blockchain-“you say you want a revolution”

and November 25, 2016

It appears that once again, the technological genie has been unleashed. Summoned by an unknown person or persons at an uncertain time in history, the genie is now at our service for another kick at the can—to transform the economic power grid and the old order of human affairs for the better. We are not talking about the social web, artificial intelligence, big data, robotics, or even self-driving cars—we are talking about blockchain, the technology behind digital currencies such as Bitcoin. It represents nothing less than the second generation of the internet and holds the potential to transform functioning of governments, society, and businesses, and change the way we conduct transactions. Let us explain.

Internet today connects billions of people around the world, and is great for communicating and collaborating online. But because it is built for moving and storing information, and not value, it has done little to change the way we do business. When you send information to someone—in the form of an email, word document, PDF, or PowerPoint—you are really sending a copy of the original. It is ok (and indeed advantageous) for people to print a copy of their PowerPoint file, but not ok to print, say money. So with exchange of information on the internet, we have to rely on powerful intermediaries to establish trust.

 

the trust factor

Banks, governments, and even social media companies such as Facebook do the work of establishing our identity, helping us own and transfer assets, and settle the transactions. Overall they do a pretty good job—but there are limitations.

  • They use centralized servers, which can be hacked.
  • They take a share of the value for performing the service, say 10% to send money internationally.
  • They capture our data while often undermining our privacy.
  • They are sometimes unreliable and often slow.
  • They exclude two billion people who do not have enough money to justify a bank account.
  • Most problematic is capturing an asymmetric amount of the value that has been created.

What if there was an Internet of Value—a vast, globally distributed ledger or database running on millions of devices and open to anyone? Where not just information but anything of value—money, titles, deeds, music, art, scientific discoveries, intellectual property, and even votes—can be moved, stored, and managed securely and privately. On blockchain, trust is established, not by powerful intermediaries such as banks, governments, and technology companies, but rather through mass collaboration and clever code. On this platform, we can trust each other without relying on a powerful third party. Collective self-interest hard-coded into this new native digital medium, for value, would ensure the safety, security, and reliability of ecommerce. Trust is programmed into the technology, which is why we call blockchain the ‘trust protocol.’

 

why should you care?

Maybe you are a music lover who wants artists to make a living off their art; an immigrant who is sick of paying big fees to send money home; an aid worker who needs to identify landowners to rebuild homes after an earthquake; a citizen fed up with the lack of transparency and accountability of political leaders; social media users who think all the data they generate might be worth something—to them—and that their privacy matters. Even as we write, innovators are building blockchain-based applications that serve these ends. And they are just the beginning. It turns out every business, institutions, government, and individuals can benefit in profound ways.

How about the corporation, a pillar of modern capitalism? With the rise of a global peer-to-peer platform for identity, trust, reputation, and transactions, we will be able to re-engineer deep structures of the firm, for innovation and shared value creation. We are talking about building 21st century companies that look more like networks rather than the vertically integrated hierarchies of the industrial age. The whole financial service industry is already being reinvented by blockchain and others will soon follow.

How about the Internet of Things? In the not-too-distant future, billions of smart things in the physical world will be—sensing, responding, communicating, sharing important data, buying and selling their own electricity—doing everything from protecting our environment, and charging our homes to managing our health. It turns out this Internet of Everything needs a Ledger of Everything.

 

could blockchain solve problems of IP in the digital age?

During the first generation of the internet, many creators of intellectual property were not properly compensated. Musicians, playwrights, journalists, photographers, artists, fashion designers, scientists, architects, and engineers were not only beholden to record labels, publishers, galleries, film studios, universities, and large corporations (vestiges of the pre-digital age)—these inventors now also had to deal with digital piracy.

Blockchain technology provides a new platform for creators of intellectual property to get the value they deserve. Consider a digital registry of artwork, including the certificates of authenticity, conditions, and ownership. A dizzying array of new startups, such as Ascribe, Mycelia, and Stem use blockchain to enable artists to upload digital art, music or other content, watermark it as the definitive version, and imbue it with intelligence such as royalty rights and licensing terms. The technology solves the intellectual property world’s equivalent of the double-spend problem better than existing digital rights management systems; and artists can decide when and where they want to deploy it.

 

could we create a true sharing economy?

Most of the so-called sharing economy companies are really just service aggregators. They aggregate the willingness of suppliers to sell their excess capacity (cars, equipment, vacant rooms, and handyman skills) through a centralized platform and then resell them to users—all the while collecting a cut off the top and gathering valuable data for further commercial exploitation.

Blockchain technology can provide the suppliers of these services a means to collaborate that delivers a greater share of the value to them. Just about everything Uber does could be done by smart agents on a blockchain. The blockchain’s trust protocol allows for ooperatives, or autonomous associations, to be formed and controlled by people who come together to meet common needs. All revenues for services, except for overhead, would go to members, who also control the platform and make decisions.

Perhaps the biggest opportunity is to free us from the grip of a troubling prosperity paradox. The economy is growing but fewer people are benefiting. Rather than trying to solve the problem of growing social inequality through redistribution alone, we can change the way wealth and opportunity is pre-distributed in the first place, as people everywhere, from farmers to musicians, can use this technology to share more fully in the wealth they create.

As with major paradigm shifts which preceded it, the blockchain will create winners and losers. But if we do this right, blockchain technology can usher in a halcyon age of entrepreneurship, empower us to reinvent our institutions for the better, and create a more fair and prosperous world.

 

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