Bitcoin: Laying the foundation for a real-world Skynet?

It's not about bitcoin as a currency. It's about bitcoin as a technology, a highly-distributed, leaderless, jurisdictionless, identityless, nearly anonymous decentralized architecture for managing ownership.

Imagine a self-regulating, world-wide, distributed digital system, engineered to operate beyond the management or control of any human, corporation, or government, impervious to government regulation or national jurisdiction, growing in size and reach exponentially. No police officer can arrest it. No spy organization can find it. No army can kill it. No human can stop it.

Sounds a lot like Skynet from the Terminator movies, doesn't it? In the Terminator franchise, a self-aware AI network created by the military broke free of human control with the intent of destroying the human race.

So, how do we get from bitcoin, a mere digital currency, to Skynet? It may not be as far-fetched as you think.

Back in time

To trace the untraceable, we're going to have to travel back in time almost 50 years, to 1969 (don't worry, you can keep your clothes on). It was quite the year of contrasts. On one hand, there was the Apollo moon landing. Tricky Dick became president. The Vietnam War was about to begin winding down. Woodstock. And the very earliest origins of the Internet.

Popular legend has it that the ARPANET, named after the Advanced Research Projects Agency of the US military, was created to provide unstoppable communications in the event of nuclear war. This claim is disputed by former ARPA director Charles Herzfeld, who -- at a 1994 BBN conference -- claimed that ARPANET was intended to give scientists access to a limited number of research computers. The fault-tolerant, distributed nature of what eventually became the Internet was actually the result of a RAND presentation on secure voice networking for the military.

Even so, the concept (and eventual reality) of the Internet was a decentralized system, able to withstand regular and unpredictable disconnections of nodes, with no true central authority. Today, of course, we know the Internet is not truly decentralized, but it also is not fully controlled by a single nation or authority.

The fundamental architectural technology underlying the entire Internet is packet switching. There are two key concepts in packet switching. First, all transmissions are divided up into small chunks (packets) containing both data and routing information. Second, if any node that's supposed to retransmit a packet is down, the packet is redirected to another operational node that completes the transmission.

In Jurassic Park, Jeff Goldblum explains how, despite supposedly careful genetic engineering to prevent dino reproduction, "Life finds a way." On the Internet, packets always find their way. To be sure, we've seen how some nations have managed to temporarily cut off their population's access to the Internet, but even so, citizens have found ways to route around their government's data blockade.

The key to the Internet's fault tolerance is decentralization. There exists no single, central Tron-like Master Control that can be shut down to stop the Internet. Sure, there are hubs of power (like the DNS infrastructure), but even there, the network is highly decentralized, with the master name server table replicated to servers all around the world. Because of this decentralization and replication, it's very hard indeed to shut down the entire Internet .

Back to the future

It's the concept of decentralization that lets us jump back to the future, to bitcoin, and to its potential of becoming something like Skynet.

Bitcoin has had a pretty crazy month. There was the Mt. Gox debacle , where thousands of bitcoin holders lost their virtual shirts when the company imploded. There was Newsweek's claim that it had finally "outed" Satoshi Nakamoto, the pseudonymous creator of bitcoin. And at least three bitcoin currency exchanges were hacked and robbed , or suffered denial of service attacks .

With bitcoin under so much pressure, how could it possibly become as all-powerful and all-reaching as Skynet?

The answer is pretty simple: it's not about bitcoin as a currency. It's about bitcoin as a technology, a highly-distributed, leaderless, jurisdictionless, identityless, nearly anonymous decentralized architecture for managing ownership.

Plumbing

Let's go back to the Internet for a moment. The Internet is not a single monolithic entity. At its most simplistic, it's made up of plumbing (DNS, packets, routing, TCP/IP, http), applications (Facebook, Gmail, SharePoint, WordPress) and content (ZDNet, CNET, Mashable, Wikipedia). If one aspect of the Internet shut down (say Wikipedia couldn't get enough funding — a horrible thought to be fair), other elements that run on the Internet (say Facebook) would continue on, uninterrupted. The Internet is a platform, and ZDNet and Facebook and so forth run on top of that platform.

Bitcoin is quite similar. There's an underlying bitcoin plumbing component, a blockchain, that handles all the management of the bitcoin objects. There are a wide variety of applications using this plumbing, from the bitcoin currency to a plethora of alternative currencies, there's the "mining" industry that uses the bitcoin currency application's rules to generate objects that get stored in the blockchain, and there are exchanges (like Mt. Gox) that act as brokers and bankers of bitcoin value.

Next up: the disturbing potential of the bitcoin platform...

By the way, I'm doing more updates on Twitter and Facebook than ever before. Be sure to follow me on Twitter at @DavidGewirtz and on Facebook at Facebook.com/DavidGewirtz.

Over the past few weeks, the bitcoin application took some serious hits. You could very loosely compare the implosion of Mt. Gox with the shutdown of GeoCities back in the day. At one time, GeoCities had millions of incredibly ugly, user-created Web pages, but one day, it was unceremoniously shuttered by Yahoo. While GeoCities is no more, Facebook is thriving, providing a similar value proposition to GeoCities (user-generated information sharing), but with a very different interface and feel. Beneath both: the plumbing of the Internet.

Whether or not bitcoin (the currency) survives and retains any value is anyone's guess. But bitcoin (the platform) has some interesting, exciting, and even disturbing potential.

To understand that potential (and to bring us home with the whole Skynet analogy), you have to understand a little bit about the blockchain plumbing. And to understand that, you need to understand a little bit about human civilization's concept of ownership and value.

Currency, stock, even real property only have value because society as a whole has agreed it has value. Certain native civilizations didn't believe you could own the land, but in modern times, land ownership is one of the greatest and most reliable paths to wealth. You can trade a few dollar bills for a cup of coffee, but brewed beans and paper strips don't have intrinsic value. You're only able to make that trade because you want a cup of coffee and the vendor is willing ot accept those slips of paper, which he fundamentally believes he can later trade for other goods and services.

What made bitcoin (the application) so interesting was it was built to generate a transactional value by intrinsically containing a production cost infrastructure that made it more and more difficult to create the digital objects. As difficulty to create goes up, the value generally goes up -- at least while the participants agree that there is inherent value.

Trust... and the ability to not trust

What makes bitcoin (the platform) so interesting is that it solved the general problem of trading value in a reliable and untrusted fashion on the Internet.

Untrusted. That's a key word here. Normally, you hear vendors talking about trust, trust initiatives, trusted computing, and so on. All that is because transactions on the Internet have a fundamental need to trust. Gmail needs to be able to trust that when it gets a message from Office 365 that the message is both legitimate and safe.

We all practice trust on an almost astonishing scale every day. When was the last time you drove on a highway? You and a few thousand other cars and trucks are zipping along, mere inches from each other, trusting (based on licensing training, and human instinct for property- and self-protection) that one vehicle isn't going to purposely slam into another. Have you ever blasted along a two-lane road, with cars coming toward you at high speed on the other side of a simple yellow line? That's trust, baby. That's serious trust.

But not everyone is trustworthy on the Internet. And certain people don't want to "de-cloak" enough to establish trust. The way society manages trust is that it utilizes central authorities -- banks, laws, police officers, etc. -- to enforce certain pre-templated trust relationships between citizens. Drive too fast, get a ticket. Steal from a bank, go to jail. The value of a dollar is... you get the idea.

At the core of all this has to be some level of societal governance, usually in the form of federal, state, and local governments and laws. The bitcoin architecture bypasses all of this. Trust no longer needs to be assigned to a central governing body. Instead, you trust the plumbing, the architecture of bitcoin itself.

The blockchain is designed to track all transactions, to mirror and replicate those transactions to thousands of other participants, but to anonymize the participants themselves. In other words, the bitcoin architecture allows for agreements of ownership where the parties don't need to know who the participants are, and don't even need to trust that the participants are trustworthy. Once an object is checked into the blockchain and ownership assigned, it doesn't matter whether the parties know each other. The object is the object.

Distributed, not centralized

It's critically important to understand that the blockchain doesn't reside in a single data center or even a traditional "cloud" of data centers. The blockchain is widely distributed (think Napster, not Facebook). Copies and pieces of the blockchain exist at the edge of the Internet, not in the center. This, in fact, is the fundamental architectural difference between what we think of as cloud computing and bitcoin.

Cloud computing applications are really applications that are now run through browsers and where the infrastructure is centralized in service-provider owned data centers. Bitcoin's plumbing doesn't live in any one company's data center, it isn't owned by anyone, and it operates far more in a peer-to-peer mode than in a centralized cloud computing mode.

That makes it much harder to kill...

By the way, I'm doing more updates on Twitter and Facebook than ever before. Be sure to follow me on Twitter at @DavidGewirtz and on Facebook at Facebook.com/DavidGewirtz.

It's relatively easy for a governmental authority to kill a company by shutting down one or more data centers. But because bitcoin operates far more autonomously, more like guerrilla warfare cells than a coordinated standing army, it's vastly more difficult to find the central nervous system and terminate with extreme prejudice.

That means that once it's set loose, it's hard to bring back under control. BitTorrent is like that, but transfers digital files, not ownership. While the courts and the MPAA and the RIAA have had their sights set on Torrents for years, all it takes for a torrent network to run are individuals who want to set one up. Napster could be shut down because there was a central hub. While some sites that list torrents have been shut down, the torrent architecture is still alive and well.

Ownership

Think of bitcoin as BitTorrent for ownership. Once you do that, you can begin to see where this is going. Ownership pretty much trumps everything else. The difference between you and Bill Gates, fundamentally, is his ownership of Microsoft stock. That stock (itself, pretty much an imaginary thing) made Gates one of the richest people in the world.

Ownership is more powerful than currency. Ownership owns currency. That's why the ups and downs of the bitcoin currency aren't nearly as meaningful as the ability to remove ownership from central authority control.

Up until now, ownership has always had some element of approval by central authority. Stocks have value as traded on a stock exchange. Currency has value as determined by central banks. Your ownership of your land is confirmed by the government-sanctioned deed. Mark Zuckerberg's owernship of his Facebook stock is determined by a stock transaction mediated by central authority.

Bitcoin upends all that. Have you ever noticed that ownership is almost always jurisdictional? That is, your ownership is confirmed by a local or national government. Even where you hold your money is controlled by a jurisdiction. That's why Apple has billions of dollars stuck outside the US -- because bringing it all back in would require the company to pay a huge tax bill.

But what if you could create a company that exists solely in the blockchain? What if you could apportion stock to investors who are anonymous, don't need to be trusted, and yet own a portion of your equity -- as tracked by the incorruptible blockchain? It gets more interesting as you add automation into the mix.

We're all familiar with the program trading that goes on in the stock market. Millions of shares are traded as the result of heuristics and algorithms, making instant transactions, and sometimes causing entire markets to crash. Oops. The thing about automated stock trading is that it's --once again -- governed by jurisdiction and central authority. Currency has always belonged to a given country and jurisdiction.

But bitcoin turns that on its ear. As long as there is enough general agreement that a digital currency has value, it can be traded and owned. More to the point, that digital currency can be controlled and even "owned" by an automated system. There's nothing to say you can't spin up a program that is given a certain amount of currency and then can go off and automatically trade that currency on its own.

Do you see what we're building up to? This is what Wired calls "distributed autonomous companies" and "distributed autonomous organizations". These are companies and organizations that can exist on the Internet, own property, and have neither jurisdictional control nor even, potentially, human control. Nothing says a human has to pay for the computing services to run such a distributed entity. My Web hosting provider just deducts a few bucks each month from my PayPal account. I don't even really touch it. In the same way, a bitcoin-based distributed organization could, if it works properly, make digital currency and trade that currency for real-world services, like hosting.

Skynet

So let's bring this thing in for a landing. The bitcoin architecture allows for anonymous ownership without requiring a trust relationship. It allows for transactions that bypass regulation and jurisdictional authority. Let's stop there for a moment. This doesn't mean that the various governments and jurisdictions don't want to have authority or control -- it simply means that certain persons, organizations, and entities are able to bypass that jurisdiction using this architecture.

In addition, you have the ability of this ownership to be managed by automated systems, and those automated systems could, in theory, pay for their own care and feeding through digital transactions. The automated systems and the ownership blockchain can scale, is widely distributed and incredibly difficult to shut down, and out of the control of any central authority (and possibly out of the control of any human person).

That gets uncomfortably close to Skynet. No, these distributed autonomous companies aren't out to exterminate all mankind. But what happens when some terrorist organization gets the idea to give a money-laundering autonomous organization, distributed far beyond the control of any individual, it's own little flying drone army? What then?

It may not be Skynet, but if Google can map the planet, if Facebook can link the planet, if Amazon can contemplate using drones for delivery, if governments can kill using drones, and all of these are facilitated by the Internet's infrastructure, isn't the idea of a distributed, autonomous entity that lives outside of the law on the Internet just all that more disturbing?

John Connor, where are you? Calling John Connor...

By the way, I'm doing more updates on Twitter and Facebook than ever before. Be sure to follow me on Twitter at @DavidGewirtz and on Facebook at Facebook.com/DavidGewirtz.

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