how we make decisions,

how we act individually and in groups,

how we exchange value.

They've studied the institutions that facilitate our trade,

like legal systems,

corporations,

marketplaces.

But there is a new, technological institution

that will fundamentally change how we exchange value,

and it's called the blockchain.

Now, that's a pretty bold statement,

but if you take nothing else away from this talk,

I actually want you to remember

that while blockchain technology is relatively new,

it's also a continuation of a very human story,

and the story is this.

As humans, we find ways

to lower uncertainty about one another

so that we can exchange value.

Now, one of the first people to really explore the idea

of institutions as a tool in economics

to lower our uncertainties about one another

and be able to do trade

was the Nobel economist Douglass North.

He passed away at the end of 2015,

but North pioneered what's called "new institutional economics."

And what he meant by institutions were really just formal rules

like a constitution,

and informal constraints, like bribery.

These institutions are really the grease

that allow our economic wheels to function,

and we can see this play out over the course of human history.

If we think back to when we were hunter-gatherer economies,

we really just traded within our village structure.

We had some informal constraints in place,

but we enforced all of our trade with violence

or social repercussions.

As our societies grew more complex

and our trade routes grew more distant,

we built up more formal institutions,

institutions like banks for currency,

governments, corporations.

These institutions helped us manage our trade

as the uncertainty and the complexity grew,

and our personal control was much lower.

Eventually with the internet, we put these same institutions online.

We built platform marketplaces like Amazon, eBay, Alibaba,

just faster institutions that act as middlemen

to facilitate human economic activity.

As Douglass North saw it,

institutions are a tool to lower uncertainty

so that we can connect and exchange all kinds of value in society.

And I believe we are now entering

a further and radical evolution

of how we interact and trade,

because for the first time, we can lower uncertainty

not just with political and economic institutions,

like our banks, our corporations, our governments,

but we can do it with technology alone.

So what is the blockchain?

Blockchain technology is a decentralized database

that stores a registry of assets and transactions

across a peer-to-peer network.

It's basically a public registry

of who owns what and who transacts what.

The transactions are secured through cryptography,

and over time, that transaction history gets locked in blocks of data

that are then cryptographically linked together and secured.

This creates an immutable, unforgeable record

of all of the transactions across this network.

This record is replicated on every computer that uses the network.

It's not an app.

It's not a company.

I think it's closest in description to something like Wikipedia.

We can see everything on Wikipedia.

It's a composite view that's constantly changing and being updated.

We can also track those changes over time on Wikipedia,

and we can create our own wikis,

because at their core, they're just a data infrastructure.

On Wikipedia, it's an open platform that stores words and images

and the changes to that data over time.

On the blockchain,

you can think of it as an open infrastructure

that stores many kinds of assets.

It stores the history of custodianship,

ownership and location

for assets like the digital currency Bitcoin,

other digital assets

like a title of ownership of IP.

It could be a certificate, a contract,

real world objects,

even personal identifiable information.

There are of course other technical details to the blockchain,

but at its core, that's how it works.

It's this public registry that stores transactions in a network

and is replicated so that it's very secure and hard to tamper with.

Which brings me to my point

of how blockchains lower uncertainty

and how they therefore promise to transform our economic systems

in radical ways.

So uncertainty is kind of a big term

in economics,

but I want to go through three forms of it

that we face in almost all of our everyday transactions,

where blockchains can play a role.

We face uncertainties like not knowing who we're dealing with,

not having visibility into a transaction

and not having recourse if things go wrong.

So let's take the first example, not knowing who we're dealing with.

Say I want to buy a used smartphone on eBay.

The first thing I'm going to do is look up who I'm buying from.

Are they a power user?

Do they have great reviews and ratings, or do they have no profile at all?

Reviews, ratings, checkmarks:

these are the attestations about our identities

that we cobble together today

and use to lower uncertainty about who we're dealing with.

But the problem is they're very fragmented.

Think about how many profiles you have.

Blockchains allow for us to create an open, global platform

on which to store any attestation about any individual

from any source.

This allows us to create a user-controlled

portable identity.

More than a profile,

it means you can selectively reveal

the different attributes about you

that help facilitate trade or interaction,

for instance that a government issued you an ID,

or that you're over 21,

by revealing the cryptographic proof

that these details exist and are signed off on.

Having this kind of portable identity

around the physical world and the digital world

means we can do all kinds of human trade

in a totally new way.

So I've talked about how blockchains could lower uncertainty

in who we're dealing with.

The second uncertainty that we often face

is just not having transparency into our interactions.

Say you're going to send me that smartphone by mail.

I want some degree of transparency.

I want to know that the product I bought is the same one that arrives in the mail

and that there's some record for how it got to me.

This is true not just for electronics like smartphones,

but for many kinds of goods and data,

things like medicine, luxury goods,

any kind of data or product that we don't want tampered with.

The problem in many companies,

especially those that produce something complicated like a smartphone,

is they're managing all of these different vendors

across a horizontal supply chain.

All of these people that go into making a product,

they don't have the same database.

They don't use the same infrastructure,

and so it becomes really hard to see transparently a product evolve over time.

Using the blockchain, we can create

a shared reality across nontrusting entities.

By this I mean

all of these nodes in the network do not need to know each other

or trust each other,

because they each have the ability

to monitor and validate the chain for themselves.

Think back to Wikipedia.

It's a shared database,

and even though it has multiple readers

and multiple writers at the same time,

it has one single truth.

So we can create that using blockchains.

We can create a decentralized database that has the same efficiency of a monopoly

without actually creating that central authority.

So all of these vendors, all sorts of companies,

can interact using the same database without trusting one another.

It means for consumers, we can have a lot more transparency.

As a real-world object travels along,

we can see its digital certificate or token move on the blockchain,

adding value as it goes.

This is a whole new world in terms of our visibility.

So I've talked about how blockchains can lower our uncertainties about identity

and how they change what we mean about transparency

in long distances and complex trades, like in a supply chain.

The last uncertainty that we often face

is one of the most open-ended, and it's reneging.

What if you don't send me the smartphone?

Can I get my money back?

Blockchains allow us to write code,

binding contracts,

between individuals

and then guarantee that those contracts will bear out

without a third party enforcer.

So if we look at the smartphone example, you could think about escrow.

You are financing that phone,

but you don't need to release the funds

until you can verify that all the conditions have been met.

You got the phone.

I think this is one of the most exciting ways

that blockchains lower our uncertainties,

because it means to some degree

we can collapse institutions and their enforcement.

It means a lot of human economic activity

can get collateralized and automated,

and push a lot of human intervention to the edges,

the places where information moves from the real world to the blockchain.

I think what would probably floor Douglass North

about this use of technology

is the fact that the very thing that makes it work,

the very thing that keeps the blockchain secure and verified,

is our mutual distrust.

So rather than all of our uncertainties

slowing us down

and requiring institutions

like banks, our governments, our corporations,

we can actually harness all of that collective uncertainty

and use it to collaborate and exchange more and faster and more open.

Now, I don't want you to get the impression

that the blockchain is the solution to everything,

even though the media has said that it's going to end world poverty,

it's also going to solve the counterfeit drug problem

and potentially save the rainforest.

The truth is, this technology is in its infancy,

and we're going to need to see a lot of experiments take place

and probably fail

before we truly understand all of the use cases

for our economy.

But there are tons of people working on this,

from financial institutions

to technology companies, start-ups and universities.

And one of the reasons is that it's not just an economic evolution.

It's also an innovation in computer science.

Blockchains give us the technological capability

of creating a record of human exchange,

of exchange of currency,

of all kinds of digital and physical assets,

even of our own personal attributes,

in a totally new way.

So in some ways,

they become a technological institution

that has a lot of the benefits

of the traditional institutions we're used to using in society,

but it does this in a decentralized way.

It does this by converting a lot of our uncertainties

into certainties.

So I think we need to start preparing ourselves,

because we are about to face a world

where distributed, autonomous institutions

have quite a significant role.

Thank you.

(Applause)

Bruno Giussani: Thank you, Bettina.

I think I understood that it's coming,