Bitcoin is not blockchain. That would be like saying “recruiting is Software as a Service.”
Blockchain is a somewhat new computer architecture (like SaaS) and Bitcoin is simply the first (and for now, the most notorious) application built on it.
Frankly, I was hoping to have retired from writing this column before learning the intricacies of blockchain, let alone explaining them and their potential for HR. HRE editor Andrew McIlvaine already started that with a solid story last May.
He explains it is a shared database called a “distributed ledger” in which each transaction (or “block”) is replicated across thousands of computers. No single block can be altered unless all the computers (or “nodes”) are in agreement, thus creating a highly secure and (theoretically) tamper-proof medium.
But I imagined I would need to do more until the arrival of a new book just before the end of last year by a wise former colleague and friend: The Blockchain and the New Architecture of Trust by Kevin Werbach..
For four-and-a-half years starting in 1998, I drove myself crazy after Kevin became the primary author of Release 1.0, my college friend Esther Dyson’s leading computer-industry-insider newsletter, and I was suddenly responsible for editing his copy, too.
The craziness came because after graduating summa cum laude from Berkeley and then serving as an editor of the Harvard Law Review, Kevin’s writing was as, as we say in the editorial biz, “pretty tight.”
Plus he had just served as counsel for new technology policy at the Federal Communications Commission, where his working paper “Digital Tornado” was largely credited with the Clinton administration’s decision to keep federal regulatory hands off what was then still a toddler Internet.
Did I say “tight”? Kevin’s writing was bulletproof; his reasoning and structure, unassailable. Every month I poured over his new issue four, five or six times in a largely futile attempt to find some way to make the argument stronger or the writing better, simpler, easier to understand. That rarely happened.
So before opening his book, I e-mailed him to say I expected his explanation of blockchain to be the clearest and simplest ever written. After my painful past, I am truly delighted to tell you it is definitely not!
Not because his last 15 years as professor of legal studies and business ethics at the Wharton School has cluttered up or weakened his prose. But because he has taken an enormous bite out of the blockchain apple, just as he did out of the Internet two decades earlier.
He hardly limits the book to explaining how blockchain technology actually works, something he points out even seasoned experts often find difficult to grasp. Perhaps because it combines elements of cryptography, computer science, economics and political theory, among other disciplines.
As recently as August 2017, as he cites in the footnotes (read the footnotes!), Wired published an article titled “Bitcoin Makes Even Smart People Feel Dumb.”
Kevin goes far beyond that by examining the intersection of business, policy, law, trust and ethics with this emerging technology, which is just what he does as a Wharton professor. So hold on for a tough ride, but when it’s over you will really understand why blockchain matters. And like me, stop ignoring it as a nerdy fad.
For me, the book is most fascinating for the second part of the title: his elucidation of trust and how blockchain may offer a new social model for it.
My apologies if any of this was in Francis Fukayama’s book Trust, which I failed to read, but Kevin lays out three established “trust architectures”:
- The first is “peer-to-peer,” where the group that’s interacting and transacting is small enough that everyone knows everyone else and trusts them.
- The second is called “Leviathan” (yes, borrowed from Thomas Hobbes), where people grant a monopoly on the legitimate use of violence to the state, which prevents others from gaining advantage through trickery or force.
- The third model is various “intermediaries,” which provide valuable services for which people are willing to give up some power or control. Kevin cites credit bureaus as having great authority because they make so many financial transactions possible. In fact, financial services may be the best example of intermediary trust.
Blockchain depends on none of them. With blockchain, the idea is to trust the system without trusting any of its component parts.
As he points out, “The blockchain does not eliminate the need for trust. It represents, rather, the reemergence of trust in a new form.”
There is no master copy of the blockchain: no authority, no one in charge of it. Everyone has his or her copy of the ledger and the only trust is that all those copies are the same.
While he never quite says it, Kevin clearly sees blockchain as potentially game-changing as the Internet. Just at the intersection of law, he writes:
“In fast-changing environments, there is a danger both of regulating too early and of regulating too late. The best approach is…to assess the risks of each. Law and the blockchain are bound to engage in a shifting dancing. This begs the questions of what values should shape their relationship. Technology implemented in the world is never neutral. Transformative innovations can have various impacts based on their technical architectures, as well as the legal regimes under which they operation. Decisions made early on have an outsized impact. Once architectures and legal environment are put in place, they often become increasingly difficult to change.”
Happily, Amazon’s free book excerpts include the introduction and the first chapter, where much of this is laid out. Read them and decide for yourself. If you read it, let’s get together on some suggested edits for the next printing.