The blockchain is the internet of money

San Francisco

Balaji Srinivasan’s distrust of authority began as early as first grade, when boys less cerebral than he was would beat him up at recess for reading a book. “Literally, like, ‘Oh, look at that nerd,’ and they’d go attack you.” That was in 1986, in Plainview, N.Y., an undistinguished Long Island hamlet where his parents, immigrants from South India, worked as physicians. “Being the only brown kid among hundreds of people, lots of kids would gang up on you and call you ‘Gandhi,’ and you could say, ‘It’s not an insult,’ and run, but they’d just chase you.”

Mr. Srinivasan is now 37 and an eye-catching innovator in the world of digital currency. “I learned that the first guy who comes at me, I need to hit him—Bam!—with the book, and just act crazy so the other folks don’t jump on you.” Later, at the principal’s office, the assailants would have “crocodile tears” about how the little Indian boy had started the fight. “Their parents knew the principal,” Mr. Srinivasan recalls. “He’d say, ‘Balaji, why did you attack young Jimmy and Jamie?’ So, I learned early on that you’ve got to stand up for yourself, that the fix is in. . . . The state is against you.”

That experience informs his current work. Mr. Srinivasan has called the stateless digital currency bitcoin “the most important technology of the decade.” I ask him to explain why, and he says, in fact, that he’s amped up the description. “I’d update that today,” he tells me, “to say that the blockchain—which is not just bitcoin—is the most important invention since the internet.” My eyes widen, and he says: “Yep. I’m not sure if that’s consensus among Silicon Valley now, but it’s getting there.” The “blockchain,” he will explain, is like the internet of money—with similar decentralizing and liberating potential.

Mr. Srinivasan, who describes his school years as “completely wasted,” founded his current company, 21.co, in 2013 with $115 million in seed money from Silicon Valley’s leading venture capitalists. Plainview is now, mercifully, out of sight. “Life in the United States starts with a 13-year mandatory minimum K-12.” Mr. Srinivasan calls it the “school-ag archipelago,” an awkward pun on the Solzhenitsyn tome about Soviet prison camps. He has a 1-year-old son, whom he will not send to school. Instead he plans to band together with like-minded parents from the tech world and “crowd-fund a tutor.”

With his ill-fitting sweatshirt and sweetly inexpert haircut, Mr. Srinivasan doesn’t look much older than a schoolboy. One would be inclined to think of him as a typically arrogant tech-meister were he not so earnest and amiable. In 2006, immediately after earning a doctorate in electrical engineering at Stanford, he co-founded a genetic testing company, which was “conceived in a dorm room.” He was on President Trump’s shortlist to lead the Food and Drug Administration before ruling himself out for the job, and he has courted controversy by calling for Silicon Valley to “exit” from as much government control as possible. He has, in the past, invoked the notion of the “inverse Amish,” a society that “lives nearby, peacefully, in the future,” where “we can experiment with new technologies without causing undue disruption to others.”

Some of Mr. Srinivasan’s views were distorted in news reports, with the now-defunct Gawker describing him as a “secessionist” (and, for good measure, as “bats— insane”). With evident distaste, he describes the Gawker story as “fake news, avant la lettre,” and notes: “Last I heard, they’d been sued into bankruptcy by profiting from revenge porn. Bitcoin is at $4,000, and Gawker is dead.”

Mr. Srinivasan’s present company enables people to be paid in digital currency for replying to emails. It cost me $20 to reach him, payable upon his response, which was almost instant. We met for lunch at his office earlier this week.

“Initially, and in the near future, 21.co is like a better version of LinkedIn InMail,” Mr. Srinivasan says. “Senders attach digital currency to messages to pay people they don’t know to reply.” That’s better than LinkedIn, he suggests, “because users are actually paid to reply, senders can mass-message people, and they can send complex surveys to people rather than just simple emails.” The ultimate goal is to facilitate paid work: “Anywhere there’s a phone, there’s a job. You just pick up a phone and whatever your skills, people will send you digital-currency-based jobs. You can click buttons and make money anywhere in the world.”

When I ask him to explain the “blockchain,” Mr. Srinivasan starts to roll with relish. “Short version? Bitcoin is a way to have programmable scarcity. The blockchain is the data structure that records the transfer of scarce objects.” I ask him to regard me as a dummy, and to give me the longer version.

We can understand bitcoin and blockchain in four steps, he says. “One, cash. When A gives a dollar bill to B, he’s transferring a physical object. B has it, and A no longer does. There’s implicit scarcity in the physical world.”

Step 2 supposes that we treat the serial numbers on those Federal Reserve bills as “a form of naive digital cash. Then A emails those numbers to B. Now B has a copy. But A still has a copy!” So if those serial numbers were treated as cash, A can “double-spend” the numbers by sending them to another party, C. This, Mr. Srinivasan says, is the fundamental issue with digital cash: “the double-spend problem. How do we introduce scarcity into the digital system?”

The way we resolved this problem before bitcoin, Mr. Srinivasan explains in his third step, “was through the use of centralized institutions called banks. Whenever you use PayPal or a similar technology to send money from A to B digitally, the bank is trusted to debit A and credit B.” This, he says, is how “scarcity” is introduced into a digital system; but it is “inelegant, from a computer-science perspective, to have a central, trusted node in any networking topology”—a word my dictionary defines, in this context, as being the way in which constituent parts are interrelated or arranged.

Mr. Srinivasan doesn’t care for this arrangement: “There are downsides to implicitly trusting banks, as the 2008 financial crisis showed.” So rather than require a bank to approve transactions, “Bitcoin figured out how to split this power across many different transaction approvers, called ‘miners.’ ” They “compete to approve transactions and integrate them into the so-called blockchain. Every time they integrate a new block of transactions into the blockchain, they receive a ‘block reward’ and are entitled to print digital currency.” The key point, he says, is that any computer could, in theory, approve transactions, and no single computer could block transactions.

Mr. Srinivasan concedes it’s “a big claim” to say the blockchain is the most consequential technology since the internet. “The internet is programmable information. The blockchain is programmable scarcity.” He elaborates: “All of these previously disparate things—from physical mail to television to music to movies to telephony—basically got turned into packets of information and got remixed by the internet. Plus things that we normally didn’t even think of as information—your Fitbit, your steps, your Facebook settings—became programmable.” It’s fair to say, he continues, “that the internet and all things downstream—search engines, social networks, ride sharing, and so on—have basically been the technological story of the last 25 years.”

The blockchain is the next phase, Mr. Srinivasan says with some zest. “With the blockchain, everything that was scarce now becomes programmable. That means cash, commodities, currencies, stocks, bonds—everything in finance is going to be transformed, and aspects of finance baked into everything else.” By way of example, Mr. Srinivasan suggests that there could be “a spot market for the cost of storing one megabyte on 1,000 remote computers.” He then offers a slogan for the new age: “If you deal with information, you need the internet. If you deal with money, you need to deal with blockchains.” Pretty much everyone, he adds, deals with information and money.

The blockchain, Mr. Srinivasan continues, “is a religion that works.” Here’s why: “If you take 10,000 people and put them in a circle and they close their eyes hard and say, ‘Let this plane fly,’ it’s not going to fly. But if they close their eyes hard and say, ‘Let this thing have value,’ and they all value it, they’ve suddenly got a price for it.” They will exchange things of economic value among themselves, and the external world can interact with them. “In the same way that once you’ve got enough people, you’ve got a nation, you’ve also got a currency. So, belief is actually something you can now materialize into currency.”

I steer our conversation, here, toward China, where the government has cracked down hard on digital currencies, banning citizens from exchanging them online. Is this the first major blockchain crisis? Mr. Srinivasan ponders the question before noting that “the Chinese government is actually run by engineers. Hu Jintao was an engineer, as is Xi Jinping. One of the things they do in China is that they actually give seats in government to folks who are successful in technology.”

He tells me—“not necessarily in an admiring way”—that there are “probably not many people in the U.S. government who could explain to you exactly what a ‘firewall’ is, but that’s a fundamental instrument of policy in China.” Chinese politicians, he says, are more conversant with the long-term implications of information technology than their American counterparts.

But what does China’s crackdown on bitcoin mean? Mr. Srinivasan believes that Beijing is doing something similar to what it did when it deployed the so-called Great Firewall in the early 2000s. “It wanted the internet, but it wanted a controlled internet.” It now has a vigorous and competitive Internet economy, with Alibaba, Tencent and Baidu, “but it also takes measures that Western societies would not, in terms of explicit internet censorship.”

If the Chinese government wants the benefits of the blockchain “without the decentralization of bitcoin,” Mr. Srinivasan says, “we might see a ‘Great Blockchain of China’—perhaps a ‘Chinacoin’ issued by the People’s Bank of China.” It may seem too early for “something of that magnitude” to happen, Mr. Srinivasan says, “but sometimes the future happens more quickly than we expect.” An interesting question, he adds, “is whether this ‘Chinacoin’ would just be directly pegged to the renminbi, as seems most likely, or whether it would be freely floating like bitcoin.”

A more plausible short-term alternative, in Mr. Srinivasan’s view, may be that “the Chinese government asserts its jurisdiction over the Chinese miners who provide most of the world-wide mining capacity of bitcoin and Ethereum,” the latter an open-source blockchain-based platform. Mr. Srinivasan imagines a “cat-and-mouse game would likely ensue, after which the Chinese government would gain control of a fork of bitcoin and Ethereum chains, but the rest of the world would fork to different versions of those chains.” The Chinese government could even attempt a hostile takeover of bitcoin.

Mr. Srinivasan is confident, however, that the protocols that sustain a decentralized, global digital currency will weather a crisis of this sort. “This is the kind of test these protocols were built for. If they survive, which I think they will, then we’ve proven something amazing.” We’ll have proven, he says with a smile, “that there’s now a new kind of digital asset which even a very technically competent and motivated government cannot seize.”

Mr. Varadarajan is a fellow in journalism at Stanford University’s Hoover Institution.

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