Will Blockchain Bring Investment Valuation as Did the Internet?

Blockchain, decentralization and venture capital. The Holy Trinity of today. The year is 2018 and most of us already heard these terms. Every day, we read about the increasing interest in crypto-currencies and the industry around it. This interesting phenomenon is so tempting that it attracts the attention of crowds. Many of them speak of revolution. Media quote people stating that this is a new era without intermediaries, brokers, lawyers, regulators or bankers.

In the opinion of these people, decentralization without central authorities is the pathway to freedom. The blockchain is perceived as a mean to its fulfilment and the venture capital is the fuel giving this system a life-giving energy. The question for us, common mortals, is – is it true, and if yes, how should we behave in these revolutionary times. Can the future prospects be derived in any way? And if yes, can we co-participate?

Science historians often refrain from describing specific periods of important changes as revolutions. The reason for that is the awareness that with knowledge of relations, it may be perceived rather as an evolution. Theoretically, it is possible to observe how one change follows up another. This logical equation then creates a continuous wave that forms new market opportunities. If we manage to understand the context in time, we can receive valuable information important for our growth.

So, let’s assume that the science historians are right. Let’s go back in time into a recent history and build a context map that shows the continuance and try to use this to understand the events that preceded those of today. Then let’s form a context from facts that occurred and changes they caused. If we thoroughly observe the whole process, we will be able to assess the most important things from the business perspective:

Did the capital invested in these period yield profit or loss?

Differential analyser 1931, an early analogue computer of Vannevar Bush

If we read, in my opinion, one of the best books on innovations – Innovators by Walter Isaacson (who also compiled a biography of several important people, including Steve Jobs), we get a list of contexts of computer development in time. Even the introduction of this book is extraordinarily beneficial. The author states several significant milestones that were perceived in much narrowly at the time as opposed to later times:

Originally, the Internet was created to facilitate cooperation. Opposed to that, personal computers, especially those used at homes, were intended as a tool supporting individual creativity. In the early seventies, networks and home computers were developed separately for more than a decade. Their development finally united in the late eighties with the advent of modems, online services and the Web.

Same as the industrial revolution has been fuelled by connecting steam machine and complex equipment, the connection of computers and distributed network lead to evolution that allowed to create, distribute and read any information, at any time and at any place. Internet protocols were created by a collaboration of colleagues. This formed a system that has the support and development of collaboration coded in its “genetic information”.

BBS – Bulletin Board, originally based on text, the graphic has been added later

If we compare the definition of Internet Protocols that has been defined in 1957 by Joseph Carl Robnett Licklider, in his own way, we obtain a very interesting list of similarities with the today’s Blockchain:

Ability to create and transfer information with Internet Protocols is fully distributed to each network node, and any attempt to achieve control or hierarchy can be easily bypassed. A system of open networks connected to individually controlled computer helped – similarly to the printing press – to destroy the control of the distribution of information by government authorities, scribes and other system watchers.

In connection to the prior definition:

In the IT, Blockchain is a special type of distributed decentralized database storing gradually increasing the number of records that are protected from unauthorized intervention from both, the outside and the peer-to-peer network nodes. Each node in the decentralized cryptocurrency network contains a complete or partial copy of blockchain. This solves the problem of a centralized database and its centralistic control.

Therefore, the mechanics of Internet Protocol and Blockchain have much in common. Both are based on decentralization. Both are operating on the peer-to-peer relationship. Both are trying to control the spread of information/data, transfer it into separate nodes and therefore entirely exclude a fully or partially centrally aimed control of its content and distribution. Both have an auto-regulation policy, whose aim is to keep clear rules between individual network nodes. Both are a result of evolutionary development.

A similarity of Internet Protocols and Blockchain

 

But to be as objective as possible during the comparison, we should take a peek under the lid of the chef, who can be surely considered as the father of the Internet. The aforesaid J.C.R. Licklider became a pioneer of the two most important thoughts, which were used to create the Internet – decentralized networks that allowed sending information from any place to any place, and a user interfaces that allowed interaction between human and machine in real time.

It should also be stated that “Lick” was a psychologist and technologist. After being awarded a doctorate from psychoacoustics, he went from Washington University to Harvard, where he became interested in the relationship between psychology and technology (he was interested how a human brain and a machine can communicate). Some of his colleagues thought that informatics should be directed to replace human thinking. They presumed that information machines will substitute intelligence and decrease the necessity of original thoughts. However, Licklider had an opposite opinion: “the more powerful the computers are, the more important the connection with an imaginative, creative and general human thinking is”. He later called this attitude “symbiosis of human and computer”. His opinion was based on conclusions that confirmed that the effort to create an artificial intelligence – machines that would be able to think by themselves – repeatedly yielded less fruit than the effort to form a collaboration, or even symbiosis, between humans and machines.

Let’s briefly see the reasons for why we try to find a level in the history of computer development that would be similar to the current one. This is especially because if we find certain similarities, we will be able to use these results to predict the situations that may follow and what development can be expected. The significant part for us is to determine whether the capital investment yielded profit or loss in such similar period.

So, let’s move a step further from J.C.R. Licklider, the father of the Internet, to a man, who built a differential analyser in 1931 as well as an early analogue computer. Vannevar Bush, MIT professor, was a star in several fields: he had been a dean at the Faculty of Technology at the MIT, founds or Raytheon, a company specializing on electronic (in time, it became a gigantic business company and a military supplier), and one of the leading organizers of military research in the WW2. It was “Van” who was a connection between three fields of an organization that stood at the creation of the Internet: the military industry, universities and private organizations.  The more interesting is that it had not been a free society in which each group followed its interests. Quite the contrary. During the WW2, these three groups were firmly interconnected, forming a metal triangle: military industrial and academic complex.

In 1944, the Time magazine showed V. Bush as the general of physics. The highest merit and the most significant innovation of Vannevar Bush were based on a plan according to which universities and industrial laboratories were used instead of establishing extended government laboratories (the innovation was based on the interconnection of these organizations). This whole process has been implemented with a single goal: to support important innovation. In July 1945, he produced a report called Infinite Horizon of Science on Roosevelt’s orders.

In the introduction of this report should be read all and all over whenever the politicians threaten with decreasing the budget for innovation:  “Basic research bring new knowledge. Provide research capital. Creates a fund that can be used to draw experience for practical use of knowledge. New products and processes are not born ready. They are based on new principles and ideas, which are produced by thorough research in the purest domains of science. A nation that is dependent on others when achieving new basic research knowledge will be delayed with its industrial development and its competitiveness at the world market will be small.

Based on this report, the Congress decided to establish a National Science Foundation (NSF).

This formed a triangle between the government, industry and the field of academics. The Department of Defence and the National Science Foundation soon became the major sponsor or most basic research in the USA, who, from the fifties to the seventies, used to the same amount of money as the entire private sector.

NSF – About us

If we summarize the aforesaid, we get a pretty clear picture that will declare certain similarities between what we see now and what happened in the recent history thanks to the development of computers, the Internet in particular. Same as in the past times, even now people think that technologies based on Blockchain are ready to replace human intelligence, this decision without our collaboration, or symbiosis, if you will.

Same as in recent history, even today information is broadly open, decentralized, especially because of the reason that the centralistic and authoritarian task of supervisors is no more.

Similar as in the last century, the evolution starts up the venture capital. That is also a thought that clearly declares that interconnection of many nodes in a network directly forms social networks that flexibly respond and solve any problem much faster, more effectively, comprehensively and cheaply.

Blockchain industry

If we summarize all of what we sound out, this is what we get:

  1. historians perceive the period of major changes as a part of an evolution process
  2. Development of Internet Protocols is similar to what Blockchain faces today
  3. The effort to restrict symbiosis of a man and technology brings poor results

Decentralization, Internet and venture capital in 1960 and Decentralization, blockchain and venture capital in 2018

and 3 fundamental similarities:

  1. someone from the top starts something big (usually a recognized scientist, Vannevar Bush (Nick Szabo, Hal Finney, Wei Dai – the most probable candidates to Satoshi + the Cypherpunk movement – academics, hackers, open sources programmers)
  2. this starts with decentralization and becomes a monopoly and centralization (internet providers, Amazon, Facebook, etc.)
  3. firstly a venture capital, then state that can finance up to 50% of all investments.

What happened with the invested capital between the years 1960 through 1990?

The return rate for investments that lead to the creation of Internet Protocols was huge. Lead to the creation of the Internet as well as many other economic pillars.

In conclusion:

According to several of my colleagues (with who I agree), we are now somewhere between the point a) and b).

© Richard Watzke

© Walter Isaacson, The Innovators, 2014