Scott Stornetta – Blockchain is more than Crypto.

Blockchain. Redefining value in the digital age.

Many people only know blockchain in connection with Bitcoin or other cryptocurrencies. But blockchain is much more than that. In a conversation with Scott Stornetta, one of the two inventors of blockchain technology, we learn about blockchain, the journey of this major invention, and its several other possible applications. We also dive into innovation, solving ancient problems with new technologies, and the meaning and value of NFTs.

QUEST: Mr. Stornetta, before we dive deeper into the topic, I’d like us to define blockchain for anyone that might not have an understanding of exactly what it is. So, as one of the two inventors of blockchain, how would you describe this technology?

Stornetta: I’ll describe the blockchain part first then we can talk about things people read about more frequently, like Bitcoin and other cryptocurrencies. First, I should point out that the blockchain is a foundation layer on which many other innovations are built. At a fundamental level, it is just a new kind of record. A record that is unusual because it is not held by any one person but is shared in a community.

And the technical innovation is that there’s no central trusted third party that owns the record and is responsible for its upkeep, but rather it’s an entire group of people that collectively share the record. This provides extraordinary guarantees of its integrity and security.

If I were to come at it from a completely different angle, just to give people something very physical to hold onto, in medieval Europe, contracts would be written out on a single piece of paper but in triplicate. They would then deliberately tear the three parts of the contract in a very rough and jagged way and give each party to the contract a copy.

If you have an idea that enables other people to start thinking of their own innovations, there’s a huge multiplier effect.

So, the idea of bringing parties back together and ensuring that the jagged copies of the contract fit perfectly in a very technical sense is at the heart of the integrity of the blockchain. So let’s talk a little bit about what it’s like today to have a blockchain. Instead of having just three participants, we could have thousands of participants that jointly create an ongoing record that the whole community can trust is authentic, trustworthy, and reliable. This means that a different kind of social organization is possible.

Now let me go to the most famous example of a blockchain which is Bitcoin. But before I describe it, I want people to clearly understand that Bitcoin is simply one example of a blockchain. From my perspective, Bitcoin, in particular, has some idiosyncrasies and flaws. However, people should not assume that this is a flaw in the blockchain or in other applications of the blockchain but is, in fact, perhaps unique to Bitcoin.

Invented in 1991

by Stuart Haber and W. Scott Stornetta

Bitcoin: The first decentralized blockchain was conceptualized by a person(or group of people) known as Satoshi Nakamoto in 2008.

>$3 trillion: estimated generated annual business value of blockchain technology by 2030

With that as a kind of warning or prelude, let me describe Bitcoin. So, Bitcoin is a particular kind of shared community record. It is a ledger about a record of transferring value from one person to the next. You can think of it as a bank ledger that records all the checks you write and the deposits you receive. But rather than being specific to one person’s account, think of it as a universal record that all the parties in the transaction subscribe to this one community-wide record.

That creates some very nice efficiencies of ways to interact in a peer-to-peer way without needing any kind of bank or other intermediaries. It also allows us to use the same standardized record, and for additional creative ways to manage those transactions.

And the real reason I’d say so many people are interested in the blockchain is twofold. Because we create this community-wide standardized record, we can operate more efficiently in transferring value from one individual to another. We can also develop new ways of interacting that can be greatly sped up or perhaps weren’t even possible with the traditional financial system.

The final thing that I’d say is there’s so much focus on financial transactions, but it’s also the case that if you’re looking for a community-wide trustworthy shared record, there can be other applications of the blockchain that have nothing to do with moving money around.

For example, we can talk about perhaps in the future having shared medical records that preserve the privacy of the record but are interchangeable amongst patients, physicians, and hospitals or a shared record of real estate title to properties.

QUEST: You’ve made the statement ‘digital solutions for ancient problems’ referring to the blockchain as a solution. Can you tell us the problem you aimed to solve with blockchain technology?

Stornetta: Well, the first thing I would like to do is put it in a time setting. Namely, we’re talking about work done more than a decade before bitcoin became well known. This was work done at part of the old Bell Labs system,
which of course, is famous for things like the invention of the transistor and the Unix operating system. They were the first to discover evidence for the big bang, so they are a very respected institution, and it was my privilege to work at one of the offspring companies of Bell Communications Research. The problem we were concerned with was that of record keeping. Traditionally with paper-based or other records, people could detect tampering or signs that the record wasn’t authentic by looking at the actual paper, the ink, or perhaps the chain of custody.

I saw a world where all record-keeping would be in purely digital format. Therefore, issues of custody or providence about the medium itself would no longer be applicable. So, there was going to be a need to prove the integrity and authenticity of the actual bits and bytes of the digital method without any reference to what paper it was written on, what hard disk it was stored on, or who had held it. There was the need for a kind of universal trusted record.

What we didn’t foresee was the richness of innovation of different kinds of records an then various types of applications built on top of the basic

That was my initial motivation. We wanted records that could endure for a very long time, yet the people handling them could all be confident that the record hadn’t in any way been altered after the fact and that all people could rely on that same record. So that was our starting; it certainly wasn’t about creating cryptocurrencies.

QUEST: At what point did you imagine blockchain having such a massive positive impact on the world? Both as an independent invention and later being a foundational layer on which innovations in other fields could be built? When did you first see the results?

Stornetta: Well, the answer is twofold. One is very early then the second is only much more recently. Let me explain why it’s two different answers. We were like just about anyone, very ambitious about what we thought the implications of our technology were. We felt that the point would come when any sort of record people wanted to have confidence in would be built on a blockchain.

What we didn’t foresee was the richness of innovation of different kinds of records and then various types of applications built on top of the basic record. So, for example, one term widely used in this space is the concept of a smart contract. This is something that moves from the level of having a record that everyone can trust to having a contract that can execute automatically and simultaneously for the sake of proof on many different computers.

So, now you have a record you can trust and the idea of a smart contract. This means that you can have consequences as time evolves to how these elements in the record can be moved around and traded amongst people. The notion of a smart contract is a fundamental example of how value can be added on top of the blockchain. This has created many more potential applications.

So that was something that we did not foresee at all. Historically, this has so often been the case. When you create some sort of unified standard that everyone can work with, it opens the floodgate for innovation to be built on top of it.

Way back, maybe 200 years ago, you started to see the development of railroads. But one of the most significant innovations that led to the growth of railroads was that you didn’t want different railroad companies to use different size tracks. But rather, when you standardized the size of the track, these different railroads could suddenly interconnect and create far more value than just little individual islands of usage.

The same thing has happened much more recently with the internet itself. Once we had the web standards, we could have everyone interacting on top of the same standard. That’s part of what has greatly enhanced the value of the internet over what preceded it, which would’ve been similar proprietary networks. Blockchain does that by standardizing the data format. So, we expect to see a similar blossoming of value that can be created on top of it because everyone can use the same standard for the data and have confidence in the trustworthiness of the data.

One way to think about innovation is if you have a great idea; that moves the ball forward. But if you have an idea that enables other people to start thinking of their own innovations, there’s a huge multiplier effect.

I think innovators often feel that as soon as they have the idea, it should be rapidly commercially successful, and that’s just not how things play out.

That standardization and the sense of universal trust and acceptance of the authority of these records unleashes the real second wave of innovation. Where people you never meet and don’t in any way control are free to start thinking about what innovations they can build on top of that standard. That’s the key to having a deep and prolonged impact on society. QUEST: Let’s talk about innovation and how to generate innovation. When working on your project with Dr. Haber, you developed an approach during the problem-solving process I find very interesting. At a certain point, you stopped thinking about how to solve the problem and embarked on proving that the problem couldn’t be solved but to prove that it cannot be solved. Is that right? Tell us about how this approach came to be. Stornetta: We wanted proof that a record hadn’t been altered after the fact and that a series of records were a viable historical account of what had occurred. So, we worked quite a bit on coming up with some sort of practical proof of these systems with my collaborator Dr. Stuart Haber. However, every time it still required you to trust someone in the system to be sort of beyond reproach. That meant that you had to intrinsically trust that person, that there was no way to avoid having to trust someone. So, we then started the second phase of work on our program. We began asking ourselves if there was a way to remove that reliance on trusting one person intrinsically.

Where people gather, value is created.

We worked on that quite a bit, and finally, Dr. Haber, the more senior researcher, came to me and said, I don’t think this problem can be solved. We have a working system, but it still requires you to trust someone. And I think removing that need to trust someone from a system may be impossible. So rather than try to solve this problem, why don’t we write proof of why this problem could never be solved? So, we started working in the opposite direction. One day after working on this problem at the laboratory, I went to dinner with my wife and our young children. We were standing in line waiting for a table at a restaurant. I was still in my own mind reviewing the basics of our proof that you could never remove trust from a system.
Stuart Haber (left) and Scott Stornetta developed their ‘time-stamp’ for electronic documents at the Bellcore Laboratory in Morristown

The basic proof sort of went like this. If two people conspire to change a record, then the only way to prevent that is to have a third person looking over their shoulder. But then the problem is, what if they try to draw that third person into the conspiracy? Well, you would need a fourth person to oversee the three people and a fifth person to oversee the four.

And so, the whole idea of the proof was to show how absurd it would be because this argument would just go on forever. Obviously, that was no solution at all. Right then, I realized that what we saw as the problem could be turned on its head into the solution.

Namely, we could create a system where everyone in the world was essentially looking over everyone else’s shoulder. So that was where the idea of involving the entire community with a set of records linked in a trustworthy way came from. And that linking is analogous to the tearing of the contract I described at the beginning.

I think time has proven that it was a good day for everyone in the world. That’s partly why I tell the story because it’s personally meaningful, and I also want people to know there was good intention. At the start of trying to create a more trustworthy world, the breakthrough came from flipping the problem upside down, and maybe that’s encouragement to other innovators. I hope it is.

Short Bio

Wakefield Scott Stornetta, born in June 1959, is an influential American physicist and researcher known for his pivotal 1991 paper “How to Time-Stamp a Digital Document,” co-authored with Stuart Haber. This paper, winning the 1992 Discover Award for Computer Software, is crucial in the development of cryptocurrencies. Stornetta is currently a fellow at the Creative Destruction Lab and a founding partner and chief scientist of Yugen Partners, a blockchain-focused venture capital firm. He also serves on the Board of Advisors for the American Blockchain PAC. Stornetta and Haber co-founded Surety Technologies in 1994, marking the first commercial deployment of a blockchain. Their work is cited in Satoshi Nakamoto’s original Bitcoin white paper. Stornetta’s contributions include incorporating Merkle trees in 1992 and addressing the future of blockchain in a 2021 report for the EU Blockchain Observatory and Forum.

QUEST: Another interesting problem-solving approach I found you and Dr. Haber used was posting part of the blockchain code in the Classifieds to distribute it worldwide. Could you please tell us more about the newspaper ads and the thoughts behind them?

Stornetta: Remember, this is before the world wide web, before the widespread use of the internet. The blockchain fundamentally relies on many disinterested parties holding on to the same core records. So much so that trying to create a conspiracy would require so much effort and coordination that it would be impossible to do.

So rather than try to solve this problem, why don’t we write proof of why this problem could never be solved?

But when we built the system, it wasn’t a world where everybody had internet connectivity, a computer, and so on. So we had the clever suggestion to take a newspaper that was printed very widely and held by not just individuals but all of the leading libraries and institutions throughout the world, then print a small piece of the blockchain code in that publication.

This would distribute so many copies of the system worldwide that it would be impossible for someone to get away with a forgery of the other records on the blockchain. They would inevitably be able to link them to these widely distributed copies of the newspaper.

We compressed all the records of the blockchain into a very small proof that could be placed as a classified ad in the New York Times in the national edition.

And this is a paper that even to this day is subscribed to all over the world. That was our way of sort of bootstrapping before there was a worldwide web. The idea of taking a small portion of the blockchain that didn’t have all of its data but still contained the proof of the integrity of all the data and publishing it widely in a pre-internet pre-worldwide web time. That was the idea.

In fact, we began operating that blockchain over 30 years ago, and it continues to operate even today. So anyone in the world that can get a copy of the Sunday New York Times can look in the lost and found section of the classifieds, and they will find proof for the week’s records.

QUEST: How did you learn about Bitcoin, which you mentioned is an adaptation of your technology?

Stornetta: Until Bitcoin came out, I had moved into other areas of interest and wasn’t tracking this space at all. But I got some mail, not email, but regular mail from someone that said he was very excited about this new innovation, Bitcoin. He also mentioned that basically half of the footnotes in the Bitcoin white paper referenced the work Dr. Haber and I did. He had googled me online and discovered that I had been a missionary in Japan and therefore was fluent in Japanese. So, this person was asking me if I was, in fact, Satoshi Nakamoto. That was the first time I actually looked at the Bitcoin white paper.

Again, maybe there’s another innovator’s story here. It sure took a long time from our initial innovation until we started seeing its big use cases. And I think innovators often feel that as soon as they have the idea, it should be rapidly commercially successful, and that’s just not how things play out.

Quest: Do you think the identity of Satoshi Nakamoto will ever become public?

Stornetta: It has certainly been the subject of lots of speculation. I don’t mean to sound conceded, but to me, the point is we may not know who Satoshi is, but I guarantee you Satoshi knows who I am.

QUEST: Where do you think blockchain is headed? You mentioned medicine, but NFTs are also an interesting development based on the blockchain technology. What are your thoughts on this?

Stornetta: Let me take NFTs as an example because I think they are perceived by many as a sort of extreme foolishness. While the idea that you’re creating uniqueness or scarcity in a digital world where it’s easy to copy anything may have seemed foolish at the beginning, I think what you’re actually seeing is a deeper truth about what value really means.

Let me give a homely example, Americans are famous for when they drive to a store wanting to find a parking spot that is as close to the entrance as possible. They will circle the parking lot for 10 minutes just to find a parking spot close to the entrance so as to save one minute in the walking. But here’s the thing. That parking spot has no intrinsic value, and the best way to understand why is to go back to the parking lot at 2:00 AM. The parking lot is empty, and no one is competing for parking spots. So, what is my point about how that relates to this virtual world?

It’s that what matters is where people gather. And that where people gather, value is created, and it’s inherent not because of the intrinsic value of that particular piece of land or asphalt but because it’s a place where people gather. And so, similarly, it’s a mistake to think that because something is virtual or digital, it can’t have any value.

What matters is that this is a place where people are aggregating, and that’s what creates the value. It’s about what people collectively join together to assign value. That may seem like a very flimsy foundation, but it’s the fundamental nature of value that it has to do with what we collectively choose to assign value to both for the short and the long term.

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