Blockchain: A credit machine that cannot be shut down once it is started

This article is the postscript I wrote for the book Blockchain: From Digital Currency to Credit Society (CITIC Press, pre-sale address). Recently, the DAO incident has triggered a dispute over the attributes of blockchain, so it is quite appropriate to publish it now.

If I were to use the invention of one thing to compare the birth of blockchain, I would choose the printing press. They also affected the course of history and, in turn, people's perception of resources and transactions.

Before the printing press, people dealt with knowledge in the same way as they dealt with competitive resources, such as a handwritten Bible, a military manual, or a manufacturing process manual. After the invention of the printing press and the computer, knowledge was no longer a competitive resource, but a commodity that could be produced on a large scale. "Everything is becoming software. After the printing press was invented, there will be as many software companies as there are words written by humans in the future..." But the problem with this is that in the digital world, it is difficult for us to prevent resources from being copied. We cannot sell music, software, and other electronic resources like we sell potatoes unless we introduce trusted third parties to manage our wealth, prove our identity, protect our intellectual property, and evaluate our credit... However, the advent of blockchain may put an end to this situation.

If the significance of the printing press is to extract information resources from the constraints of the physical world and turn them into non-competitive resources, then the blockchain plays a completely opposite role to the printing press, processing information resources (non-competitive) in the same way as competitive resources. People can get rid of their dependence on trusted third parties and freely exchange digital currencies, intellectual property rights, equity and even real estate ownership in the digital world. Although the two have opposite ways of processing resources, they have the same impact on the change of discourse structure.

In the Middle Ages, the church monopolized knowledge and education. Ordinary people did not have the right to directly read and interpret the Bible, and the church could interpret the Bible as it pleased. Similarly, in order to monopolize the manufacturing process of goods and exclude foreign competition, the industry unions strictly controlled the publishing and printing of manufacturing process knowledge. At that time, most European countries strictly controlled printing and publishing through a licensing system, and the power was in the hands of the Catholic Church and the government. The industry unions conspired with the Catholic Church and the government to censor the publication and circulation of craft knowledge.

Perhaps, it is difficult for us today to understand how printing a copy of Geometry without permission could be a crime. But think about it carefully, isn’t a centralized credit management agency just like a guild in the Middle Ages? If blockchain technology can replace a third party to complete the management of credit, and even manage it more efficiently and safely, why don’t we devote ourselves to it and explore another possibility?

Three years ago, I wrote the first Bitcoin monograph in China, "Bitcoin: A Real and Illusory Financial World", with my like-minded friends. Three years later, Bitcoin fell silent, and some of my once enthusiastic friends disappeared without a trace. Fortunately, more people persisted and saw the potential of blockchain from the underlying technology of Bitcoin. As a result, this book has more visionary colleagues joining in. They are scholars, researchers, programmers, entrepreneurs, and they contribute their thoughts and enthusiasm in their respective fields of expertise, such as economics, management, finance, law, entrepreneurial practice, etc.

In the process of drafting, we did not blindly seek for a unified understanding, but advocated that each party freely give play to its strengths in its professional field. The idea of ​​blockchain is like a polyhedral dice. At present, one side has been revealed, namely digital currency. We all admit that Bitcoin is the first successful blockchain application, but which side of the dice will be thrown next? It is an unknown. Everyone has his or her own understanding of blockchain in his or her mind, and it is difficult to say which understanding is more sophisticated and far-reaching. Just like the subtitle of this book, it has twists and turns. At first, Da Hongfei advocated calling it "From Digital Currency to Programmable Society"; later, Professor Han Feng proposed "From Digital Currency to Credit Agreement Foundation", and Professor Yang Tao and Jiang Hai proposed "From Digital Currency to Value Interconnection"...

The programmable society focuses on the powerful scripting function and scalability of blockchain. Blockchain uses specific algorithms to calculate the authenticity of rights, credit and identity. These algorithms are supported by powerful encryption technology and can flexibly write different smart contracts according to different application scenarios.

The foundation of the credit agreement focuses on the irreversibility of blockchain transactions and the immutability of data. It should be pointed out that credit has two implications here. The first layer is trust, which solves the problem of honesty in transaction behavior. The invention of consensus mechanisms such as proof of work eliminates the reliance on trusted third parties, ensures the authenticity and reliability of transactions through distributed networks, and eliminates the possibility of double payments and transaction rollbacks. The second layer is credit, which solves the problem of honesty of the transaction object. The authenticity and reliability of blockchain credit can allow two strangers to trade with each other, or complete complex smart contract behaviors such as lending and guarantee transactions. In essence, it uses the blockchain timestamp to make real transaction behaviors and credit-brushing transactions distinguishable in probability distribution.

The Internet of Value focuses on the way blockchain processes non-competitive resources in the same way as it processes competitive resources. Some people say that blockchain is the second great era of the Internet world after the World Wide Web. If the World Wide Web realizes the Internet of Information and moves competitive resources to the digital world, making the marginal cost of copying infinitely equal to zero, then blockchain realizes the Internet of Value and can process competitive resources in the digital world, making it difficult for attackers to bear the cost of 51% attacks and tampering with transaction records.

Some people also understand blockchain as a shared ledger. The European Central Bank and the British government have both published reports on shared ledgers, focusing on the blockchain as a distributed ledger, aiming to improve its own business processes and the quality of service to citizens and users from the perspective of government functions and different interest groups, and to improve the efficiency of financial markets, supply chains, e-commerce, and the registration of listed companies. However, viewing blockchain as just a distributed accounting system is a misunderstanding of buying a box and returning the pearl. The distributed accounting function is just one of the many features of blockchain. Shared ledgers only see the innovation of blockchain at the database level, but ignore the innovation of blockchain at the Internet protocol level of establishing credit.

The Economist compares blockchain to a trust machine. The machine is the visualization of smart contracts. Each smart contract is like a cellular automaton. Through simple rules, it constructs various transaction behaviors, which greatly optimizes the circulation efficiency of social resources. Blockchain transforms our trust in authoritative third parties in the past into trust in algorithms and mathematics. But trust is only the first layer of credit, which is aimed at the transaction behavior itself. The term credit machine has a fuller connotation, because blockchain can also establish the credit of the transaction object. A person's blockchain transaction history is enough to prove his integrity record, and this record is exclusive and cross-platform. However, even the term credit machine is not comprehensive enough. As Pan Zhibiao pointed out, blockchain is not an ordinary machine. Most machines can be turned off, but blockchain is a distributed system. Once it is started, it cannot be shut down. In the end, we chose the subtitle "From Digital Currency to Credit Society" because we believe that with the transition from information Internet to value Internet, blockchain will eventually moisten things silently and penetrate into all aspects of society.

Yes, blockchain is a thought, a collection of many open source projects, and a "general ledger" of countless brainstorming sessions. Technology will be eliminated, inventions will become obsolete, and companies will go bankrupt, but distributed thought will not. Just as the birth of the printing press disintegrated the monopoly of knowledge by medieval guilds and churches and reshaped the social power structure, blockchain technology will also fundamentally change our understanding of resources and transactions today, and change the way governments, companies and individuals participate in economic behavior. Tocqueville said in "Democracy in America": "The invention of guns and cannons made slaves and nobles confront each other equally on the battlefield; printing opened the door to information for people of all classes, and postmen delivered knowledge to huts and palaces equally." Now, the times can add a new footnote to this passage: blockchain has started a credit machine for us, allowing governments, companies, institutions and individuals to appear as equal nodes on a distributed network, each managing their own identity and credit, and sharing an unchangeable general ledger of transactions.

Although blockchain technology itself is still imperfect and is like a crude toy, don’t forget how people evaluated the telephone when it was invented in 1876. In the memorandum of the Western Union Telegraph Company at that time, it was written: “The telephone has too many problems and is not a communication method worth considering. It is basically of no value to us.”