0:00:01.000,0:00:05.960
Economists have been exploring[br]people's behavior for hundreds of years:

0:00:06.880,0:00:08.456
how we make decisions,

0:00:08.480,0:00:11.536
how we act individually and in groups,

0:00:11.560,0:00:13.280
how we exchange value.

0:00:14.760,0:00:18.216
They've studied the institutions[br]that facilitate our trade,

0:00:18.240,0:00:19.656
like legal systems,

0:00:19.680,0:00:20.920
corporations,

0:00:21.520,0:00:22.720
marketplaces.

0:00:23.600,0:00:27.056
But there is a new,[br]technological institution

0:00:27.080,0:00:31.096
that will fundamentally change[br]how we exchange value,

0:00:31.120,0:00:32.600
and it's called the blockchain.

0:00:34.040,0:00:36.696
Now, that's a pretty bold statement,

0:00:36.720,0:00:39.856
but if you take nothing else[br]away from this talk,

0:00:39.880,0:00:41.616
I actually want you to remember

0:00:41.640,0:00:45.576
that while blockchain technology[br]is relatively new,

0:00:45.600,0:00:49.976
it's also a continuation[br]of a very human story,

0:00:50.000,0:00:51.520
and the story is this.

0:00:52.080,0:00:54.096
As humans, we find ways

0:00:54.120,0:00:56.936
to lower uncertainty about one another

0:00:56.960,0:00:58.760
so that we can exchange value.

0:01:01.080,0:01:04.575
Now, one of the first people[br]to really explore the idea

0:01:04.599,0:01:07.776
of institutions as a tool in economics

0:01:07.800,0:01:10.256
to lower our uncertainties[br]about one another

0:01:10.280,0:01:12.176
and be able to do trade

0:01:12.200,0:01:14.840
was the Nobel economist Douglass North.

0:01:15.680,0:01:17.816
He passed away at the end of 2015,

0:01:17.840,0:01:22.560
but North pioneered what's called[br]"new institutional economics."

0:01:23.120,0:01:27.296
And what he meant by institutions[br]were really just formal rules

0:01:27.320,0:01:29.296
like a constitution,

0:01:29.320,0:01:32.240
and informal constraints, like bribery.

0:01:33.280,0:01:36.176
These institutions are really the grease

0:01:36.200,0:01:39.136
that allow our economic[br]wheels to function,

0:01:39.160,0:01:42.280
and we can see this play out[br]over the course of human history.

0:01:43.120,0:01:46.576
If we think back to when we were[br]hunter-gatherer economies,

0:01:46.600,0:01:49.536
we really just traded[br]within our village structure.

0:01:49.560,0:01:51.976
We had some informal constraints in place,

0:01:52.000,0:01:55.536
but we enforced[br]all of our trade with violence

0:01:55.560,0:01:57.440
or social repercussions.

0:01:57.960,0:02:00.296
As our societies grew more complex

0:02:00.320,0:02:03.536
and our trade routes grew more distant,

0:02:03.560,0:02:06.576
we built up more formal institutions,

0:02:06.600,0:02:09.936
institutions like banks for currency,

0:02:09.960,0:02:12.656
governments, corporations.

0:02:12.680,0:02:15.216
These institutions[br]helped us manage our trade

0:02:15.240,0:02:18.256
as the uncertainty[br]and the complexity grew,

0:02:18.280,0:02:20.880
and our personal control was much lower.

0:02:21.560,0:02:25.840
Eventually with the internet,[br]we put these same institutions online.

0:02:26.600,0:02:30.976
We built platform marketplaces[br]like Amazon, eBay, Alibaba,

0:02:31.000,0:02:34.536
just faster institutions[br]that act as middlemen

0:02:34.560,0:02:37.480
to facilitate human economic activity.

0:02:39.840,0:02:41.976
As Douglass North saw it,

0:02:42.000,0:02:45.656
institutions are a tool[br]to lower uncertainty

0:02:45.680,0:02:50.000
so that we can connect and exchange[br]all kinds of value in society.

0:02:50.840,0:02:53.176
And I believe we are now entering

0:02:53.200,0:02:56.176
a further and radical evolution

0:02:56.200,0:02:58.656
of how we interact and trade,

0:02:58.680,0:03:02.256
because for the first time,[br]we can lower uncertainty

0:03:02.280,0:03:05.856
not just with political[br]and economic institutions,

0:03:05.880,0:03:09.616
like our banks, our corporations,[br]our governments,

0:03:09.640,0:03:12.000
but we can do it with technology alone.

0:03:13.920,0:03:15.936
So what is the blockchain?

0:03:15.960,0:03:20.016
Blockchain technology[br]is a decentralized database

0:03:20.040,0:03:23.576
that stores a registry[br]of assets and transactions

0:03:23.600,0:03:25.400
across a peer-to-peer network.

0:03:26.160,0:03:28.296
It's basically a public registry

0:03:28.320,0:03:31.160
of who owns what and who transacts what.

0:03:31.920,0:03:34.896
The transactions are secured[br]through cryptography,

0:03:34.920,0:03:40.696
and over time, that transaction history[br]gets locked in blocks of data

0:03:40.720,0:03:44.200
that are then cryptographically[br]linked together and secured.

0:03:45.360,0:03:49.536
This creates an immutable,[br]unforgeable record

0:03:49.560,0:03:53.376
of all of the transactions[br]across this network.

0:03:53.400,0:03:57.800
This record is replicated[br]on every computer that uses the network.

0:03:59.240,0:04:00.480
It's not an app.

0:04:01.080,0:04:02.320
It's not a company.

0:04:03.120,0:04:06.880
I think it's closest in description[br]to something like Wikipedia.

0:04:07.800,0:04:09.856
We can see everything on Wikipedia.

0:04:09.880,0:04:13.920
It's a composite view that's constantly[br]changing and being updated.

0:04:15.880,0:04:19.536
We can also track those changes[br]over time on Wikipedia,

0:04:19.560,0:04:21.856
and we can create our own wikis,

0:04:21.880,0:04:24.720
because at their core,[br]they're just a data infrastructure.

0:04:26.600,0:04:32.096
On Wikipedia, it's an open platform[br]that stores words and images

0:04:32.120,0:04:34.600
and the changes to that data over time.

0:04:35.520,0:04:36.976
On the blockchain,

0:04:37.000,0:04:39.936
you can think of it[br]as an open infrastructure

0:04:39.960,0:04:42.640
that stores many kinds of assets.

0:04:43.760,0:04:46.496
It stores the history of custodianship,

0:04:46.520,0:04:48.736
ownership and location

0:04:48.760,0:04:52.416
for assets like[br]the digital currency Bitcoin,

0:04:52.440,0:04:54.016
other digital assets

0:04:54.040,0:04:57.360
like a title of ownership of IP.

0:04:58.480,0:05:01.616
It could be a certificate, a contract,

0:05:01.640,0:05:02.896
real world objects,

0:05:02.920,0:05:05.720
even personal identifiable information.

0:05:07.080,0:05:10.936
There are of course other[br]technical details to the blockchain,

0:05:10.960,0:05:12.976
but at its core, that's how it works.

0:05:13.000,0:05:17.336
It's this public registry[br]that stores transactions in a network

0:05:17.360,0:05:21.560
and is replicated so that it's very secure[br]and hard to tamper with.

0:05:23.120,0:05:25.256
Which brings me to my point

0:05:25.280,0:05:28.336
of how blockchains lower uncertainty

0:05:28.360,0:05:32.496
and how they therefore promise[br]to transform our economic systems

0:05:32.520,0:05:33.720
in radical ways.

0:05:35.880,0:05:38.216
So uncertainty is kind of a big term

0:05:38.240,0:05:39.616
in economics,

0:05:39.640,0:05:41.696
but I want to go through three forms of it

0:05:41.720,0:05:45.096
that we face in almost all[br]of our everyday transactions,

0:05:45.120,0:05:47.216
where blockchains can play a role.

0:05:47.240,0:05:50.616
We face uncertainties[br]like not knowing who we're dealing with,

0:05:50.640,0:05:53.456
not having visibility into a transaction

0:05:53.480,0:05:56.400
and not having recourse[br]if things go wrong.

0:05:57.520,0:06:00.880
So let's take the first example,[br]not knowing who we're dealing with.

0:06:01.720,0:06:05.080
Say I want to buy[br]a used smartphone on eBay.

0:06:05.760,0:06:09.080
The first thing I'm going to do[br]is look up who I'm buying from.

0:06:09.600,0:06:11.336
Are they a power user?

0:06:11.360,0:06:15.480
Do they have great reviews and ratings,[br]or do they have no profile at all?

0:06:16.960,0:06:19.736
Reviews, ratings, checkmarks:

0:06:19.760,0:06:23.376
these are the attestations[br]about our identities

0:06:23.400,0:06:25.016
that we cobble together today

0:06:25.040,0:06:28.480
and use to lower uncertainty[br]about who we're dealing with.

0:06:29.840,0:06:32.856
But the problem is[br]they're very fragmented.

0:06:32.880,0:06:35.200
Think about how many profiles you have.

0:06:36.520,0:06:42.016
Blockchains allow for us[br]to create an open, global platform

0:06:42.040,0:06:46.416
on which to store any attestation[br]about any individual

0:06:46.440,0:06:47.840
from any source.

0:06:48.480,0:06:51.776
This allows us to create a user-controlled

0:06:51.800,0:06:53.160
portable identity.

0:06:55.800,0:06:57.696
More than a profile,

0:06:57.720,0:07:01.016
it means you can selectively reveal

0:07:01.040,0:07:02.976
the different attributes about you

0:07:03.000,0:07:06.296
that help facilitate trade or interaction,

0:07:06.320,0:07:09.176
for instance that a government[br]issued you an ID,

0:07:09.200,0:07:11.456
or that you're over 21,

0:07:11.480,0:07:14.096
by revealing the cryptographic proof

0:07:14.120,0:07:17.000
that these details exist[br]and are signed off on.

0:07:18.960,0:07:21.016
Having this kind of portable identity

0:07:21.040,0:07:24.056
around the physical world[br]and the digital world

0:07:24.080,0:07:27.376
means we can do all kinds of human trade

0:07:27.400,0:07:28.800
in a totally new way.

0:07:30.600,0:07:33.496
So I've talked about how blockchains[br]could lower uncertainty

0:07:33.520,0:07:35.056
in who we're dealing with.

0:07:35.080,0:07:37.656
The second uncertainty that we often face

0:07:37.680,0:07:40.880
is just not having transparency[br]into our interactions.

0:07:41.600,0:07:44.336
Say you're going to send me[br]that smartphone by mail.

0:07:44.360,0:07:46.056
I want some degree of transparency.

0:07:46.080,0:07:50.376
I want to know that the product I bought[br]is the same one that arrives in the mail

0:07:50.400,0:07:52.776
and that there's some record[br]for how it got to me.

0:07:52.800,0:07:55.416
This is true not just[br]for electronics like smartphones,

0:07:55.440,0:07:58.616
but for many kinds of goods and data,

0:07:58.640,0:08:01.280
things like medicine, luxury goods,

0:08:02.000,0:08:05.520
any kind of data or product[br]that we don't want tampered with.

0:08:06.880,0:08:09.096
The problem in many companies,

0:08:09.120,0:08:12.456
especially those that produce[br]something complicated like a smartphone,

0:08:12.480,0:08:14.976
is they're managing[br]all of these different vendors

0:08:15.000,0:08:16.880
across a horizontal supply chain.

0:08:18.240,0:08:20.816
All of these people[br]that go into making a product,

0:08:20.840,0:08:22.496
they don't have the same database.

0:08:22.520,0:08:24.536
They don't use the same infrastructure,

0:08:24.560,0:08:29.680
and so it becomes really hard to see[br]transparently a product evolve over time.

0:08:31.840,0:08:33.775
Using the blockchain, we can create

0:08:33.799,0:08:37.559
a shared reality[br]across nontrusting entities.

0:08:38.640,0:08:39.856
By this I mean

0:08:39.880,0:08:43.256
all of these nodes in the network[br]do not need to know each other

0:08:43.280,0:08:44.696
or trust each other,

0:08:44.720,0:08:46.856
because they each have the ability

0:08:46.880,0:08:49.960
to monitor and validate[br]the chain for themselves.

0:08:51.040,0:08:52.776
Think back to Wikipedia.

0:08:52.800,0:08:54.976
It's a shared database,

0:08:55.000,0:08:57.816
and even though it has multiple readers

0:08:57.840,0:08:59.936
and multiple writers at the same time,

0:08:59.960,0:09:01.680
it has one single truth.

0:09:02.720,0:09:04.816
So we can create that using blockchains.

0:09:04.840,0:09:10.816
We can create a decentralized database[br]that has the same efficiency of a monopoly

0:09:10.840,0:09:13.520
without actually creating[br]that central authority.

0:09:14.200,0:09:16.616
So all of these vendors,[br]all sorts of companies,

0:09:16.640,0:09:20.600
can interact using the same database[br]without trusting one another.

0:09:22.200,0:09:25.736
It means for consumers,[br]we can have a lot more transparency.

0:09:25.760,0:09:27.896
As a real-world object travels along,

0:09:27.920,0:09:33.096
we can see its digital certificate[br]or token move on the blockchain,

0:09:33.120,0:09:34.840
adding value as it goes.

0:09:36.360,0:09:40.200
This is a whole new world[br]in terms of our visibility.

0:09:41.720,0:09:46.320
So I've talked about how blockchains[br]can lower our uncertainties about identity

0:09:47.240,0:09:50.456
and how they change[br]what we mean about transparency

0:09:50.480,0:09:54.240
in long distances and complex trades,[br]like in a supply chain.

0:09:55.520,0:09:57.616
The last uncertainty that we often face

0:09:57.640,0:10:00.280
is one of the most open-ended,[br]and it's reneging.

0:10:00.920,0:10:03.416
What if you don't send me the smartphone?

0:10:03.440,0:10:05.000
Can I get my money back?

0:10:05.800,0:10:09.496
Blockchains allow us to write code,

0:10:09.520,0:10:11.216
binding contracts,

0:10:11.240,0:10:12.896
between individuals

0:10:12.920,0:10:16.576
and then guarantee[br]that those contracts will bear out

0:10:16.600,0:10:18.560
without a third party enforcer.

0:10:19.720,0:10:23.616
So if we look at the smartphone example,[br]you could think about escrow.

0:10:23.640,0:10:25.736
You are financing that phone,

0:10:25.760,0:10:28.296
but you don't need to release the funds

0:10:28.320,0:10:31.136
until you can verify[br]that all the conditions have been met.

0:10:31.160,0:10:32.360
You got the phone.

0:10:34.240,0:10:36.656
I think this is one[br]of the most exciting ways

0:10:36.680,0:10:39.120
that blockchains lower our uncertainties,

0:10:39.840,0:10:41.416
because it means to some degree

0:10:41.440,0:10:45.040
we can collapse institutions[br]and their enforcement.

0:10:47.720,0:10:50.416
It means a lot of human economic activity

0:10:50.440,0:10:55.456
can get collateralized and automated,

0:10:55.480,0:10:58.536
and push a lot of human[br]intervention to the edges,

0:10:58.560,0:11:02.520
the places where information moves[br]from the real world to the blockchain.

0:11:04.880,0:11:07.336
I think what would probably[br]floor Douglass North

0:11:07.360,0:11:09.736
about this use of technology

0:11:09.760,0:11:12.776
is the fact that the very thing[br]that makes it work,

0:11:12.800,0:11:17.336
the very thing that keeps the blockchain[br]secure and verified,

0:11:17.360,0:11:19.320
is our mutual distrust.

0:11:21.600,0:11:24.696
So rather than all of our uncertainties

0:11:24.720,0:11:26.336
slowing us down

0:11:26.360,0:11:28.856
and requiring institutions

0:11:28.880,0:11:31.960
like banks, our governments,[br]our corporations,

0:11:33.360,0:11:37.736
we can actually harness[br]all of that collective uncertainty

0:11:37.760,0:11:43.360
and use it to collaborate and exchange[br]more and faster and more open.

0:11:44.800,0:11:46.856
Now, I don't want you[br]to get the impression

0:11:46.880,0:11:49.256
that the blockchain[br]is the solution to everything,

0:11:49.280,0:11:54.200
even though the media has said[br]that it's going to end world poverty,

0:11:55.840,0:11:58.576
it's also going to solve[br]the counterfeit drug problem

0:11:58.600,0:12:00.800
and potentially save the rainforest.

0:12:02.320,0:12:06.296
The truth is, this technology[br]is in its infancy,

0:12:06.320,0:12:09.536
and we're going to need to see[br]a lot of experiments take place

0:12:09.560,0:12:10.976
and probably fail

0:12:11.000,0:12:14.536
before we truly understand[br]all of the use cases

0:12:14.560,0:12:15.760
for our economy.

0:12:17.240,0:12:19.416
But there are tons of people[br]working on this,

0:12:19.440,0:12:21.136
from financial institutions

0:12:21.160,0:12:24.320
to technology companies,[br]start-ups and universities.

0:12:25.120,0:12:30.056
And one of the reasons is[br]that it's not just an economic evolution.

0:12:30.080,0:12:33.800
It's also an innovation[br]in computer science.

0:12:37.360,0:12:40.816
Blockchains give us[br]the technological capability

0:12:40.840,0:12:44.416
of creating a record of human exchange,

0:12:44.440,0:12:46.000
of exchange of currency,

0:12:46.720,0:12:50.416
of all kinds of digital[br]and physical assets,

0:12:50.440,0:12:53.016
even of our own personal attributes,

0:12:53.040,0:12:54.360
in a totally new way.

0:12:55.720,0:12:57.056
So in some ways,

0:12:57.080,0:13:00.056
they become a technological institution

0:13:00.080,0:13:01.856
that has a lot of the benefits

0:13:01.880,0:13:05.080
of the traditional institutions[br]we're used to using in society,

0:13:06.200,0:13:09.120
but it does this in a decentralized way.

0:13:10.360,0:13:13.896
It does this by converting[br]a lot of our uncertainties

0:13:13.920,0:13:15.120
into certainties.

0:13:16.360,0:13:19.896
So I think we need to start[br]preparing ourselves,

0:13:19.920,0:13:22.456
because we are about to face a world

0:13:22.480,0:13:25.616
where distributed, autonomous institutions

0:13:25.640,0:13:27.640
have quite a significant role.

0:13:28.600,0:13:29.816
Thank you.

0:13:29.840,0:13:32.200
(Applause)

0:13:38.400,0:13:40.067
Bruno Giussani: Thank you, Bettina.

0:13:40.880,0:13:44.576
I think I understood that it's coming,

0:13:44.600,0:13:46.496
it offers a lot of potential,

0:13:46.520,0:13:48.696
and it's complex.

0:13:48.720,0:13:53.800
What is your estimate[br]for the rate of adoption?

0:13:55.120,0:13:57.736
Bettina Warburg: I think[br]that's a really good question.

0:13:57.760,0:13:59.176
My lab is pretty much focused

0:13:59.200,0:14:02.656
on going the enterprise[br]and government route first,

0:14:02.680,0:14:06.216
because in reality,[br]blockchain is a complex technology.

0:14:06.240,0:14:09.016
How many of you actually understand[br]how the internet works?

0:14:09.040,0:14:10.696
But you use it every day,

0:14:10.720,0:14:14.496
so I think we're sort of facing[br]the same John Sculley idea

0:14:14.520,0:14:18.176
of technology should either be[br]invisible or beautiful,

0:14:18.200,0:14:22.056
and blockchain is kind of[br]neither of those things right now,

0:14:22.080,0:14:26.056
so it's better suited[br]for either really early adopters

0:14:26.080,0:14:28.296
who kind of get it and can tinker around

0:14:28.320,0:14:31.296
or for finding those best use cases

0:14:31.320,0:14:34.496
like identity or asset tracking[br]or smart contracts

0:14:34.520,0:14:38.536
that can be used at that level[br]of an enterprise or government.

0:14:38.560,0:14:40.465
BG: Thank you. Thanks for coming to TED.

0:14:40.489,0:14:41.696
BW: Thanks.

0:14:41.720,0:14:44.120
(Applause)