So What?

So what’s the point of this blockchain thing anyway? That’s going to depend on whom you ask, but my mind keeps going back to the concept of digital private property with accompanying property rights that can be upheld without the assistance or interference of any third party.

I'm far from the first person to discuss this topic, but I'll offer some ways to think about it. I suggested in my last post that digital assets are data and that blockchains store and track that data. I'll build upon that and note that a blockchain will enable property rights to the data. And if properly built (yeah, I know that’s a hugely important “if”), that blockchain will enable data owners to assert their rights to act upon their data as they see fit - that is, as long as the blockchain protocol will allow those intended actions. The protocol is the software - the set of instructions or “laws” if you will - that establishes which activities are permitted.

So, if you propose to send some bitcoin to a friend, the blockchain protocol will verify that you own the amount that you intend to hand over, and it will subsequently execute the transaction. In this example you met your burden to show that you controlled the funds (as required by the blockchain protocol), and the software carried out a permitted activity. Furthermore, once the exchange was completed, the software updated everyone’s balances, and your claim to the bitcoin you transferred no longer exists.

There are several ways to think about transfers of digital private property, and I'll offer two for your consideration. Sticking with bitcoin, if you want to visualize sending an amount of bitcoin to someone as handing cash to a friend, that’s fine. It’s an exchange. Your friend now owns the bitcoin, and you don’t. It’s a simple analogy, and it illustrates the point.

Alternatively, you could consider that when you send some bitcoin to another person, you’re really transferring your property rights to that chunk of cryptocurrency. You effectively give up your claims to the digital private property, and the recipient gains verifiable ownership rights to an equivalent amount. Now, I need to acknowledge that different blockchains will vary in how they carry out asset verification and transfers, so no quick description will be perfect. My intent here is to offer some general ideas on how to conceptualize the flow of digital property rights as cryptocurrencies, NFTs, and other digital assets are transferred on a blockchain.

I need to address the part in the first paragraph where I wrote that a blockchain can support digital property rights without third party support or interference. I’m referring to decentralization, an arrangement in which the people (and their machines) who run the software and those who support the blockchain protocol’s codebase are dispersed such that that no single party can compel them to alter a given transaction or to even shut down operations. What's the magic number of participants to create sufficient decentralization? And what does a properly dispersed network look like? Answers will vary. Decentralization is a big topic in this space, and many smart people have offered their views. Feel free to take a look at what they've produced. For now, I just want to highlight that a decentralized blockchain can create its own rules establishing digital private property, and senders and receivers can transfer this property without third party intervention. And of course, "third party" in this context most often refers governments and financial institutions.

To summarize, blockchain protocols can enable private ownership rights to the digital assets (or data) that they store and track. There are different ways to conceptualize digital asset transfers, so just use whatever works for you. What's remarkable is that a decentralized blockchain can accomplish all of this according to its own internal set of rules without the participation of any third party. So, what are the possibilities once you’ve established digital private property with its accompanying rights? There are many, and I encourage you to look at what developers have already created. And stay tuned to see what comes next.

Thanks.