Brendan Blumer of Block.one discusses the state of the blockchain ecosystem and its effect on government, regulation, and digital commerce at the Washington DC Blockchain Summit, hosted by The Chamber of Digital Commerce and Georgetown University’s Center for Financial Markets and Policy on March 6-7, 2019.
As it’s full of valuable quotes (like many of his talks), I wrote this searchable transcript, including a table of content:
- What is blockchain, and why is it important today?
- What’s the difference between Blockchain and Cryptocurrencies?
- Blockchain for Government
- The Effect of Blockchain on National Security and Military
- Blockchain Mass adoption
- Example: An Insurance Company on the Blockchain
- Retail Banking and Blockchain
- Influencer Marketing and Blockchain
- Can Bitcoin fix Hyperinflation?
- The Role of Blockchain in Cybersecurity
- What’s Beyond Blockchain?
- Performance in Distributed Systems
- Governance in Inter-blockchain Communication
In simple terms, what is blockchain? And why is it important today?
Really, in a very simple way, a blockchain is just a more secure way to send and store data, and what’s that ultimately leading to is an infrastructure rebuild of the internet as we know it today.
If you think about it, when the internet was initially designed, we were very lax on regulations and allowed every innovation to flourish, which was absolutely the right strategy, but it was really being built on fundamentally insecure rails. If the rails had been secure, we wouldn’t need things like PayPal to sit between me and you when I transfer you money.
It also means that a lot of centralized technology platforms are architected in an inferior way because it was built under the assumption that all data transfer and storage were fundamentally insecure.
So in a very simple way, what we’re working with is a new building block now, that allows us to much more securely or confidentially transfer and store data in a way that we know is reaching point A to point B without being intercepted, without being decrypted.
Then, through transparency, it creates effectively a nearly an immutability-like dynamic, because it is open-sourcing the databases on the back-end so that everybody can seize all the types of activities that are going on in these databases. What that means is that if there is a change in those databases, or if there’s a change in how things are calculated – that can happen, people can make those changes – but everybody can see that they happened.
So it’s sort of opening up the back-end of your database and giving that degree of transparency into datasets where normally was a wall, an obstacle to that transparency. So, I like to see the internet is really just leading us to a new infrastructure for digital transfer and storage. One that is fundamentally secure.
What’s the difference between Blockchain and Cryptocurrencies?
It’s a great question and it’s easy to get confused. Cryptocurrencies are really just a unit of account. They’re just like an Excel spreadsheet.
You can use them to keep track of anything, which means that cryptocurrencies can be everything from utility tokens, or you can have a currency that represents our presence at this conference today.
Cryptocurrencies can be a security, right? You can have them securitize assets, you can put securities on these new fundamentally secure rails.
They can be commodities, they can be anything imaginable. Cryptocurrencies are really just a new unit of account, that allows us to keep track of anything, and blockchain is the underlying technology that enables that.
Blockchain is really just the database behind everything that keeps things fundamentally secure, and cryptocurrencies are just one way to leverage them. It’s our Excel spreadsheet for how we keep track of value and units on the blockchain.
Blockchain has I think great implications for governments, and I know you’re getting ready to come to Washington. It will be better to have you and your organization here. What are some of the implications for governments of using blockchain and can it be used and why use blockchain for military affairs?
Ah, great question.
So, one of the big opportunities, what I keep saying, is that blockchains are going to turn government’s more into development platforms.
If you take a look at how governments are structured today, most of the enforcement and execution of everything that it does is nearly outsourced. We outsource the enforcement of the entire financial system to private organizations like banks etcetera, which then enforces policies.
Once you take something like the US dollar and you put it on the blockchain, you allow the blockchain or the US dollar to be programmable itself. It turns the currency into a development platform that people can integrate with.
Now, when we build products and services, we do so around the constraints of the US dollar, and there’s a lot of them:
- We can only make transfers every so often,
- they’re expensive;
- they’re slow.
We build our products around those constraints.
But, in the future, once jurisdiction in tax law is coded into the dollar itself, businesses can actually build their technology stacks on top of government like fiat currencies.
This is going to drastically change enterprise, and how enterprise interfaces directly with the government, opposed to through third party enforcement arms, or traditional banking systems, or traditional legal systems.
It allows governments to extend jurisdiction and automate regulation at a level that’s never been happened before.
And sometimes we think “automated regulation, well that’s scary”, but the reality is, by automating regulation, you start to digitize how things function. It removes a lot of ambiguity for businesses on how it actually should work.
When there are real hard rules coded into the currency itself, it makes it a lot easier for people to be compliance, and it makes a lot easier for people to build things right from the get-go, that are actually aligned with what the government’s looking to accomplish on behalf of the public, but also what the business is looking to do in terms of delivering innovation to the community.
Military. how does it impact the military and how do you see the military using blockchain to its advantage?
Well, I think that fundamentally introducing secure rails of data transfer, fixes a lot of the national security issues that we have today here in America. Seemingly overnight in the last 10 years, we woke up and we realized that one of the biggest security threats for our country was Facebook, right?
Now, all of a sudden, we’ve got immense amounts of data. Data is the new oil, and it’s all floating around in ways that even the biggest companies in the world can’t protect it.
You hear about it every week; some big companies that we all rely on as part of our mainstream infrastructure, to protect the most important data you know to ourselves, things that represent our identity.
I always say identity is the most valuable thing that you have, that you don’t actually own. It is everyone else’s perception of you.
It’s being spilled all over the place in ways that any individual cannot control. If you look at DNS, it’s fundamentally insecure. I’m always worried that someone’s gonna hijack Block.one. Not because of what we do, but because DNS, built on the existing rails, is fundamentally insecure.
What it’s going to do is start to close a lot of security loopholes that actually military and government need to worry about today.
When you get into fully identified social media networks where people can actually put their personal information on the blockchain, in a way that the company or the platform that actually enabled that functionally, doesn’t even have access to.
When you’re giving your friends a private key to see your information, but the actual blockchain it’s run can’t access your personal details. What it does is it closes a lot of those security loopholes that the government needs to worry about today, that they wouldn’t have to do so in a more secure world.
Well, this is all interesting. How far away is all this change going to happen? And when it does happen, this new digital infrastructure, is it going to be felt by individuals? How will we feel it?
Right, this is a great question. I always talk a lot about what this future world looks like when blockchain and tokenization take over. One of the big questions as always “why hasn’t that happened yet?”
There is very much a gap between what we know blockchain is capable of, and the underlying ability for existing protocols and existing blockchains to scale, and meet the performance required to actually have mainstream adoption, but that’s changing.
If you look at projects like EOS, or any other types of things out there, we’re starting to solve some of those issues. If you look at the first you know blockchain, let’s just say Bitcoin. Bitcoin is fundamentally transformative in how we will do everything going forward, but actually:
- a transfer takes an hour,
- it’s expensive, if you look at the dilution we pay for through new inflation on an annual basis, you’re talking 50 to $100 per transaction and …
- it can only process about three transactions a second for every person on the network.
So, huge scaling limitations with the way that they were initially architected.
As we move forward, we’ve now built blockchains that scales up to tens of thousands of transactions per second, nominal costs, one-second confirmation-times, but the next big stage is inter-blockchain-communication, where you can have millions of blockchains seamlessly working on the back-end, that can scale.
That is what it’s going to take to build something to put every like on the blockchain, to put every piece of content, to put social media, Uber, Airbnb, all of these things on the blockchain. We’ve needed infrastructure that can scale, and that is happening this year.
In terms of how consumers are going to be felt, what’s happened is now that we have secure data transfer, we can re-architect virtually every business out there, and we can start to align the beneficiaries of platforms with the actual user base.
So, the next version of Facebook, for example, it doesn’t look like a private organization that harvests people’s data and sells it. It leverages open-source code.
If you look at open-source code bases of the last decade, they’ve been the fastest-growing types of codebases out there, but there hasn’t really been a monetization model to it. It’s all been, despite there not actually being any way to make money through open-source code, historically, besides just contributing as a hobby, blockchain is now putting a ring-fence around open-source communities, and allowing communities to disrupt companies as we know them today.
So, the future of Facebook looks something like an actually distributed community, where the blockchain is autonomously recognizing the value that is contributed through content, through content consumption.
It emits tokens to these participants, and the advertisers buy those tokens in order to advertise on the platform.
What you ultimately do, is you use an open-source community to create a competitive organization that could disrupt traditional corporate structures.
So, my believe is that as we move into mainstream products and you start to see business models change, and you start to see communities offer competitive products and services, which thrive more value back to the users, opposed to a group of shareholders, that doesn’t add a lot of concrete value to the platform. That’s when people are going to start to really feel it.
When insurance companies come together, where we are all mutually insuring each other, and when I have an issue that needs to get a claim for various types of things, I’m being judged by other people in similar circumstances, on whether or not they should receive that medical treatment, opposed to a group of shareholders who are just designed to extract as much value as they possibly can by denying every claim that comes in.
So, you’re going to see a big thesis of alignment through projects being governed by those that are actually affected by the decisions. And aligning the actual finances of these networks with real value creation.
You’ve mentioned disrupting the corporate structure. What is the future of the bank’s real-estate? In 10-20 years, are we going to a bank? Or will bank real-estate be obsolete?
That’s a great question, and a bit of a controversial one as well.
I always say that retail banking, where we store our money, is actually native out of the box functionality of blockchain. So, retail banking will be massively impacted. As consumers, we have very little options of how we hold our value today.
Most people don’t have the balance sheet to apply for things like an accredited investor status, and so, pretty much, our money is seconded to banks. We put it in our deposits and then it all gets pulled up through a very hierarchical system, and they invest for us, basically, and then they pay us interest.
Now, as projects move forward and they become tokenized, people are going to be able to put their value in things that they know and understand.
As you look into these decentralized communities – and I believe truly every product in the future, will have a token component to it – and what will that do?
Everyone knows those thought leaders or those people that move into a clothing brand early on because it’s cool and no one knows about it but then, when everybody moves in after them, they move on. That is going to become a career in the future.
Because the ability to expose themselves financially to the success of those early-stage projects through tokenization, is going to be game-changing.
So, right now, it’s very difficult for people to put their money anywhere other than a bank and it’s even difficult to invest in products and services you love. Sometimes you might like a specific product, but if you want to put your value behind it, you have to first see if it’s a publicly-traded company. And if so, if it is, is it a conglomerate that holds many different things, I can’t actually invest in something that is directly tight to the thing that I understand.
And so, what’s going to change is, money is going to slowly over time flow out of the banks and into direct possession of the people, and they’re going to have the ability to put it in things that they understand and be evangelists for these projects so that they can impact their own value creation.
I read a recent article in the New York Times Sunday edition, February 24th. It had an opinion article titled “Can Bitcoin save Venezuelans?”. It was written by Carlos Hernandez, an economist, and contributor to the Caracas Chronicle. He says, and I’m quoting, “In a collapsing economy, borderless money is more than a buzzword”. What do you think of this?
I think it’s a great question, and it’s more related to maybe some of the shortfalls of fiat currencies. Fiat currencies are hard to manage, and when governments are printing lots, it can quickly lead to hyperinflation. When you have a combination of a requirement to print lots of capital, and the loss of faith that that capital can hold value, so you see mass appreciation, and therefore, inflation of currency can create a very destructive cycle.
And so, there is naturally a flaw towards other forms or other ways to store value. Historically our big hedge against government currencies has always been gold, right? We rush to gold when there is uncertainty.
And actually, a lot of people think that bitcoin competes with fiat currency, but I think it’s actually a competitor to gold. It is a store of value. It has the inability to make micropayments, but it can be used in a lot of instances that gold can’t, because:
- it allows me to transfer it a little bit easier.
- I can actually be the custodian. Gold is very difficult to custodian yourselves and very difficult to transfer from one person to the other.
So Bitcoin is sort of like gold, that allows me to do global, relatively quickly transfers, without counterparties involved in the whole process.
So I think Bitcoin is a natural place for a lot of people in countries where they can not depend on the value of their own internal fiat government currencies. It’s becoming a real tool for them to escape those what would normally be catastrophic events if they were to hold all their value in government denominated currencies.
A lot of people in America have a harder time understanding the value proposition of Bitcoin and that’s because the USD is pretty good, right? It’s pretty stable, it’s become the world’s reserve currency, but that’s a luxury a lot of other companies just don’t have.
We’ve read recently as yesterday about universities in this country being hacked, especially in their engineering and research high-science areas, and this is happening all over the world. What role do you think blockchain has in cybersecurity, as relates to this very very serious problem?
If you take a look back at cryptography and its history, we’ve been using cryptography from government-to-government communication for a long time.
It’s the most secure way to send information. Someone has a private key over there and they can encrypt it and if someone intercepts it along the way, there’s not much that they can do with it.
What blockchain is doing, is it’s applying those highly led security principles to all data transfer, so naturally there’s going to be a big impact.
We’re moving from an era of “trust me”, to “you don’t have to trust me”.
There is no more trust to be given. People are not in a place where they’re going to trust people anymore and so what we need to do is, we need to create provably trustable solutions, so that people can start using them and know that people don’t have backdoor access to their data.
That push, which is going be a combination of an infrastructure rebuild, and it’s going to be driven by a consumer’s demand for trustless solutions, will naturally start to fix those problems.
When the internet was built on fundamentally insecure rails, the issue wasn’t as big of a deal, because there weren’t enough people that could take advantage and exploit the system.
Now we live in a day and age where the new generation is very computer literate, nation-states have huge amounts of teams and so it’s an arms race.
It’s literally every single large corporation, versus every malicious person in the world out there. It’s time for a complete rebuild on fundamentally secure rails, that allow companies to achieve security without an endless arms race.
Trust but verified.
You’re an entrepreneur. You’ve developed something unique, and you’re successfully marketing it all over the world. You must be thinking “what’s beyond blockchain?”. Do you think that there’s some science, some engineering, that could be beyond what we have today in blockchain?
Well, I think it’s easy to listen to the idea that blockchain is secure data transfer and storage and say “so what?”. But actually, it creates a domino effect that changes our entire world.
I always say we’ve been building with straw and hay, and now we have cement.
If you want to build skyscrapers, we gotta use cement.
Right now it’s a little bit early-stage, we can see some of the flaws, but what this technology is doing is its leading to a social revolution.
When you start to look at the downstream effects of having secure data transfer, all of a
sudden you realize that companies are defunct in their current structure, because communities full of the general population combined with open-source code, can actually create more competitive organizations than traditional corporate structures.
When you really get into it, and I’ll tell you, every day I sit in this, I see a little bit further, 10 feet further in terms of how much this is going to impact everything. I think even me, I’m at the very early stages of that revolution in terms of understanding it.
It’s sort of like when we had email, trying to imagine Facebook. It’s extraordinarily hard to even think about how those extrapolated effects …
We tend to think “How is it going to affect existing businesses?”, but what often happens is it’s the businesses that couldn’t even exist, or could never be thought of, that emerge and change our entire social system and our society, that tend to be the biggest impactors. Blockchain will have a whole host of those businesses as well.
(Audience member) One of the biggest things you mentioned was scalability. Is there potential for it to scale higher, or does it ultimately end up on having to create another blockchain that has different algorithms and can scale higher?
Blockchains do have some scaling limitations and the scaling limitations for a specific blockchain are likely to be there. There’s always gonna be lower performance in distributed systems.
When you have two systems across the world, we’re bound by the speed-of-light data transfer. To cross the world and back takes 250 milliseconds. It takes two blocks to reach finality, so you’re talking one-second transactions. Unless we fundamentally figure out how to transfer data faster, those limitations are going to exist.
What you’re going to see is platforms scale through having tons of blockchains on the back-end, but that’s going to be a seamless experience for the user.
It doesn’t matter actually on which blockchain the data is stored, as long as they can all communicate. The real key is about allowing functions to happen asynchronously but all these blockchains still remaining deterministic. This is something that we’ve been working on very closely.
I’m extremely optimistic about the near term viability of protocol-specific interoperability, meaning one EOSIO blockchain could speak to millions of them, and they could all work in concert.
I am NOT optimistic about real inter-blockchain communication through various types of
different types of technology. The integration will be very limited because blockchains are effectively governments.
When you’re trying to get EOS-logic to get enforced on Ethereum for example, there are some fundamental issues with that type of premise. It’s sort of like solving the problem “How do we enforce US jurisdiction in China?”. Those types of limitations will always exist.