In a remote part of the South Pacific, there’s an island called Yap.
Randomly placed around the island are thousands of large stone disks. These disks can be up to twelve feet high and weigh over five hundred pounds. The material these discs are made from are not native to Yap, and the next closest island is over two hundred and fifty miles away.
This begs a number of questions...
How did these disks get to the island?
Why were they taken there?
What were they used for?
It turns out the discs on Yap weren’t used for any religious rituals or as monuments to the gods, but rather as the bedrock of an ancient financial system.
Two thousand years ago the first Yapese needed a way to create money. There was neither gold nor silver on the island so they needed to find some other material to use. To solve this problem, the people of Yap came up with a rather creative solution: the bravest and strongest Yapese sailed to the closest Island and brought back thousands of boulders which they carved into disks. Because of their size, spending these disks like we do modern paper money would have been impossible. Instead, the disks were placed in public locations all around the island and never moved.
The Yapese then distributed one book to every man, woman, and child on the island which would be used to track the ownership of the stones. Today, we call these books ledgers. When the Yapese wanted to spend their stones, they would announce the change in ownership to the entire community and everyone would update their personal ledgers. Even when the stones were spent, they were never moved. Instead, everyone would update their ledgers to reflect the new owner of the stone. In this way, the Yapese could use these stones like modern money without ever having to move them.
The Yapese invented the very first distributed ledger system. A ledger is simply a record of transactions that is continuously updated whenever a new transaction occurs. A distributed ledger system is a system where everyone transacting in the system maintains and updates a copy of the ledger.
Though it might seem simpler to have just one person or a small group of people maintain the ledger, the Yapese knew that giving one or a small number of people record keeping power could end poorly. Those individuals could act unfairly toward another Yapese they don’t like or change the record to benefit themselves. Luckily, this distributed system allowed the Yapese to transact without having to trust any one person or small group to maintain a single ledger. The Yap system also prevented anyone from trying to claim ownership of a stone that did not belong to them.
If someone did attempt to claim ownership of another person's stone, the island community would come together and take a vote. Each ledger would count as one vote and whatever the majority of ledgers said about that stone’s ownership would be considered as truth. It would be extremely challenging for a bad actor to convince the majority of the island to change their ledger to validate any form of theft. Having ledgers geographically spread across the island created a highly secure, decentralized system. In this way, the Yap system was verifiable (everyone could check their ledger against everyone else's), immutable (if someone changed their ledger it would be obvious by comparing it to everyone else’s on the island, and permissionless (the Yapese did not need to ask anyone to spend their stones).
Understanding the Yap system gives you a good foundation for understanding how a blockchain works. Blockchains, just like the Yap Island stones, are nothing more than a distributed ledger system. Instead of transactions that are kept on a physical ledger like the Yapese used, blockchain ledgers are digital and stored on users’ computers. Instead of tracking stones, these ledgers track cryptocurrencies, stocks, virtual representations of physical objects, and much more.
Anyone who wants to use a blockchain need only have an internet connection and a downloaded copy of the ledger. Communication between blockchain users is done through computers rather than conducted face-to-face. Every few seconds, computers conducting transactions will let all other computers on the blockchain know what transactions have occurred.
To do this, they simply send a message with the transaction details to the rest of the blockchain community. When a transaction is received, the rest of the computers update their ledgers. If there are any disagreements about a transaction’s authenticity or what the correct copy of the ledger is, just like on Yap, a vote is taken and the majority wins. This allows people all over the world to transact the way the Yapese did thousands of years ago without the need for a third party or face to face communication.
Time and time again I hear people tell me that blockchain technology is new and scary. While the technology itself was first theorized in 2008 it relies on ideas and concepts that have existed for thousands of years. Start with the Island of Yap, add an internet connection, and sprinkle in some cryptograph, what you end up with is a blockchain. It is the ultimate example of synergy and it will continue to be a force for decades to come.
Huge shout out to my collaborators from Foster: Diana Hawk, Tom White, and Yishi Zuo