Summary ->> Contemplation ->> Closing
THE TRUST PROTOCOL
The main virtues the authors derive from the blockchain technology are represented by two words: Trust and Truth.
‘Trust’ by which two or multiple parties who don’t know each other transact the value(money) directly without relying on the existing ‘trusted’ third party. The technology’s open and transparent public ledger enables people to derive trust from immutable information recorded in a shared ledger authenticated by mass collaboration and powered by collective self-interests on the network. Trust is about the integrity of the recorded information. Trust is enabled by code speaking itself. Hence, the ‘Trust Protocol.’
In explaining the designs of the blockchain technology, the authors mainly refer to ‘the bitcoin blockchain’ as a foundation for some of the revolutionary aspects for following reasons. As an open source protocol, it offers profound possibilities for future developments of the technology. Also, it is by far the most well-known and established network and is the first cryptocurrency whose evolution influences the technology space overall. Lastly, there is Satoshi Nakamoto who envisioned designs and principles of the technology through his white paper in 2008, on which the network community falls back as a guidance.
Why do we now see emergence of a new trust protocol that derives trust from the permanently encoded information instead from a trusted third party? What motivated Satoshi Nakamoto to come up with ‘a purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution?’ 2 I believe understanding this is very important to appreciate the technology and its future developments.
Mainly three reasons can be drawn both from the authors and Satoshi Nakamoto: Trusted third parties’ commercially motivated compromise of their new digital assets – the users’ data – for profit and secondly, their inability to protect them from hacking and identity theft due to central point of control. Lastly, in commerce on the Internet, verification process via the third party to prevent “the double-spend”(i.e. fraud) incurring both transaction costs with prolonged time and payment uncertainties in terms of ‘completely non-reversible transactions.’ 3
‘Trust,’ is systemically designed in the bitcoin blockchain in a way all the participants are to behave with integrity. By having the network reach consensus algorithmically on what happened and record it cryptographically on the blockchain, no matter how the other party acts, the platform ensures trust in transactions and much recorded information.
The authors claim that trust is something absolutely indispensable in the digital economy, and a platform for secure and reliable mass collaboration holds many possibilities for a new kind of organization and society.
‘Truth’ then is the outcome from this mechanism. Chronically recorded immutable information on the distributed shared ledger makes every stakeholder participate in the economy from the initial stage of ‘wealth creation’ in the economy not at the final stage as ‘redistributed wealth’ as in current capitalist economy. Any middlemen or hidden layers who meddle the rights and profits on the value chain will be exposed and displaced on the transparent shared ledger.
BLOCKCHAIN REVOLUTION IN TEN AREAS
In his white paper, Satoshi Nakamoto envisioned a technology platform that enabled the distributed trust mechanism for the first time. The authors define ‘seven principles’ based on what’s implicit in this new protocol: networked integrity; distributed power; value as incentive; security; privacy; rights preserved; and inclusion.
The authors so believe the blockchain economy can fulfill aspirations for enabling basic human rights – not only the rights to privacy and security, but also the rights to property, recognition as a person under the law, and participation in government, culture, and the economy and thus can lead our new era to new inclusive prosperity.
The authors claim the technology, as a global spreadsheet or World Wide Ledger, can bring revolutionary changes that span almost every area of how our society functions. Below are ten revolutionary changes.
- Creating a True Peer-to-Peer Sharing Economy
- Rewiring the Financial System for Speed and Inclusion √
- Protecting Economic Rights Globally
- Ending the Remittance Rip-Off √
- Cutting Out Bureaucracy and Corruption in Foreign Aid √
- Feeding the Creators of Value First
- Reconfiguring the Corporation as the Engine of Capitalism
- Animating Objects and Putting Them to Work
- Cultivating the Blockchain Entrepreneur
- Realizing Governments by the People for the People
√ These three areas are discussed based on the bitcoin blockchain since they involve payment transactions in bitcoin.
■ Creating a True Peer-to-Peer Sharing Economy
The authors disagree with the currently used term of “the sharing economy” in which such platforms as Airbnb, Uber and Lyft provide matching service between supply and demand and enable peers to create and share in value. The authors claim these businesses have little to do with sharing. Rather, it is an “aggregating economy” in that they aggregate vacant rooms, driving services and other resources through their centralized and proprietary platforms and then resell them. In the process, they collect data for commercial exploitation.
The authors claim that the blockchain technology is to reinvent these industries again. Today’s big disruptors are about to get disrupted. A distributed application – we may call it bAirbnb or blockchain Airbnb – which is essentially “a cooperative owned by its members” can replace them. Because the network creates a record of the transaction on the blockchain, a positive user review improves their respective reputations and establishes their identities, now without an intermediary.
The authors quote Vitalik Buterin, founder of the Ethereum blockchain: “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”
■ Rewiring the Financial System for Speed and Inclusion √
The authors define two major setbacks of current financial service industry.
First, it is the most centralized and monopolized industry that runs on outmoded technology and is governed by regulations dating back to the nineteenth century. It is rife with contradictions and uneven developments, making it sometimes slow, oftentimes insecure, and largely opaque to many stakeholders. The lightening speed execution in the front-end exists ironically in parallel with the slow back-end operations that involve not only lengthy settlement time with daily floats but also paper-based, semi-automated process.
Second, there are about two billion unbanked people who are excluded from the economy for the simple reason that financial institutions don’t provide services like banking to them because they would be unprofitable and risky customers.
So, the authors claim the benefits brought by the blockchain technology – attestation, dramatically lowered costs, lightning speed, lower risks, great innovation of value, and adaptability through open source technology – have the potential to transform the industry.
Eight functions are ripe for disruption: Authenticating identity and value; Moving value; Storing value; Lending value; Exchanging value; Funding and investing; Insuring value and managing risk; and lastly Accounting for value.
The authors claim that the distributed ledger technology can liberate many financial services from the confines of old institutions, fostering competition and innovation which benefits the end user. Also, with the blockchain, these unbanked and excluded people can not only become connected, but become included in financial activity, able to purchase, borrow, sell, and otherwise have a chance at building a prosperous life.
The authors see that incumbent institutions can transform themselves around blockchain technology, if they can find the leadership to do it. The technology holds great promise to revolutionize the industry for the good – from banks to stock exchanges, insurance companies to accounting firms, brokerages, microlenders, credit card networks, real estate agents, and everything in between. When everyone shares the same distributed ledger, settlements don’t take days, they occur instantly for all to see. Billions will benefit, and this shift could liberate and empower entrepreneurs everywhere.
■ Protecting Economic Rights Globally
Even if property rights is one of man’s inalienable rights, much of the world population doesn’t have this. The blockchain technology enables the record of the personal rights, especially rights to goods be they financial, hard assets or ideas. For example, land title registration that are hard to be done in poor countries due to pervasive corruption in property registry, land sales, and dispute resolution, can be achieved by the technology.
Quoting Hernando de Soto, one of the world’s famous economic minds, the authors claim as many as five billion people in the world who have a tenuous right to their land can now fully participate in the value created through globalization through the blockchain technology. Through rights protected by technology, more population excluded can move toward prosperity.
■ Ending the Remittance Rip-Off √
The largest flow of funds into the developing world is not foreign aid nor direct foreign investment. Rather, it is remittance money repatriated to poor countries from their diasporas living abroad. The process takes time, patience, and sometimes courage to travel each week to the same wire transfer office’s seedy neighborhood, fill out the same paperwork each time, and pay the same seven percent fee. It’s where we see an irony to find people, while holding a high-tech smart phone with them, going through an inefficient process and waiting for a long time end to end.
The authors claim payment networks using the blockchain enable instant and frictionless payments, reducing time from a week to an hour with lower transaction fees at two percent as well as removing traditional third parties and inefficiencies. Also, using the technology on smart phone is the key feature to realize this.
■ Cutting Out Bureaucracy and Corruption in Foreign Aid √
Lack of transparency and inefficiencies have been pointed out in foreign aids due to its failure to effectively reach the end destination let alone misappropriation. Foreign aid is the second-largest fund transfer from developed to developing nations, after remittances.
The blockchain can improve the delivery of foreign aid firstly by eliminating the middlemen who take the aid before it reaches its destination. Secondly, as an immutable ledger of the flow of funds, blockchain holds institutions more accountable for their actions.
For example, we can track each dollar we gave to the Red Cross from its starting point on your smart phone to the person it benefited. You could park your funds in escrow, releasing amounts after the Red Cross reached each milestone.
■ Feeding the Creators of Value First
The music industry is laden with complexity. Firstly, control of music copyright is concentrated in the few. The labels and the tour promotion companies ask for much stake from artists. Secondly, each conglomerate having its own process and system resulted in fragmentation due to its different platforms. Thirdly, many members on the value chain that include publishers, PROs(performance rights organizations), producers, and so on collect royalties and require different forms of contracts, reports, and accounting system. Lastly, entirely new layer of intermediaries such as Youtube and Spotify take up the economic pie as well.
Smart contracts on the blockchain can eliminate the magnitude of this complexity, replacing music labels and intermediaries because it’s automated, verified and instant. The authors claim the combination of blockchain-based platforms and smart contracts – plus the artistic community’s standards of inclusion, integrity, and transparency in deal making, privacy, security, respect of rights, and fair exchange of value – could enable artists and their collaborators to form a new music ecosystem.
■ Reconfiguring the Corporation as the Engine of Capitalism
The authors contemplate that enterprises will look more like networks rather than the vertically integrated hierarchies of the industrial age. As such, they see an opportunity to distribute (not redistribute) wealth more democratically.
The authors claim blockchain technology is enabling new forms of economic organization and new portfolios of value. Distributed models of the firm (or decentralized enterprise) in terms of ownership structure, operations, rewards, and governance are emerging.
They advise business leaders to rethink how they organize value creation. Smart contracts – decentralized applications – on the blockchain could negotiate, contract, and enforce their agreements. They deal seamlessly with suppliers, customers, employees, contractors, and autonomous agents. These agents are maintained for others to use and also could rent out or license any excess capacity in their value chain.
Therefore, the boundaries that separate a company from its vendors, consultants, customers, external peer communities, and others will become harder to define. The authors claim that distributed autonomous enterprises(DAE), where intelligent software takes over the management and organization of many resources and capabilities, may displace corporations. Furthermore, smart contracts enable the creation of what we call open networked enterprises(ONE) based on a new set of business models, or old business models with a blockchain twist.
Ultimately, the blockchain technology offers a credible and effective means not only of cutting out intermediaries, but also of radically lowering transaction costs, turning firms into networks, distributing economic power, and enabling both wealth creation and a more prosperous future.
■ Animating Objects and Putting Them to Work
There is growing agreement among technology companies that the blockchain is essential to unlocking the potential of the Internet of Things(IoT).
Blockchain technology will enable things to collaborate, exchange units of value – energy, time, and money – and reconfigure supply chains and production processes according to shared information on demand and capacity.
The authors assert the Internet of Things needs a Ledger of Things. They believe the IoT enabled by the blockchain has huge potential in that it allows animation of the physical world. Once we bring these objects to life on the ledger, they can sense, respond, communicate, and take action. Assets can search, find, use, and compensate one another according to smart contracts, thereby enabling highly disruptive new markets, just as the Internet has previously done for people and all manner of digital content.
The authors contemplate that we are in the early days of thinking about the possibilities of the Ledger of Everything (built into the IoT) and that, while consumer devices have received the most attention in the popular media to date, there are potential applications across virtually every sector. They consider below twelve sectors to be most disrupted in this regard.
⇒ Infrastructure Management
⇒ Energy, Waste, and Water Management
⇒ Resource Extraction and Farming
⇒ Environmental Monitoring and Emergency Services
⇒ Health Care
⇒ Financial Services and Insurance
⇒ Document and Other Record Keeping
⇒ Building and Property Management
⇒ Industrial Operations-The Factor of Things
⇒ Home Management
⇒ Retail Operations and Sales
■ Cultivating the Blockchain Entrepreneur
In the developing world, the Internet has done little to lower the barriers of would-be entrepreneurs who must suffer deadening government bureaucracies. The internet has also not liberated the financial tools essential to starting a business available to billions of people. Not everyone is destined to be an entrepreneur but even for the average person trying to earn a decent wage, the lack of financial tools and the prevalence of government red tape make doing so challenging.
The authors admit this is a complex issue, but argue blockchain can help supercharge entrepreneurship and therefore prosperity in many important ways. For the average person living in the developing world to have a reliable store of value and a way to conduct business beyond his community, all he needs now is an Internet-enabled device. Access to the global economy means greater access to new sources of credit, funding, suppliers, partners, and investment opportunities.
■ Realizing Governments by the People for the People
Big changes in government and governances are anticipated.
Firstly, the authors believe high performance government services and operations can be realized by the blockchain technology: The technology can improve client service, increase efficiency, and improve outcomes while enabling both integrity and transparency of government.
The potential to improve all facets of government is significant, but they consider some are especially important in the developing world, where governments are establishing new processes and can leapfrog the systems of long, stable, and open government.
The technology can be applied to two broad areas: integrated government and the public sector use of the Internet of Things.
Blockchain-based systems can infuse efficiency and integrity into document registries of all kinds and many other government processes, for example. Also, if we combine supply chain with the Internet of Things to tag a new piece of equipment with a smart chip that communicates its provenance, ownership, warranties, or special information, government procurement offices could track items and automate processes at every step: purchasing, releasing payment, paying sales taxes, renewing a lease, or ordering an upgrade. The outcome is better asset management, reducing administrative costs to taxpayers while increasing revenues to governments.
Secondly, the technology can help creating new opportunities to change democracy itself – how governments can be more open and free from lobbyist control, and behave with integrity. The blockchain technologies can change what it means to be a citizen and participate in the political process, from voting and accessing social services to solving some of society’s big hairy problems and holding elected representatives accountable for the promises that got them elected.
(End of Part 2. To be continued in the next article)