The really significant thing about cryptocurrencies: the blockchain

The Bitcoin boom is leading many people to lose their marbles. It’s also distracting public attention from what really important about cryptocurrencies — the blockchain or public ledger that underpins them. This is the really significant innovation IMHO, but it’s hard to convince people who know little about the technology and see just the Bitcoin hype in mainstream media.

Tyler Cowen has a thoughtful Bloomberg column about this, in which he comes up with a really useful suggestion:

If you think of these assets as “cryptocurrencies,” central bank involvement will seem natural, because of course central banks do manage currencies. Instead, this new class of assets is better conceptualized as ledger systems, designed to create agreement about some states of the world without the final judgment of a centralized authority, which use a crypto asset to pay participants for maintaining the flow and accuracy of information. Arguably these innovations come closer to being substitutes for corporations and legal systems than for currencies.

I like that: a blockchain is a public ledger which creates agreement about some state(s) of the world without the need for a centralised authority.

The biggest problem with the technology at the moment is that it doesn’t scale because of the computing (and associated environmental costs. But maybe we will find a way of overcoming this.