SPEAKER_06: Amazing, fascinating stories of inventions, ideas and innovations. Yes, this is the podcast about the things that have helped to shape our lives. Podcasts from the BBC World Service are supported by advertising.
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SPEAKER_02: Death in Ice Valley is returning. We've been trying to find answers to an unsolved mystery.
SPEAKER_02: And now we're back with an update on the case. We'll be here to tell you more about it at
SPEAKER_03: the end of this podcast.
SPEAKER_05: 50 things that made the modern economy with Tim Harford.
SPEAKER_00: The Long Island Ice Tea Company, as its name suggests, was in the business of selling beverages and not as many as it might have liked. It lost nearly $4 million in the third quarter of 2017. Then the company made an announcement. It would henceforth be known as the Long Blockchain Corporation. Would it stop selling beverages? No, it would still do that. Would it sell beverages using blockchain? Well, maybe it would do something to do with blockchain. The details were hazy, but that didn't stop investors getting excited. The company's share price almost quadrupled. This is a series about things that made the modern economy, not things that will make the economy of the future. You might reasonably query whether blockchain yet merits the use of the past tense, but venture capitalists are pouring billions into start-ups with more plausible-sounding plans than the Long Island Ice Tea companies. And billions more are being raised in the regulatory grey area of initial coin offerings. Enthusiasts say blockchain could become as disruptive as the internet. Indeed, blockchain is often compared to the world wide web in the 1990s. Back then, it seemed clear that this interweb thing would become important, but few really understood it, or foresaw its potential and limitations. So let's try to get our heads around blockchain. We can start with a deceptively simple question. What stops me from spending the same money twice? When money meant coins, that was easy. I can't give the same coin to two people. But we long ago realised that lugging coins around is no way to run an economy. It's easier to trust intermediaries to keep records of who's got what. You give me goods. I instruct the record keepers to shuffle their numbers accordingly. How do you know I haven't given the same money to someone else? You trust the bank, or Mastercard, or PayPal to guarantee that can't happen, because their systems won't allow it. This all works well enough. But it has some drawbacks. These intermediaries need paying for their services. Network effects often give them market power. They know more about us than we do about each other. That's another source of power. And if they fail, the whole system collapses. What if we didn't need them? What if the financial records that lubricate the economy could somehow be communally owned and maintained? In 2008, someone using the pseudonym Satoshi Nakamoto proposed a new kind of money, Bitcoin. Transactions would be verified not by a trusted intermediary, but by a network of computers solving cryptographic puzzles. If anyone ever controlled most of this network, they could fake the records and defraud people by double spending Bitcoins. But that couldn't happen, as long as enough different people chipped in computing power to check the solutions. And people would be incentivized to contribute computing power by random occasional rewards in Bitcoin. It was ingenious. And people soon noticed that the underlying technology might have wider applications. It offered a completely new way for strangers to collaborate without needing to trust an intermediary or centralized authority. We started to hear phrases such as transform everything and change the world. That underlying technology is known as blockchain, because blocks of transactions are periodically approved by the network and added to a public chain of records. It's also known as distributed ledger, because, well, it distributes the ledger. Every participant keeps their own copy of those records. The economists Christian Catalini and Joshua Gans describe blockchain as a general purpose technology that can lower the costs of verifying transactions and lower the barriers to creating new marketplaces. In principle, blockchain might be useful in any situation where we currently trust some entity to manage our data in ways that help us to interact. When you think about it, surprisingly many situations fit that description. What are Facebook, Uber and Amazon for example, if not databases that help us interact? Might blockchain one day build new online models where we own our data or perhaps sell our attention directly? Some think so. Others are working on blockchains to track goods through supply chains or intellectual property in the digital world to make contracts quicker to administer or voting systems more secure. But let's be honest, most of us don't understand the nuts and bolts of these ideas. And even if we do, we can't confidently envisage how they'll play out in reality. Predictably, the combination of intense buzz and hard to grasp technology has led some people not to think as critically as perhaps they might. The kind of people who'd rush to buy shares in a loss-making drinks company when it puts the word blockchain in its name. Just how excited should blockchain make us? The economist Tyler Cowen is cautious. He reckons skepticism is more plausible than enthusiasm, for now at least. One reason, blockchains can be slow and power-hungry. Bitcoin for example chugs through three or four transactions a second. By contrast, Visa averages 1600. To validate these transactions, the computers solving Bitcoin's cryptographic puzzles consume, by one estimate, about as much electricity as Ireland. Some dispute the significance of these figures, but the technological challenge of scaling blockchains seems real. So's the problem of marrying data to real-world stuff or humans. As they remove the need for intermediaries, blockchains may sometimes remind us why we find those intermediaries worth paying for. They can rectify mistakes. Lose your internet banking passcode and your bank will send you a new one. Lose the passcode to your Bitcoin wallet and you can kiss your Bitcoin's goodbye. Intermediaries can resolve disputes. How best to do that with blockchain smart contracts is most kindly described as an evolving conversation. And trust in an intermediary has to be replaced by trust in other things. That software isn't buggy and incentive structures won't break down in unexpected circumstances. The economist Eric Budish has suggested there are limits to how valuable Bitcoin can become before the incentives to attack it outweigh the incentives that currently keep attackers at bay. But it's only a decade since blockchain was invented. Shouldn't we expect some wrong moves and false starts before we figure out what it's good for? It shouldn't surprise us that shares in the long blockchain corporation promptly crashed by 96%. Nor should it make us too cynical about what might one day be possible.
SPEAKER_05: Christian Catalini and Joshua Ganz wrote a paper called Some Simple Economics of the Blockchain. For a full list of our sources please see bbcworldservice.com slash 50things.
SPEAKER_03: I'm Mariette Igroff and I'm Neil McCarthy and we've been trying to find answers to an unsolved
SPEAKER_02: mystery. Why all this secrecy? It was like a cover-up. Now one year on we're back with an
SPEAKER_03: update on the case. Yes with new leads to follow from you our listeners. This is maybe the first
SPEAKER_05: lead of evidence we have in almost 48 years. More on the original investigation. They were being told
SPEAKER_06: don't work it anymore or don't go into that. And maybe even a brand new eyewitness. I think
SPEAKER_03: I met this lady. That's a special episode of Death in Ice Valley recorded live in Bergen in Norway from the BBC World Service and NRK. Catch up with the whole series now and you'll also find our new
SPEAKER_02: episode. Just search for Death in Ice Valley wherever you get your podcasts.
