Author : Andreas Antonopoulos
In this book Andreas presents some of the talks he had in various places. The talks are usually articulted around the innovative aspect of Bitcoin and how the technology has the potential to change the world (and face serious resistance from the old guard!). The book is very interesting and presents bitcoin in a way that is understandable by anyone, it is not long and I would recommend it to anyone willing to get into the space.
Here are my favorite parts
Innovators, Disruptors, Misfits, and Bitcoin
Do you know what the media said about the early automobile? They ridiculed cars. They mocked cars. Cars were slower than horses. Cars broke down all the time. Cars needed expensive gasoline that you couldn’t find anywhere. They required enormous amounts of infrastructure to work. The media focused on the part of the story that sold the most papers: car accidents, pedestrians mangled by cars. For more than two decades from the first cars, the story was that of infernal, disgusting, dirty, noisy machines that were far inferior to horses, that couldn’t go anywhere, that only weirdos would use, and that, most of the time, killed the occupants and everyone who came anywhere near them.
Guess what happened to the UK? They lost the automobile-industry race because they saw that technology and, instead of seeing potential, they allowed fear to define their reaction. They created an environment where a car could not do the things that a car can do. If you make a car go as slow as the pedestrian who’s running ahead of it with a red flag, you lose all of the advantages of a car. If a car requires a three-person crew to operate, you lose the advantages of a car. They tried to take the car and understand it from the perspective of railroads and horses. They failed. They lost the race.
When electricity was first domesticated and people started electrifying their homes, do you think the media announced, ‘This is brilliant! Edison’s a genius! This is going to change the world!’? No. What they said was that this was dangerous technology that would burn down people’s homes
While they mock it, bitcoin continues to grow and improve. After a while, you see a change. At first, some of the incumbents in the industry say, “Hey, maybe we need to experiment with this. Maybe we need to start looking at this.” Then there’s a stampede because suddenly they realize this is going to change our industry forever.
By that time, it’s too late. By that time, they’re Kodak: going from number one in the world to, within three years, losing a $12 billion industry right out from under their feet to a company they had never even heard of before. A company that didn’t even make cameras. Do you know who destroyed Kodak? A little Finnish company they had never heard of called Nokia. A company that didn’t make cameras—until they did. Within three years they made half a billion cameras and destroyed Kodak. Tower Records dominated the music industry. Within four years they disappeared. Why? Because MP3s gave people choice.
IBM used to be the most unshakable company in computers. They guaranteed quality. In fact, buying anything but IBM was a sure sign that you were a loser. Then Linux happened. Linux shook IBM to the core because it subverted the very basic idea that in order to deliver quality engineering, in order to deliver the best computers possible for the serious work of banking, engineering, and government operations, you needed IBM. You needed a closed, controlled, carefully organized system built by serious Ph.D. engineers.
Back in 1992 when Linus Torvalds said, “I’m going to build an operating system in my dorm room because I can’t afford to buy an operating system,” that idea seemed completely preposterous. Operating systems were enormous edifices of complexity that took thousands of engineers to build. Linus Torvalds started simple; he started building an operating system. Six years later, Linux had started dominating the computing industry and Sun Microsystems was beginning to feel the pain. Eight years later, Sun Microsystems was heading into bankruptcy, HP was getting bought, their computer division was shutting down, and IBM stepped out of the personal-computing business.
Now, 80 percent of the cell phones on the planet run Android — which, by the way, is Linux. The servers they connect to run Linux. The banks we use run Linux. The entertainment systems we use run Linux. The cars we drive run Linux. You can always tell if they stop running Linux: the little blue screen that greets you that says, Bleh. Sorry. Crashed. Wrong choice of operating system. You get into a plane, the entertainment system boots up, it’s running Linux. If you said to an IBM engineer 15 years ago, “You are about to be destroyed by an operating system built by a Finnish student in their dorm,” they would have laughed at you.
Here we are today, and bitcoin is taking on the entire banking system, the most powerful industry in the world. Guess what? Bitcoin’s going to win. It’s going to win for a very simple reason. It’s not just going to win because it’s better. It’s not just going to win because the banking system is run by gangsters, crooks, and some of the most immoral empty suits in the world. It’s not just going to win because the banking system has spent the last 50 years delivering just two consumer innovations — ATMs and credit cards — and then spent the rest of the time trying to figure out how to fleece you. It’s going to win because it’s open. In a world of tinkers, of experimenters, of makers, open wins. The reason it wins is that it allows innovation to flourish at the edges.
Bitcoin is a completely open network. Anyone can connect to it. You can write an application right now, connect to the bitcoin network, and teach it to do something new. You can write a new financial service. You can write a new financial instrument. When you do so, you don’t have to identity yourself to the network, you don’t have to get permission from anyone. You don’t have to be vetted. You don’t have to be secured. The network doesn’t fear you because its security doesn’t depend on keeping bad actors out. In fact, bitcoin works fine with plenty of bad actors right in the core of the system because there is no core of the system; there is no center. It’s a completely decentralized system. What happens when you create a network where open access to financial services is possible? Where, for the first time in history, anyone can connect and write an application?
When you have these two environments running side by side — the banking environment where everything requires permission, which is most certainly not granted, and a system which is completely open, where innovation happens at the edge without permission — guess who wins. Guess where all of the exciting things happen. Guess where all of the innovation happens. This is innovation that serves consumers.
No one is sitting on bitcoin and trying to find a way to front run a high-frequency trading algorithm so they can squeeze 3 microcents about four microseconds faster than the other giant bank that’s playing with algorithms. No one’s trying to find a way to screw you out of your overdraft facility, an innovation that was pioneered by one of the big banks, I think in 2007. They realized that if you were close to the overdraft limit, if instead of running the big transaction first they flipped the order of the transactions and ran a lot of small ones, you’d pay a 25-dollar fee for every one of them, and they could maximize their fees. That’s the kind of innovation they were focused on. So, they innovated more ways to screw their customers. In bitcoin, nobody’s doing that kind of innovation. The reason they’re not doing that kind of innovation is because in bitcoin you can’t force someone to take your app.
Dumb Networks, Innovation, and the Festival of the Commons
Bitcoin is not a smart network. Bitcoin is a dumb network. It really is a dumb network. It is a dumb transaction-processing network. It’s a dumb network for verifying a very simple scripting language. It doesn’t offer a complete range of financial services and products. It doesn’t have automation and incredible features built in.
Bitcoin is simply a dumb network, and that is one of its strongest and most important features. When you design networks, when you architect network systems, one of the most fundamental choices is this: do you make a dumb network that supports smart devices, or do you make a smart network that supports dumb devices?
The Smart Network – Phones
The phone network was a very smart network. The telephone at the end of that network was a very dumb device. If you had a pulse-dialing phone, that thing had maybe four electronic components inside it. It was basically a switch on a wire with a speaker attached to it. You could dial by flicking the hook up and down fast enough.
The phone was a dumb device; it had no intelligence whatsoever. Everything the phone network did was in the network. Caller ID was a network feature. Call waiting was a network feature. And if you wanted to make the experience better, you had to upgrade the network but you didn’t need to upgrade the device. That was a critical design decision because, at that time, the belief was that smart networks were better because you could deliver these incredible services just by upgrading the network for everyone.
There is one small disadvantage with smart networks. They have to be upgraded from the center out. And that means innovation occurs at the center, by one player, and requires permission. As a result of smart network design, innovation only happens when a feature is needed by all of the subscribers of the network, when it is compelling enough to disrupt the function of the entire network to upgrade it.
The Dumb Network – Internet
The internet is a dumb network. It’s dumb as rocks. All it can do is move data from point A to point B. It doesn’t know what that data is. It can’t tell the difference between a Skype call and a web page. It doesn’t know if the device on the end is a desktop computer or a mobile phone, a vacuum cleaner, a refrigerator, or a car. It doesn’t know if that device is powerful or not. If it can do multimedia or not. It doesn’t know, it doesn’t care.
In order to run a new application or innovate on a dumb network, all you have to do is add innovation at the edge. Because a dumb network can support smart devices, you don’t need to change anything in the network. If you push intelligence to the edge of the network, an application that only has five users can be implemented so long as those five users upgrade their devices to implement that application. The dumb network will transport their data because it doesn’t know the difference and it doesn’t care.
Bitcoin’s Dumb Network
Bitcoin is a dumb network supporting really smart devices, and that is an incredibly powerful concept because bitcoin pushes all of the intelligence to the edge.
It doesn’t care if the bitcoin address is the address of a multimillionaire, the address of a central bank, the address of a smart contract, the address of a device, or the address of a human. It doesn’t know. It doesn’t care if the transaction is carrying lots of money or not much money at all. It doesn’t care if the address is in Kuala Lumpur or downtown New York. It doesn’t know, it doesn’t care.
It moves money from one address to another based on a simple locking script. And that means that if you want to build a new application on top of bitcoin, you can upgrade the devices and you can build an application. You don’t need to ask for anyone’s permission to innovate. Write the app, launch it on your endpoint, and bitcoin will route it, because bitcoin is a dumb network.
That is the power of innovation on the internet. It’s innovation without permission. It’s innovation without central approval. It’s innovation without a broad network upgrade. And that means bitcoin is not a specific financial network. It’s not a financial network for large transactions or small transactions, fast transactions or slow transactions. It’s whatever you want to use it for, based upon what you choose to do at the endpoint.
Compare that to the current banking system. The current banking system is built around very smart networks, absolutely and tightly controlled to deliver very specific applications to very dumb endpoints. Even with your most sophisticated online banking, all you can do with your bank is access some HTML that delivers a set of services that they decided they were going to give you. You get no APIs, no ability to run additional applications, no ability to upgrade or innovate or change anything unless the entire network changes to support your new application. The current system has networks for large payments, small payments, or fast payments, but it’s not all of the above. Bitcoin is all of those things because it’s not discriminating, it’s neutral, it doesn’t care, it’s dumb.
The power of pushing intelligence to the edge, of not making decisions in the center, moves the innovation into the hands of its end users and gives those end users the ability to build applications that are so niche that only a handful of people around the world need them. And they can build those applications without asking for anyone’s permission.
Accelerating Innovation
You cannot stop this. That’s why I’m excited to be in the bitcoin space: a dumb network that puts all of the intelligence and innovation at the edge so that we can innovate without asking anyone’s permission, and we can participate in this incredible festival of the commons.
Infrastructure Inversion
Every time you have a new technology that is disruptive, in the first few years of its adoption it has to be carried by the existing technology that it is disrupting
Infrastructure for Horses
Looking at that history, one of the really interesting things to me is that in the beginning, the disruptive technology has to live in a world created for the technology it’s replacing. When you first ride your brand new automobile in a city, you are riding on roads used by horses with infrastructure designed and used for horses. There are no light signals. There are no road rules. There are no paved roads.
On roads not designed for automobiles, in mud. And what happened? The cars got stuck because they didn’t have balance and four feet.
From Horses to Vehicles
Often, new technology must first use the infrastructure of the technology it will eventually replace. In the beginning, automobiles had to use roads designed for horses. Eventually, we started paving roads. Then, something really interesting happened. When you pave roads and make them suitable for vehicles, the old technology (horses) can still use them.
Flat, paved roads not only allow the automobile to exist, allow the horse to comfortably exist, but they also open the door for new technologies. Now, you have people riding Segways, scooters, skateboards, rollerblades, pushing prams and all of the other things that are moving around on our streets.
That’s an infrastructure inversion. You start with the new technology living on the old infrastructure and then, it flips. You build infrastructure and then the old infrastructure rides on top, on the infrastructure designed for the new technology.
From Voice to Data
Then, we had one of most spectacular examples of infrastructure inversion that I have ever seen and that I recall from history. When, first, the internet was not wanted and carried over phone lines reluctantly. Then, the internet was carried over phone lines by phone companies becoming internet service providers. Then, gradually their backbones become data-oriented. Then, their entire network becomes digital. Then, their entire network starts running over the internet. Then, they start running all of their phone lines on top of the internet. Today, every single phone call you do anywhere in the world is carried over the internet, with a few exceptions at the edges in some developing countries. A complete infrastructure inversion.
From Banking to Bitcoin
Now, we have bitcoin. We have a decentralized trust platform that can do settlement of transactions on a global basis without intermediaries. But we’re still living in the old system. Today, we have to use exchanges tied to traditional bank accounts, or use IBAN transfers, or credit cards. Today, we’re riding the automobile along the muddy roads of banking. The bitcoin supercar, the Formula One of finance, is riding along on the muddy roads of 1970s mainframe-based banking, and it’s a bumpy road.
Currency as a Language
Authority by Production
There used to be a time when if you wanted to read authoritative opinion, you bought a piece of paper from an organization that had a printing press that was three stories high and four football fields long and had a really great name, like The New York Times. That organization could buy ink by the barrel, and through that ownership of this enormous manufacturing facility, they had the weight of authority. We imbued authority into these institutions, and we used that authority to decide which opinions mattered and which opinions didn’t. We used them as gatekeepers of authority to give us guidance in understanding opinion.
Then, the internet destroyed all of that, because suddenly anyone could print, anyone could publish.
Bitcoin Design Principles
Primates and Money
In fact, we see money emerge within other species. Highly intelligent species like primates, certain types of birds like crows, even marine mammals like dolphins have forms of tokens that they use to express value to each other. Or they can very quickly learn the mechanics of money. You can teach primates that if you turn in this pebble, you get a banana. And then watch, within a very short period of time, how that not only becomes a part of the primate culture but gets passed down to the next generation, and they start inventing economic activities. Not nice economic activities. They invent strong-armed robbery: beat up the other monkey and take its pebbles, so you can get bananas. They invent sexual favors for pebbles, so you can get bananas. They invent some of the earliest economic activities.
No Coins in Bitcoin
So, you’ve got a “wallet” that doesn’t contain “coins”—because the coins are actually on the network and they’re not coins, they’re outputs—and what you’re really holding is a keychain. Transactions are not from a sender to a recipient. Addresses don’t have balance in bitcoin. There’s no such thing as a balance of an address. An address controls outputs, and if you trawl through the blockchain and add up all of the outputs, you can figure out some notional balance. Whether that’s actually spendable or not, how much it is, is actually quite difficult to determine. There is no “balance.” You have no “account” in bitcoin.
Elements of Trust: Unleashing Creativity
Building Blocks of Cooking
As I grew older, I started getting into cooking as a hobby. What I loved about cooking is that it is the perfect combination of art and science. If you fundamentally understand how the ingredients work, how they behave, and how the chemistry changes when they’re combined or when you add a catalyst like salt or when you apply heat to them, then you can create. You can create almost anything. As long as you understand how the ingredients work, you can execute and deliver anything you want to create.
Scaling Bitcoin
Scaling is a Moving Target
Scaling is a moving target. Scale defines the edge of today’s capabilities. As it moves forward, capability increases
Spam Transactions, Legitimate Transactions, Illegitimate Transactions
Bitcoin doesn’t care who the sender or the receiver is, what the application is, what the value of the transaction is. All it cares about is, did you pay the fee? If you paid the fee, your transaction is legitimate by definition because you thought it was legitimate enough to attach that fee. The very act of paying the fee legitimizes the transaction. If we start making decisions about what is spam and what is not, we are now choosing the future of bitcoin and constraining it into a set of applications that we can imagine.
