Drawing Parallels between TCP/IP and the Blockchain

New technologies are continually changing the face of many businesses from every direction. Take the Internet for example. With commercial Internet service providers (ISPs) only emerging in the late 1980s and early 1990s, no one could have foreseen the impact the Internet would have on our day-to-day lives. Whether it’s reading an online article, ordering goods or even interacting with friends and family, the Internet has unequivocally merged itself into our way of living.

Just as the Internet has changed the face of how businesses function, so too is the blockchain aiming to do the same. According to a World Economic Forum white paper titled ‘Realizing the Potential of Blockchain,’ the technology signals a new era of the Internet that will be defined by value rather than information. The authors of the paper, Don Tapscott, CEO of Tapscott Group, a think tank exploring the digital economy and Alex Tapscott, CEO of Northwest Passage Ventures, an advisory firm building early-stage companies in the blockchain space, write that the development of the blockchain will lead to a generational shift from an Internet of information to a new-generation Internet of value. It adds that the distributed ledger could give rise to a new Internet era that is more disruptive and transformative than the current one.

Like the Internet, the blockchain is designed to be decentralised, and similar to the Internet, the distributed ledger has layers. It is these ‘layers’ that are defined by the interoperable open protocol where companies and individuals can build products and services. As a shared public ledger that maintains a record of all transactions across a peer-to-peer network, we can envisage a future where the blockchain will be used to record contracts, embedded in digital code, and stored in transparent databases, which are free from tampering or deletion. Such a future may even mean that intermediaries such as lawyers, bankers and brokers may no longer be necessary as the blockchain enables people and organisations to interact freely with one another with very little friction.

However, before jumping too far forward with the blockchain, it’s first necessary to see how technology has been adopted before and the groundwork this has set.

One of the most fundamental is the Internet protocol suite, also known as TCP/IP or Transmission Control Protocol (TCP) and the Internet Protocol (IP). It is this which laid the foundations for the creation of the Internet. In the 1970s, the Defense Advanced Research Projects Agency (DARPA), the research arm of the U.S. Department of Defense (DoD), created the TCP/IP model. Its creation was for use in the Advanced Research Projects Agency Network (ARPANET), a network area that preceded the Internet. It was decommissioned in 1990 after 30 years of experimentation and service. Prior to the TCP/IP model, telecommunications were based on ‘circuit switching.’ This was a process that involved the establishment of two network nodes through a communications channel before the nodes were able to talk. Yet, with the creation of the TCP/IP model, it helped change this. And with it, it enabled a shared public network without the need for any central authority being responsible for its improvement and maintenance. Just like the blockchain.

However, just as the blockchain has been met with scepticism over its ability to transform services, so too was the TCP/IP model. At first, the idea that TCP/IP could enable the scale up of the Internet was inconceivable. Nevertheless, during the late 1980s and early 1990s, firms, such as Hewlett-Packard and Silicon Graphics, were utilising the model to create local private networks within organisations. According to the Harvard Business Review, to do this they developed ‘building blocks and tools that broadened its use beyond email, gradually replacing more-traditional local network technologies and standards.’ In the 1980s, Cisco Systems became one of the first companies to develop and market routers for IP internetworks, which today is worth billions. In 2000, it became the most valuable company in the world. In 1989, a CERN researcher named Timothy Berners-Lee developed the Hypertext Transfer Protocol (HTTP), which formed the basis of the World Wide Web (WWW). As the basic infrastructure gained in prominence, this enabled the creation of Amazon, eBay, and Google. Throughout the years, the Internet has enabled companies that have embraced it to reach a wider audience, putting pressure on those such as print publications. As the Harvard Business Review states, companies such as eBay, Google, and Amazon have fundamentally changed how businesses operate.

The same can be said as to what the blockchain will do in years to come. The parallels between the distributed ledger and TCP/IP are clear to see. The blockchain is an open and shared public ledger, as is the TCP/IP. Similarly, just as TCP/IP enabled low-cost connections, the blockchain is cutting the cost of financial transactions and cross-border payments. As a result, it has the potential to create a radical shift in not just the financial market, but in all industries where a record of transactions and files are a primary component of any business.

As this post suggests, bitcoin, the digital currency that uses the blockchain to record transactions, is considered the email and the blockchain that of HTTP or TCP/IP. Just as email was taken up by a few enthusiasts in its early days, so too was bitcoin. Email as we know it today has become a fundamental component when corresponding with people whether at work or with friends and family. Bitcoin itself is steadily gaining in value as demand for it increases. However, just as email is one small component of the Internet, so too is bitcoin one small function of the blockchain. The distributed ledger will go far beyond the digital currency, supporting a number of applications such as smart contracts and transactions other than just financial. For the moment, though, the technology is making headway in the finance industry.

Just as the Internet has changed the way of media companies and advertising firms, the blockchain has the potential to restructure the face of the financial industry and regulation. For many, though, particularly incumbent firms, embracing the technology will present challenges. In order to stay in the game investing in research and development will be necessary. Only then can they avoid being out competed by rivals, enabling them to thrive in a new, emerging financial system.