TRUST MACHINE: THE STORY OF BLOCKCHAIN (9/10)

by Tony Medley

Runtime 84 minutes

This is a much-needed, fascinating study of blockchain, which is the basis for bitcoin and all the other virtual currencies. Bitcoin was created by someone named Satoshi Nakamoto. Alas, nobody knows who Satoshi Nakamoto is or where he is or anything about him or if he even exists. It seems appropriate that the creator is at least as inscrutable as what he created.

But whoever he is, according to Laura Shin, a Senior Editor at Forbes, “Bitcoin proves that you can create a currency out of software and people will value it and use it.”

Lots of other smart people are interviewed to try to make this phenomenon comprehensible to normal people.

Lauri Love, a hacker and activist accused of stealing huge amounts of data from US agencies including the Federal Reserve, Dept. of Defense, NAFTA, and the FBI, is interviewed throughout. Love, a 31 year old who has Asberger’s Syndrome, was facing extradition to the U.S. from Britain to be charged with cyberhacking. If convicted he could go to jail for 99 years. He states that “The purpose of whoever invented bitcoin was to upend centralized power of the internet.”

Nakamoto came up with a solution to the “double spend problem,” a potential flaw in a digital cash scheme in which the same single digital token can be spent more than once. This is possible because a digital token consists of a digital file that can be duplicated or falsified. The solution is called the blockchain. It’s simply a record of all the transactions and it’s constructed in such a way that cheating is not possible and that there is no central server.

Spiros Michalakis, Quantum physicist, Caltech, explains how it works, “Where you have an initial seed, and then it would spread…each block contains some transaction data; each block in the chain is verified and obtains information from the block before it. This transaction history has an integrity that comes from this idea. If you want to mess with the chain, you cannot mess with just any one block, you have to mess with all of its history.”

Anyone can use their own equipment  to produce crypto-currency in a process known as mining. According to Spiros, mining is using computational power to try to verify one of these transactions. But it takes an enormous amount of electrical power to mine. According to this film, Bitcoin is using more power than 159 countries including Ireland and most countries in Africa.

Laura Shin says that people who criticize bitcoin (like Warren Buffet and Jamie Dimon, Chairman and CEO of JPMorgan Chase) are people who don’t understand the technology, “I just don’t know how much homework they’ve done. If they have done the research then they will pretty quickly figure out that these are probably going to disrupt their business models.”

Directed by Alex Winter, this is really esoteric stuff. The movie does a good job of making it relatively understandable and also goes into other things like the “Byzantine Generals problem,” a term etched from the computer science description of a situation where involved parties must agree on a single strategy in order to avoid complete failure, but where some of the involved parties are corrupt and disseminating false information or are otherwise unreliable.  

You’re not going to come out of this understanding bitcoin and the rest completely, but you will know a lot more coming out than you knew going in. If you’re going to live in this world, this is something you will probably eventually have to understand.