Finding a parallel between Blockchain and the early Internet

In the present times, Blockchain has become a widely adopted word. People are constantly mentioning the transformative and disruptive potential that this technology will bring. It is common to hear that Blockchain will be as disruptive as the internet. If we define a Blockchain as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way; it can get a bit tricky to understand how this can be a parallel to the internet. Since the word Internet can have an ample variety of meanings, the parallel between blockchain and the internet should be different. The right thing to compare Blockchain with is the internet’s protocol – TCP/IP. In the following article, we briefly explain what TCP/IP is, and show a parallelism between it and Blockchain.

TCP/IP (transmission control protocol/internet protocol) was introduced in 1972 as a the basis for email in the ARPAnet, a communication network of the US Department of Defense that precedes the internet. TCP/IP transmits information by digitizing it and breaking it up into very small packets with address information. After being released into the network, the packets can take any route to the recipient. Sending and receiving nodes at the network’s edges disassemble and reassemble the packets to interpret the encoded data. This created an open, shared, public network with no central authority responsible for its maintenance and improvement. It also eliminated the need for dedicated private lines and massive infrastructure, which were required to communicate data in the previous telecommunications architecture based on “circuit switching”.

Once TCP/IP was set, the advent of the world wide web have rise to a whole new industry. Harvard Business Review wrote an article describing patterns of technology adoption. They state that transformative technologies go through four phases before they completely transform the economy. These phases are single use, localized use, substitution, and transformation. Lets see how TCP/IP went through these phases:

  • Single use: TCP/IP is initially used to send messages in the ARPAnet. It permitted bilateral messages and drastically reduced the costs that previous telecommunications networks incurred on.
  • Localized use: the protocol starts to be implemented by several companies to substitute their methods of communication. The use-case is still the same, sending messages, but the use is spread between several entities and not only the US Defense Department, as it was in the case of ARPAnet. With the coming of the world wide web, several companies sprouted out to existence in order to address needs of the new technology. We can see Netscape commercializing browser tools and web servers, as well as Yahoo and Altavista creating tools to access information on the web.
  • Substitution: this is the point where traditional businesses start to be directly challenged and disrupted by internet-based companies. Great examples of this are Expedia, Amazon, and CNET. Expedia managed to lower prices and guarantee a save method of payment, directly challenging (and eventually putting out of business) the established travel agencies. Amazon managed to have a bigger stock of books and at a better price than any bookstore. CNET moved news online.
  • Transformation: this is the point in which the internet overtook the previous existing models of business and many other things. Companies built on a peer-to-peer architecture created novel applications that transformed the economy. eBay changed retailing, Skype changed communications, Napster changed music. Today, some of the biggest companies by market cap and some of the richest people of the world owe their fortunes to the global adoption of the internet and its protocol, TCP/IP.

It is clear that TCP/IP had a huge impact on the economy and reshaped most aspects of it. Through initially powering the email, the protocol went on to lower the costs of networks and gave people access to bilateral messages. If we take “giving access to bilateral messages” as a general and basic thing that TCP/IP contributed, what would Blockchain’s contribution be? The contribution is that it enables bilateral transactions. If TCP/IP managed to become the main system for connections and communication, Blockchain could become the main system for transactions of any type, causing a profound impact and a very radical shift.

The possible applications are endless, so lets start with a business case. Currently, businesses keep records of all transactions. These records track past performance and help guide the future for planning. As of now, these organizations have no master ledger of activities, and they distribute their records across internal private ledgers that are prone to error. A stock transaction can be a good example to describe the deficiencies of the current way the companies track their transactions. Stocks can be transacted in seconds, but stock ownership transfer between companies can take weeks. If companies maintained a blockchain that recorded these transactions, this transfer of ownership could be cleared in seconds. Now let’s go back to back to the four phases of technology adoption and map out Blockchain’s position there.

  • Single use: Blockchain already surpassed this point. We can say that single use was achieved when the first Blockchain, the one that spawned Bitcoin, was born. Initially, Bitcoin had a single use, and that was to be used as a means of payment. Eventually it went on to become a speculative instrument and, according to some, a store of value. Single use is the phase that has been surpassed so far.
  • Localization: after what we could call a successful single-use, we can start to see an interest in applying a distributed ledger locally. This will consist of several organizations using the same ledger. The previous stock settlement validation application that we mentioned would be an example of this. We are already seeing companies like Nasdaq, Bank of America, NYSE, FIdelity, and others starting to test blockchain to substitute their current validation systems.
  • Substitution: replacing existing systems would be the next step. Even though Blockchain was spawned initially by a cryptocurrency, the logical step for a Blockchain based currency to substitute existing currencies would require that all the participants adopt the project. This step of substitution can be complex, since it will be difficult to replace something that has had a set of institutions governing and executing it for centuries. Nonetheless, it is very likely it will happen.
  • Transformation: this is the point when a new technology is adopted to the point that it changes economic, social, and political systems. Smart Contracts are the most promising aspect of blockchain when it comes to a deep transformation. Since most business activities are built on contract execution, the potential is endless. If we even look at human interaction in detail, contractual exchanges determine an endless amount of things, in fields as varied as law, arts, and value transactions. With automated contracts, the roles of lawyers, accountants and managers would be drastically altered

Blockchain is on the right track to completely transform our economies. The first step of single-use has been clearly fulfilled, and localized efforts of adoption are increasing everyday. If we look back to TCP/IP and internet, we can find some interesting parallels. First off, it is important to recognize that the first uses of TCP/IP are no longer working. ARPAnet is dead, and so is Netscape. At the current stage we are at, it is still unclear which will be the dominating projects in the field, as they might change several times. People are connecting to their friends with Facebook, not with Myspace; people are also making their searches on Google, not Altavista. It will be interesting to see what the future brings.

Here at Pool of Stake, we are convinced that Blockchain is the future. It has the endless potential to alter one of the most basic things in human relations, which are transactions. Additionally, we are convinced that Proof of Work Blockchains (like the one Bitcoin uses) will soon phase out, just like many of the first projects using TCP/IP that no longer exist. The future for the next steps of adoption lies on Proof of Stake Blockchains, which function on a more decentralized, fair, and environmental way. Pool of Stake is developing a pool that will let PoS coin holders stake together to share rewards!