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Economist have been exploring
people's behavior for hundreds of years:

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how we make decisions,

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how we act individually and in groups,

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how we exchange value.

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They've studied the institutions
that facilitate our trade,

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like legal systems,

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corporations,

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marketplaces.

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But there is a new,
technological institution

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that will fundamentally change
how we exchange value,

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and it's called the blockchain.

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Now, that's a pretty bold statement,

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but if you take nothing else
away from this talk,

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I actually want you to remember

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that while blockchain technology
is relatively new,

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

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and the story is this.

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As humans, we find ways

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to lower uncertainty about one another

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so that we can exchange value.

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

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of institutions as a tool in economics

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to lower our uncertainties
about one another

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and be able to do trade

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was the Nobel economist Douglass North.

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He passed away at the end of 2015,

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but North pioneered what's called
new institutional economics.

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And what he meant by institutions
were really just formal rules

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like a constitution,

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and informal constraints, like bribery.

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These institutions are really the grease

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that allow our economic
wheels to function,

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

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

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we really just traded
within our village structure.

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We had some informal constraints in place,

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but we enforced
all of our trade with violence

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or social repercussions.

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As our societies grew more complex

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and our trade routes grew more distant,

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we built up more formal institutions,

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institutions like banks for currency,

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governments, corporations.

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These institutions
helped us manage our trade

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as the uncertainty
and the complexity grew,

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and our personal control was much lower.

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

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We built platform marketplaces
like Amazon, eBay, Alibaba,

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just faster institutions
that act as middlemen

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to facilitate human economic activity.

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As Douglass North saw it,

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institutions are a tool
to lower uncertainty

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

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And I believe we are now entering

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a further and radical evolution

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of how we interact and trade,

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because for the first time,
we can lower uncertainty

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not just with political
and economic institutions,

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like our banks, our corporations,
our governments,

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but we can do it with technology alone.

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So what is the blockchain?

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Blockchain technology
is a decentralized database

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that stores a registry
of assets and transactions

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across a peer-to-peer network.

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It's basically a public registry

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of who owns what and who transacts what.

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The transactions are secured
through cryptography,

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

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that are then cryptographically
linked together and secured.

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This creates and immutable,
unforgeable record

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of all of the transactions
across this network.

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

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It's not an app.

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It's not a company.

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

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We can see everything on Wikipedia.

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

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We can also track those changes
over time on Wikipedia,

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and we can create our own wikis,

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

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

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and the changes to that data over time.

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On the blockchain,

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you can think of it
as an open infrastructure

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that stores many kinds of assets.

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It stores the history of custodianship,

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ownership, and location

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for assets like
the digital currency Bitcoin,

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other digital assets

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like a title of ownership of IP.

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It could be a certificate, a contract,

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real world objects,

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even personal identifiable information.

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There are of course other
technical details to the blockchain,

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

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

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

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Which brings me to my point

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of how blockchains lower uncertainty

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and how they therefore promise
to transform our economic systems

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in radical ways.

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So uncertainty is kind of a big term

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in economics,

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but I want to go through three forms of it

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that we face in almost all
of our everyday transactions,

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where blockchains can play a role.

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

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not having visibility into a transaction,

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and not having recourse
if things go wrong.

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

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Say I want to buy
a used smartphone on eBay.

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

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Are they a power user?

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

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Reviews, ratings, checkmarks:

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these are the attestations
about our identities

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that we cobble together today

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

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But the problem is
they're very fragmented.

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Think about how many profiles you have.

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Blockchains allow for us
to create an open, global platform

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on which to store any attestation
about any individual

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from any source.

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This allows us to create a user-controlled

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portable identity.

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More than a profile,

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it means you can selectively reveal

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the different attributes about you

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that help facilitate trade or interaction,

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for instance that a government
issued you an ID,

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or that you're over 21,

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by revealing the cryptographic proof

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that these details exist
and are signed off on.

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Having this kind of portable identity

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around the physical world
and the digital world

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means we can do all kinds of human trade

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in a totally new way.

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So I've talked about how blockchains
could lower uncertainty

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in who we're dealing with.

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The second uncertainty that we often face

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is just not having transparency
into our interactions.

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

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I want some degree of transparency.

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

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

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This is true not just
for electronics like smartphones,

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but for many kinds of goods and data,

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things like medicine, luxury goods,

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

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The problem in many companies,

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especially those that produce
something complicated like a smartphone,

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is they're managing
all of these different vendors

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across a horizontal supply chain.

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All of these people
that go into making a product,

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they don't have the same database.

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They don't use the same infrastructure,

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

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Using the blockchain, we can create

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a shared reality
across nontrusting entities.

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By this I mean

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

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or trust each other,

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because they each have the ability

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to monitor and validate
the chain for themselves.

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Think back to Wikipedia.

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It's a shared database,

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and even though it has multiple readers

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and multiple writers at the same time,

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it has one single truth.

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So we can create that using blockchains.

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

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without actually creating
that central authority.

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So all of these vendors,
all sorts of companies,

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can interact using the same database
without trusting one another.

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

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As a real-world object travels along,

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

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adding value as it goes.

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

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

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and how they change
what we mean about transparency

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

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The last uncertainty that we often face

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

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What if you don't send me the smartphone?

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Can I get my money back?

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Blockchains allow us to write code,

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binding contracts,

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between individuals,

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and then guarantee
that those contracts will bear out

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without a third party enforcer.

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

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You are financing that phone,

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but you don't need to release the funds

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

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You got the phone.

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I think this is one
of the most exciting ways

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that blockchains lower our uncertainties,

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because it means to some degree

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we can collapse institutions
and their enforcement.

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It means a lot of human economic activity

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can get collateralized and automated,

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and push a lot of human
intervention to the edges,

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

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I think what would probably
floor Douglass North

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about this use of technology

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

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the very thing that keeps the blockchain
secure and verified,

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is our mutual distrust.

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So rather than all of our uncertainties

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slowing us down

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and requiring institutions

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like banks, our governments,
our corporations,

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we can actually harness
all of that collective uncertainty

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

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

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that the blockchain
is the solution to everything,

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

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it's also going to solve
the counterfeit drug problem

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and potentially save the rainforest.

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The truth is, this technology
is in its infancy,

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

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and probably fail

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before we truly understand
all of the use cases

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for our economy.

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But there are tons of people
working on this,

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from financial institutions

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to technology companies,
start-ups, and universities.

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

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It's also an innovation
in computer science.

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Blockchains give us
the technological capability

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of creating a record of human exchange,

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of exchange of currency,

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of all kinds of digital
and physical assets,

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even of our own personal attributes,

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in a totally new way.

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So in some ways,

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they become a technological institution

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that has a lot of the benefits

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

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but it does this in a decentralized way.

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It does this by converting
a lot of our uncertainties

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into certainties.

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So I think we need to start
preparing ourselves,

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because we are about to face a world

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where distributed, autonomous institutions

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have quite a significant role.

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Thank you.

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(Applause)

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Bruno Giussani: Thank you, Bettina.

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I think I understood that it's coming,

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it offers a lot of potential,

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and it's complex.

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What is your estimate
for the rate of adoption?

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Bettina Warburg: I think
that's a really good question.

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My lab is pretty much focused

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on going the enterprise
and government route first,

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because in reality,
blockchain is a complex technology.

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How many of you actually understand
how the Internet works?

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But you use it every day,

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so I think we're sort of facing
the same John Sculley idea

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of technology should either be
invisible or beautiful,

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and blockchain is kind of
neither of those things right now,

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so it's better suited
for either really early adopters

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who kind of get it and can tinker around

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or for finding those best use cases

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like identity or asset tracking
or smart contracts

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that can be used at that level
of an enterprise or government.

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BG: Thank you. Thanks for coming to TED.

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BW: Thanks.

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(Applause)