The Blockchain Revolution Read online

  She followed him out onto the floor where Frank commandeered one from an empty cubicle.

  “So, you work with Dirk?” Frank said.

  “I’m not sure ‘with’ is the right word. I sit in a cubicle next to him, but we only communicate by email.”

  “I see,” Frank said with a laugh. “Are you a developer?”

  “Yes, but not for this job. Dirk’s tired of the bank sending him everywhere to explain BankCoin, so he’s training me to stand in for him.”

  “What specifically do you want to know?” Magnus asked when they returned to Frank’s office.

  “Maybe you could start at the top and work down,” Frank said, “as if I knew nothing about the BankCoin blockchain. I’ll try to listen in the same way and maybe pick up something new.”

  Magnus blinked. “Am I allowed to assume you understand what a blockchain is?”

  Frank laughed. “Sure. Just not anything about the BankCoin blockchain. How about this – tell me how it’s different from bitcoin? Especially from the security point of view.”

  “Yes,” Magnus said. “But first, to set the stage. BankCoin is a transactional payment platform, like bitcoin. As is typical of a blockchain ledger network, it creates blocks of transactions linked by unique numbers called hashes, one to the other. So far, just like bitcoin. But there are also differences.

  “First, the BankCoin token is a proxy for the US dollar. This means the participating banks agree a BankCoin will always have the same value as the dollar. Such a cryptocurrency is referred to as a ‘stable coin.’ And BankCoin is exchanged only among member banks.”

  “Let me stop you there a second,” Frank said. “Let’s review how that works.”

  “Ruth,” Magnus said, without taking his headlights off Frank.

  “It’s actually easy,” Ruth said. “The token in this case is just a packet of data that can pass back and forth between participating banks. So, if I want to send you one hundred dollars, here’s what happens: the wallets you and I maintain at our separate banks exchange security keys and information about the transaction.

  “After that, copies of BankCoin at other banks confirm the transaction, and one of them includes it in the latest block. Once that happens, my bank’s total assets on deposit will have been reduced by one hundred dollars while your bank’s will have increased by the same amount. Also, the balance of BankCoin in your wallet will be higher by one hundred dollars, and the balance in mine will be lower by the same figure. Now, we’re all done. No more need to wait days for the check to clear or for the banks to confirm that funds have been transferred through the banking system.”

  “Yes,” Magnus said, nodding. “Also, there can be no volatility in BankCoin independent of the dollar and no speculation.”

  Frank frowned. “How can you stop speculation in BankCoin? People haven’t been rational about any of the other cryptocurrencies.”

  “Ruth,” Magnus said a clipped voice, like a verbal snap of the fingers.

  “Schwert has a very clever answer for that,” she said. “It’s a closed system. Although BankCoin can pass back and forth between banks, it can never leave the banking system. If you want to withdraw from your bank wallet, you must take it in a fiat currency – dollars or Euros or whatever – or in a different cryptocurrency. In fact, when people look at their banking statements, all they’ll see will be a balance in their local money.”

  “Quite,” Magnus said. “Now, back to differences between BankCoin and bitcoin. BankCoin is not a public blockchain – one where anyone who wants to can maintain a ledger. As you know, only banks are eligible to keep BankCoin ledgers. Also, BankCoin is not, like bitcoin, a ‘proof of work’ system, where trust is based on solving power-intensive, increasingly difficult problems. Instead, it is derived from what the blockchain world refers to as ‘proof of stake.’ In this case, the ‘stake’ is the significant assets of each network bank. And there are no mining fees because there is no mining.

  “But still,” Magnus continued, “not only First Manhattan makes money from BankCoin. When two member banks handle a transaction between their customers, they split a very small fee – three hundredths of one cent per dollar transferred. Each bank deducts its share from the money that is changing hands. The fee was set at this low rate to discourage others from launching competing blockchain-based financial systems. Charging for a transaction is not totally different from bitcoin because Nakamoto assumed his system would operate on a fee basis after all the bitcoin he authorized have been mined.”

  And thank goodness, Frank thought. Bitcoin mining already occupied the resources of vast data farms of computers. Together, they consumed more electricity than Denmark.

  “Got it,” he said. “Let’s talk about transparency and anonymity next. How do BankCoin and bitcoin compare?”

  “Ruth,” Magnus actually snapped his fingers this time.

  Ruth shot Magnus a dirty look he couldn’t see. “They’re quite different,” she said. “Everyone with a BankCoin account holds her funds in a wallet. But unlike bitcoin, the host of the wallet – always a bank – is required to verify the identity, address, and other details of the wallet owner. That’s because the bank regulators insisted the BankCoin banks follow the same ‘know your customer’ rules they’re bound by for regular accounts.”

  Magnus nodded.

  “So” Frank, said, “roll all that up together, and you get something that’s as close as possible to the current banking system with just a few major differences, those being hundreds of identical distributed ledgers and transactions that are verified almost instantly.”

  “It could be mostly summarized that way, yes,” Magnus said. “What you have described is not unusual for what is called a ‘private blockchain.’”

  “How about on the security side? What’s different and the same between bitcoin and BankCoin?” Frank asked.

  “Here, we are not so very different from bitcoin,” Magnus continued. “The core goal of Nakamoto’s proposal was to provide trust with no central authority required to monitor the network and guarantee security. BankCoin incorporates many of the same basic concepts, but it does not need all, because the banks already trust each other. So, the BankCoin software does not require validation of every block by fifty percent of the banks. We only require a representative subset – twenty network members. So, this is a big difference from bitcoin.”

  “I can see how that makes sense,” Frank said. “You couldn’t process a hundred thousand transactions a minute otherwise. How do you select the banks to confirm each block? Randomly?”

  “Not quite,” Magnus replied. “One might say random in a predetermined fashion. The algorithm that selects the banks to verify a block makes sure no two financial institutions in the verifying group are controlled by the same person or company. A hacker cannot interfere with the validation of a block because he cannot anticipate which banks will confirm that block.”

  “That’s clever,” Frank said. “What else?”

  “Ruth.”

  “As we mentioned,” Ruth said, “Only banks can host wallets, and the design of those wallets tightly integrates with the BankCoin software. With bitcoin, there is no such linkage. Anyone can develop bitcoin wallets any way they want to and then market them.”

  “Just so,” Magnus said, nodding.

  “That all sounds good,” Frank said, “but what if a customer didn’t like the new system?”

  “Why should they know or care,” Magnus said, “so long as the regulators are happy? Every customer’s account balance has now been transferred to a BankCoin wallet. In the US, federal insurance covers the contents of each wallet up to the usual amount, just like a traditional bank account.” He crossed his arms and began to tap his fingers on his biceps, one after the other. One, two, three, four … “Are we finished soon?”

  In fact, Frank was running out of questions. I
t all sounded pretty solid. “Almost. So, let’s say I wanted to steal some BankCoin, how would I do that?”

  “You could not,” Magnus said.

  “Really?” Frank said.

  “Of course not. There can be no theft because BankCoin does not exist outside of the member banks.” The fingers were tapping faster now, one-two-three-four…

  “How about the software generating the BankCoin blockchain?” Frank asked. “Could someone steal by compromising that?”

  Magnus blinked four times rapidly and sat up straight. “I have never met anyone who could hack the BankCoin blockchain or the BankCoin software. I do not believe such a person exists.”

  Shades of Jerry Steiner, Frank thought. But instead, he said, “That’s a mighty strong statement. All software can be hacked.”

  Magnus’s eyes looked like they might leap out of his skull and attack Frank. “Is there anything else you wish to ask?” he said, standing up.

  “No, that’s it. And thanks. I feel a lot better.”

  “I am pleased you feel better,” Magnus said stiffly and left with Ruth in tow. At the door, she looked back at Frank over her shoulder and shrugged, as if to say “What can I do?”

  Well, Frank thought. There it was, almost as if it had come from Schwert himself, channeled by Dirk Magnus, his apostle. Frank expected no one else understood BankCoin better. Not only was Magnus the chair of the TSC, he’d written more lines of BankCoin than anyone but Schwert.

  Still, no one would convince Frank that BankCoin, or any other code ever written, was invulnerable.

  Then he had a troubling thought. What if the code that supported the BankCoin blockchain had already been hacked? Trillions of dollars changed hands every year through the global banking system. Maybe someone was just biding their time, waiting for more banks to sign up before pulling off a massive theft.

  Could that be so? How could he find out?

  Chapter 9

  I’m Shocked!

  It had been a while since Crypto last scanned the web to see what the technical press was saying about Günter Schwert, the reclusive genius behind the blockchain Crypto was preparing to destroy. He wondered whether there was anything new to learn?

  Surely not, the voice whispered.

  Yes, he agreed. But it cannot hurt to check.

  The voice was right. The pundits continued to believe Schwert was leading the life of a latter-day Howard Hughes, the multi-talented industrialist/film director/aviator who retreated into a reclusive life as phobias took control of his mind. No one knew if Schwert suffered from similar issues, but clearly, he shunned publicity with the kind of success, the press assumed, only vast wealth could achieve.

  Some were convinced Schwert owned penthouse apartments in multiple locations, moving from one to another as his whims or paranoias dictated. San Francisco, Dubai, and London were often mentioned although no one had ever confirmed a street address. And the emails Schwert sent to project members always came from untraceable Dark Web addresses.

  Still, there was a wide tolerance for Schwert’s behavior. And why not? Look at the popularity of bitcoin, and Nakamoto hadn’t been heard from in years. Naturally, many wondered whether Schwert was Nakamoto – or vice versa. Or that each was in fact someone else.

  Predictably, a few techies were obsessed with discovering Schwert’s identity. Some used sophisticated artificial intelligence programs to compare sets of emails from Schwert to messages from Nakamoto – or from other open source luminaries, like Linus Torvalds – looking for telltale similarities. But no matches were found. Others were unwilling to let a little thing like lack of evidence stand in the way of an interesting theory. Perhaps whoever it was who called himself Schwert covered his trail by using Google Translate to convert his draft emails into another language and then back again. After that, he’d clean up any awkward wording, and off the email would go. That could work! Must be true!

  Enough, Crypto concluded. There was nothing to be found but rank conjecture. More searching would be a waste of time.

  Just a waste of time. The voice was not whispering now. Now as to this Adversego person – that is another matter!

  Crypto had been preoccupied with Adversego for some time now, but more as a person than a threat. Yes, the First Manhattan investigator was skillful, but so was Crypto. He was not convinced that anyone, including Adversego, was an adversary he must take seriously.

  But he is! The voice was strident now.

  Crypto moved uneasily in his chair. It was better when the voice whispered.

  You cannot take Adversego for granted! The voice was louder still.

  Very well then. He would follow Adversego more closely. Now leave me be.

  * * *

  To be strictly accurate, what Crypto first became aware of when he was much younger were not voices at all. The intrusions were more like questions that came from nowhere and hung like peaceful clouds in his mind. He could see as well as understand them although, strangely, he was unable to make out the individual letters in the words. He was sure they weren’t his questions and had no idea whose they were. It was very curious, but did not trouble him.

  After a while, they did. Instead of floating, the questions darted in and out of his brain, as if someone was probing his mind. The first time this happened, he was sitting in the university library. Alarmed, he looked up, hoping to see where the intrusions were coming from. But all he saw were the bowed heads of other students studying their books. He felt as much as heard an urgent humming in the air.

  Breaking into a heavy sweat, he stumbled to his feet, knocking over his chair. The heads surrounding him rose as one in slow motion. Their faces looked identical, and their eyes bored into his brain in annoyance.

  Suddenly, the questions were no longer silent. A cacophony of voices replaced them, attacking him from all sides, as if from a hundred loudspeakers. But not ordinary ones: these could transmit pure energy into his skull. Once there, the beams morphed back into voices he could neither ignore nor understand.

  With hands that shook uncontrollably, he shoved his books in his backpack. Then he fled, hoping to leave the barrage of sensations behind him. Running, stumbling, he managed to descend the library steps, grabbing the railing to save himself from tumbling into the street. The voices were laughing now.

  And then, as abruptly as the attack began, it was over. He stood shaken and terrified, stock-still on the sidewalk in the gently falling snow, as the silent echoes of laughter faded inside his skull. He vividly remembered people passing him by as if he wasn’t there.

  * * *

  Crypto spent the two months after this crisis in a state of limbo, fearing the voices would attack again, yet afraid to tell anyone lest they think he was crazy. As indeed he feared he was. And then the voices did attack. And attack again.

  He researched what he was experiencing and was horrified at what he read in the psychiatric literature. His symptoms were most consistent with schizophrenia, and the prognosis of those afflicted with that illness was dire; medications were few and their side effects often severe; he would almost certainly never have a career or even a job; the odds favored his spending the rest of his life in some anonymous, heartless institution.

  Terrifying as that prospect was, the increasing frequency and violence of his delusional episodes eventually forced him to seek help. With trepidation, he turned himself in – there was no other way to think of it – to the behavioral physicians of the student health service.

  And so began the long and painful process of seeking a formal diagnosis and proper treatment. On good days, he attended classes and kept his appointments at the medical center. On bad ones, he cowered in his room, forgetting to shower or brush his teeth. Or, really, to do anything at all except suffer through the paranoid welter of thoughts and sounds rushing through his brain. During those episodes, he realized he had strange powers.
He could, for example, kill with his mind – already had, hundreds of times. He knew this to be true when the fit was upon him.

  Meanwhile, his delusions continued to evolve. Individual voices emerged and then faded away as others took their place. Over time, two became more distinct, mostly crowding out the rest. The first was female and by turns soft or shrill, argumentative or demanding. The second and less frequent visitor’s intonations were deep, male and strident. The rest of the voices gradually merged into a sort of Greek chorus that appeared erratically. When present, they reminded him of the sound that might escape a full-to-capacity stadium, their volume rising and falling in response to invisible actions on the field hidden inside.

  The defining moment of this dark period came as he rode a packed subway car. It began when the two familiar voices whispered that the strangers pressing against him on all sides were hideous, carnivorous aliens, masquerading as ordinary commuters. Any moment now, they would attack, tearing him apart with tooth and nail. He began to tremble and dart glances at what, until a moment before, had been blank faces staring at newspapers or at nothing at all. Now, he saw hellish eyes glowing bright and cruel, their owners clearly plotting their assault. He had to escape.

  When the train approached the next station, he made his move, lunging toward the doors, striking out at the demons surrounding him, desperate to gain the platform before their fangs sank into his defenseless neck.

  Those around him swore at him, struggling to avoid his flailing fists and kicking feet. But there was nowhere for them to go. A bull of a young man standing behind him grabbed Crypto, now shrieking in anger as well as fear, in a bear hug and lifted him up, staying upright with difficulty as the train lurched to a stop. As soon as the doors opened, passengers fought to get out, allowing enough room for Crypto and the man restraining him to crash to the floor. A few commuters joined his captor and together dragged Crypto off the car, barely able to control his wild, thrashing bid for freedom.

  Crypto could not recall what happened after that. It was clear he had not escaped. The passengers restraining him must have summoned the police, because the next thing he knew, he was drifting in and out of consciousness in a white room. When he became more aware, he realized he was in restraints; the straps holding him down cut into his arms and legs whenever he struggled to sit up.