Before writing and discussing the various use cases through which Blockchain technology can drastically innovate common business processes, the traditional financial system, and project sustainability, it is important to give space and the proper importance to the fascinating legend behind Bitcoin and Blockchain technology. The purpose of this article is to consolidate the objective for which it was created, the original inspiring idea, and the different opportunities it can unlock.
In the modern world, the issue of trust has become a central and highly valuable concern. Humans find it difficult to place their faith and trust in other humans because, in an increasingly technology-dominated world, the concept of “trusting others” is constantly questioned. Just think of the false information shared on social networks or the consequences of ethically incorrect use of Artificial Intelligence in reproducing voices, attitudes, and human faces.
Trust, as defined by Treccani, is the attitude towards others or oneself that results from a positive evaluation of facts, circumstances, relationships, whereby one relies on the abilities of others or oneself, and generally produces a feeling of security and tranquility.
The problem of trust has always been crucial in the history of human civilization and originated many centuries ago when our economy was based on barter, one of the earliest forms of value exchange. With barter, goods of essentially the same value were exchanged to ensure fairness in transactions, which often involved perishable or indivisible goods.
Thus, the need arose to standardize value to optimize exchanges, and this became possible through the invention of an early form of currency that assigned a consistent and precise value to the object most commonly used in a particular geographic area (such as stones, salt, rings, iron, gold, etc.).
Transporting large quantities of stones, as an example related to the history analyzed in the article, posed a great problem for the technology of that time, as it was also difficult to recognize the correct value of each stone due to the individualized perception of value attributed by each person based on the unique characteristics of that stone.
In this context, the need for a third party arose, playing the role of guarantor of the exchange and the value attributed to the objects used for the exchange. If there had been an entity that delivered the correct value to the object through a mark, anyone would have trusted the mark and would no longer have been interested in verifying its value.
Today, it is banks, notaries, and payment systems that act as trusted intermediaries between two or more parties, guaranteeing transactions of any kind. However, the problem of trust is not completely resolved because this third party incurs costs and takes time to guarantee something, but the most dangerous aspect is that it can make mistakes accidentally or be corrupted to make mistakes.
In the 1400s, the problem of trust was solved on the island of Yap, in Micronesia.
The inhabitants of Yap, fascinated by the beauty of a particular limestone formation found during an expedition to Palau, decided to create heavy disks with a hole in the center to use as a means of value exchange on their island, called Rai.
A crucial shift in perspective for the history of Blockchain occurred on this island: The extrinsic (perceived) value of a specific Rai was based not only on its size and the method of extraction but also on its history. If people had died during the extraction or transportation attempts, the Rai acquired more value. Therefore, the value of Rai was also guaranteed by its shared history, passed down and shared from person to person. It didn’t matter who possessed it because, often, in the attempt to transport them by sea, they would sink into the depths of the ocean.
Even today, on the island of Yap, it is not uncommon to find these heavy stone disks abandoned in common places used by families or island residents. One might think of this as a method to discourage theft, but given the system used in Yap, none of the inhabitants would ever think of unlawfully taking possession of a Rai. Not only would it be difficult to secure it, but above all, on the island of Yap, everyone knows who owns each Rai. Each individual possessed a copy of a unique and updated register containing all the information related to any transaction involving Rai, as well as the entire history of the Rai used, with particular emphasis on the name of the current owner and the name of the future owner.
With this method introduced by the island’s inhabitants, the risk of theft was completely mitigated, creating a strong deterrent to malicious actions.
On the island of Yap, in the 1400s, they solved the problem of trust.
After more than 600 years, we are reliving a similar story. Today, there is a technology called Blockchain, which is nothing more than a distributed, decentralized, and shared database among participants in a network. The difference is that it is applied to modern technologies available today: computers and cryptography.
Blockchain is the technology that enables the creation of Bitcoin through an algorithmic extraction process called mining (a process that involves solving a complex computational problem), which takes into account all the movements and transactions made, allowing, for example, Bitcoin to come only from its legitimate owner.
More specifically, it can be classified as belonging to the Distributed Ledger Technologies family and is a combination of disciplines such as Game Theory, Databases, Cryptography, and Macroeconomics. It involves recording information and transactions through an immutable chain of blocks, in which each node can participate in validating a transaction that will be included in the next block.
Summarizing and analyzing point by point the method introduced in Yap and comparing it with the most modern technology, we find important analogies:
- Scarce resource: The stone used as Rai was completely different from any other stone, so it had the property of non-replicability and scarcity. Similarly, each Bitcoin is non-replicable and a scarce resource due to its limited supply by design.
- Barriers to entry: The more complex the extraction process, the higher the value of the extracted Rai. This implies barriers to entry due to the equipment needed for extraction. Similarly, the Bitcoin mining process has significant barriers to entry in terms of investment in hardware.
- Shared history: The value of Rai was also guaranteed by its shared and transmitted history among the island’s inhabitants. Similarly, Bitcoin integrates the same system of trust among network participants to guarantee value and ownership.
- Deterrent to malicious actions: The Rais were not hidden, but their weight characteristics and the fact that the owner’s name was clearly written created a strong deterrent to attacks by malicious actors. To illegally possess a Rai, one would have to convince a vast group of malicious actors to change the name inscribed in the register of the last owner, which requires significant efforts. Assuming the success of this strategy, conflicts would arise over who would own the Rai. In the Bitcoin network, the process is similar: control of at least 51% of the nodes is required to control and modify the network, which involves considerable energy and hardware resources. The costs for this type of attack are estimated to be around $700,000 on the Bitcoin network for 1 hour of attempts. Even if such an attack were successful, it would not be possible to recover the cost of the investment because there could be market repercussions, causing the value of Bitcoin to collapse due to the total selling by users who become aware of the successful attack. Therefore, following game theory, there is a strong deterrent to malicious actions and a strong incentive for honest actions due to the possibility of obtaining the reward guaranteed by the protocol by providing the computing power to mine new blocks correctly.
- Trustless: To solve the problem of trust, the island’s inhabitants invented a unique, public register that was updated with every transaction and distributed so that all island residents knew who owned each individual Rai. Similarly, Blockchain is a trustless technology where trust is placed solely in the algorithm through which the protocol is programmed, without the need for a third-party guarantor of its operation.
From the beginning, Blockchain technology was designed to be the most significant technological breakthrough in recent years. Its potential to revolutionize dispute resolution is unparalleled, and its widespread use in multiple sectors has made it an integral part of the global economy and society.
In conclusion, this technology has opened up a world of possibilities for companies, governments, and individuals by reducing the cost of transaction execution, improving data security, and increasing transparency between parties. In fact, with more and more organizations relying on Blockchain, we are witnessing a paradigm shift from traditional centralized business models to increasingly decentralized models where this technology can provide an efficient and secure platform for dispute resolution, creating new opportunities for capitalizing on the immutability provided by Blockchain technologies
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