Why is Crypto important? How blockchain and Ethereum are changing the world

**The concept of information is a recent invention of the modern concept. Although humans have created and used information technologies such as writing, printing, and the telegraph for hundreds or thousands of years, it was not until the last century that we clearly articulated what all these things had in common and realized they could be understood as a category. **

In the decades since, the concept of information has spread into popular culture. Today, most people know that speech, images, movies, writing, DNA, and software are just different kinds of information. **I believe a similar situation exists today with blockchain. **A new technology forces us to rethink things we think we understand. But this time instead of books, phones and voices, it's money, laws and governments. Perhaps there is something like a message hidden in the foundations of our civilization, an abstract property that, once revealed, might help us reshape our understanding of the world and help us clearly answer the questions blockchains are supposed to solve.

Problems to be solved by blockchain

Part of human civilization depends on our ability to make the future more certain in certain ways. **Things across time are unpredictable, but it is precisely because of these uncertainties that we can coordinate on a large scale and money comes into play. Without confidence that all parties will keep their commitments, trade can be very dangerous. ** So we find certainty and stability across social relationships, money. One source of money is the nature around us, from which we pick up shells, rocks and metals, own and defend them, and use them as the basis of our businesses. Over time, we have learned to create our own money, not just borrow it from nature. **Recently, we invented a new way to create money: the blockchain. Using a perfect combination of cryptography, web software, and commoditized incentives, we are able to create software and digital records with a degree of permanence. ** **If law, money, and government are the infrastructure of our civilization, then its components, institutions, and blockchains are some of the raw materials from which this infrastructure is built. ** Just as architects carefully plan not only the design of a building, but also the materials used to construct that design, we must also carefully plan the materials used for the infrastructure of our civilization. ** But it is increasingly clear that its components and institutions alone cannot support the global digital civilization we strive to achieve. And this is the problem that the blockchain is going to solve. **

Three Things to Consider for a Global Digital Civilization

**Talking about a global digital civilization is challenging because we have no pre-existing terminology. We're very used to talking about certain things, like institutions, we talk terms like trustworthy, enforceable, or committed, intertwined with the types of relationships people can have between them. But now humans can choose specific things that we want to be true in the future, but when choosing we need to consider three things:

1. What is "something" that is very likely to become a reality in the future?
2. What consensus can it achieve?
3. How do we measure difficulty? **

• **First, what is "something" that is highly likely to become a reality in the future? **

For example, an important "prediction" about gold is that its supply will remain predictable in the future. We can accurately express it as "X to Y kilograms of gold will enter the market each year for the next 20 years". Alternatively, consider a loan agreement. If Alice does not return Bob the $100 by July 1, the legal agency will use severe threats and actions to force Alice to pay Bob. In the case of digital assets on Ethereum, the prediction is that "this asset can only be transferred if a transaction is signed with the private key corresponding to public key X". In practice, there are many interrelated forecasts that matter too: predictions about future gold supply, integrity of institutions holding gold, storage in vaults, strength of legal agreements between you and institutions, The reliability of the legal system in the jurisdiction where you live, etc.

• ** Second, what is the consensus? **

Sometimes our consensus has to come from physical properties. For example, there is only a certain amount of gold on earth, and our current technology can only obtain a part of it. This is why it is difficult to predict gold supply. In other cases, the source of consensus may be institutional. Contracts are only valid if they are institutionalized. Lawyers, judges, police officers all share a common understanding of how to work together and have proven for decades that they behave in predictable ways. Alternatively, the source of consensus could be the blockchain. **Smart contracts function as they are programmed to provide very high assurances that this will happen by providing incentives and penalties for people to maintain the network. **

• **Third, how do we measure the difficulty of implementation? **

Difficulty is always measurable in theory, but not necessarily in practice. For example, take gold as an example. "X to Y kilograms of gold will come to market every year for the next 20 years" This is something we know very well. A lot of time and money is spent trying to predict how much gold will be mined each year based on what we know about the properties of the Earth, the technologies available, and the industries that will extract it from it. **One way to measure is to estimate probabilities. **If you have all the relevant data, you might conclude that there is an 80% probability that "X to Y kilograms of gold will enter the market each year for the next 20 years". **Another measure is to estimate how much it would cost the theory to be wrong. **Such as creating a world where less than X or more than Y kilos of gold enters the market would anyone be able to pay? What if a country rich in gold resources suddenly produces more or less? In the legal contract example, we can also measure difficulty in terms of probability and cost. If Alice doesn't pay Bob back, and Bob sues her for breach of contract, Bob's lawyer might tell him what his odds are. **As with gold, we can also express this in terms of cost. **What would Alice have to do to change the outcome? She could flee the jurisdiction, or she could spend a fortune on an expensive lawyer, which would lower Bob's chances of success. **The thing to remember here is that the contract itself cannot tell you whether you can afford a lawyer to enforce it, or whether the legal system will behave in a corrupt manner. **

Components, institutions and blockchains are **** different from each other

• component

By "components" we mean the building blocks derived from the physical properties of our universe, and this includes not only literal entities (i.e., matter, physical matter), but all other properties of nature, such as physical laws and constants. The simplest example is early money. Humans have found objects in our environment with a range of useful characteristics, shells, gemstones, rocks, metals, etc. One is that they are scarce; another is that these items are small enough to be owned, transferred, and defended. **So far, we have been relying on components regarding the supply of objects, such as gold that everyone currently relies on. **But there are limitations: - First, we are limited by what nature provides, we cannot make it more evenly distributed across the country. - Secondly, over time, humans have developed a need for complex type conversions, such as "If Alice and Bob divorce, what should be the rules for dividing their assets?". We cannot understand the complex and subtle interpersonal Relationships give specific instructions to nature. - Third, these components are limited by the development of human capabilities. While we have overcome many of these limitations with the advancement of human technology, the limitations still exist. Once a civilization expands beyond a certain ecosystem, their assumptions about difficulty may change. Humanity may one day face gold As our control over nature grows, some of the components we once thought were indestructible are crumbling.

• Organization

Over time, humans have developed a need for different types of consensus. Our systems are groups of people acting together in a predictable enough way** to make themselves a source of consensus, but these systems rely on institutions to function together. The "organization" here is a very broad category, including:** -Legal System -legislature

• the police force -Governments
• Central banks and other asset authorities -private bank -enterprise -Start-up companies -Religious institutions Different institutions also vary in the way they create institutions. But they all share the fundamental property of using organized human behavior to support social, political, and economic activity. Groups of humans motivated and organized to behave in certain ways allow institutions to perpetuate through generations. Through the system, we have laid a solid foundation for the development and growth of human civilization. This category extends beyond the physical world today, as many American private companies serve as a source of institutional institutions that manage a wide range of human activities. Such as Twitter, Google, Apple and other big companies. ** But institutional consensus has its limits. Some of these become more apparent as human civilization scales:** - Most institutions, are constrained by nation-state boundaries. -Many institutions depend on some kind of central government. -Institutions are often very opaque. -Institutions are made up of people, and people are fallible. The cruel, evil, stupid and prejudiced side of human beings. ** - Bodies are very expensive and difficult to create. ** Today, the institutional hardness we rely on most has evolved over centuries and millennia. We cannot easily experiment, invent or test new regimes, which means the pace of innovation slows down over decades. Over time, more and more systems of social importance to us have been built on institutional consensus rather than the individual constituents. For example, the privacy of personal communications. For most of human history, people have had a strong expectation that their private communications will not be easily monitored. **Until recently, as technology enabled new types of communication, more and more of our private communications took place over lines controlled by institutions. ** The internet allowed us to build the early stages of a global digital civilization. But today it is built on weak foundations. The internet we have reflects the shortcomings of institutional consensus. Carved up along the borders of nation-states, it is a fragile and unstable foundation that rises and falls with the individual corporations that control it. Most of these are owned by a small number of companies, controlled by a small group of people living in a single country.

• Blockchain

Satoshi Nakamoto's invention is a new source of consensus. This is the first new source of consensus invented by humans in thousands of years. Satoshi Nakamoto is remembered not because he is the inventor of Bitcoin, but because of the grander essence behind Bitcoin. It is this insight that, through clever design, allows us to create systems bounded by cryptography and fueled by human incentives that together provide a source of native digital consensus. Satoshi Nakamoto used this new source of consensus to create the first blockchain application: Bitcoin. The design of Bitcoin was extended to a wider space, resulting in the first and most widely adopted programmable blockchain Ethereum. However, like components and institutions, blockchain is not perfect and has advantages and disadvantages: -The blockchain itself is digital, anyone with an internet connection can access and interact with the blockchain. ** But this is also a limitation, because the degree of consensus of the blockchain depends on the technical civilization that can maintain the Internet and other infrastructure. **

• Blockchain is not dependent on any institution, but does require human maintenance. The blockchain does depend to some extent on the behavior of the human herd, and ethereum clients can be created and maintained anonymously by anyone, anywhere.
• Blockchain consensus is very transparent. The specific cryptographic tools used by a blockchain are public and available for research, the cost of attacking a system to subvert it is known, and we can estimate it accurately. That is, through the so-called "51% attack".
• **Blockchain is made using software. Software can be poorly written, contain bugs, and most people can't read or write software themselves. ** Without human discretion (which exists in institutions), small errors that differ from our intent can be significant. On the other hand, anyone on the planet has the opportunity to learn to write and read software. Anyone can upload a contract to Ethereum, but no one can actually make the laws on their own. -Blockchain allows us to build on consensus, so we need to create a new system. Anyone can create an asset and define the parameters of that asset, which is not possible any other way. With the concept of consensus in place, it is easy to explain what a blockchain is for and why it is so important. Blockchains, like institutions, are sources of consensus. We need consensus because it makes it possible for us to build complex global coordination tools like law, governance, and currency. But blockchains have different tradeoffs than institutions, and serve different purposes. They can govern where institutions cannot, do things that institutions cannot, and they are more resistant to certain failures than institutions. It's also worth noting that this type of consensus, which I call "blockchains," is likely to grow beyond blockchains, where innovations in cryptography such as secure multi-party computation and homomorphic encryption may have significant impact on The human toolkit for creating consensus has an equally important contribution. But Satoshi Nakamoto's invention marked the moment when our understanding of how to use cryptography and economic incentives to create consensus went from zero to one, so I now use the term blockchain. Understanding blockchains as a source of consensus also helps us understand the dizzying array of narratives and buzzwords used to understand them: -Blockchains can be trustworthy neutral, because their rules are transparent and verifiable, and the blockchain itself is difficult to enforce these rules. -Ethereum supports composability between applications, applications deployed on mainnet will stay there, allowing developers to build on top of what has already been built. -Ethereum supports forever-running protocols, because blockchains provide a source of consensus that makes it highly likely that structures built on top of them will last into the future. -Ethereum supports Decentralized Finance (DeFi), because it allows us to create enough programmable hardness to rebuild the complex web of intersecting relationships that characterizes traditional finance. Traditional finance is built on institutional consensus (such as legal contracts), while DeFi is built on blockchain consensus. -Blockchains can be trustless because they create consensus without relying on the actions of individuals or institutions. -Ethereum supports web3, an ecosystem of network services, protocols, applications and communities, whose foundation is mainly based on blockchain consensus rather than institutional consensus. The digital environment of people's identities, their property, their means of commerce, the way they collectively manage themselves, and the way they publish information to the world, all are based primarily on blockchain consensus, not institutions. -When the blockchain collapses to become another institution, it ceases to be a new contribution to human infrastructure. In other words, when they become centralized, they become dependent on certain groups of people. Digital agencies may still be useful, but they bring with them the same advantages and disadvantages as traditional ones. **Humans inherently need to coordinate the consensus of the system, we rely on these consensus to bring predictability to our civilization. **And the institutions that control the Internet today are not suitable sources of consensus, and we are continually hurt when we try to work with them. In politics around the world, many are increasingly skeptical that the traditional institutions we rely on serve money/power, and this has a huge impact on our lives. **We want to lay a solid foundation for global civilization that doesn't change with every election or with the rise and fall of individual American corporations. **

summary

Think of the components, institutions, and blockchain as a system of checks and balances. Using them together to build the critical infrastructure of our civilization makes it more resilient and less limited to the shortcomings of any one of them. They are a group of building materials that, when used together, will form a stronger whole. The growth of a global digital civilization mediated by the Internet has accelerated our reliance on institutions, stretching them to breaking point. Blockchain will not replace institutions as our only source of consensus. But they will compete with and complement them. **Humanity now has a choice: For the first time, there is a consensus market that can be used to produce the needs of modern civilization. Blockchain consensus will be used where institutions cannot go, and institutional consensus will fill the void of human discretion. ** A new political dimension has opened up, where we will not only discuss which systems to use, what form of governance, what kind of markets, but also what consensus resources should be used to build these systems.