A blockchain (though the term is bandied about loosely, and often misapplied to things that are not really blockchains) is an electronic ledger—a list of transactions. Those transactions can in principle represent almost anything. They could be actual exchanges of money, as they are on the blockchains that underlie cryptocurrencies like Bitcoin. They could mark exchanges of other assets, such as digital stock certificates. They could represent instructions, such as orders to buy or sell a stock. They could include so-called smart contracts, which are computerized instructions to do something (e.g., buy a stock) if something else is true (the price of the stock has dropped below $10).
What makes a blockchain a special kind of ledger is that instead of being managed by a single centralized institution, such as a bank or government agency, it is stored in multiple copies on multiple independent computers within a decentralized network. No single entity controls the ledger. Any of the computers on the network can make a change to the ledger, but only by following rules dictated by a “consensus protocol,” a mathematical algorithm that requires a majority of the other computers on the network to agree with the change.
Once a consensus generated by that algorithm has been achieved, all the computers on the network update their copies of the ledger simultaneously. If any of them tries to add an entry to the ledger without this consensus, or to change an entry retroactively, the rest of the network automatically rejects the entry as invalid.
The crypto bubble, like the dot-com bubble, is creating the infrastructure that will enable the technologies of the future to be built. But there’s also a key difference. This time, the money being raised isn’t underwriting physical infrastructure but social infrastructure. It’s creating incentives to form global networks of collaborating developers, hive minds whose supply of interacting, iterative ideas is codified into lines of open-source software. That freely accessible code will enable the execution of countless as-yet-unimagined ideas. It is the foundation upon which the decentralized economy of the future will be built.
Just as few people in the mid-1990s could predict the later emergence of Google, Facebook, and Uber, we can’t predict what blockchain-based applications will emerge from the wreckage of this bubble to dominate the decentralized future. But that’s what you get with extensible platforms. Whether it’s the open protocols of the internet or the blockchain’s core components of algorithmic consensus and distributed record-keeping, their power lies in providing an entirely new paradigm for innovators ready to dream up and deploy world-changing applications. In this case, those applications—whatever shape they take—will be aimed squarely at disrupting many of the gatekeeping institutions that currently dominate our centralized economy.