More than Money: Get the Gist on bitcoins, blockchains, & smart contracts

Implications

Bitcoin and other cryptocurrencies offer a libertarian ideal that could destabilize the current infrastructure of banks and other powerful institutions. The blockchain offers distributed, secure, trusted and highly scalable architectures that conventional technologies cannot compete with.

Although the banking industry is pre-empting disruption by investing in this new technology, many of their business models and revenue streams will be affected especially with increased competition from the tech industry. The opportunity for the financial industry is high, but the potential risks are also large especially for smaller players in the industry.

Since computers are now able to process payments, other contractual exchanges could be carried out automatically via smart contracts. Currently if an online store receives a payment, then the product is delivered, but humans are still involved in the process. Blockchains and smart contracts could entirely automate the processing especially as logistic automation systems improve with robots packing and shipping products eventually via a driverless vehicle.

In the public sector, digital voting has been a long held dream for decades, but the blockchain may hold the key to its eventual success if the anonymity can be maintained along with some aspect of verifying that only individuals are voting (i.e. no double votes are made). This could be achieved in a number of ways using tangible rather than digital methods such as providing each citizen with an encrypted key that they must protect like their unique identifying numbers (e.g. credit card number, US Social Security number, voter registration number).

For many digital voting advocates, the ultimate purpose is “liquid democracy”. They want citizens to be able to vote on everything they wish, or citizens could allow their vote to be made by someone they feel is better qualified.

Another application for the public sector is the potential for automating the allocation of a small amount of funds based on very specific parameters. So if an earthquake of a certain magnitude were detected in a given area, the emergency relief agency could automatically allocate a small amount of funds to certain organizations in the area. Regardless of the amount, these funds could provide immediate help for the community when it is needed most even as the government agency scrambles to respond more effectively to the emergency.

Cultural Lag

Every new technology experiences an early dichotomy period where proponents see idealistic visions of the future while its detractors either mock its abilities or highlight its negative aspects. With Bitcoin, both have already happened and are beginning to wane. Just a couple of years ago, the press was focused on Bitcoin’s uses by the black market—bitcoins paying for guns, drugs, etc.—due to the difficulty in positively identifying the buyer or seller in illegal transactions. Although the black market connection continues to be a concern, it is no less a concern with bitcoins than it is for cash.

Around the same time, economists were quick to point out various technical weaknesses in the Bitcoin system, and they predicted Bitcoin would never succeed as a currency. These economists completely missed the point of Bitcoin which is less about beating out any currencies and more about funding research and development in innovations that could spur the economy. Bitcoin has much to prove as a currency, but it has clearly shown its ability to succeed in the market despite a few technical issues which are being resolved by its online community.

Figure 1: The basic benefits of the blockchain and its related technologies as proposed by techno-optimists

Figure 1 - Text version

There is an image that looks like a flow chart indicating a math formula. The first three boxes are shaped like plus symbols.

The first box says ‘Cryptocurrencies – Decentralization’.

The next box says ‘Blockchain – Transparency’.

The next box says ‘Smart Contracts – automation’.

Then there is the symbol for equal.

The last box is a rectangle that says ‘Decentralized Autonomous organizations – Efficiency/Productivity’.

At the moment, mainstream businesses and media are more interested in the potential of the blockchain and smart contracts than the idea of a virtual currency like Bitcoin. The most likely scenario is that these technologies will be tamed by regulations just as the internet has over the course of the past 25 years. The key question in that case surrounds: what paradigms will shift in the meantime, and which sectors will be disrupted as they scramble to keep up?

To that end, techno-optimists foresee a future of rampant decentralization and democratization, and they foresee that whole firms will become completely autonomous. Not only will automation cause lower level employees to lose their jobs, but DAOs will jeopardize the positions of the C-suite, management, and various government employees as well. Multi-million dollar services could operate by a small group of owners—who might eventually make themselves redundant—with a distributed community of users and developers.