To understand why blockchain is important, look beyond wild speculation on what is built below.

The Internet bubble of the 1990s is generally considered a period of mad excess that ended with the destruction of hundreds of billions of dollars of wealth. What is less often discussed is how all the cheap capital of the boom years financed the infrastructure on which the most important Internet innovations would be built after the bubble burst. It financed the deployment of fibre optic cable, R&D on 3G networks and the construction of giant server arrays. All this would make possible the technologies that are now the foundation of the world's most powerful societies: algorithmic research, social media, mobile computing, cloud services, large data analysis, artificial intelligence, etc.

We believe that something similar is happening behind the wild volatility and media hype of the stratosphere of the crypto-currency and blockchain boom. The blockchain sceptics growled with joy as cryptographic prices have fallen from last year's dizzying peaks, but they make the same mistake as the crypto fanatics they mock: they associate the price with its intrinsic value. We cannot yet predict what the high-tech industries based on blockchain technology will look like, but we are confident in their existence, because technology itself is about creating an invaluable asset: trust.

To understand why, we have to go back to the 14th century.

It was at that time that Italian merchants and bankers began to use the double-entry method of accounting. This method, made possible by the adoption of Arabic numerals, has provided merchants with a more reliable record keeping tool and has enabled bankers to assume a powerful new role as intermediaries in the international payment system. However, it is not only the tool itself that has paved the way for modern finance. That was how it had been inserted into the culture of the day.

In 1494, Luca Pacioli, a Franciscan and mathematician, codified his practices by publishing a mathematics and accounting textbook presenting double-entry accounting not only as a means of tracking accounts, but also as a moral obligation. Like Pacioli, for everything that merchants or bankers had value, they had to give something back. Hence the use of compensation inputs to record distinct balancing values: a debit coupled to a credit, an asset with a liability.

Pacioli's morally honest accounting granted a form of religious blessing to these previously disparaged professions. Over the following centuries, clean books were considered a sign of honesty and piety, allowing bankers to become payment intermediaries and accelerate the flow of money. This financed the Renaissance and paved the way for the capitalist explosion that would change the world.

Yet the system was not immune to fraud. Bankers and other financial actors have often failed in their moral duty to keep honest accounts, and they always do: just ask Bernie Madoff's clients or Enron shareholders. Moreover, even if they are honest, their honesty comes at a price. We have allowed centralized trust managers, such as banks, stock exchanges and other financial intermediaries, to become indispensable, moving them from intermediaries to gatekeepers. They charge fees and restrict access, create friction, limit innovation and strengthen their market dominance.

So the real promise of Blockchain technology is not to make you a billionaire overnight or to give you the means to protect your financial activities from curious governments. This could significantly reduce the cost of trust through a radical and decentralized accounting approach - and, by extension, create a new way to structure economic organizations.

The need for trust and intermediaries allows giants such as Google, Facebook and Amazon to transform economies of scale and network effects into de facto monopolies.

A new form of accounting might seem like a boring achievement. Yet for thousands of years, since the Babylon of Hammurabi, the great books have been the foundation of civilization. Indeed, the exchange of values on which society is based requires us to trust everyone's claims on what we own, what we have and what we owe. To build this trust, we need a common system for monitoring our transactions, a system that gives definition and order to the company itself. Otherwise, how else would we know that Jeff Bezos is the richest human being in the world, that Argentina's GDP is $620 billion, that 71% of the world's population lives on less than $10 a day or that Apple shares are trading at a multiple of the company's earnings per share?

A blockchain (although the term is loosely used and often misapplied to things that are not really blockchains) is an electronic ledger, a list of transactions. In principle, these transactions can represent almost anything. These could be real money exchanges, as is the case with the block chains underlying crypto-currencies such as Bitcoin. They could mark exchanges of other assets, such as digital share certificates. They can represent instructions, such as orders to buy or sell shares. They could include smart contracts, which are computerized instructions to do something (for example, buy stock) if something is true (the price of stock has fallen below $10).

A blockchain is a particular type of general ledger, because instead of being managed by a single centralized institution, such as a bank or a government agency, it is stored in several copies on several independent computers within a decentralized network. No single entity controls the general ledger. All computers in the network can modify the general ledger, but only in accordance with the rules dictated by a "consensus protocol", a mathematical algorithm requiring that the majority of other computers in the network agree with the modification.

Once the consensus generated by this algorithm has been reached, all computers on the network update their copies of the general ledger simultaneously. If one of them attempts to add an entry to the general ledger without this consensus or to modify an entry retroactively, the rest of the network automatically rejects the entry as invalid.

Generally, transactions are grouped into blocks of a certain size that are linked (hence "blockchain") by cryptographic locks, themselves a product of the consensus algorithm. This produces an unchanging and shared record of the "truth", a record that, if things have been well prepared, cannot be altered.

Within this general framework, there are many variations. There are different types of consensus protocols, for example, and often disagreements about the safest type. There are public registers "without permission", to which everyone can in principle attach a computer and be part of the network; this is what Bitcoin and most other cryptocurrencies belong. There are also "authorized" private ledger systems that do not include any digital currency. These can be used by a group of organizations that need a common recordkeeping system, but are independent of each other and may not have complete self-confidence - a manufacturer and its suppliers, for example.

The common denominator among all is that it is the mathematical rules and impassable cryptography, rather than trust in fallible humans or institutions, that guarantee the integrity of the registry. This is a version of what cryptographer Ian Grigg described as "a three-way accounting": one entry on the debit side, another for credit and a third in an unchanging, uncontested shared ledger.

The advantages of this decentralized model can be seen when comparing the cost of confidence in the current economic system. Consider this: In 2007, Lehman Brothers posted record profits and revenues, all approved by its auditor, Ernst & Young. Nine months later, a fall in these same assets led the 158-year-old company into bankruptcy and triggered the biggest financial crisis in 80 years. Clearly, the evaluations cited in previous years' books were very poor. And we later learned that Lehman's ledger was not the only one containing questionable data. American and European banks have paid hundreds of billions of dollars in fines and settlements to cover losses caused by inflated balance sheets. This was a strong reminder of the high price we often pay for trusting numbers developed internally by centralized entities.

The crisis was an extreme example of the cost of trust. But we also see that this cost is rooted in most other sectors of the economy. Think of all the accountants whose firms fill the world's skyscrapers. Their work, which reconciles their company's books with those of their professional counterparts, exists because neither party has confidence in the other's background. It is a long, costly but necessary process.

The other manifestations of the cost of trust are not in what we do, but in what we cannot do. Two billion people are denied bank accounts, which keeps them away from the global economy because banks do not trust their asset and identity records. In the meantime, the Internet of Things, which is expected to contain billions of autonomous devices interacting to increase efficiency, will not be possible if gadget-to-gadget microtransactions require the intermediation of a prohibitive cost of centrally controlled ledgers. There are many other examples of how this problem limits innovation.

Economists rarely recognize or analyze these costs, perhaps because practices such as account reconciliation are supposed to be an integral and unavoidable feature of businesses (much as pre-Internet businesses assumed that they had no choice but to pay large postal expenses by mail. monthly invoices). Could this blind spot explain why some influential economists do not hesitate to reject Blockchain technology? Many say they cannot see the justification for its costs. Yet their analyses generally do not compare these costs with the social cost of trust that new models seek to overcome.

However, more and more people understand this. Since Bitcoin's quiet publication in January 2009, the number of supporters has grown considerably to include former Wall Street professionals, Silicon Valley technology specialists and experts in development and assistance from organizations such as the World Bank. Many see the rise of technology as a new vital phase in the Internet economy, a phase that is even more transformative than the first. While the first wave of online disruption saw brick and mortar companies dislodged by leaner digital intermediaries, this movement challenges the very idea of for-profit intermediaries.

The need for trust, its cost and dependence on intermediaries is one of the reasons why giants such as Google, Facebook and Amazon are transforming economies of scale and the benefits of network effects into de facto monopolies. These giants are, in fact, centralized general ledger guardians, building vast registers of "transactions" in what is probably the most important "currency" in the world: our digital data. By controlling these records, they control us.

The potential promise to overthrow this entrenched centralized system is an important factor behind the gold rush scene in the crypto token market, with its rising but also volatile prices. There is no doubt that many investors, perhaps most of them, simply hope to become rich quickly and pay little attention to the importance of technology. But manias like this, however irrational they may be, do not come out of nowhere. As with the advent of the transformative platform technologies of the past - railways, for example, or electricity - unbridled speculation is almost inevitable. Indeed, when a great new idea comes along, investors have no framework to estimate the value it will create or destroy, nor to decide which companies will win or lose.

Although major obstacles remain before block chains can fulfil the promise of a more robust system for recording and storing objective truth, these concepts have already been tested in the field.

Open and freely accessible source code is the foundation of the future decentralized economy.

Companies such as IBM and Foxconn exploit the idea of immutability in projects that seek to unlock trade finance and make supply chains more transparent. Such transparency could also give consumers better information about the sources of what they buy - if a t-shirt was made with workshop work, for example.

Another important new idea is that of a digital asset. Before Bitcoin, no one could own a digital asset. Since copying digital content is easy to make and difficult to stop, providers of digital products such as MP3 audio files or e-books never give customers ownership of the content, but rent it out and define what users can do with it in a license. with severe legal sanctions if the permit is broken. That's why you can lend your Amazon Kindle book to a friend for 14 days, but you can't sell it or give it as a gift, like a paper book.

Bitcoin has shown that an element of value can be both digital and unique. Since no one can modify the registry and "double the expenses", or duplicate a Bitcoin, it can be conceived as a "thing" or a unique asset. This means that we can now represent any form of value, for example a title deed or a musical track, as an entry in a blockchain transaction. And by digitizing different forms of value in this way, we can introduce software to manage the economy around them.

As software elements, these new digital resources can be assigned certain properties "If X, then Y". In other words, money can become programmable. For example, you can pay to rent an electric vehicle with digital tokens that are also used to activate or deactivate its engine, thus fulfilling the coded conditions of an intelligent contract. This is quite different from analog tokens such as banknotes or metal coins, which are agnostic about their use.

What makes these money contracts programmable "smart" is not that they are automated; we already have that when our bank follows our programmed instructions to automatically pay our credit card bill each month. This is because the computers performing the contract are monitored by a decentralized blockchain network. This ensures that all signatories to an intelligent contract will be executed fairly.

With this technology, a shipper's and an exporter's computers, for example, could automate a transfer of ownership of goods once the decentralized software they use both sends the signal that a payment in digital currency - or a cryptographically unbreakable payment commitment - has been made. Neither party necessarily trusts the other, but they can still make this automatic transfer without the involvement of a third party. In this way, intelligent contracts take automation to a new level, allowing a much more open and global set of relationships.

Programmable money and smart contracts are a powerful way for communities to govern themselves in the pursuit of common objectives. They even offer a potential breakthrough in the "tragedy of the municipalities", the long-standing idea that people cannot simultaneously serve their personal interests and the common good. This was evident in many of the blockchain proposals of the 100 software engineers who took part in Hack4Climate at last year's UN climate change conference in Bonn. The winning team, with a project called GainForest, is currently developing a blockchain-based system that allows donors to reward communities living in vulnerable tropical forests for their demonstrable actions to restore the environment.

Yet this utopian and friction-free "symbolic economy" is far from reality. Regulators in China, South Korea and the United States have severely repressed issuers and token traders as speculative schemes to make money quickly and avoid securities laws rather than changing new business models. They are not completely wrong: some developers have pre-sold tokens in "initial parts offers" or ICO, but have not used this money to build and market products. Public or "without permission" blockchains such as Bitcoin and Ethereum, which offer the best promises of absolute openness and immutability, are facing growth difficulties. Bitcoin still cannot process more than seven transactions per second and transaction fees can sometimes increase, making its use costly.

In the meantime, centralized institutions that should be vulnerable to disruptions, such as banks, are getting involved. They are protected by existing regulations, which are ostensibly imposed to keep them honest, but inadvertently constitute a compliance cost for startups. These regulations, such as the heavy reporting and capital requirements imposed by the "BitLicense" imposed by the New York State Department of Financial Services on crypto-currency fund transfer start-ups, become entry barriers that protect incumbents.

But here's the thing: the open-source nature of blockchain technology, its enthusiasm and the growing value of the underlying tokens have encouraged a global pool of intelligent, passionate and financially motivated computer scientists to work to overcome these limitations. It is reasonable to assume that they will constantly improve the technology. As we have seen with Internet software, such open and extensible protocols can become powerful innovation platforms. Block chain technology is evolving far too quickly for us to think that subsequent versions will not be improved compared to the present, either in the Bitcoin cryptocurrency-based protocol, in the block chain oriented on Ethereum's intelligent contracts or on a platform not yet discovered.

The cryptographic bubble, like the Internet bubble, creates the infrastructure to build the technologies of the future. But there is also a key difference. This time, the funds raised are not used to purchase physical infrastructure, but social infrastructure. It creates incentives to form global networks of collaborating developers, hive minds whose offer of interactive and iterative ideas is codified in lines of open-source software. This freely accessible code will allow the execution of countless ideas that are still unimaginable. This is the foundation on which the decentralized economy of the future will be built.

While few people in the mid-1990s were able to predict the emergence of Google, Facebook and Uber, we cannot predict which blockchain-based applications will emerge from the wreckage of this bubble to dominate the decentralized future. But that's what you get with extensible platforms. From the open protocols of the Internet to the essential components of algorithmic consensus and distributed retention of blockchain records, their power lies in creating an entirely new paradigm for innovators ready to imagine and deploy applications that change the world. In this case, these applications - whatever their form - will be aimed squarely at disrupting many of the control institutions that currently dominate our centralized economy.

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