Blockchains are computers that can make commitments. Traditional computers are ultimately controlled by people, either directly in the case of personal computers or indirectly through organizations. Blockchains invert this power relationship, putting the code in charge. A game theoretic mechanism — a so-called consensus mechanism — makes blockchains resilient to modifications to their underlying physical components, effectively making them resilient to human intervention.
As a result, a properly designed blockchain provides strong guarantees that the code it runs will continue to operate as designed. For the first time, a computer system can be truly autonomous: self-governed, by its own code, instead of by people. Autonomous computers can be relied on and trusted in ways that human-governed computers can’t.
Computers that make commitments can be useful in finance. The most famous example of this is Bitcoin, which makes various commitments, including that there will never be more than 21 million bitcoins, a commitment that makes bitcoins scarce and therefore capable of being valuable. Without a blockchain, this commitment could have been made by a person or a business, but it is unlikely that other people would have really trusted that commitment, since people and businesses change their minds all the time. Prior to Bitcoin, besides precious metals which are naturally scarce, the only credible commitments to monetary scarcity came from governments.Blockchains have arrived at an opportune time. Internet services have become central to our economic, political, and cultural lives, yet the trust between users and the people who run these services is breaking down.
Ethereum was the first blockchain to support a general-purpose programming language, allowing for the creation of arbitrarily complex software that makes commitments. Two early applications built on Ethereum are Compound and Maker Dao. Compound makes the commitment that it will act as a neutral, low-fee lending protocol. Maker Dao makes a commitment to maintain the price stability of a currency called Dai that can be used for stable payments and value store. As of today, users have locked up hundreds of millions of dollars in these applications, a testament to the credibility of their commitments.
Applications like Compound and Maker can do things that pre-blockchain software simply couldn’t, such as hold funds that reside in the code itself, as opposed to traditional payment systems which only hold pointers to offline bank accounts. This removes the need to trust anything other than code, and makes the system end-to-end transparent and extensible. Blockchain applications do this autonomously — every human involved in creating these projects could disappear and the software would go on doing what it does, keeping its commitments, indefinitely.
What else can you do with computers that make commitments? One fertile area being explored is re-architecting popular internet services like social networks and marketplaces so that they make strong, positive commitments to their communities. For example, users can get commitments baked into the code that their data will be kept private and that they won’t get de-platformed without due process. Third-party developers can safely invest in their businesses knowing that the rules are baked into the network and can’t change, protecting them from platform risk. Using the financial features of blockchains, users and developers can receive tokens in order to participate in the upside of the network as it grows.
Blockchains have arrived at an opportune time. Internet services have become central to our economic, political, and cultural lives, yet the trust between users and the people who run these services is breaking down. At the same time, industries like finance that have traditionally depended on trust have resisted modernization. The next few years will be exciting — we are only beginning to explore the idea maze unlocked by this new capability of computers.