Stop me if you’ve heard this one before:
A lawyer, an accountant and an engineer walked into a bar - (no, not THAT bar, I'm talking about the other kind of bar that makes you immediately reconnect with your 5 year old self as you double over in pain).
The lawyer proceeded to sue for the grievous bodily harm inflicted on his personage, the accountant calculated how many other bars they were likely to walk into, leaving the engineer to wonder "who set the bar so low?".
This is the origin story of blockchain technology.
In a world where the exchange of value is fraught with barriers the further you are from the counterparty, someone finally asked the question that’s been eating at us all: why these barriers?
That person was Satoshi Nakamoto.
Waiting three days for a bank transfer to show up is nothing new. The bank needs to ascertain the source of the incoming funds and its authorization before approving or reversing the transfer.
While it is tempting to blame the gatekeepers for trying to get in on everybody's business, the truth is they are liable for every transaction through their network. Three days is roughly the time it will take the bank to verify the origin of the fund, send the transactions to an automated clearinghouse, and then have the receiving bank verify the request on their end - all the while making sure that the funds really exist as claimed.
Again, it's nobody's fault. He, whose hands have never been in a cookie jar when it has no business being there, should cast the first stone. Behind every transaction is a human agency and its attendant bias, needs, and wants. Caught in this landmine, is the bank. They will be held accountable for any financial crime or fraud perpetuated through their network and heads will also likely roll at the slightest mistake. Or, as Satoshi succinctly described it:
"Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes..."
When you hold the keys to something, it automatically becomes your responsibility as long as you are holding the keys. Banks are custodians of financial gateways and subject to regulatory supervision. Hence, their constant vigilance and tepidity in crediting your account. However, heavy is the head that wears the crown:
"...The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads" - Satoshi
Trust is critical to any value exchange. The bigger the value being exchanged, the more demanding the vetting process and the longer it takes to finalize the exchange. But what if the need to trust is eliminated. What if a system could be invented that takes the burden of trust from human agencies and transposes it into a system incapable of whims and bias? What if this digital system is not only available to everyone but can be deployed by anyone from anywhere, at any time?
Sounds like Paradise? No, it's the blockchain
The blockchain is a decentralized, immutable network running a novel consensus system that might as well be called the purest form of democracy. Every device (also known as a node) connecting to the network receives an exact copy of the network state and becomes a custodian of the network.
The blockchain is autonomous. The nodes work simultaneously to reach consensus without human supervision. Once 51% or 2/3 of the nodes on the network agree on a transaction, the request is automatically processed into a block and confirmed. The cryptographic data derived from this block is used to generate the data for the next block, forming a chain.
Nodes are incentivized to stay honest through the fees and rewards they earn for processing transactions. However, if some of them were to turn malicious - through human agency, of course - the attacker will have to commandeer 51% or 2/3 of the network to successfully execute the attack. The more nodes there are on the network, the more expensive this attack gets. Also, the more geographically dispersed the nodes are, the greater the resources required to coordinate the attack.
The blockchain is transparent. Every transaction is recorded on a public ledger that can be viewed and audited by anybody. However, the parties involved are pseudo-anonymous, represented only by a string of letters and alphabets that has no linkage to their real-world identities.
No one puts bread in a toaster expecting a slab of ice to pop out. It's not designed for that. The same thing applies to the blockchain. It does what you tell it to do according to how it’s been programmed. By replacing human agencies with a codified mechanism for interaction and settlement, the need for trust and trust mediators vanishes alongside their centralized point of failure.
The absence of a centralized point of failure is the backbone of the blockchain’s resilience. Its strength is in diversity, banding individuals who might normally have nothing in common together in a joint enterprise. Naturally, bringing together people for a common cause often then leads to the formation of organisations. As blockchain technology has evolved and its ability to tackle real-world problems matures, we have seen its all-encompassing nature give rise to a new kind of organizational structure, one that has been referred to as the future of companies: the DAO.
The DAO (Decentralised Autonomous Organisation) is a “same-enterprise” organization run by a web of contracts codified on the blockchain. In other words;
"It pretty much brings people together to form a way to organize themselves and organize for something they want to govern jointly" - Stani Kulechov, Aave Founder & CEO
Every decision and proposal has to be voted on by the members of the DAO before it is executed. Votes are typically represented by tokens - a cryptographical asset whose ownership confers the ability to vote for that DAO. Every vote and voting address can also be audited by anybody; this makes it difficult for users to collude and buy votes without leaving a paper trail.
"It brings efficiency in the sense that the DAO members or the people who want to collaborate on an initiative can do it fairly easily from any part of the world. It's an easy way to come together to vote on ideas, vote on subjects. And where DAOs are pretty powerful is where you can vote on changing on-chain codes... whatever the DAO decides, you can't go and undo it". - Stani Kulechov
This is simply because everything is codified on the blockchain and undoing it means attacking the blockchain to undo the transaction that committed those votes on-chain.
Undoubtedly, Covid has changed the way we work. The gig economy and working from home has become the norm rather than the exception it used to be a few years ago. Companies are increasingly embracing practices that do not involve having their entire workforce under the same roof, or - as they like to put it these days - “a decentralized workforce”.
In this way, what was once accepted wisdom in both society and day-to-day business has changed dramatically. It begs the question, what barrier-blindness will be cured next?
There is a growing number of institutions embracing blockchain technology. This points to the beginnings of a monumental shift; from a system of gatekeepers, to one where it’s easier to take a walk without getting intimate on a first-name basis with a bar.
We may never know who the real Satoshi was. But, as we carry on his legacy of eliminating barriers in the exchange of values, one thing is certain: on the blockchain, we are all Satoshi.
Watch our full interview with Stani Kulechov, Aave's Founder & CEO, here. It covers Stani's experience of setting up the Aave DAO, emerging regulation, and the DAO's impact on traditional financial models.