the ruling, but the history would remain for all to see.³⁹

A third solution is distributed peer-to-peer microblogging that doesn’t go through

centralized servers. Stephen Pair, CEO of BitPay, described how to reinvent Twitter or Facebook so that users controlled their own data. “Instead of having just one company like Facebook, you might have many companies tying into this common database [the blockchain] and participating in building their own unique user experiences. Some of those companies might ask you for or might require certain information to be shared with them so that they could monetize that. But as a user, you would have full control over what information you’re sharing with that company.”⁴⁰ There is Twister, a Twitter clone in terms of feel and functionality developed in 2013 by Miguel Freitas, a hacker and research engineer at PUC-Rio University in Rio de Janeiro, Brazil.

Twister leverages the free software implementations of bitcoin and BitTorrent protocols and deploys cryptography end to end so that no government can spy on users’ communications.⁴¹

GETTING THE WORD OUT: THE CRITICAL ROLE OF EDUCATION

Joichi Ito is among an elite group of widely successful entrepreneurs—from Bill Gates and Steve Jobs to Biz Stone and Mark Zuckerberg—who dropped out of college to invent something new in the digital economy.⁴² It is a hallmark of our entrepreneurial culture that one’s pursuit of an idea, to go deep and understand its nuances as Ito likes to say, drives a visionary out of the classroom and into business. Henry Ford and Walt Disney pursued their passions without college degrees. And so it is one of those paradoxes that the Massachusetts Institute of Technology would choose Ito to direct its legendary Media Lab, at the epicenter of all things digital and relevant to culture.

The timing was perfect. “Digital currency is something that I’ve been interested in even before the Media Lab I ran one of the really early digital test servers from

the DigiCash days in the 1990s. One of the first books I ever wrote was in Japanese, called Digital Cash, that I coauthored with someone from the Bank of Japan. So this has been an area of interest for me for a long time and predates a lot of the other stuff I’ve been doing.”⁴³

When he got to the Media Lab, various academics were dabbling in some aspect of bitcoin relative to their core discipline—consensus models, cryptography, computer security, distributed systems, and economics—but no one specifically focused on it.

He didn’t see faculty doing fundamental research around bitcoin, even though MIT

students had launched the MIT Bitcoin Project to give $100 of bitcoin to undergraduates.

Ito had a sense of urgency similar to Imogen Heap’s in spreading the word and forming teams around legal, technical, and creative challenges. Blockchain technologies were moving much faster than Internet technologies had, but without much academic involvement. The core developers of the bitcoin protocols were recovering from reputational hits: the Bitcoin Foundation was bankrupt, and board member Mark Karpeles was arrested in Japan for embezzlement through his Mt. Gox exchange. Ito moved quickly. He launched the Digital Currency Initiative (DCI) at the Media Lab and hired former White House adviser Brian Forde to direct it. He brought three of the bitcoin core developers into the DCI to provide them with stability and resources so they could focus on the code.

He thought that creating an academic network of universities interested in supporting bitcoin was important, and that’s under way. “We’re setting up courses, we’re trying to organize research, but we’re still very early-stage,” he said. “We’ve just got the core funding together to support the program, and we’re just trying to drum up interest from the faculty and the students in the space.” More broadly, he wants the MIT Media Lab to reinvent higher education so that people like him won’t drop out and will see the value of a diverse place like the Lab. It’s an opportunity to pilot the future of academia.⁴⁴

Melanie Swan, a leading blockchain theorist and academic, was more specific

about where to educate students about the blockchain, and it’s not in traditional universities. It’s on the blockchain. “It’s really a complete revolution in how we do everything. Academia is not the right place to do academic thinking about very new things like the blockchain,” she said. For example, rather than submitting research to scholarly journals for publication and waiting from six to eighteen months for a rejection or publication, a scholar could post the paper immediately as Satoshi Nakamoto did to a limited audience of peers, receive reviews in real time, and establish the needed credibility to publish to a larger audience. Reviewers could vote reviews up or down as redditors do on Reddit so that the scholar would know which ones to take to heart. The paper might even be available for free, but other scientists could subscribe to deeper analysis or threaded discussion with the author. The scholar could make her raw data available or share it with other scientists as part of a smart contract. If there was a commercial opportunity flowing from the paper, she could protect the rights in advance, taking into consideration who funded the research and any claims they might make to the discovery.

Swan is the founder of the Institute for Blockchain Studies. “There’s the start of a development of an educational infrastructure to support learning about these technologies. Obviously, all the meetups, user groups, and hackathons are

tremendously useful,” she said. “Every strategy and accounting consultancy has a blockchain practice group now, and there are education institutions like Blockchain University.”⁴⁵ Swan herself teaches a blockchain workshop at Singularity University.

She talked of an education system where a college student would become what

she called an “educational sommelier,” pairing interests or needed skills with accredited courses, potentially massive open online courses (MOOCs). “The benefit of MOOC is decentralized education. So I can take the top machine learning class from Andrew Ng at Stanford University via Coursera. I can take the top other courses at MIT.” So students could fund their own personal development programs anywhere in the world and receive accreditation. She explained: “Just as when I go take the GRE or the GMAT or the LSAT, I show up with my ID, it confirms locally that I am who I say I am, I take that test,” and that local confirmation “could easily be part of the MOOC infrastructure.”

Swan has been working on how to do MOOC accreditation and tackle student debt on the blockchain. The blockchain provides three elements toward this goal: (1) a trustable proof of truth mechanism, an oracle, to confirm that the students who signed up for the Coursera classes actually completed them, took the tests, and mastered the material; (2) a payment mechanism; and (3) smart contracts that could constitute learning plans. Consider smart contracts for literacy. “Why don’t we target financial aid toward personal development? Like Kiva, but Kiva for literacy,” Swan said, except that everything would be super transparent and participants would be accountable. Donors could sponsor individual children, put money toward learning goals, and pay out according to achievement. “Say I wanted to fund a schoolchild in Kenya’s literacy program. Every week this child would need to provide proof of completion of a reading module. Perhaps it’s all automated through an online test where the blockchain confirmed the child’s identity and recorded progress before disbursing the next week’s worth of funding into what we might call the child’s ‘smart wallet for learning’ so that the child could continue payment for school without interference. Money toward a girl’s education couldn’t be diverted to her brother’s schooling,” she said.⁴⁶

CULTURE ON THE BLOCKCHAIN AND YOU

After two world wars in a single generation, global leaders admitted that political and economic agreements could not—would never—maintain long-term world peace.

Those conditions changed, sometimes frequently, sometimes drastically so. Peace had to be rooted in something richer, more universal, in the shared moral values and intellectual freedoms of society. In 1945, three dozen nations convened to form an

educational body of sorts that would model a culture of peace. It became known as the UN Educational, Scientific, and Cultural Organization (UNESCO). Its mission in the world today is “to create the conditions for dialogue among civilizations, cultures, and peoples.”⁴⁷

Through the lens of blockchain technologies, musicians, artists, journalists, and educators are seeing the contours of a world that protects, cherishes, and rewards their efforts fairly. All of us should care. We are a species that survives by its ideas, not by its instincts. We all benefit when creative industries thrive and when the creatives themselves can make a living. Moreover, these are the bellwethers of our economy— they reveal faster than nearly any other industry how both producers and consumers will adopt and then adapt a technology to their lives. Musicians have long been among the first to exploit innovations for the benefit of a great many others, too often at their own expense. These dedicated members of our society inspire us, and every business executive, government official, and other organizational leader has much to learn from them about the new era of the digital age.