Blockchain Revolution (updated) Read online

  In the early days of the Internet, Tom Peters wrote, “You are your projects.”19 He meant that our corporate affiliations and job titles no longer defined us. What is equally true now: “You are your data.” Trouble is, Moreira said, “That identity is now yours, but the data that comes from its interaction in the world is owned by someone else.”20 That’s how most corporations and institutions view you, by your data contrail across the Internet. They aggregate your data into a virtual representation of you, and they provide this “virtual you” with extraordinary new benefits beyond your parents’ happiest dreams.21 But convenience comes with a price: privacy. Those who say “privacy is dead—get over it” are wrong.22 Privacy is the foundation of free societies.

  “People have a very simplistic view of identity,”23 said blockchain theorist Andreas Antonopoulos. We use the word identity to describe the self, the projection of that self to the world, and all these attributes that we associate with that self or one of its projections. These may come from nature, from the state, from private organizations. We may have one or more roles and a series of metrics attached to those roles, and the roles may change. Consider your last job. Did your role change organically because of changes in the work that needed to be done or because of revisions to your job description?

  What if “the virtual you” was in fact owned by you—your personal avatar—and “lived” in the black box of your identity so that you could monetize your data stream and reveal only what you needed to, when asserting a particular right. Why does your driver’s license contain more information than the fact that you have passed your driving test and demonstrated your ability to drive? Imagine a new era of the Internet where your personal avatar manages and protects the contents of your black box. This trusty software servant could release only the required detail or amount for each situation and at the same time whisk up your data crumbs as you navigate the digital world.

  This may sound like the stuff of science fiction as portrayed in films like The Matrix or Avatar. But today blockchain technologies make it possible. Joe Lubin, CEO of Consensus Systems, refers to this concept as a “persistent digital ID and persona” on a blockchain. “I show a different aspect of myself to my college friends compared to when I am speaking at the Chicago Fed,” he said. “In the online digital economy, I will represent my various aspects and interact in that world from the platform of different personas.” Lubin expects to have a “canonical persona,” the version of him that pays taxes, obtains loans, and gets insurance. “I will have perhaps a business persona and a family persona to separate the concerns that I choose to link to my canonical persona. I may have a gamer persona that I don’t want linked to my business persona. I might even have a dark web persona that is never linkable to the others.”24

  Your black box may include information such as a government-issued ID, Social Security number, medical information, service accounts, financial accounts, diplomas, practice licenses, birth certificate, various other credentials, and information so personal you don’t want to reveal it but do want to monetize its value, such as sexual preference or medical condition, for a poll or a research study. You could license these data for specific purposes to specific entities for specific periods of time. You could send a subset of your attributes to your eye doctor and a different subset to the hedge fund that you would like to invest in. Your avatar could answer yes-no questions without disclosing who you are: “Are you twenty-one years or older? Did you earn more than $100,000 in each of the last three years? Do you have a body mass index in the normal range?”25

  In the physical world, your reputation is local—your local shopkeeper, your employer, your friends at a dinner party all have a certain opinion about you. In the digital economy, the reputations of various personas in your avatar will be portable. Portability will help bring people everywhere into the digital economy. People with a digital wallet and avatar in Africa could establish the reputation required to, say, borrow money to start a business. “See, all these people know me and have vouched for me. I am financially trustworthy. I am an enfranchised citizen of the global digital economy.”

  Identity is only a small part of it. The rest is a cloud—an identity cloud—of particulates loosely or tightly linked to your identity. If we try to record all these into the blockchain, an immutable ledger, we lose not only the nuance of social interaction but also the gift of forgetting. People ought never be defined by their worst day.

  A PLAN FOR PROSPERITY

  In this book, you’ll read dozens of stories about initiatives enabled by this trust protocol that create new opportunities for a more prosperous world. Prosperity first and foremost is about one’s standard of living. To achieve it, people must have the means, tools, and opportunities to create material wealth and thrive economically. But for us it includes more—security of the person, safety, health, education, environmental sustainability, opportunities to shape and control one’s destiny and to participate in an economy and society. In order to achieve prosperity, an individual must possess, at minimum, access to some form of basic financial services to reliably store and move value, communication, and transactional tools to connect to the global economy, and security, protection, and enforcement of the title to land and other assets they possess legally.26 This and more is the promise of the blockchain. The stories you will read should give you a sense of a future where there is prosperity for everyone, not just more wealth and power for the wealthy and powerful. Perhaps even a world where we own our data and can protect our privacy and personal security. An open world where everyone can contribute to our technology infrastructure, rather than a world of walled gardens where big companies offer proprietary apps. A world where billions of excluded people can now participate in the global economy and share in its largesse. Here’s a preview.

  Creating a True Peer-to-Peer Sharing Economy

  Pundits often refer to Airbnb, Uber, Lyft, TaskRabbit, and others as platforms for the “sharing economy.” It’s a nice notion—that peers create and share in value. But these businesses have little to do with sharing. In fact, they are successful precisely because they do not share—they aggregate. It is an aggregating economy. Uber is a $65 billion corporation that aggregates driving services. Airbnb, the $25 billion Silicon Valley darling, aggregates vacant rooms. Others aggregate equipment and handymen through their centralized, proprietary platforms and then resell them. In the process, they collect data for commercial exploitation. None of these companies existed a decade ago because the technological preconditions were not there: ubiquitous smart phones, full GPS, and sophisticated payment systems. Now with blockchains, the technology exists to reinvent these industries again. Today’s big disrupters are about to get disrupted.

  Imagine instead of the centralized company Airbnb, a distributed application—call it blockchain Airbnb or bAirbnb—essentially a cooperative owned by its members. When a renter wants to find a listing, the bAirbnb software scans the blockchain for all the listings and filters and displays those that meet her criteria. 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. Says 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.”27

  Rewiring the Financial System for Speed and Inclusion

  The financial services industry makes our global economy hum, but the system today is fraught with problems. For one, it is arguably the most centralized industry in the world and the last industry to feel the transformational effect of the technological revolution. Bastions of the old financial order such as banks go to great lengths to defend monopolies and often stymie disruptive innovation. The financial system also runs on outmoded technology and i
s 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.

  Distributed ledger technology can liberate many financial services from the confines of old institutions, fostering competition and innovation. That’s good for the end user. Even when connected to the old Internet, billions of people 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. With the blockchain these people can not only become connected, but more important become included in financial activity, able to purchase, borrow, sell, and otherwise have a chance at building a prosperous life.

  Similarly 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

  Property rights are so inexorably tied to our system of capitalist democracy that Jefferson’s first draft of the Declaration of Independence listed the inalienable rights of man as life, liberty, and the pursuit of property, not happiness.28 While those aspirational tenets laid the groundwork for the modern economy and society we enjoy in much of the developed world, to this day much of the world’s population does not reap their benefits. Even though some progress has been made in the departments of life and liberty, a majority of the world’s property holders can have their homes or their bit of land seized arbitrarily by corrupt government functionaries, with the flick of a software switch in their centralized government property database. Without proof of property ownership, landowners can’t secure a loan, get a building permit, or sell the property and they can be expropriated—all serious impediments to prosperity.

  Peruvian economist and president of the Institute for Liberty and Democracy Hernando de Soto, one of the world’s foremost economic minds, suggests that as many as five billion people in the world are barred from participating fully in the value created through globalization because they have a tenuous right to their land. Blockchain, he argues, could change all that. “The central idea to blockchain is that the rights to goods can be transacted, whether they be financial, hard assets or ideas. The goal is not merely to record the plot of land but rather to record the rights involved so that the rights holder cannot be violated.”29 Universal property rights could lay the groundwork for a new agenda of global justice, economic growth, prosperity, and peace. In this new paradigm, rights are protected, not by guns or militias or minutemen, but by technology. “Blockchain is for a world that’s governed by real things instead of fictitious things. And I think that’s good,”30 said de Soto. And it’s decentralized. No central authority controls it, everybody knows what’s happening, and it remembers forever.

  Ending the Remittance Rip-off

  Just about every report, article, or book reviewing the benefits of cryptocurrencies discusses the opportunity of remittances. And for good reason. The largest flow of funds into the developing world is not foreign aid or 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 7 percent fee. There is a better way.

  Abra and other companies are building payment networks using the blockchain. Abra’s goal is to turn every one of its users into a teller. The whole process—from the funds leaving one country to their arriving in another—takes an hour rather than a week and costs 2 percent versus 7 percent or higher. Abra wants its payment network to outnumber all physical ATMs in the world. It took Western Union 150 years to get to 500,000 agents worldwide. Abra will have that many tellers in its first year.

  Cutting Out Bureaucracy and Corruption in Foreign Aid

  Could blockchain solve problems with foreign aid? The 2010 Haiti earthquake was one of the deadliest natural disasters in recorded history. Somewhere between 100,000 and 300,000 people perished. The government in Haiti proved itself a liability in the aftermath. The global community donated more than $500 million to the Red Cross, a known brand. An after-action investigation revealed that funds were misspent or went missing altogether.

  The blockchain can improve the delivery of foreign aid by eliminating the middlemen who take the aid before it reaches its destination. Second, as an immutable ledger of the flow of funds, blockchain holds institutions more accountable for their actions. Imagine if you could track each dollar you 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

  Under the first generation of the Internet, many creators of intellectual property did not receive proper compensation for it. Exhibit A was musicians and composers who had signed with record labels whose leaders failed to imagine how the Internet would affect their industry. They failed to embrace the digital age and reinvent their own business models, slowly ceding control to innovative online distributors.

  Consider the major labels’ reaction to Napster, the peer-to-peer music file-sharing platform launched in 1999. Incumbents in the music industry teamed up to sue the new venture, its founders, and eighteen thousand of its users, dismantling the platform by July 2001. Alex Winter, director of a documentary on Napster, told The Guardian, “I have a problem with black-and-white thinking when it comes to big cultural changes. . . . With Napster, there was an enormous amount of grey” between the ‘I can share everything I’ve paid for’ position and the ‘You’re a criminal even if you share only one of the files you’ve purchased’ point of view.”31

  We agree. Cocreating with consumers is usually a more sustainable business model than suing them. The whole incident turned a huge hot spotlight on the music industry, exposing its outdated marketing practices, gross distribution inefficiencies, and what some interpreted as antimusician policies.

  Very little has changed since then. Until now. We look at the new music ecosystem emerging on the blockchain, led by British singer-songwriter Imogen Heap, cellist Zoë Keating, and blockchain developers and entrepreneurs. Every cultural industry is up for disruption, and the promise is that creators get fully compensated for the value they create.

  Reconfiguring the Corporation as the Engine of Capitalism

  With the rise of a global peer-to-peer platform for identity, trust, reputation, and transactions, we will finally be able to re-architect the deep structures of the firm for innovation, shared-value creation, and perhaps even prosperity for the many, rather than just wealth for the few. This doesn’t mean smaller firms in terms of revenue or impact. To the contrary, we’re talking about building twenty-first-century companies, some that may be massive wealth creators and powerful in their respective markets. We do think enterprises will look more like networks rather than the vertically integrated hierarchies of the industrial age. As such there is an opportunity to distribute (not redistribute) wealth more democratically.

  We’ll also take you on a stroll through the mind-boggling world of smart contracts, new autonomous economic agents, and what we call distributed autonomous enterprises where intelligent software takes over the management and organization of many resources and capabilities, perhaps displacing corporations. Smart contracts enable the creation of what we call open networked enterprises based on a new set of business models, or old business models wit
h a blockchain twist.

  Animating Objects and Putting Them to Work

  Technologists and science fiction writers have long envisioned a world where a seamless global network of Internet-connected sensors could capture every event, action, and change on earth. 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. We can attach metadata to smart devices and program them to recognize other objects by their metadata and to act or react to defined circumstances without risk of error or tampering.

  As the physical world comes to life, everyone can prosper—from small farmers in the Australian outback who need electrical power for their businesses to home owners everywhere who can become part of a distributed blockchain power grid.

  Cultivating the Blockchain Entrepreneur

  Entrepreneurship is essential to a thriving economy and a prosperous society. The Internet was supposed to liberate entrepreneurs, giving them the tools and capabilities of big companies without many of the liabilities, such as legacy culture, ossified processes, and dead weight. However, the high-flying success of dot-com billionaires obfuscates an unsettling truth: entrepreneurship and new business starts have been steadily declining for thirty years in many developed economies.32 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, of course, 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.