The Blockchain Revolution.

• Author: Kaza, Greg

Blockchain and the Law: The Rule of Code

By Primavera De Filippi and Aaron Wright

312 pp.; Harvard University Press, 2018

Imagine an electronic spider web. It's built around a spreadsheet--regularly updated to facilitate commerce--and spread across a computer network. The network becomes active when someone requests a transaction. It adds the transaction to the existing network once it is verified.

The preceding is a simple explanation of Blockchain, a developing technology that some associate with cryptocurrencies and others with supply chains. The process is novel and not without critics.

Blockchain technology is often associated with Bitcoin, a decentralized digital currency that emerged a decade ago. Yet blockchains are more than electronic skeletons for cryptocurrencies such as Bitcoin or the faster Ethereum. They are commercial systems used by public companies.

Unfortunately, in their new book Blockchain and the Law, Primavera De Filippi and Aaron Wright do not chronicle this recent commercial history. Rather, they focus on the technology, organization, and potential regulation at the heart of this innovation.

How it works/The authors' description of blockchain-based "smart contracts" is the highlight of the book. They describe the technology in detail. Bitcoins are transaction bundles of electronic data grouped into "blocks" that are linked together to form "a sequential, timestamped chain" of information. Each block contains a database "header," the components of "a unique fingerprint (or a hash) of all transactions ... along with a timestamp and--importantly--a hash of the previous block."

Hashes are generated using cryptographic functions invented by the National Security Agency that bundle transactions "in a block as a string of characters and numbers ... uniquely associated with that block's transactions." Ultimately, cryptocurrencies are "just a series of bits stored in the memory of one or more machines."

Blockchain relies on cryptography. Cypherpunks argued in the late 20th century that encryption was a tool to protect individual liberty. In 1976, Stanford cryptographers created the concept of "public-private key cryptography" to address the need for secure key distributions. In 1978, MIT cryptographers created an algorithm to securely broadcast private keys using prime factorization. With Bitcoin, participants must solve a mathematical puzzle using a solution that meets the system's protocol. This "consensus algorithm" is...