Technology

The best books on Blockchain

recommended by Kevin Werbach

Interview by Sophie Roell

In an age when trust in banks and other traditional institutions has been undermined and all our personal data is in the hands of the new tech giants, can blockchain help us take back control and restore trust? Or is it just a tool for financial speculation and illegal activities? Wharton professor and author Kevin Werbach recommends books to get your head around the basics of 'blockchain.'

Kevin Werbach

Kevin Werbach is Professor of Legal Studies and Business Ethics at the Wharton School of the University of Pennsylvania. Founder of the technology consulting firm Supernova Group, he has advised the FCC and Department of Commerce on communication policy.

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You’ve just written a book about blockchain, in which you say it belongs “in the same conceptual category” as the printing press, the telephone or the internet. Perhaps I can guess your answer, but would you say that blockchain is now so important that we all need to know about it?

I think we all need to know about it—not because it’s so important today, but for two reasons. First, it has the potential to be so important in the future. Second, it can enlighten us regarding some huge challenges that we’re facing in our society, and how we may be able to overcome them.

Such as?

Well, the issue of trust. We live in a time of a great crisis of trust. I’m sitting here in America; you’re in the UK. It goes far beyond Brexit and the issues of the US government. Everywhere you look, you see either problems with potentially trusted institutions being untrustworthy, or gaps in trust which lead to all sorts of inefficiencies.

Ways to come up with new, more trustworthy mechanisms are incredibly valuable, especially in the technology world. We’ve seen all of these systems (like Facebook, Google and so on), which originally seemed like a way out of the problems with traditional institutions, now themselves becoming the problem—in some cases, an even worse problem than what they replaced. To at least consider what a world might be like if you could have trusted value exchange without trusted third parties is an important exercise to undertake—even if the ultimate conclusion is that the blockchain systems we have today fail to live up to that promise, and may never live up to that promise.

Is there a simple way that you’ve found to explain what blockchain is?

If I had, I wouldn’t have written a book—I would have written an article! I generally talk about blockchain as a family of technologies for secure value exchange without central control. That’s pretty general because it really is a broad concept.

Maybe this is a good moment to start talking about the books because the first one you’ve recommended, The Basics of Bitcoin and Blockchains by Antony Lewis, is probably the best one to start with for people who don’t know anything about blockchain. You refer to it as a “blockchain for dummies,” written for non-dummies.

It’s the best clear, basic introduction I’ve found that doesn’t dumb things down too much. Other books say, ‘We’re going to just ignore the technology entirely; wouldn’t it be great if this would happen, or that would happen.’ I don’t think that’s very helpful. This is the best book I’ve found that doesn’t shrink from talking about the technology and getting into some of the detail, but does it in a very clear and structured way, so that someone without any kind of background can understand it.

And what’s his background? He’s very involved in using blockchain for commercial applications, is that right?

He has a financial services background. He’s based in Singapore and works for R3, which is one of the enterprise blockchain software systems. It’s a group of companies—initially it was a group of banks, but they’ve broadened out—that have a blockchain-like platform for doing distributed transactions. They’re in a different part of the blockchain world than, say, Bitcoin—but in the book, he’s writing about much more than just the part he’s involved in.

He says in the book that part of the reason he finds blockchain so enthralling is that it ties in with technology, economics, and psychology. You write about it from a legal perspective, as well. Is that why people get so excited about blockchain—because there are so many different areas to think about?

Some who are gluttons for punishment (like me) get excited by its level of intellectual complexity. Others get excited for ideological reasons; for example, blockchain strikes them as a way to do money without governments, which they think is a good thing. For others, it’s because they think they’re going to get rich. Those are the three main reasons why people fall in love with this technology.

I think the fact that it is so multidisciplinary is actually more of a challenge for people than what gets them into it. Almost no one brings the requisite expertise in all these different areas, so it leads to a lot of misunderstandings where people think they understand what’s going on, but only see one part of it.

So the second book on your list is The Truth Machine by Michael Casey and Paul Vigna. Calling blockchain a “truth machine” is quite a strong statement. Can you tell me what the book is about and why you chose it?

This book is by two journalists; one was formerly at the Wall Street Journal, the other still works there. They’ve been covering the blockchain world for a very long time. Their prior book, The Age of Cryptocurrency, was much more focused on Bitcoin and cryptocurrencies as payment technologies. In this book, they’re talking more about the broad sweep of the blockchain phenomenon.

They’re journalists who are good at telling a story. They explain the possibilities of blockchain and hone in on the broader potential—this idea of a truth machine. The Economist several years ago called blockchain a ‘trust machine.’ I think the authors of this book wanted to avoid using that term, but they’re talking about something similar. It’s the idea that what’s going on here is more than just the specific applications of blockchain—that this might be a fundamentally new mechanism of achieving agreement and consensus about the state of the world, in a decentralized way.

They often write about using blockchain to cut out the middleman, not only traditional ones like banks, but also Uber and the new technology giants. Is that central to blockchain for you as well?

It’s more complicated than that. Blockchain is about eliminating central points of trust, but what we’ve seen with these technologies is that middlemen have a way of reappearing. So, for example, people get excited about the fact that with blockchain, you don’t have to rely on a bank to hold your money. Then we had this incident earlier this year, where the CEO of the largest cryptocurrency exchange in Canada—QuadrigaCX—allegedly died and they announced that, unfortunately, he was the only one who had the key to access anyone’s funds. So all the funds are locked irretrievably. (That’s now come into dispute; the story keeps getting wilder and wilder).

But it seems strange that this technology—which gets rid of having to trust anyone—results in a situation where you have to trust someone more than you ever would in a case with a bank. Intermediaries do add value: they remove friction; they promote trust. People still want that, even if the traditional ones are removed.

I really see the role of blockchain more as opening up a space to figure out new ways to achieve trust that don’t necessarily require the traditional intermediaries. That’s why in my book I talk about this as ‘a new architecture of trust’—as opposed to removing the need for trust altogether.

You’re recommending this book partly because it’s a good review of the business and social applications of blockchain today. Blockchain is being used to help feed people in refugee camps and allow voting in Estonian elections. Is there an example of one of blockchain’s applications you particularly like?

There are a number of examples currently in production. There are real systems using real money, but they are almost without exception fairly small. Then, there are a number of examples which are wildly interesting, but currently at a very, very preliminary stage. So the question is: are you interested in proof that real organizations will put money into a system that uses the blockchain as the source of truth, or are you interested in blockchain’s exciting potential to create new kinds of radically decentralized organizations that have never existed before in history—even though they may all fall on their face?

The Vigna and Casey book goes through a number of relatively well-established examples. Many of them crop up in my book as well. The challenge is that the examples we know the best are the ones that have gotten the most publicity and awareness. There hasn’t been a good effort to systematically go through and look at what’s out there that may not be trying to publicize itself. That’s one of the things that I’m starting to work on.

The examples they point to are good ones: the Syrian refugee camp in Jordan is really interesting and promising, as is the food safety one that Walmart has been conducting with IBM. There are fewer examples that everyone is talking about than there should be, and there’s a need for researchers to really start digging in more.

Can you expand on the Walmart food safety example, just to give readers a sense of what it’s about?

This is a system called ‘IBM Food Trust,’ which is basically about provenance for the supply chain. A company like Walmart has a network of thousands upon thousands of firms that supply them all around the world. The scenario is that some people buy a food product at the store and get ill. Someone needs to track and figure out which farm grew the produce that’s the source of the contamination.

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We had an incident here in the United States recently, where there was E. coli contamination of romaine lettuce. Several people got sick and they had to pull every single head of romaine lettuce off every grocery store shelf to protect the public, because they couldn’t tell quickly enough where the contaminated ones came from. Even a big company like Walmart has this challenge. Walmart estimated it would take them six and a half days to track back to the individual farm that had grown a particular food item on their shelves.

The blockchain system creates one shared ledger. That’s the idea of the truth machine: it’s a shared source where everyone in the supply chain sees the same information in real time about what products are moving through the supply chain and what their history is. Once everything is on that one platform, it’s just a database lookup. So the six and a half days became about two and a half seconds. It was just a matter of doing a query on one system.

So that, to me, starkly illuminates the potential benefit of this technology. Again, it’s not that you can’t build a database which could accomplish that today, but no one is in control of all the data across thousands of different companies on the supply chain. That database just wouldn’t get implemented, whereas the blockchain potentially will, because it allows everyone to maintain their own control.

So it’s a public database, but it maintains everyone’s privacy?

It’s not just privacy—it’s control. How much privacy and secrecy you maintain depends upon the structure. So in the case of an open, public blockchain like Bitcoin, all transactions are public. The identity of who is making the transactions may not be public because it’s just a cryptographic key—it’s an identifier as opposed to a real name of who’s on the network—but you can see every transaction that’s been made.

“We all use Facebook, but it’s in control of our data, whereas on a blockchain, the end user—the one who actually provides the data—maintains full control.”

A system like the Walmart one is what’s called a ‘permissioned blockchain’: it allows for the obscuring of certain information to respect privacy. There’s a trade-off there in terms of the degree to which the system is truly open to anyone and decentralized.

The privacy variable is important, but it’s really more than that. It’s about whether you are in control of your data. That’s the issue. We all use Facebook, but it’s in control of our data. We may have the ability to say ‘Show us the data that you have on us’, or to correct it upon request. We can say we want to stop; we can log off. But, fundamentally, we are not the ones in control of the data, whereas on a blockchain, the end user—the one who actually provides the data—maintains full control.

Tell me about book number three, Radical Technologies, which seems to be about the ethical and broader implications of this technology.

Adam Greenfield is a brilliant guy who has spent most of his time in industry working for companies like Nokia and actually designing systems. But he’s always been a critic and warned about the larger societal implications of the technological decisions we make. There’s now widespread discussion about the downside of everyone being connected in this new world, but he’s focused on this issue for a while.

This book discusses the politics embedded in these technologies. He talks about blockchain as a two-sided technology: on the one hand, it’s a decentralizing technology; it’s largely open source systems that have the potential to break down all these points of central control. But it can also be used as a technology of control.

He’s not ignoring the potential of blockchain, but rather articulating some of its challenges and downsides, such as the fact that the public blockchains like Bitcoin use fantastic amounts of energy to power these mining pools and so forth. So I think it’s a really helpful book in terms of putting blockchain in the context of this larger debate we’re having about the social value and dangers of network technology.

On the Bitcoin mining pools, is that the environmental issue he’s bringing up?

Yes, the environmental issue, but also the consolidation of it. These miners are deliberate, intentionally self-motivated entities. There’s much more consolidation than people realize in terms of who’s in control of the system.

One claim he makes in the book is that “the utility of Bitcoin is close to its end.” Is that a widely held view?

It’s a controversial statement. I don’t entirely agree with it; in my opinion, we don’t really know. But it’s not unsupported. As with most of these books, I recommended it not because I agree with it 100 per cent, but because for those of us excited about the potential of blockchain, nothing is more important than engaging very seriously with the criticisms. We’ll go into this more with the next book on the list, but I don’t think we need more trumping up and excitement about what blockchain could change. We need very thoughtful responses to skepticism.

He’s worried about people not understanding blockchain. At one point he says, “power will go disproportionately to those who understand it” and that it’s the first technology he’s come across in his adult life “that is fundamentally difficult for intelligent people to understand.” Do you agree with that?

It’s not trivial to understand and it behoves people to go a little bit below the surface. You can say: ‘Bitcoin is like money. Do you understand money? Okay. So it’s another kind of money without the government.’ But that doesn’t tell you anything about how it works. If you actually want to understand how it works, it is explainable and the Antony Lewis book goes through these mechanisms of proof of work and so forth. But it’s challenging.

What Greenfield points out very well is that the discourse within the cryptocurrency community tends to be really esoteric for the general public. That’s in part because of what we discussed before, that it’s building upon a whole variety of assumptions in several different domains. And if you don’t know the prehistory of those, you can quickly get lost.

But there is an extent to which the conversation within the blockchain community gets far removed from something that even most fairly sophisticated people, who understand finance and business and law, can grapple with and that’s really a problem. It’s a problem when people who can contribute to this debate don’t feel like they understand what’s going on.

So I think it’s a healthy corrective to point that out. Still, if you ask me, I probably wouldn’t be quite as skeptical as he is, that an ordinary person can get a sufficient level of understanding to appreciate the potential and the dangers.

As I was reading these books and preparing to speak to you, I was wondering whether I should buy some bitcoin. Is there anything practical you can do online to get a greater understanding of how it all functions?

You just need to read things, but it can be helpful: I taught a class on blockchain last semester, and we did give all of our students some money to buy Bitcoin or another cryptocurrency. Then we gave them a set of assignments to do various things with it. We did feel there’s a level of understanding that you only get by experiencing it. It’s valuable but it’s only a piece of the understanding. For example, it doesn’t give you an understanding of how the consensus system of proof of work works on Bitcoin.

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It’s also a useful corrective. You read that this is a global, frictionless, magical currency that eliminates all the problems of traditional currencies, but when you try to actually buy some Bitcoin today and use it, it’s incredibly cumbersome. There are good questions about why that is and whether it’ll change, but it’s important to know that and not just to take the representations of the Bitcoin promoters as what’s actually happening.

Do you use cryptocurrencies for anything?

No. I have some I bought to experiment with, but I don’t buy them as investments. I wouldn’t be surprised if the price of cryptocurrencies went up again. I think there is real value there, but they’re so volatile and there’s so much fraud and manipulation going on that it’s impossible to have any confidence in the price. And today, there are very few things that ordinary people need to do or want to do which require cryptocurrency.

So number four on your list is the Attack of the 50-foot Blockchain, which is quite funny. After some of these books quoting people saying blockchain is like the Magna Carta, it’s quite refreshing to read a book saying “all of this is based on crank ideas that don’t work” and similar comments.

Again, I recommended it not because I completely agree, but because I think he’s a serious critic. He’s a very cheeky critic who is making fun of it, but he is an IT professional, a technically sophisticated guy. It’s not that he fails to understand the basic mechanics of it.

These warnings are really important because the other thing is that we’re talking about money here. People have already lost a lot of money based on various problems with these systems. It’s so easy to get caught up in the excitement and the celebration of new technology that we really need people like him saying, ‘Whoa, whoa, whoa. Just think about what’s going on here.’ It’s a fun book, but it’s not a pure comedy routine. It’s a thoughtful criticism.

He writes that “a ‘trustless’ system attracts the sort of people who just can’t be trusted.” Fraud is a theme that comes up in a few of the books. Is that a big issue?

Yes, it is a big issue. It’s a problem that too many people who are promoters of the technology just want to sweep under the rug. The question is, ‘What percentage of those who become attracted to these kinds of systems are people who are untrustworthy or who want to engage in illegal or fraudulent activity?’ It’s not zero, but it’s certainly not everyone, and in most of these cases it’s not even a substantial percentage. But it’s something we need to deal with.

“It’s human nature: there are bad people out there who’ll take advantage, and it’s not the case that the problem can be solved with game theory”

We’ve seen it time and time again. Especially in 2017, when the price of all these cryptocurrencies went into the stratosphere, we saw lots and lots of examples of fraud and illegal activities.

I have a fairly balanced view of this, I think, which is that there’s a lot of good and a lot of bad. It’s mostly good, but the bad is serious enough that it needs conscious and direct countermeasures. It’s human nature: there are bad people out there who’ll take advantage, and it’s not the case that the problem can be solved with game theory, which is what some people in the cryptocurrency world think. You can solve some pieces of it, but nature abhors a vacuum and people will find other ways to attack.

It comes up in your book and some of the others, the case of the DAO. Someone basically stole money, but then stated they hadn’t stolen it, that they were just adhering to the code.

It was almost certainly not the actual person that stole it who wrote that, but that statement was an incredibly clever piece of performance art. The DAO is pretty much the touchstone for anyone talking about the potential and the risks of blockchain technology, because it puts all the pieces together. It’s something that was incredibly exciting: in just two weeks, a group of people contributed $150 million to this decentralized, self-operating, crowdfunding system. Then it blew up, which was tremendously scary, and the way the system was designed, no one could get the money back, except via a very confused process. The Ethereum leadership and the underlying blockchain community eventually agreed to fork the whole network.

That’s an example everyone points to because in it, you’ll see a reflection of what you want to see. If you have a positive view of blockchain, you will see this as, in the end, a positive experience, but if you’re a skeptic, you’ll see it as a catastrophe heralding future catastrophes.

The general sense I got from the books is that it started with Bitcoin. Then there was Ethereum. Now people are just excited about the general applications of blockchain.

There have been periods when there was more excitement about the cryptocurrencies themselves, the things that can be used as money, and periods when there was more excitement about the non-financial applications, like Walmart using blockchain for its supply chain. There’s been a swing back and forth based on financial speculation and the valuations of the currencies.

But yes, there was an initial period where it was basically just Bitcoin and some derivatives of Bitcoin. Then things broadened out, with Ethereum being the starting gun for that process. Those are still the two dominant platforms, although there’s also these large enterprise platforms. There’s just a lot more going on.

So what made you decide to write your book? Was there a gap in the market you were looking to fill?

It was a year and a half ago now that I wrote my book. I really felt, looking out, that there weren’t enough books that provided a clear introduction both deep enough to give some understanding of the mechanics and yet accessible to a non-expert. I also thought that there wasn’t much material that really put blockchain in the context of the business value proposition—not just telling the story with a bunch of examples, but saying, ‘What is it that this does for people in the firms that use this technology above and beyond the surface things, like I’m using it to pay or I’m using it because I’m investing in something that I think will go up?’

I also felt there wasn’t enough of a conversation about the legal, regulatory and governance questions. There was basically a community saying that blockchain makes law irrelevant, because we can do—through encryption and cryptography and software code—what law has done badly in the past. Then, on the other side, there’s a community of people saying, ‘This is all just a community of scammers and lawbreakers and criminals.’

I think there’s a middle ground. As I said before, I really think we in the legal and policy community can learn a lot about other things from studying what is happening in the blockchain world.

So you feel strongly there’s a role for regulation and the law, and it was about getting the argument across for that?

Yes, and also that it’s nuanced. What I talk about in my book is that there are situations where the legal system is operating just fine, and the blockchain just creates another kind of application. With the Walmart food safety system, for example, there aren’t really any particularly hard legal issues in doing this on a decentralized ledger. There’s also a set of situations were blockchain may actually fill in gaps, issues that the legal system is failing to address. There’s also a set of situations where the promise of blockchain is to supplant the law and go where law is not going effectively, and where there isn’t effective legal enforcement. In all those situations, it’s not a black-and-white case; we need to understand what’s going to happen with these different mechanisms.

Let’s move on to the final book on your list, which is Blockchain and the Law: the Rule of Code. Tell me more about it.

This is a book that’s focused purely on the legal questions. It fleshes out the idea that this technology is a new kind of law, that this is an opportunity to build structures that serve the same purpose as law but achieve the ends by means of technology.

It fits into a long-standing debate in internet law. There’s the famous Lawrence Lessig phrase, ‘code is law’, this idea that software and the architecture of online systems can regulate behaviour the same way law does. So this book is really focusing on that alternative. It’s also something I talk about in my book. I think it’s important but I see it as only one part of it.

Yes, you mentioned via email that you find the argument provocative, but are not entirely convinced.

Yes. What’s interesting is that the two authors posted a draft law review article a couple of years before the book, about the same topic. In a way, the book grew out of the article, but they actually became considerably less aggressive in their claims about the technology’s potential. In my book, I argue that the technology is one thing that can regulate; the law is another. Then, there are also other mechanisms, like economic incentives and social norms and communities. Again, this comes from the work of earlier scholars like Lessig.

“The exercise is not just to say, ‘Can blockchain serve as a new kind of law-like mechanism?’ The real question is, ‘Should it? What are the benefits and what are the risks of that kind of system?’”

The exercise is not just to say, ‘Can blockchain serve as a new kind of law-like mechanism?’ The real question is, ‘Should it? What are the benefits and what are the risks of that kind of system?’ I think, in most cases, starting with a code-based system is likely to be problematic because we’re going to get situations like the DAO, where there are so many potential failure states. What we really need is for these systems to operate in parallel. We need to start by thinking about out how to harmonize them and the set of public policy concerns. If we want to make sure that people who are buying investment products have the right information to make good decisions and appropriate recourse if they are cheated, then we can start to get into the kinds of mechanisms whereby a cryptocurrency-based token might be able to do that.

So that’s my orientation—as opposed to starting with the idea that this thing is happening, here’s what it does and let’s start with understanding its law-like function. I’m concerned that that’s going to take us too far.

These two authors are both legal scholars. They are very thoughtful. There are many people who, unlike this book, talk about the idea of code as law in the blockchain and completely ignore the downsides. They, to their credit, talk about the downsides and try to address them but I still think we need to start in a different place.

We still need lawyers.

Yes, and they wouldn’t disagree with that. I don’t want to overemphasize my critique. It’s more about the extent to which we are really thinking about these different mechanisms and trying, at the outset, to come up with hybrids.

You mentioned Lawrence Lessig’s book, Code. In your email you also mentioned Francis Fukuyama’s book Trust: The Social Virtues and the Creation of Prosperity. For somebody who wants to think about the broader picture, is it quite useful to read these once they understand the basics of blockchain?

It depends what you’re looking to get out of it. If you’re interested in questions about law and how law relates to computerized network systems and look at blockchain from that perspective, then yes, Lessig’s work is absolutely foundational. There’s a whole lot of literature in that field, but that would definitely be the starting point.

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Then there is Fukuyama’s book, Trust. There are also other books I talk about, like Robert Putnam’s Bowling Alone. There are a number of people who have written about the concept of trust thoughtfully that are useful. They don’t talk about blockchain, but about the value of trust and what it means.

The other set of literature that is really helpful is about governance, in particular Elinor Ostrom’s work. She looks at how communities and organizations can successfully govern themselves without formal legal enforcement at the base. There’s a lot of really interesting work and she won a Nobel prize in economics based on that work. Blockchain is something that purports to achieve the same goal, but in somewhat different ways. So I think we can learn a lot from those ideas.

Interview by Sophie Roell

Five Books aims to keep its book recommendations and interviews up to date. If you are the interviewee and would like to update your choice of books (or even just what you say about them) please email us at editor@fivebooks.com

Kevin Werbach

Kevin Werbach is Professor of Legal Studies and Business Ethics at the Wharton School of the University of Pennsylvania. Founder of the technology consulting firm Supernova Group, he has advised the FCC and Department of Commerce on communication policy.