Underlying Bitcoin is something even more obscure, more controversial, and potentially far more important: blockchain. Some say blockchain will supplant current systems of law and government, while others dismiss it as a passing fad. But most of us are still struggling to understand what it even is.
“It's basically a kind of database technology,” said Kevin Werbach, a professor of legal studies and business ethics at the University of Pennsylvania's Wharton School. “Only there's not one entity that controls the database. It's decentralized so every node that's connected to the network can have its own copy of the ledger.”
Werbach is the author of "The Blockchain and the New Architecture of Trust," a book that he said is the result of going down the rabbit hole that is blockchain.
The original idea behind Bitcoin, Werbach said, was to create a system for financial transactions without relying on trust.
“What I say in the book is no, that's actually wrong, that's not what has been created,” he said. “What has been created is a system that doesn't require trust for the basic integrity of the transactions.”
There is still trust involved, but it has shifted away from large banks and financial institutions.
“You don't have to trust any central actor,” he said. “You can just look at the technical systems, which have mathematical verification of their integrity, and be confident that the transaction actually occurred in the way that the network says it did.”
Still, when something goes wrong, the system needs laws to back it up.
“So really what's necessary for this whole blockchain and cryptocurrency phenomenon to mature and really take hold is integration with the systems in the world that produce that kind of deep trust, which are law, regulation and governance,” Werbach said. “And that's absolutely ironic because those are the things that many of the early proponents of these cryptocurrencies thought they were running away from.”
Does everyone need to understand exactly how blockchain works for it to become used widely? Werbach says no.
“If it succeeds, it disappears,” he said. “It becomes invisible. Because most people don't understand how the internet works … yet people use it all the time.”
If blockchain becomes widely used, it will be because people find that it provides a way to exchange money globally without the difficulties of using intermediaries, Werbach said.