Karim Lakhani: Today I’m going to spend some time with you to talk about blockchain. The basic element of the blockchain is a ledger. A ledger basically keeps track of transactions between parties. The ledger has a bunch of entries. Now, the thing about this ledger is that it's not just sitting in one company or with one person, but the ledger is in many, many places itself. And it's duplicated across the world. You can have as many copies of the ledger as you want.
The second thing is that these are all connected in a peer-to-peer network. Ok? So the connections go between the peers. So there is a transaction record in blockchain. Then there is a peer-to-peer connectivity amongst them. And what this does is that there's no single bottleneck that exists, that as transactions take place, the evidence of that transaction taking place is replicated across all the holders of the ledger.
Thirdly, there is a notion of sort of transparency with what we call pseudonymity. Just as in email, you can have firstname.lastname@example.org as your email address, or email@example.com, or firstname.lastname@example.org as your address. Similarly, you could be pseudonymous here. You can hide your identity on the blockchain.
But the transactions that take place between Karim and Secret Person are actually recorded. So the transaction recording takes place, but you can remain anonymous on this setup. Then there's a notion of irreversibility, which means that, as transactions take place, and they are committed to the ledger, it's very difficult—so I’ll put that under quotations—It's very difficult to go back and change the transaction.
Let’s say I sent you $100 through the blockchain, and then two days later I changed my mind and I wanted this money back. I could come back and try to refix the transactions in the ledger if the transactions were not irreversible. And so this is where some of the magic of the blockchain happens, where we do a computational proof to ensure that the transactions are locked in.
So in order for you to change any one transaction up here, you'd have to go back and reverse all the other transactions as well. And it's a massive computational task. And that's why the irreversibility of the blockchain matters. And then finally, there is the fact that the blockchain is programmable. We can build in software logic into our transactions.
Say for instance, you are a shipper, and you're shipping something from point A to point B. And when the GPS coordinates of the truck match with the location of the warehouse, there's a transaction that takes place based on the location of that truck arriving at the warehouse to release the money. You can create that kind of a programmability into the ledger technology that exists. So these five things help us understand how blockchain works.
But in many ways, this is the same way as email works. There's no central node in emails. Our email traffic traverses the internet and find its way to us through peer-to-peer connections. We're looking for address A to address C, and then transactions can go there and make it work. Now, why should you care?
Well, first of all, look, there's a tremendous amount of press, right ? If you did a search on blockchain, there’s a ton of press. So this is just going up exponentially. The value of Bitcoin, which is sort of like the underlying force, application of blockchain, that’s through the roof. There's always some story about the blockchain in the business press. So the press is going crazy.
Secondly, there is a ton of investment in blockchain startups. So over the past four years, five years, there’s been over a billion dollars invested, $1 billion invested, in about 300 companies that are trying to do something with the blockchain. All right? So we're seeing a lot of interest from the VC community. And although VCs tend to move in herds, there is some wisdom to the things they're going after.
And then you see this much interest across the board in the VC community, you want to start to pay attention to this. The third thing is that some of the most conservative institutions in the world, banks, banks are going fully into this. So if you look at the portfolio, the technology portfolios of banks, what you see is a whole range of them are now investing in blockchain in terms of operational effectiveness that they need to do, and what they see as the potential for the blockchain.
And finally, what we see is an explosion of new applications. People are dreaming up things that we didn't think we're possible before in terms of boring technology called ledgers. Now, the way to start thinking about it is can you imagine, you know, all the applications, all the uses of recordkeeping, and where they're being done, and then from there start to think about where is there coordination burden.
If all of a sudden you could share the ledger with other parties, then all of a sudden you can start to imagine that this is going to have –beginning to have some value for you. First, identify the applications that you think are low-hanging fruit for you to try. Then, there is build the prototype. There are so many tools now available online where a competent person in technology, in IT could starts to build the first set of prototypes.
The third thing is identify organization change. As soon as you change the logic of the ledger, as soon as you change the logic of how records are being kept and who keeps them, you're going to run into organizational change efforts. And then finally, scale to outside of your organization, because I really think that this is where the real benefits of blockchain will come, when you can take this notion of the ledger and apply it as an open ledger available to important parties in your ecosystem that you can start to build trust with each other by having a shared open ledger system take place.
Now, that doesn't mean you're going to be out in the public internet, right? Because just as you have a local area network, you have a VPN, you have the same thing with blockchain. You can have private chains that are only connecting certain people, certain organizations together. And that can also take place. This view of the ledger, of a distributed hyperledger in the world is revolutionary in the sense that, since the days of commerce, since the days that we started keeping track of transactions, the transaction records were always private.
Now, we're going to make them open and public. That reduces the cost of transactions that take place, and because the technology is inherently digital, we can build in a whole lot of programmability into the technology itself. Blockchain is a foundational technology for transactions, for the lifeblood of most organizations. And the trick is going to be for us to figure out the applications that we can now start to build on top of this technology.