A lot of people find Bitcoin and Blockchain to be very difficult to understand until they realize that a blockchain is just a clumsy little dance that a computer needs to do in order to replicate a deeply human characteristic. Making matters worse, blockchain is so new that there is very little lexicon to describe this dance – so we adapt meaning from common words such as: block, chain, fork, ledger, coin, distributed, consensus, oracle – and my favorite – “Smart” contract, etc. The purpose of this article is to describe the human condition behind blockchain, not necessarily the computer condition that seeks to replicate it.
Explain it to a 10-year old.
A few months ago, I had that moment that every crypto-parent fears. My ten year old son popped the question: “What’s a blockchain?”. How do you explain these things to a 10 year old? Fortunately my son loves soccer, so I showed him a picture of his favorite soccer player. I point out that the only reason why the net exists is to make it easy for 50,000 spectators to verify that a very difficult task has been achieved. When they see the ball contrast with the net, everyone registers their consensus by yelling and stomping.
A digital token is then created by a computer and displayed on the scoreboard for everyone to see – it is called a “Goal”. That token validates everything that has happened since the prior token was created. That token didn’t exist a few seconds ago, but now is so valuable that the players are motivated to kick the ball into the net again and again.
There is a referee on the field whose job it is to apply a set of rules that protect the consensus “on block”. The referee has the power to stop the game, but they cannot move the game backward – the game can only move forward in time. If anyone tries to interfere with the consensus, like throwing a basket ball into the net, the referee can simply reverse the play. However, the referee cannot reverse the consensus and, say, repeat the first half of the game.
Everything depends on the validity of the consensus. This is essential because while passing the ball through a net may be a trivial activity, there are employment contracts, ticket sales, community pride, youth leagues, TV rights, insurance policies and even a municipal bond that pays for the stadium – The value of all of this and much more depends on the validity of the consensus. A hot dog transaction is worth 10 dollars with this consensus and only 1 dollar without the consensus. For this reason things like deflate gate, the pine-tar controversy, performance enhancing drugs, televised replay, and player gambling are all vigorously attacked by the entire community in order to protect the consensus.
The Hard Fork:
Suppose that someone threw a basket ball through the goal and half of the crowd started cheering and stomping while the other half remained silent? Perhaps many people like to watch a game with a shorter interval between tokens, they would cheer for the basketball instead of the soccer ball and the consensus may break down.
Some people may follow the basketball and others will continue to follow the soccer ball. This is called hard fork which can have an unpredictable impact on all of these contracts. Some contracts would survive the split, and others will not. The Hard fork would have an impact on the stadium configuration and all of the player contracts, advertisers, scorekeepers, etc. However, the hot dogs will still be 10 dollars and it will still cost 25 dollars to park your car.
A hard fork, like any breakdown in consensus, has widespread implication and creates a lot of uncertainty even though neither the blockchain itself nor the exchange was ever breached. If there are too many hard forks, we may wind up back where we started before blockchain with a bunch of independent databases that can’t communicate with each other.
Your homework assignment is to describe smart contracts using this sports analogy….try it.
The Bitcoin analogy
By this time my son had long gone off to play Minecraft, but it occurred to me that the reason that blockchain is so difficult to understand is everyone is trying to explain how a computer does this clumsy dance in order to emulate a uniquely human condition. But like a fish has no word for water, we need to discover the human condition and how Blockchain emulates it, or not.
Bitcoin fits the competition consensus analogy. But instead of indexing contracts to a scoreboard, the computer software creates a series of vaults on a moving background where people can peg their transactions against the clock. But instead of tossing a ball in a net, the computer generates a mathematical puzzle and players, called miners, compete to solve the puzzle. The puzzle is difficult to solve but easy to verify so everyone can quickly arrive at a consensus that the goal has been achieved – and then the vault closes. The player who solves the puzzle receives a bunch of digital tokens called bitcoin. Then software creates a new vault and drops another puzzle and the process starts all over again. With each bitcoin now trading at over $4500.00, players are highly motivated to solve puzzles.
The Spectacle of Sport
Since the beginning of time, competition was the means by which communities reached consensus. In the best examples can be found in the games that we play, the worst examples are the wars that we fight. But a few things are consistent: A consensus is only valid if the competition is fair – where both parties have the same information, an even playing field. Anything less and consensus will break down and the game will self-destruct to a “forced consensus”, which, like a hard fork, may be more destructive than beneficial.
People really enjoy the spectacle of reaching consensus. Consensus unites us. Humans have that instinct to join in community. Unfortunately, the spectacle of consensus is lost in the Bitcoin algorithm – people do not trust what they cannot see and cannot celebrate. Theoretically, you could have a perpetual basketball game running a blockchain. This would be inefficient of course, but when you look at how much electricity is burned to mine bitcoin, crazy ideas like perhaps, a perpetual ping pong game, almost seem rational.
Conclusion: Trust your Intuition
Perhaps the most important element for widespread adoption of blockchain technology is that is must be understood intuitively. People don’t understand how money is created, but they do understand the consensus that everyone agrees that a dollar accepted by everyone. People solve puzzles every day and their managers reach a consensus that the goal is achieved and they are awarded tokens every two weeks. There is very little difference between blockchains and the real world, except that the computer is dancing. Most people are already familiar with soccer matches, community consensus, and production lines, so it’s OK to trust your instincts and intuition about this stuff. Likewise, even if you are not a domain expert, if something doesn’t smell right, be skeptical, be very skeptical. If you get confused by some crypto-guru, ask for the human metaphor. If they can’t cite one, they probably are not experts.