Blockchain

Blueprint for a New Economy

Melanie Swan

Currency, Contracts, and Applications beyond Financial Markets

The potential benefits of the blockchain are more than just economic—they extend into political, humanitarian, social, and scientific domains—and the technological capacity of the blockchain is already being harnessed by specific groups to address real-world problems. For example, to counter repressive political regimes, blockchain technology can be used to enact in a decentralized cloud functions that previously needed administration by jurisdictionally bound organizations. This is obviously useful for organizations like WikiLeaks (where national governments prevented credit card processors from accepting donations in the sensitive Edward Snowden situation) as well as organizations that are transnational in scope and neutral in political outlook, like Internet standards group ICANN and DNS services. Beyond these situations in which a public interest must transcend governmental power structures, other industry sectors and classes can be freed from skewed regulatory and licensing schemes subject to the hierarchical power structures and influence of strongly backed special interest groups on governments, enabling new disintermediated business models. Even though regulation spurred by the institutional lobby has effectively crippled consumer genome services,3 newer sharing economy models like Airbnb and Uber have been standing up strongly in legal attacks from incumbents.4 In addition to economic and political benefits, the coordination, record keeping, and irrevocability of transactions using blockchain technology are features that could be as fundamental for forward progress in society as the Magna Carta or the Rosetta Stone. In this case, the blockchain can serve as the public records repository for whole societies, including the registry of all documents, events, identities, and assets.

In this system, all property could become smart property; this is the notion of encoding every asset to the blockchain with a unique identifier such that the asset can be tracked, controlled, and exchanged (bought or sold) on the blockchain. This means that all manner of tangible assets (houses, cars) and digital assets could be registered and transacted on the blockchain.

As an example (we’ll see more over the course of this book), we can see the worldchanging potential of the blockchain in its use

What Is Bitcoin?

Bitcoin is digital cash. It is a digital currency and online payment system in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The terminology can be confusing because the words Bitcoin and blockchain may be used to refer to any three parts of the concept: the underlying blockchain technology, the protocol and client through which transactions are effected, and the actual cryptocurrency (money); or also more broadly to refer to the whole concept of cryptocurrencies. It is as if PayPal had called the Internet “PayPal,” upon which the PayPal protocol was run, to transfer the PayPal currency. The blockchain industry is using these terms interchangeably sometimes because it is still in the process of shaping itself into what could likely become established layers in a technology stack.

Bitcoin was created in 2009 (released on January 9, 20096) by an unknown person or entity using the name Satoshi Nakamoto. The concept and operational details are described in a concise and readable white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System.”7 Payments using the decentralized virtual currency are recorded in a public ledger that is stored on many—potentially all—Bitcoin users’ computers, and continuously viewable on the Internet. Bitcoin is the first and largest decentralized cryptocurrency. There are hundreds of other “altcoin” (alternative coin) cryptocurrencies, like Litecoin and Dogecoin, but Bitcoin comprises 90 percent of the market capitalization of all cryptocurrencies and is the de facto standard. Bitcoin is pseudonymous (not anonymous) in the sense that public key addresses (27–32 alphanumeric character strings; similar in function to an email address) are used to send and receive Bitcoins and record transactions, as opposed to personally identifying information.

Bitcoins are created as a reward for computational processing work, known as mining, in which users offer their computing power to verify and record payments into the public ledger. Individuals or companies engage in mining in exchange for transaction fees and newly created Bitcoins. Besides mining, Bitcoins can, like any currency, be obtained in exchange for fiat money, products, and services. Users can send and receive Bitcoins electronically for an

with a system like a blockchain. Further, the blockchain may be used not just for transactions, but also as a registry and inventory system for the recording, tracking, monitoring, and transacting of all assets. A blockchain is quite literally like a giant spreadsheet for registering all assets, and an accounting system for transacting them on a global scale that can include all forms of assets held by all parties worldwide. Thus, the blockchain can be used for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property); and intangible assets (votes, ideas, reputation, intention, health data, etc.).

The Connected World and Blockchain: The Fifth Disruptive Computing Paradigm

One model of understanding the modern world is through computing paradigms, with a new paradigm arising on the order of one per decade (Figure P-1). First, there were the mainframe and PC (personal computer) paradigms, and then the Internet revolutionized everything. Mobile and social networking was the most recent paradigm. The current emerging paradigm for this decade could be the connected world of computing relying on blockchain cryptography. The connected world could usefully include blockchain technology as the economic overlay to what is increasingly becoming a seamlessly connected world of multidevice computing that includes wearable computing, Internet-of-Things (IoT) sensors, smartphones, tablets, laptops, quantified self-tracking devices (i.e., Fitbit), smart home, smart car, and smart city.

The economy that the blockchain enables is not merely the movement of money, however; it is the transfer of information and the effective allocation of resources that money has enabled in the human- and corporate-scale economy.

With revolutionary potential equal to that of the Internet, blockchain technology could be deployed and adopted much more quickly than the Internet was, given the network effects of current widespread global Internet and cellular connectivity.

Just as the social-mobile functionality of Paradigm 4 has become an expected feature of technology properties, with mobile apps for

M2M/IoT Bitcoin Payment Network to Enable the Machine Economy

Blockchain is a revolutionary paradigm for the human world, the “Internet of Individuals,” and it could also be the enabling currency of the machine economy. Gartner estimates the Internet of Things will comprise 26 billion devices and a $1.9 trillion economy by 2020.9 A corresponding “Internet of Money” cryptocurrency is needed to manage the transactions between these devices,10 and micropayments between connected devices could develop into a new layer of the economy.11 Cisco estimates that M2M (machine-to-machine) connections are growing faster than any other category (84 percent), and that not only is global IP traffic forecast to grow threefold from 2012 to 2018, but the composition is shifting in favor of mobile, WiFi, and M2M traffic.12 Just as a money economy allows for better, faster, and more efficient allocation of resources on a human scale, a machine economy can provide a robust and decentralized system of handling these same issues on a machine scale.

Some examples of interdevice micropayments could be connected automobiles automatically negotiating higher-speed highway passage if they are in a hurry, microcompensating road peers on a more relaxed schedule. Coordinating personal air delivery drones is another potential use case for device-to-device micropayment networks where individual priorities can be balanced. Agricultural sensors are an example of another type of system that can use economic principles to filter out routine irrelevant data but escalate priority data when environmental threshold conditions (e.g., for humidity) have been met by a large enough group of sensors in a deployed swarm.

Blockchain technology’s decentralized model of trustless peer-to-peer transactions means, at its most basic level, intermediary-free transactions. However, the potential shift to decentralized trustless transactions on a large-scale global basis for every sort of interaction and transaction (human-to-human, human-to-machine, machine-tomachine) could imply a dramatically different structure and operation of society in ways that cannot yet be foreseen but where current established power relationships and hierarchies could easily lose their utility.

matters (perhaps the humanbased advice, psychoanalysis, or validation function that attorneys may provide), and for these kinds of reasons, technology adoption based exclusively on efficiency arguments could falter. Overall, however, if Bitcoin and the blockchain industry are to mature, it will most likely be in phases, similar to the adoption pattern of the Internet for which a clear value proposition resonated with different potential audiences, and then they came online with the new technology. Initially, the Internet solved collaborative research problems for a subgroup: academic researchers and the military. Then, gamers and avid recreational users came online, and eventually, everyone.

In the case of Bitcoin, so far the early adopters are subcultures of people concerned about money and ideology, and the next steps for widespread adoption could be as blockchain technology solves practical problems for other large groups of people, For example, some leading subgroups for whom blockchain technology solves a major issue include those affected by Internet censorship in repressive political regimes, where decentralized blockchain DNS (domain name system) services could make a big difference. Likewise, in the IP market, blockchain technology could be employed to register the chain of invention for patents, and revolutionize IP litigation in the areas of asset custody, access, and attribution.

Bitcoin Culture: Bitfilm Festival

One measure of any new technology’s crossover into mainstream adoption is how it is taken up in popular culture. An early indication that the cryptocurrency industry may be starting to arrive in the global social psyche is the Bitfilm Festival, which features films with Bitcoin-related content. Films are selected that demonstrate the universal yet culturally distinct interpretations and impact of Bitcoin. The festival began in 2013 and has late 2014/early 2015 dates in Berlin (where Bitfilm is based), Seoul, Buenos Aires, Amsterdam, Rio, and Cape Town. Congruently, Bitfilm allows viewers to vote for their favorite films with Bitcoin. Bitfilm produces the film festival and, in another business line, makes promotional videos for the blockchain industry (Figure P-2).

Given this dynamism, despite our best efforts, there may be errors in the specific details of this text whereas even a few days from now information might be outdated; the intent here is to portray the general scope and status of the blockchain industry and its possibilities. Right now is the time to learn about the underlying technologies; their potential uses, dangers, and risks; and perhaps more importantly, the concepts and their extensibility. The objective here is to provide a comprehensive overview of the nature, scope, and type of activity that is occurring in the cryptocurrency industry and envision its wide-ranging potential application. The account is necessarily incomplete, prone to technical errors (though it has been reviewed for technical accuracy by experts), and, again, could likely soon be out-of-date as different projects described here fail or succeed. Or, the entire Bitcoin and blockchain technology industry as currently conceived could become outmoded or superseded by other models.

The underlying sources of this work are a variety of information resources related to Bitcoin and its development. The principal sources are developer forums, Reddit subgroups, GitHub white papers, podcasts, news media, YouTube, blogs, and Twitter.

Specific online resources include Bitcoin industry conference proceedings on YouTube and Slideshare, podcasts (Let’s Talk Bitcoin, Consider This!, Epicenter Bitcoin), EtherCasts (Ethereum), Bitcoin-related news outlets (CoinDesk, Bitcoin Magazine, Cryptocoins News, Coin Telegraph), and forums (Bitcoin StackExchange, Quora).

Other sources were email exchanges and conversations with practitioners in the industry as well as my experiences attending conferences, Bitcoin workshops, Satoshi Square trading sessions, and developer meetups.

This work is structured to discuss three different tiers in the way that the conceptualization of Bitcoin and blockchain technology is starting to gel: Blockchain 1.0, 2.0, and 3.0. First, I cover the basic definitions and concepts of Bitcoin and blockchain technology, and currency and payments as the core Blockchain 1.0 applications. Second, I describe Blockchain 2.0—market and financial applications beyond currency, such as contracts. I then envision Blockchain 3.0, meaning blockchain applications beyond currency, finance, and markets.

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Acknowledgments

I would like to acknowledge Andreas M. Antonopoulos, Trent McConaghy, Steve Omohundro, Piotr Piasecki, Justin Sher, Chris Tse, and Stephan Tual.

The key point is that these three layers are the general structure of any modern cryptocurrency: blockchain, protocol, and currency. Each coin is typically both a currency and a protocol, and it may have its own blockchain or may run on the Bitcoin blockchain. For example, the Litecoin currency runs on the Litecoin protocol, which runs on the Litecoin blockchain. (Litecoin is very slightly adapted from Bitcoin to improve on a few features.) A separate blockchain means that the coin has its own decentralized ledger (in the same structure and format as the Bitcoin blockchain ledger). Other protocols, such as Counterparty, have their own currency (XCP) and run on the Bitcoin blockchain (i.e., their transactions are registered in the Bitcoin blockchain ledger). A spreadsheet delineating some of the kinds of differences between Crypto 2.0 projects is maintained here: http://bit.ly/crypto_2_0_comp.

The Double-Spend and Byzantine Generals’ Computing Problems

Even without considering the many possible uses of Bitcoin and blockchain technology, Bitcoin, at its most fundamental level, is a core breakthrough in computer science, one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world.13 Bitcoin is a solution to a long-standing issue with digital cash: the double-spend problem. Until blockchain cryptography, digital cash was, like any other digital asset, infinitely copiable (like our ability to save an email attachment any number of times), and there was no way to confirm that a certain batch of digital cash had not already been spent without a central intermediary. There had to be a trusted third party (whether a bank or a quasibank like PayPal) in transactions, which kept a ledger confirming that each portion of digital cash was spent only once; this is the double-spend problem. A related computing challenge is the Byzantine Generals’ Problem, connoting the difficulty of multiple parties (generals) on the battlefield not trusting each other but needing to have some sort of coordinated communication mechanism.14 The blockchain solves the double-spend problem by combining BitTorrent peer-topeer file-sharing technology with public-key cryptography to make a new form of digital money. Coin ownership is recorded in

Figure 1-1. Bitcoin ewallet app and transferring Bitcoin (image credits: Bitcoin ewallet developers and InterAksyon)

eWallet Services and Personal Cryptosecurity

As responsible consumers, we are not used to many of the new aspects of blockchain technology and personal cryptosecurity; for example, having to back up our money.

Decentralized autonomy in the form of private keys stored securely in your ewallet means that there is no customer service number to call for password recovery or private key backup. If your private key is gone, your Bitcoin is gone. This could be an indication that blockchain technology is not yet mature enough for mainstream adoption; it’s the kind of problem that consumer-facing Bitcoin startups such as Circle Internet Financial and Xapo are trying to solve. There is opportunity for some sort of standardized app or service for ewallet backup (for example, for lost, stolen,

bricked, or upgraded smartphones or laptop/tablet-based wallets), with which users can confirm exactly what is happening with their private keys in the backup service, whether they self-administer it or rely on external vendors.

and Bitcoin), so a more expedient future solution would involve integrating Bitcoin payment into existing vendor payment networks. Mobile payment functionality is also needed for quick point-of-sale Bitcoin purchases (for example, a cup of coffee) via mobile phone. CoinBeyond and other companies focus on mobile Bitcoin payments specifically, and BitPay and CoinBase have solutions for mobile checkout. In one notable step forward, Intuit’s QuickBooks accounting software for small businesses makes it possible for vendors to accept incoming Bitcoin payments from CoinBase and BitPay with its PayByCoin module.17

Summary: Blockchain 1.0 in Practical Use

Blockchain is already cash for the Internet, a digital payment system, and it may become the “Internet of Money,” connecting finances in the way that the Internet of Things (IoT) connects machines. Currency and payments make up the first and most obvious application. Alternative currencies make sense based on an economic argument alone: reducing worldwide credit card merchant payment fees from as much as 3 percent to below 1 percent has obvious benefits for the economy, especially in the $514 billion international remittances market, where transaction fees can run from 7 to 30 percent.18 Furthermore, users can receive funds immediately in digital wallets instead of waiting days for transfers. Bitcoin and its imitators could pave the way for currency, trade, and commerce as we know it to be completely redefined. More broadly, Bitcoin is not just a better version of Visa—it could also allow us to do things we have not even thought of yet. Currency and payments is just the first application.19 The core functionality of blockchain currencies is that any transaction can be sourced and completed directly between two individuals over the Internet. With altcoins, you can allocate and trade resources between individuals in a completely decentralized, distributed, and global way. With that ability, a cryptocurrency can be a programmable open network for the decentralized trading of all resources, well beyond currency and payments. Thus, Blockchain 1.0 for currency and payments is already being extended into Blockchain 2.0 to take advantage of the more robust functionality of Bitcoin as programmable money.

Some argue that volatility and price shifts are a barrier to the widespread adoption of cryptocurrency, and some volatility-smoothing businesses have launched to address this: Bitreserve, which locks Bitcoin deposits at fixed exchange rates;23 Realcoin’s cryptocurrency, which is pegged to the US dollar (USD); 24 and Coinapult’s LOCKS, which allow purchasers to peg Bitcoin to the price of gold, silver, the US dollar, the British pound, or the Euro.25 One of the first USD-pegged Bitcoin cryptocurrencies was Ripple’s XRP/USD BitStamp, and there is also BitShares’ BitUSD. Others point out that Bitcoin volatility is less than some fiat currency’s volatility and inflation (making Bitcoin a better relative value choice), and that many operations of Bitcoin are immediate transfers in and out of other currencies for which the volatility does not matter as much in these spot rate (i.e., immediate) transactions.

Bitcoin’s market capitalization as of November 2014 is $5.3 billion (see http://coinmar ketcap.com/), calculated as the current price ($399.40) multiplied by the available supply (13,492,000 Bitcoin). This is already on the order of a small country’s GDP (Bitcoin would rank as the 150th largest world economy on a list of 200). Unlike fiat currencies for which governments can print more money, the money supply of Bitcoin grows at a predetermined (and capped) rate. New currency (in blocks) is being issued at a regular and known pace, with about 13.5 million units currently outstanding, growing to a capped amount of 21 million units in 2040. At a price of roughly $400 Bitcoin per dollar, Bitcoin is infeasible to use directly for daily purchases, and prices and exchanges for practical use are typically denominated in subunits of millibitcoins (a thousandth of a Bitcoin; 1 mBTC = ~$0.40) and Satoshis (a millionth of a Bitcoin; 1 Satoshi = ~$0.000004).

Regulatory Status

Government regulation is possibly one of the most significant factors as to whether the blockchain industry will develop into a full-fledged financial-services industry. As of October 2013, a handful of countries have completely banned Bitcoin: Bangladesh, Bolivia, Ecuador, Iceland (possibly related to using Auroracoin, instead), Kyrgyzstan, and Vietnam. China, as mentioned, banned financial institutions

CHAPTER 2

Blockchain 2.0: Contracts

From its very beginning, complexity beyond currency and payments was envisioned for Bitcoin; the possibilities for programmable money and contracts were baked into the protocol at its invention. A 2010 communication from Satoshi Nakamoto indicates that “the design supports a tremendous variety of possible transaction types that I designed years ago. Escrow transactions, bonded contracts, third-party arbitration, multiparty signature, etc. If Bitcoin catches on in a big way, these are things we’ll want to explore in the future, but they all had to be designed at the beginning to make sure they would be possible later.”32 As we’ll see in Chapter 3, these structures could be applied beyond financial transactions, to any kind of transaction—even “figurative” ones. This is because the concepts and structure developed for Bitcoin are extremely portable and extensible.

Blockchain 2.0 is the next big tier in the development of the blockchain industry, an area of prodigious activity as of the fall of 2014.33 Because the Blockchain 2.0 space is in development, there are many different categories, distinctions, and understandings of it, and standard classifications and definitions are still emerging. Some of the terminology that broadly refers to the Blockchain 2.0 space can include Bitcoin 2.0, Bitcoin 2.0 protocols, smart contracts, smart property, Dapps (decentralized applications), DAOs (decentralized autonomous organizations), and DACs (decentralized autonomous corporations).

Whereas Blockchain 1.0 is for the decentralization of money and payments, Blockchain 2.0 is for the decentralization of markets more generally, and contemplates the transfer of many other kinds of assets beyond currency using the blockchain, from the creation of a unit of value through every time it is transferred or divided.

mutual funds, derivatives, annuities, pensions

Public records Land and property titles, vehicle registrations, business licenses, marriage certificates, death certificates

Identification Driver’s licenses, identity cards, passports, voter registrations

Private records IOUs, loans, contracts, bets, signatures, wills, trusts, escrows

Attestation Proof of insurance, proof of ownership, notarized documents

Physical asset keys Home, hotel rooms, rental cars, automobile access

Intangible assets Patents, trademarks, copyrights, reservations, domain names

Public records, too, can be migrated to the blockchain: land and property titles, vehicle registrations, business licenses, marriage certificates, and death certificates. Digital identity can be confirmed with the blockchain through securely encoded driver’s licenses, identity cards, passports, and voter registrations. Private records such as IOUs, loans, contracts, bets, signatures, wills, trusts, and escrows can be stored. Attestation can be executed via the blockchain for proof of insurance, proof of ownership, and notarized documents. Physical asset keys (which is explored further in Chapter 3) can be encoded as digital assets on the blockchain for controlled access to homes, hotel rooms, rental cars, and privately owned or shared-access automobiles (e.g., Getaround). Intangible assets (e.g., patents, trademarks, copyrights, reservations, and domain names) can also be protected and transferred via the blockchain.

For example, to protect an idea, instead of trademarking it or patenting it, you could encode it to the blockchain and you would have proof of a specific cargo being registered with a specific datetime stamp for future proof (as is discussed in “Digital Art: Blockchain Attestation Services (Notary, Intellectual Property Protection)” on page 37).

example, Bitcoin savings accounts and lending (perhaps through userselected rules regarding fractional reserve levels). BTCjam is an example of such decentralized blockchain-based peer-to-peer lending. Tera Exchange launched the first US-regulated Bitcoin swaps exchange, which could make it possible for institutional and individual investors to buy Bitcoin contracts directly through its online trading platforms. Part of the offering includes an institutional Bitcoin price index, the Tera Bitcoin Price Index, to be used as the benchmark for trading USD/XBT contracts.40 In the same space, startup Vaurum is building an API for financial institutions to offer traditional brokerage investors and bank customers access to Bitcoin.

Another project is startup Buttercoin, a Bitcoin trading platform and exchange for high-volume transactions (200,000–500,000 Bitcoin, or $70–$175 million), targeted at a business clientele who has a need to complete large-scale Bitcoin transactions.41 Buttercoin is partnered with capital markets firm Wedbush Securities, itself one of the first security analysts to cover Bitcoin and accept Bitcoin payments for its research.

Other ventures are more radically positioned against artificial unregulated monopolies in the current stock trading market infrastructure, like the Depository Trust Company and the National Securities Clearing Corporation, or DTCC, which is involved in the clearing and settlement of securities. Overstock CEO Patrick Byrne and Counterparty created a new venture, Medici, announced in October 2014, to provide a decentralized stock market for equity securities in the blockchain model.42

Crowdfunding

Another prime example of how financial services are being reinvented with blockchain-based decentralized models is crowdfunding. The idea is that peer-topeer fundraising models such as Kickstarter can supplant the need for traditional venture capital funding for startups. Where previously a centralized service like Kickstarter or Indiegogo was needed to enable a crowdfunding campaign, crowdfunding platforms powered by blockchain technology remove the need for an intermediary third party. Blockchain-based crowdfunding platforms make it possible for startups to raise funds by creating their own digital currencies and selling “cryptographic shares” to early backers.

like Predictious and Fairlay.50 Bitcoin prediction markets offer a betting venue for the usual realworld outcomes as prediction markets always have, such as elections, political legislation, sports matches, and technology product releases, and also serve as a good source of information about the developing blockchain industry. Bitcoin prediction markets are one way to see what insiders think about Bitcoin’s future price directions, the success of different altcoin and protocol 2.0 projects, and industry issues more generally (e.g., technical development issues with Bitcoin, such as when there will be a hard fork—significant change—of the code, and the level of difficulty of the mining algorithm).

Smart Property

The blockchain can be used for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property); and intangible assets (votes, ideas, reputation, intention, health data, and information). Using blockchain technology this way opens up multiple classes of application functionality across all segments of businesses involved in money, markets, and financial transactions. Blockchain-encoded property becomes smart property that is transactable via smart contracts.

The general concept of smart property is the notion of transacting all property in blockchain-based models. Property could be physical-world hard assets like a home, car, bicycle, or computer, or intangible assets such as stock shares, reservations, or copyrights (e.g., books, music, illustrations, and digital fine art). An example of using the blockchain to control and transfer limited-run artworks is Swancoin, where 121 physical-world artworks, crafted on 30 × 30 cm varnished plywood, are available for purchase and transfer via the Bitcoin blockchain (see Figure 2-1).51 Any asset can be registered in the blockchain, and thus its ownership can be controlled by whoever has the private key. The owner can then sell the asset by transferring the private key to another party. Smart property, then, is property whose ownership is controlled via the blockchain, using contracts subject to existing law. For example, a pre-established smart contract could automatically transfer the ownership of a vehicle title from

Absent preconfigured access tokens, when the user submits a real-time access request, the blockchain smart contract could send an acknowledgment or token access mechanism to the physical asset or user ewallet, such as a one-use QR code to open a rental car or hotel room. Blockchain technology offers the ability to reinvent identity authentication and secure access in ways that are much more granular, flexible, and oriented to real-time demand than are currently possible, elegantly integrating physical-world hardware technologies with digital Internet-based software technologies.52 Smart property transacted with blockchains is a completely new kind of concept. We are not used to having cryptographically defined property rights that are selfenforced by code. The code is self-enforced by the technical infrastructure in the sense that it is bound to operate based on the underlying code and cannot deviate. A property transfer specified in the code cannot but occur as encoded. Blockchainbased smart property thus contemplates the possibility of widespread decentralized trustless asset management systems as well as cryptographically activated assets.

There could be widespread implications for the entire field of property law—or great simplifications in that property ownership can be recorded on the property itself:

Trustless lending

The trustless networks feature of blockchain technology is a key enabler in the context of smart property and smart contracts. Making property smart allows it to be traded with much less trust. This reduces fraud and mediation fees, but more importantly affords a much greater amount of trade to take place that otherwise would never have happened, because parties do not need to know and trust each other. For example, it makes it possible for strangers to lend you money over the Internet, taking your smart property as collateral, which should make lending more competitive and thus credit cheaper.53 Further, there is the possibility that smart contracts executed in trustless networks could result in much less disputation. Contract disputes in the United States (44%) and United Kingdom (57%) account for the largest type of litigation, and might be avoided with more precision at the time of setting forth agreements, and with automated enforcement mechanisms.54 Related to this, as cryptocurrency visionary and smart contracts legal theorist Nick Szabo points out, is the general problem of poor (i.e., irrational) human decision making, which might be improved with automated mechanisms like smart contracts.

be self-sufficient in their ability to marshal resources—that is, raising funds by providing services or issuing equity, and spending them on needed resources, such as processing power or storage. Third, smart contracts are decentralized in that they do not subsist on a single centralized server; they are distributed and self-executing across network nodes.56 The classic example used to demonstrate smart contracts in the form of code executing automatically is a vending machine. Unlike a person, a vending machine behaves algorithmically; the same instruction set will be followed every time in every case.

When you deposit money and make a selection, the item is released. There is no possibility of the machine not feeling like complying with the contract today, or only partially complying (as long as it is not broken). A smart contract similarly cannot help but execute the prespecified code. As Lessig reminds us, “code is law” in the sense that the code will execute no matter what. This could be good or bad depending on the situation; either way, it is a new kind of situation in society that will require a heavy accommodation period if blockchain-based smart contracts are to become widespread.

There are many considerations raised by smart contracts and systems of cryptographically activated assets with regard to whether we need a new body of law and regulation that distinguishes between technically binding code contracts and our more 16 | flexible legally binding human contracts.57 Contract compliance or breach is at the discretion of human agents in a way that it is not with blockchain-based or any kind of code-based contracts. Further, smart contracts impact not just contract law, but more broadly the notion of the social contract within society. We need to determine and define what kinds of social contracts we would like with “code law,” automatically and potentially unstoppably executing code. Because it could be nearly impossible to enforce smart contracts with law as currently enacted (for example, a decentralized code swatch running after the fact is difficult to control, regulate, or sue for damages), the legal framework is essentially pushed down to the level of the contract. The endpoint is not lawlessness and anarchy, but that legal frameworks become more granular and personalized to the situation. Parties agreeing to the contract could choose a legal framework to be incorporated into the code. There

Blockchain 2.0 Protocol Projects

There are many next-generation blockchain technology development projects that can be very loosely gathered under the header of Blockchain 2.0 protocol projects (Table 2-2), although this label is not perfect. The intent of Table 2-2 is to list some of the current high-profile projects, not to get into the descriptive details of how the projects differ technically or conceptually.

Table 2-2. Sample list of Blockchain 2.0 projects (extended from Piotr Piaseki, http://bit.ly/cr ypto_2_0_comp)

Wallet Development Projects

Perhaps the primary category of applications being built atop blockchain protocols is wallets. Wallets are obviously a core infrastructural element for cryptocurrencies, because they are the mechanism for the secure holding and transfer of Bitcoin and any cryptographic asset. Table 2-3 lists some of the different wallet projects and companies in development, with their name and URL and the underlying platform upon which they are built.

Related to Stellar are Block.io, Gem, and BlockCypher, which have multisig wallet APIs.

More unified API development environments will be needed that include the many diverse and growing parts of the blockchain ecosystem (storage, file serving, messaging, wallet interactions, mobile payments, identity confirmation, and reputation).

There is also an opportunity to link blockchain development environments out to other major segments like the machine-to-machine (M2M) communication and Internet-of-Things (IoT) networks infrastructure for rapid application development.

An example of an advanced integrated application of this kind envisioned for the farther future could be a smartwatch that can interact with smart-city traffic-sensor data to automatically reserve and pay for lane space with a Bitcoin-denominated smart contract.

Blockchain Ecosystem: Decentralized Storage, Communication, and Computation

There is a need for a decentralized ecosystem surrounding the blockchain itself for full-solution operations. The blockchain is the decentralized transaction ledger that is part of a larger computing infrastructure that must also include many other functions such as storage, communication, file serving, and archiving. Specific projects that are developing solutions for the distributed blockchain ecosystem include Storj for any sort of file storage (text, images, audio, multimedia); IPFS for file serving, link maintenance, and storage; and Maidsafe and Ethereum for storage, communication, and file serving. First, in terms of storage, perhaps the most obvious need is for secure, decentralized, off-chain storage for files such as an electronic medical record (EMR) or genome, or even any simple Microsoft Word document, which would not be packed into the 40-byte (40-character) OP_RETURN field used for transaction annotation (even in the case of Florincoin’s 528-character annotation field). File storage could either be centralized (like Dropbox or Google Drive) or could be in the same decentralized architecture as the blockchain. The blockchain transaction that registers the

Ethereum: Turing-Complete Virtual Machine

Blockchain technology is bringing together concepts and operations from several fields, including computing, communications networks, cryptography, and artificial intelligence. In Satoshi Nakamoto’s original plan, there were three steps, only two of which have been implemented in Bitcoin 1.0. These are the blockchain (the decentralized public transaction ledger) and the Bitcoin protocol (the transaction system to move value between parties without third-party interaction). This has been fine for the Blockchain 1.0 implementation of currency and payment transactions, but for the more complicated tier of Blockchain 2.0 applications such as the recording and transfer of more complex assets like smart property and smart contracts, we need the third step—a more robust scripting system—and ultimately, Turing completeness (the ability to run any coin, protocol, or blockchain). Nakamoto envisioned not just sending money from point A to point B, but having programmable money and a full feature set to enable it. One blockchain infrastructure project aiming to deliver a Turingcomplete scripting language and Turing-complete platform is Ethereum.

Ethereum is a platform and a programming language for building and publishing distributed applications. More fundamentally, Ethereum is a foundational generalpurpose cryptocurrency platform that is a Turing-complete virtual machine (meaning that it can run any coin, script, or cryptocurrency project). Rather than being a blockchain, or a protocol running over a blockchain, or a metaprotocol running over a protocol like other projects, Ethereum is a fundamental underlying infrastructure platform that can run all blockchains and protocols, rather like a unified universal development platform. Each full node in the Ethereum network runs the Ethereum Virtual Machine for seamless distributed program (smart contract) execution. Ethereum is the underlying blockchain-agnostic, protocol-agnostic platform for application development to write smart contracts that can call multiple other blockchains, protocols, and cryptocurrencies. Ethereum has its own distributed ecosystem, which is envisioned to include file serving, messaging, and reputation vouching. The first component is Swarm (“Ethereum-Swarm,” not to be confused with the crowdfunding site Swarm) as a decentralized file-serving method. A second component is Whisper (“Ethereum-Whisper,” also

Dapps, DAOs, DACs, and DASs: Increasingly Autonomous Smart Contracts

We can now see a progression trajectory. The first classes of blockchain applications are currency transactions; then all manner

of financial transactions; then smart property, which instantiates all hard assets (house, car) and soft assets (IP) as digital assets; then government document registries, legal attestation, notary, and IP services; and finally, smart contracts that can invoke all of these digital asset types. Over time, smart contracts could become extremely complex and autonomous. Dapps, DAOs, DACs, DASs, automatic markets, and tradenets are some of the more intricate concepts being envisioned for later-stage blockchain deployments. Keeping the description here at a summary level, the general idea is that with smart contracts (Blockchain 2.0; more complex transactions than those related to payments and currency transfer), there could be an increasing progression in the autonomy by which smart contracts operate. The simplest smart contract might be a bet between two parties about the maximum temperature tomorrow. Tomorrow, the contract could be automatically completed by a software program checking the official temperature reading (from a prespecified external source or oracle (in this example, perhaps Weather.com), and transferring the Bitcoin amount held in escrow from the loser to the winner’s account.

Dapps

Dapps, DAOs, DACs, and DASs are abbreviated terms for decentralized applications, decentralized autonomous organizations, decentralized autonomous corporations, and decentralized autonomous societies, respectively. Essentially this group connotes a potential progression to increasingly complex and automated smart contracts that become more like self-contained entities, conducting preprogrammed and eventually self-programmed operations linked to a blockchain. In some sense the whole wave of Blockchain 2.0 protocols is Dapps (distributed applications), as is Blockchain 1.0 (the blockchain is a Dapp that maintains a public transaction ledger).

In a collaborative white paper, another group offers a stronger-form definition of a Dapp.67 In their view, the Dapp must have three features. First, the application must be completely open source, operate autonomously with no entity controlling the majority of its tokens, and its data and records of operation must be cryptographically stored in a public, decentralized blockchain. Second, the application must generate tokens according to a standard algorithm or set of criteria and possibly distribute some or all of its tokens at the beginning of its operation. These tokens must be necessary for the use of the application, and any contribution from users should be rewarded by payment in the application’s tokens. Third, the application may adapt its protocol in response to proposed improvements and market feedback, but all changes must be decided by majority consensus of its users. Overall, however, at present every blockchain project may have a slightly different idea of the exact technicalities of what the term decentralized application comprises.

DAOs and DACs

A DAO (decentralized autonomous organization) is a more complex form of a decentralized application. To become an organization more formally, a Dapp might adopt more complicated functionality such as a constitution, which would outline its governance publicly on the blockchain, and a mechanism for financing its operations such as issuing equity in a crowdfunding. DAOs/DACs (decentralized autonomous organizations/corporations) are a concept derived from artificial intelligence. Here, a decentralized network of autonomous agents perform tasks, which can be conceived in the model of a corporation running without any human involvement under the control of a set of business rules.68 In a DAO/DAC, there are smart contracts as agents running on blockchains that execute ranges of prespecified or preapproved tasks based on events and changing conditions.69 Not only would groups of smart contracts operating on the blockchain start to instantiate the model of an autonomous corporation, but the functions and operation of real physical-world businesses could be reconceived on the blockchain, as well. As Bitcoin currency transactions reinvent and make the remittances market more efficient, DAOs and DACs could do the same for

DASs and Self-Bootstrapped Organizations

Eventually there could be DASs (decentralized autonomous societies)—essentially fleets of smart contracts, or entire ecosystems of Dapps, DAOs, and DACs operating autonomously. An interesting concept related to intellectual property and new ideas is the “self-bootstrapped organization.”72 This is a new business idea arising from the blockchain or via a person, in which the project idea spins out to become a stand‐ alone entity with some standardized smart-contract, self-bootstrapping software to crowdfund itself based on a mission statement; operate; pay dividends or other remuneration back to crowdfunding investors; receive feedback (automated or orchestrated) through blockchain prediction markets and decentralized blockchain voting; and eventually dissolve or have periodic confirmation-of-instantiation votes (similar to business relationship contracts evergreening or calling for periodic reevaluations).

Automatic dissolution or reevaluation clauses could be critical in avoiding situations like those described in Daniel Suarez’s science-fiction books Daemon and Freedom, in which the world economy ends up radically transformed by the smart-contract type agents inexorably following their programmed code.

Automatic Markets and Tradenets

An automatic market is the idea that unitized, packetized, quantized resources (initially like electricity, gas, bandwidth, and in the deeply speculative future, units of synaptic potentiation in brains) are automatically transacted based on dynamically evolving conditions and preprogrammed user profiles, permissions, and bidding functions.73 Algorithmic stock market trading and real-time bidding (RTB) advertising networks are the closest existing examples of automatic markets. In the future, automatic markets could be applied in the sense of having limit orders and program trading for physical-world resource allocation.

CHAPTER 3

Blockchain 3.0: Justice Applications Beyond Currency, Economics, and Markets

Blockchain Technology Is a New and Highly Effective Model for Organizing Activity

Not only is there the possibility that blockchain technology could reinvent every category of monetary markets, payments, financial services, and economics, but it might also offer similar reconfiguration possibilities to all industries, and even more broadly, to nearly all areas of human endeavor. The blockchain is fundamentally a new paradigm for organizing activity with less friction and more efficiency, and at much greater scale than current paradigms. It is not just that blockchain technology is decentralized and that decentralization as a general model can work well now because there is a liquid enough underlying network with the Web interconnecting all humans, including for disintermediated transactions: blockchain technology affords a universal and global scope and scale that was previously impossible. This can be true for resource allocation, in particular to allow for increasingly automated resource allocation of physical-world assets and also human assets. Blockchain technology facilitates the coordination and acknowledgment of all manner of human interaction, facilitating a higher order of collaboration and possibly paving the way for human/ machine interaction. Perhaps all modes of human activity could be coordinated with blockchain technology to some degree, or at a minimum reinvented with blockchain concepts. Further, blockchain technology is not just a better organizational model functionally, practically, and quantitatively; by requiring consensus to operate, the model could also have greater liberty, equality, and empowerment qualitatively. Thus, the blockchain is a complete solution that integrates both extrinsic and intrinsic and qualitative and quantitative benefits.

resources. Furthermore, systems and interactions are economics in that they are a matter of awareness and discovery, value attribution, and potential interaction and exchange, and may include a mechanism for this exchange like a currency or token, or even a simple exchange of force, energy, or concentration (as in biological systems). This same basic economic structure could be said to exist universally, whether in a collaborative work team or at a farmers’ market. The quantized structure of blockchain technology in the form of ledger transaction-level tracking could mean higher-resolution activity tracking, several orders of magnitude more detailed and extensive than we are accustomed to at present, a time at which we are still grateful for SKU-level tracking on a bill of materials.

Blockchain tracking could mean that all contributions to a system by all involved parties, no matter how minute, can be assessed and attributed in a seamless, automated way, for later roll-up to the macro level—or not, because some community value systems might dictate not having user contributions explicitly tracked. The ethos and morality of tracking is a separate and interesting socialscience topic to explore in the blockchain studies research agenda more generally. However, one way that the blockchain-based capacity for tracking could work is in the form of a “GitHub + Bitcoin” concept, for example, that tracks code contributions line by line over all revisions of a software code corpus over time. This is important, because economically savvy rational agents participating in the system (i.e., currently humans) want to assess the contributions they and others have made, and have these contributions tracked and acknowledged for remuneration, reputation, status garnering, and other rewards.

Blockchain Technology Could Be Used in the Administration of All Quanta

What the blockchain could facilitate in an automated computational way is one universal, seamless model for the coordinated activity of near-infinite numbers of transactions, a universal transaction system on an order never before imagined for human activity. In some sense, blockchain technology could be a supercomputer for reality.

Distributed Censorship-Resistant Organizational Models

The primary argument for Blockchain 1.0 and 2.0 transactions is the economic efficiency and cost savings afforded by trustless interaction in decentralized network models, but freedom and empowerment are also important dimensions of the blockchain. Decentralized models can be especially effective at promoting freedom and economic transfer in countries with restrictive political regimes and capital controls.

Freedom is available in the sense of pseudonymous transactions outside of the visibility, tracking, and regulatory purview of local governments. This can be a significant issue for citizens in emerging markets where local capital controls, government regulations, and overly restrictive economic environments make it much harder to engage in a variety of standard activities, including starting new businesses. State economic controls, together with a lack of trust in fiat currency, have been driving a lot of interest in cryptocurrencies.

The freedom attribute associated with blockchain technologies becomes more pronounced in Blockchain 3.0, the next category of application beyond currency and market transactions. Through its global decentralized nature, blockchain technology has the potential ability to circumvent the current limitations of geographic jurisdictions. There is an argument that blockchain technology can more equitably address issues related to freedom, jurisdiction, censorship, and regulation, perhaps in ways that nation-state models and international diplomacy efforts regarding human rights cannot. Irrespective of supporting the legitimacy of nation-states, there is a scale and jurisdiction acknowledgment and argument that certain operations are transnational and are more effectively administered, coordinated, monitored, and reviewed at a higher organizational level such as that of a World Trade Organization.

The idea is to uplift transnational organizations from the limitations of geographybased, nation-state jurisdiction to a truly global cloud. The first point is that transnationalorganizationsneedtransnationalgovernancestructures.Thereach, accessibility, and transparency of blockchain technology could be an effective transnational governance structure. Blockchain governance is more congruent with the character and needs of transnational organizations than nation-state governance.

Namecoin: Decentralized Domain Name System

One of the first noncurrency uses of blockchain technology was to prevent Internet censorship with Namecoin, an altcoin that can be used to verify Domain Name System (DNS) registrations. Namecoin is an alternative DNS that is transnational and cannot be controlled by any government or corporation. The benefit of a decentralized DNS is that it makes it possible for anyone worldwide who might be otherwise suppressed or censored to publish information freely in the Internet.

Just as Bitcoin is a decentralized currency that cannot be shut down, Namecoin is the basis for a decentralized DNS (i.e., web URLs).76 The idea is that URLs permanently embedded in the blockchain would be resistant to the government seizing of domains. The censorship issue is that in a URL such as google.com, centralized authorities control the top-level domain, the .com portion (the United States controls .com URLs), and therefore can potentially seize and redirect the URL. Centralized authorities control all top-level domains; for example, China controls all .cn domains. Therefore, a decentralized DNS means that top-level domains can exist that are not controlled by anyone, and they have DNS lookup tables shared on a peer-topeer network. As long as there are volunteers running the decentralized DNS server software, alternative domains registered in this system can be accessed. Authorities cannot impose rules to affect the operation of a well-designed and executed global peer-to-peer top-level domain. The same Bitcoin structure is used in the implementation of a separate blockchain and coin, Namecoin, for decentralized DNS.

Namecoin is not at present intended for the registration of all domains, but as a free speech mechanism for domains that might be sensitive to censorship (for example, in countries with limited political freedom). The top-level domain for Namecoin is .bit.

Interested parties register .bit domains with Namecoin. The actions necessary to register a new domain or to update an existing one are built in to the Namecoin protocol, based on transaction type—for example, the “name_new” transaction at a cost of 0.01 NMC (Namecoin is convertible in/out of Bitcoin). Domains can be registered directly with the Namecoin system or via a registration service like https://dotbit.me/.

end. KeyID, rebranded from Keyhotee, provides an identification and email system on a decentralized blockchain for secure messaging and for secure authentication.81

Freedom of Speech/Anti-Censorship Applications: Alexandria and Ostel

Alexandria is one example of a blockchain-based freedom-of-speech-promoting project. It aims to create an unalterable historical record by encoding Twitter feeds to a blockchain. Any tweets mentioning certain prespecified keywords (like Ukraine or ebola) are encoded into the Alexandria blockchain using Florincoin, a cryptocurrency based on Bitcoin and Litecoin with quick transaction processing (40 seconds) and a longer memo annotation field (conceptually: Memocoin). This method captures tweets that might be censored out later by takedown requests.82 Florincoin’s key enabling feature for this is transaction comments, a 528-character field for the recording of both metadata and tweet content.83 The expanded commenting functionality could be used more broadly for many kinds of blockchain applications, such as providing metadata and secure pointers to genomic sequences or X-ray files. Another freedomoriented application is Ostel’s free encrypted Voice over IP (VoIP) telephony service, because the United States National Security Agency (NSA) can listen in on other services like Skype.84 Ostel is a nice example of David Brin’s bottom-up souveillance counterweight85 to top-down NSA surveillance (of both traditional telephone calls and Skype86).

Decentralized DNS Functionality Beyond Free Speech: Digital Identity

Beyond its genesis motivation to enable free speech and provide a countermeasure to the centralized control of the Internet, there are other important uses of decentralized DNS functionality in the developing Blockchain 3.0 ecosystem. The blockchain is allowing a rethinking and decentralization of all Internet network operations—for example, DNS services (Namecoin, DotP2P), digital identity (KeyID, and OneName and BitID, which are discussed shortly), and network traffic

Bitcoin wallet services and exchanges, like Coinbase, have allowed Bitcoin to be sent to email addresses for some time. The OneName service is a more secure solution. With OneName, users can set up a more practical name (like a social media handle) to use for Bitcoin transactions. After a user is registered with OneName, asking for payment is as easy as adding a plus sign to your username (for example, +DeMirage99). OneName is an open source protocol built on the Namecoin protocol that puts users in charge of their digital identity verification, rather than allowing centralized social media sites like Facebook, LinkedIn, and Twitter to be the de facto identity verification platform, given that many websites have opted to authenticate users with social media APIs.88 A similar project is BitID, which allows users to log in to websites with their Bitcoin address. Instead of “Login with Facebook,” you can “Connect with Bitcoin” (your Bitcoin address). BitID is a decentralized authentication protocol that takes advantage of Bitcoin wallets as a form of identification and QR codes for service or platform access points. It enables users to access an online account by verifying themselves with their wallet address and uses a mobile device as the private-key authenticator.89 Another proposed digital identity verification business is Bithandle, which was developed as a hackathon project. Bithandle offers short-handle registration, verification, and ecommerce service. As with Onename and BitID, users can register an easy-touse handle—for instance, “Coinmaster”—that is linked to a wallet address via a public or private real-life identity check and a Bitcoin blockchain transaction. The service offers ongoing real-time digital identity verification and one-click auto-enabled ecommerce per “Login with Bitcoin” website access. An obvious problem with the mainstream adoption of Bitcoin is the unwieldy 32-character Bitcoin address, or QR code, needed to send and receive funds. Instead, Bithandle gives users the ability to link a short handle to a Bitcoin address, which is confirmed initially with real-life identity and looked up in the blockchain on demand at any future moment. Realtime digital identity verification services could be quite crucial; already the worldwide market size for identity authentication and verification is $11 billion annually.90 Specifically, how Bithandle works is that in the digital identity registration process, participants register a Bitcoin username, an easy-to-use handle that can then be used to “Login with Bitcoin” to websites. As mentioned, this is similar to the ability

not have access to traditional banking services for any number of reasons, estimated at 53 percent of the worldwide population.93 Even in the United States, 7.7 percent of households are forecast to be unbanked or underbanked.94 Bitcoin neutrality means access for the unbanked and underbanked, which requires Bitcoin solutions that apply in all low-tech environments, with features like SMS payment, paper wallets, and batched blockchain transactions. Having neutrality-oriented, easy-to-use solutions (the “Twitter of emerging market Bitcoin”) for Bitcoin could trigger extremely fast uptake in underbanked markets, continuing the trend of 31 percent of Kenya’s GDP being spent through mobile phones.95 There are different SMS Bitcoin wallets and delivery mechanisms (like 37Coins96 and Coinapult, and projects like Kipochi97 that are integrated with commonly used emerging-markets mobile finance platforms like M-Pesa. A similar project is a mobile cryptowallet app, Saldo.mx, which uses the Ripple open source protocol for clearing, and links people living in the United States and Latin America for the remote payment of bills, insurance, airtime, credit, and products.

Digital Divide of Bitcoin

The term digital divide has typically referred to the gap between those who have access to certain technologies and those who do not. In the case of cryptocurrencies, if they are applied with the principles of neutrality, everyone worldwide might start to have access. Thus, alternative currencies could be a helpful tool for bridging the digital divide. However, there is another tier of digital divide beyond access: know-how. A new digital divide could arise (and arguably already has in some sense) between those who know how to operate securely on the Internet and those who do not. The principles of neutrality should be extended such that appropriate mainstream tools make it possible for anyone to operate anonymously (or rather pseudonymously), privately, and securely in all of their web-based interactions and transactions.

which thus provides the secure timestamping function of when a specific attestation transaction occurred. Via the hash, the original file content has essentially been encoded into the blockchain. The blockchain can serve as a document registry.

The key idea is using cryptographic hashes as a form of asset verification and attestation, the importance of which could be extremely significant. Blockchain hash functionality could be a key function for the operation of the whole of society, using the blockchain to prove the existence and exact contents of any document or other digital asset at a certain time. Further, the blockchain attestation functionality of hashing-plus-timestamping supports the idea of the blockchain as a new class of information technology.

Blockchain attestation services more generally comprise all manner of services related to document filing, storage, and registry; notary services (validation); and IP protection. As articulated, these functions take advantage of the blockchain’s ability to use cryptographic hashes as a permanent and public way to record and store information, and also to find it later with a block explorer and the blockchain address pointer from the blockchain as a universal central repository. The core functionality is the ability to verify a digital asset via a public general ledger.

There are several blockchain-based attestation services in different stages of development or proof of concept, such as Proof of Existence, Virtual Notary, Bitnotar, Chronobit, and Pavilion.io. The specifics of how they might be different or similar are emerging, and there is presumably a lot of functionality fungibility in that any of the services can simply hash a generic file of any type. The first and longest-standing service, Proof of Existence, is described in detail next.

Proof of Existence

One of the first services to offer blockchain attestation is Proof of Existence. People can use the web-based service to hash things such as art or software to prove authorship of the works.99 Founder Manuel Aráoz had the idea of proving a document’s integrity by using a cryptographic hash, but the problem was not knowing when the document was created, until the blockchain could add a trusted timestamping mechanism.100

prove they had an idea at a certain time, and authors can protect their works.

The proof-of-existence function works in this way: first, you present your document (or any file) to the service website; you’re then prompted to “click or drag and drop your document here." The site does not upload or copy the content of the document but instead (on the client side) converts the contents to a cryptographic digest or hash. Algorithms create a digest, or a cryptographic string that is representative of a piece of data; the digest created by a hash function is based on the characteristics of a document. No two digests are the same, unless the data used to compute the digests is the same. Thus, the hash represents the exact contents of the document presented.

The cryptographic hash of the document is inserted into a transaction, and when the transaction is mined into a block, the block timestamp becomes the document’s timestamp, and via the hash the document’s content has essentially been encoded into the blockchain. When the same document is presented again, the same marker will be created and therefore provide verification that the documents are the same. If, however, the document has changed in any way, the new marker will not match the previous marker. This is how the system verifies the document.101 One benefit of attestation services is how efficiently they make use of the blockchain.

Original documents are not stored on the blockchain, just their hash is stored, which is accessible by private key. Whenever a proof of existence needs to be confirmed, if the recomputed hash is the same as the original hash registered in the blockchain, the document can be verified as unchanged. The hash does not need to (and cannot) translate back into the document (hashes are only one-way; their security feature makes back-computation impossible). The retrieval phase of proof-of-existence functionality can be thought of as a “content verification service.” Regarding longevity, the crucial part is having the private key to the digital asset (the hash) that is registered on the blockchain. This does mean trusting that whichever blockchain used will be available in the future; thus, it would be good to select an attestation service that uses a standard blockchain like the Bitcoin blockchain.

affiliations, real estate values, statements and contracts, and random-number drawing. Files can be in any format, including Microsoft Word, PDF, JPG, PNG, TXT, and PPT (Microsoft PowerPoint). The site generates a certificate that can be downloaded from the site, and also offers the other side of the service—examining existing certificates. Virtual Notary’s aim is to provide a digital, neutral, dispassionate witness for recording online facts and conveying them to third parties in a trustworthy manner, a critical resource as a larger fraction of our lives is now digital.102 Two other blockchain timestamp projects are Bitnotar and Chronobit.

A similar blockchain-based project for contract signing is Pavilion.io, which provides the service much cheaper than Adobe EchoSign or DocuSign; contracts are free to send and only one mBTC to sign.103 Two other virtual notary projects are Blocksign and btcluck.

Monegraph: Online Graphics Protection

One digital-art protection project built and intended as a proof of concept using the blockchain ledger Bitcoin 3.0 applications related to new methods of proof is Monegraph, whose slogan is “because some art belongs in chains.” Using this (currently free) application, individuals can facilitate the monetization of their online graphics— digital media they have already created and posted on the Web—by registering their assets. Just as Bitcoin verifies currency ownership, Monegraph verifies property ownership; this is an example of the smart property application of the blockchain. Monegraph could be a complementary service or feature for stock photo image and graphic repository websites like Shutterstock or Getty Images, possibly adding future functionality related to image use enforcement and tracking.

Monegraph works in a two-step process using Twitter, Namecoin, and Monegraph.

Namecoin is used because it is an altcoin that can be used to verify DNS registrations in an automated, decentralized way; any similar DNS confirmation service could be used.104 First, to stake the claim, the user goes to http://www.monegraph.com/, gives it permission to sign in to her Twitter account (via the standardized Twitter API OAuth token), and supplies the URL of the graphic,

blog posts, tweets, Instagram/Twitpic photos, and forum participations. Digital asset protection could be offered just as travel insurance is with airline ticket purchases. At account setup with Twitter, blogging sites, wikis, forums, and GitHub, the user could approve micropayments for digital asset registration (by supplying a Bitcoin wallet address). Cryptocurrency now as the embedded economic layer of the Web provides microcontent with functionality for micropayment and microIPprotection. Cryptocurrency provides the structure for this, whether microcontent is tokenized and batched into blockchain transactions or digital assets are registered themselves with their own blockchain addresses. Blockchain attestation services could also be deployed more extensively not just for IP registry, but more robustly to meet other related needs in the publishing industry, such as rights transfer and content licensing.

Batched Notary Chains as a Class of Blockchain Infrastructure

It is important to remember that this is only the outset of what could blossom into a full-fledged blockchain economy with blockchain technology enabling every aspect of human endeavor, the blockchain being like the Internet, and the blockchain as the fifth wave of the Internet. In this vein, it is possible that all current blockchain-related activity could be seen as early-stage prototypes looking back from some future moment. What are piecemeal services now could be collected into classes of blockchain services.

From the point of view of overall design principles for the blockchain infrastructure, we would expect to see these classes of sector-specific functionality arriving. Not just separate blockchain notary services, but a new class of notary chains themselves as part of the evolving blockchain infrastructure. Notary chains are an example of a DAO/DAC, a more complicated group of operations that together perform a class of functions incorporating blockchain technology. In this case, this is the idea of notary chains as a class of blockchain protocols for attestation services. For example, it might be more efficient to post batches of transactions as opposed to every individual transaction (requiring the greater-than-zero mining cost). Notary blocks could be composed of the hashes of many digitally

of ways to share data privately, safely, and remuneratively. As mentioned, in the vein of life logging, there could be personal thinking blockchains to capture and safely encode all of an individual’s mental performance, emotions, and subjective experiences onto the blockchain, at minimum for backup and to pass on to one’s heirs as a historical record. Personal mindfile blockchains could be like a next generation of Fitbit or Apple’s iHealth on the iPhone 6, which now automatically captures 200+ health metrics and sends them to the cloud for data aggregation and imputation into actionable recommendations. Similarly, personal thinking blockchains could be easily and securely recorded (assuming all of the usual privacy concerns with blockchain technology are addressed) and mental performance recommendations made to individuals through services such as Siri or Amazon’s Alexa voice assistant, perhaps piped seamlessly through personal brain/ computer interfaces and delivered as both conscious and unconscious suggestions.

Again perhaps speculatively verging on science fiction, ultimately the whole of a society’s history might include not just a public records and document repository, and an Internet archive of all digital activity, but also the mindfiles of individuals. Mindfiles could include the recording of every “transaction” in the sense of capturing every thought and emotion of every entity, human and machine, encoding and archiving this activity into life-logging blockchains.

Blockchain Government

Another important application developing as part of Blockchain 3.0 is blockchain government; that is, the idea of using blockchain technology to provide services traditionally provided by nation-states in a decentralized, cheaper, more efficient, personalized manner. Many new and different kinds of governance models and services might be possible using blockchain technology. Blockchain governance takes advantage of the public record-keeping features of blockchain technology: the blockchain as a universal, permanent, continuous, consensus-driven, publicly auditable, redundant, record-keeping repository. The blockchain could become both the mechanism for governing in the present, and the repository of all of a society’s documents, records, and history for use in the

contracts and DACs. Having many fewer people involved in the governance apparatus could potentially mean smaller, less costly government, less partisanship, and less specialinterest lobbyist-directed government. As blockchain technology makes financial systems more efficient, squeezing the marginal cost down to zero, so too could blockchain technology reconfigure the tasks of governance and public administration. The costs savings of smaller government could proceed directly to Guaranteed Basic Income initiatives, promoting equality and political participation in society and easing the transition to the automation economy.

The advent of the blockchain and decentralized models calls into question more generally the ongoing validity of population-sized pooled models like government and insurance that have been de facto standards because other models were not yet possible. However, pooled models might no longer make economic or political sense.

Consensus-driven models could be a superior solution economically and offer a more representative and equitable way of interacting with reality, moving to an open frame of eradicating situations of illiberty.107 The blockchain-as-an-information-technology idea is further underscored in blockchain governance as a new, more efficient system for organizing, administering, coordinating, and recording all human interactions, whether business, government, or personal. The advent of blockchain technology calls into question the more effective execution of government services, but also government-backed rights, which in some cases by design do not (and should not) respect individuality. So far, most projects have addressed only the governance services side, so there is an opportunity to develop interesting blockchain-based models for rights enforcement.

Decentralized Governance Services

Choose your government and choose your services. This is the idea of putting the nation-state on the blockchain, in the sense of offering borderless, decentralized, opt-in blockchain-based governance services.108 These kinds of services could include an ID system based on reputation, dispute resolution, voting, national

Figure 3-2. World’s first Bitcoin wedding, David Mondrus and Joyce Bayo, Disneyworld, Florida, October 5, 2014 (image credit: Bitcoin Magazine, Ruben Alexander)

Blockchain-based governance systems could offer a range of services traditionally provided by governments, all of which could be completely voluntary, with usercitizens opting in and out at will. Just as Bitcoin is emerging as a better alternative to fiat currency in some situations (cheaper, more efficient, easier to transmit, immediately received, and a superior payments mechanism), the same could be true for blockchain-based governance services. The same services a traditional “fiat” government carries out could be delivered in a cheaper, distributed, voluntary way by using blockchain technology. The blockchain lends itself well to being a universal, permanent, searchable, irrevocable public records repository.

decentralized governance software, too, would be open source and forkable, so that anyone can create his own blockchain nation and government services in this collaborative platform for DIYgovernance.

In the area of titling and deeds, as Bitcoin is to remittances, decentralized blockchain government services is to the implementation of a property ownership registry, and could be the execution of the detailed plans set forth by development economists such as Hernando de Soto.113 Decentralized blockchain-based government services such as public documents registries and titling could be a useful tool for scaling the efforts already in place by organizations such as de Sotos’s Institute for Liberty and Democracy, or ILD, which has programs to document, evaluate, and diagnose the extralegal sector and bring it into alignment with the legal system. A universal blockchain-based property registry could bring much-needed ownership documentation, transferability, transactability, value capture, and opportunity and mobilization to emerging markets where these structures do not exist or are nascent (and simultaneously, potential business for its blockchain service cousin, dispute resolution). As some countries in Africa were able to leapfrog directly to cellular telephone networks without installing copper wire infrastructure (and some countries might be able to leapfrog directly to preventive medicine with personalized genomics114), so too could emerging-market countries leapfrog directly to the implementation of blockchain property registries. Other blockchain government services could facilitate similar leapfrogging—for example, speeding Aadhar’s (the world’s largest biometric database115) efforts in issuing national ID cards to the 25 percent of Indians who did not have them, and helping to eliminate inefficiencies in national ID card programs due to issues like ghost IDs and duplicate IDs.

PrecedentCoin: Blockchain Dispute Resolution

Another Blockchain 3.0 project focuses exclusively on using the blockchain for more effective dispute resolution. Precedent is conceptually like “The People’s Court or Judge Judy on the blockchain.” So far there has been no way to take advantage of a centralized repository of precedents used to resolve disputes, so Precedent is developing a concept, framework, altcoin, and

of a DAS (distributed autonomous society), there could be a need to set forth standardized principles for consensusbased decentralized governance systems, and decentralized voting systems such as that offererd by BitCongress.116 Other projects focus on other ideas such as delegative democracy, a form of democratic control where voting power is vested in delegates, as opposed to representatives (as many congressional and parliamentary models today).

One such project is Liquid Democracy, which provides open source software to facilitate proposition development and decision making.

In the Liquid Democracy system, a party member can assign a proxy vote to any other member, thereby assigning a personal delegate instead of voting for a representative. A member can give her vote to another member for all issues, for a particular policy area, or for only a particular decision for any length of time. That vote can be rescinded at any time. Under this system, a person can become a delegate for multiple members within a polity very quickly, wielding the political power normally reserved for elected representatives as a result. But, a person can lose this power just as quickly.

This is the “liquid” in Liquid Democracy, a process that can also be referred to as “transitive delegation.” If someone is respected as a trusted expert in a particular area, he can gain members’ votes. As a result, every person within a Liquid Democracy platform is a potential politician.117 There are clearly many potential issues with the Liquid Democracy platform as currently set forth. One concern is stability and continuity over time, which could be resolved with agent reputation mechanisms, broadly confirmable and transferrable if stored in an accessible blockchain.

The idea of delegated decision making, supported and executed in blockchain-based frameworks might have wide applicability beyond the political voting and policy making context. For example, health is another area for which advocacy, advice, and decision making are often delegated and poorly tracked with almost no accountability. Blockchain technology creates an opportunity for the greater accountability and tracking of such delegation. For example, the bioethical nuances of delegated medical decision making articulated in the book Deciding for Others, by Allen Buchanan, could be implemented in Liquid Democracy structure.118 This could improve health care–related decision making, and enable a system of

(or could at least include underrepresented voters) and give voters more time to deliberate on issues privately at home, seeking their own decision-making resources rather than being swayed by advertising.121 Blockchain technology could be a means of implementing random-sample elections in a large-scale, trustable, pseudonymous way.

Futarchy: Two-Step Democracy with Voting + Prediction Markets

Another concept is futarchy, a two-level process by which individuals first vote on generally specified outcomes (like “increase GDP”), and second, vote on specific proposals for achieving these outcomes. The first step would be carried out by regular voting processes, the second step via prediction markets. Prediction market voting could be by different cryptocurrencies (the EconomicVotingCoin or EnvironmentalPolicyVotingCoin) or other economically significant tokens. Prediction market voting is investing/speculating, taking a bet on one or the other side of a proposal, betting on the proposal that you want to win. For example, you might buy the “invest in new biotechnologies contract” as what you think is the best means of achieving the “increase in GDP” objective, as opposed to other contracts like the “invest in automated agriculture contract”). As with random-sampling elections, blockchain technology could more efficiently implement the futarchy concept in an extremely large-scale manner (decentralized, trusted, recorded, pseudonymous). The futarchy concept is described in shorthand as “vote for values, bet on beliefs,” an idea initially proposed by economist Robin Hanson,122 and expounded in the blockchain context by Ethereum project founder Vitalik Buterin.123 This is a quintessential example of the potential transformative power of blockchain technology. There is the possibility that voting and preference-specification models (like futarchy’s two-tiered voting structure using blockchain technology) could became a common, widespread norm and feature or mechanism for all complex multiparty human decision making.

One effect of this could be a completely new level of coordinated human activity that is orders of magnitude more complex than at present. Of course, any new governance structure including futarchy has ample room for abuse, and mechanisms for restricting coercion

and autonomy.

However, we have matured into the reception of decentralized authority in other contexts. Authority floating freely has already happened in other industries such as information, wherein the news and publishing industry became decentralized with blogging and the restructuring of the media industry. Entertainment is similar, with corporate media properties existing alongside YouTube channels, and individuals uploading their own content to the Web. The value chain has exploded into the longtail format, and individuals became their own taste makers and quality arbiters. A crucial twenty-first-century skill is that individuals must examine content and think for themselves about its quality and validity. The Bitcoin revolution is the same thing happening now with currency, economics, finance, and monetary policy. It might seem harder to let go of centralized authority in matters of government and economics as opposed to culture and information, but there is no reason that social maturity could not develop similarly in this context.

extensive processing power could be applied to the more practical task of solving existing science problems. However, a mining algorithm must meet very specific conditions, like generating code strings or hashes that are easily verifiable in one direction but not in reverse, which is not the structure of traditional scientific computing problems.125 There are some cryptocurrency projects trying to make blockchain mining scientifically useful—for example, Primecoin, for which miners are required to find long chains of prime numbers (Cunningham chains and bi-twin chains) instead of SHA256 hashes (the random guesses of a specific number issued by mining software programs based on given general parameters).126 There is an opportunity for greater progress in this area to reformulate supercomputing and desktop grid computing problems, which have been organized mainly in a massively parallel fashion, into a mining-compatible format to take advantage of otherwise wasted computing cycles.127 Gridcoin, if not solving the problem of using otherwise wasted mining cycles, at least tries to align incentives by encouraging miners to also contribute computing cycles: miners are compensated at a much higher rate (5 GRC versus a maximum of 150 GRC) for mining a currency block when also contributing computing cycles. A typical complaint about blockchain technology is the wastefulness of mining, both in terms of unused computing cycles and electricity consumption. The media presents estimates of power consumption such as “the Eiffel Tower could stay lit for 260 years with the energy used to mine Bitcoins since 2009,”128 and that in 2013 Bitcoin mining was consuming about 982 megawatt hours a day (enough to power 31,000 homes in the United States, or half a Large Hadron Collider),129 at a cost of $15 million a day.130 However, the comparison metric is unclear; should these figures be regarded as a little or a lot (and what are the direct economic benefits of the Eiffel Tower and the LHC, for that matter)? Bitcoin proponents counter that the blockchain model is vastly cheaper when you consider the fully loaded cost of the current financial system, which includes the entire infrastructure of physical plant bank branch offices and personnel. They point out that the cost to deliver $100 via the blockchain is much cheaper than traditional methods. Still, there is concern over how Bitcoin could eliminate its wasteful consumption of electricity for mining while continuing to maintain the blockchain, and 3.0 innovations could be expected.

aid delivery in crisis situations, as opposed to Bitcoin, which can be delivered immediately to specific publicly auditable trackable addresses. Individual peer-to-peer aid as well as institutional aid could be contributed via Bitcoin. In emerging markets (often with cellphone penetration or 70 percent or higher) there are a number of SMS Bitcoin wallets and delivery mechanisms, such as 37Coins134 and Coinapult, and projects such as Kipochi135 that are integrated with commonly used mobile finance platforms like M-Pesa (in Kenya, for example, 31 percent of the GDP is spent through mobile phones136). Apps could be built on infectious disease tracking sites like Healthmap and FluTrackers to include Bitcoin donation functionality or remunerative appcoin more generally.

Charity Donations and the Blockchain—Sean’s Outpost

Perhaps the world’s best-known Bitcoin-accepting charity is Sean’s Outpost, a homeless outreach nonprofit organization based in Pensacola, Florida. Capitalizing on the trend of individuals receiving Bitcoin and not having any local venues to spend it in or otherwise not knowing what to do with it, and Bitcoin startups needing to demo how Bitcoin is sent on the Web, Sean’s Outpost has been able to raise significant donor contributions and undertake projects like a nine-acre “Satoshi Forest” sanctuary for the homeless.137

Blockchain Genomics

The democratization and freedom-enhancing characteristics of the blockchain seen in many projects also apply in the case of consumer genomics, which is the concept of uplifting organizations to the blockchain (to the cloud in a decentralized, secure way) to escape the limitations of local jurisdictional laws and regulation. That there is a need for this does not necessarily signal illegal “bad players” with malicious intent; rather, it indicates a lack of trust, support, relevance, and espousal of shared values in local jurisdictional governments. Traditional government 1.0 is becoming outdated as a governance model in the blockchain era, especially as we begin to see the possibility to move from paternalistic, one-size-fits-all

completely new data-rich era of preventive medicine for which the goal is maintaining, prolonging, and enhancing baseline health.144 Such a wellness era is now beginning to be possible through the use of personalized big data as predictive information about potential future conditions. Personalized genomics is a core health data stream for preventive medicine as well as individuals as knowledgeable, self-interested, action-taking agents.145 In fact, as of November 2014, a blockchain genomics project, Genecoin, has launched an exploratory website to assess potential consumer interest, positioning the service as a means of backing up your DNA.146

Blockchain Genomics 2.0: Industrialized All-Human-Scale Sequencing Solution

At one level, there could be blockchain-enabled services where genomic data is sequenced and made available to individuals by private key outside the jurisdiction of local governments. However, at another higher level, as a practical matter, to achieve the high-throughput sequencing needed for all seven billion humans, larger-scale models are required, and blockchain technology could be a helpful mechanism for the realization of this project. Individuals ordering their genomes piecemeal through consumer genomic services is an initial proof of concept in some ways (and a health literacy tool as well as a possible delivery mechanism for personal results and recommendations), but not an “all-human-scale” solution for sequencing. Blockchain technology, in the form of a universal model for record keeping and data storage and access (a secure, decentralized, pseudonymous file structure for data stored and accessed in the cloud) could be the technology that is needed to move into the next phase of industrialized genomic sequencing. This applies to genomic sequencing generally as an endeavor, irrespective of the personal data rights access issue. Sequencing all humans is just one dimension of sequencing demand; there is also the sequencing of all plants, animals, crops, viruses, bacteria, disease-strain pathogens, microbiomes, cancer genomes, proteomes, and so on, to name a few use cases.

There is a scale production and efficiency argument for

of the complete invention of an industrial-scale all-human genome sequencing project with the blockchain, just adding blockchain technology as a feature to existing sequencing activities could be enabling. Conceptually, this would be like adding coin functionality or blockchain functionality to services like DNAnexus, a whole-human genome cloud-based storage service. Operating in collaboration with university collaborators (Baylor College of Medicine’s Human Genome Sequencing Center) and Amazon Web Services, the DNAnexus solution is perhaps the largest current data store of genomes, having 3,751 whole human genomes and 10,771 exomes (440 terabytes) as of 2013.147 The progress to date is producing a repository of 4,000 human genomes, out of the possible field of 7 billion humans, which highlights the need for large-scale models in these kinds of big data projects (human whole-genome sequencing). The DNAnexus database is not a public good with open access; only 300 worldwide preapproved genomic researchers have permission to use it. The Genomic Data Commons148 is a US-government-funded large-scale data warehouse and computational computing project being assembled to focus on genomic research and personalized medicine. In this case, the resource is said to be available to any US-based researcher. This is a good step forward in organizing data into standard unified repositories and allowing access to a certain population. A further step could be using an appcoin like Genomecoin to expand access on a grander scale as a public good fully accessible by any individual worldwide. Further, the appcoin could be the tracking, coordination, crediting, and renumerative mechanism sponsoring collaboration in the Genome Data Commons community. Like the aforementioned Wikinomics example, the highest potential possibility for discovery could be in making datasets truly open for diverse sets of individuals and teams from a variety of fields and backgrounds to apply any kind of model they might have developed.

One benefit of “Bitcoin/blockchain-as-economics” is that the technology automatically enables embedded economics as a feature in any system. In the genomic sequencing and storage context, the economics feature could be used in numerous ways, such as obtaining more accurate costs of research (blockchain economics as tracking and accounting) and to remunerate data contributors (whether institutional or individual) with Genomecoin or

blockchain like a vast electronic electronic medical record (EMR) system. Taking advantage of the pseudonymous (i.e., coded to a digital address, not a name) nature of blockchain technology and its privacy (private key access only), personal health records could be encoded as digital assets and put on the blockchain just like digital currency. Individuals could grant doctors, pharmacies, insurance companies, and other parties access to their health records as needed via their private key. In addition, services for putting EMRs onto the blockchain could promote a universal format, helping to resolve the issue that even though most large health services providers have moved to an EMR system, they are widely divergent and not sharable or interoperable. The blockchain could provide a universal exchangeable format and storage repository for EMRs at a population-wide scale.

Blockchain Health Research Commons

One benefit of creating standardized EMR repositories is exactly that they are repositories: vast standardized databases of health information in a standardized format accessible to researchers. Thus far, nearly all health data stores have been in inaccessible private silos—for example, data from one of the world’s largest longitudinal health studies, the Framingham Heart Study. The blockchain could provide a standardized secure mechanism for digitizing health data into health data commons, which could be made privately available to researchers. One example of this is DNA.bits, a startup that encodes patient DNA records to the blockchain, and makes them available to researchers by private key.151 However, it is not just that private health data research commons could be established with the blockchain, but also public health data commons. Blockchain technology could provide a model for establishing a cost-effective public-health data commons.

Many individuals would like to contribute personal health data—like personal genomic data from 23andMe, quantified-self tracking device data (FitBit), and health and fitness app data (MapMyRun)—to data research commons, in varying levels of openness/privacy, but there has not been a venue for this. This data could be

bid for driver assignments with customers, doctor practices could bid for hip replacements and other needed health services—for example, in Healthcoin—at minimum bringing some degree of price transparency and improved efficiency to the health sector. This bidding could be automated via tradenets for another level of autonomy, efficiency, and equality.

Virus Bank, Seed Vault Backup

The third step of blockchain health as a standardized repository and a data research commons is backup and archival, not just in the operational sense based on practitioner needs, but as a historical human data record. This is the use case of the blockchain as a public good. Blockchain backup could provide another security layer to the physical-world practices of virus banks, gene banks, and seed vaults. The blockchain could be the digital instantiation of physical-world storage centers like the Svalbard Global Seed Vault (a secure seedbank containing duplicate samples of worldwide plant seeds), and World Health Organization–designated repositories like the CDC for pathogen storage such as the smallpox virus. A clear benefit is that in the case of disease outbreaks, response time can be hastened as worldwide researchers are private key–permissioned into the genetic sequencing files of pathogens of interest.

Blockchain Learning: Bitcoin MOOCs and Smart Contract Literacy

Blockchain-based smart contracts could have myriad uses. One possibility is smart literacy contracts. Bitcoin MOOCs (massive open online courses) and smart literacy contracts encompass the idea of opening up emerging-market smart-contract learning to all individuals worldwide the same way that traditional MOOCs opened up educational courses to all individuals worldwide. Just as Bitcoin is reinventing the remittances market and bringing about financial inclusion, so too the foreign aid market can be reinvented with blockchain-based, peer-to-peer smart contracts. The concept is like Kiva, Grameen microlending, or Heifer International 2.0, which could include peer-to-peer financial aid, but more importantly allows the

School fundraising in any area worldwide could be conducted with Learncoin and LocalSchoolName tokens. Just as physician RFPs make the health services market two-sided, students or student groups could post their open learning contracts (or funding needs and budget) to a Learning Exchange, which could be fulfilled by learning-funders on the other side of the transaction.

Learning Contract Exchanges

Learning contract exchanges could apply in a much broader sense—for example, as a universal learning model. This could apply to government workforce retraining, graduate students, and employees within corporations. Learning contract exchanges could be a way of reinventing or improving the orchestration of the continuing professional education (CPE) programs required for many fields like law, information technology, and medicine. Learning contracts in the development context could be extended to many use cases in emerging markets. There could be many categories of “literacy” contracts, such as basic reading for elementary school children, but also for every area of education, such as vocational learning (technical literacy and agricultural literacy), business literacy, social literacy, and leadership literacy.

Blockchain Academic Publishing: Journalcoin

As every category of organized human activity has moved onto the Internet and currently has the possibility of being reinvented and made more efficient, fair, and otherwise attribute-enabled with the blockchain, so too could academic publishing be put on the blockchain. There have been innovations toward openness in the academic publishing field, such as open-access journals, which although they provide open access to article content instead of keeping it behind a paywall, force authors to support possibly prohibitive publication fees. So far, the Bitcoin convention of making open source code available by publishing software for cryptocurrency blockchains and protocols on GitHub has extended to some forms of “academic” publishing in the area, too, as white papers are

running on top of the Bitcoin blockchain, say as Counterparty assets, fully convertible at any time to Bitcoin or other cryptocurrencies.

A token-based coin such as Researchcoin could be used for individuals to collectively indicate interest and purchase the rights to read a certain research paper that is otherwise buried behind a paywall. Medicinal Genomics envisions a multisig, Bitcoinbased voting system for the public to indicate their demand to open source scientific papers related to pandemic disease (which the public ironically funds in the first place with tax dollars, yet cannot access).153 For example, individuals with a mutation in the NPC1 gene have been found to be resistant to Ebola infection.154 This kind of information could be easily used by empowered biocitizens to look up in their own personalized genomic data to see if they have higher conferred resistance to Ebola or other diseases such as HIV, which also has higher resistance in individuals with certain genotypes.155 Although some are in favor of individuals having access to their own data, others feel that they may read too much into it without appropriate medical counsel. The Alzheimer’s disease study mentioned previously, however, does hint that the benefits seem to outweigh the costs.

Related to Journalcoin, ExperimentalResultscoin could be another idea, implemented in the context of science journals, to incentivize and reward science experiment replications (helping to solve the problem of the 80 percent irreplicability of scientific experimental results), the publishing of negative results and raw data (just 45 percent are willing to make this available), and counter other biases in scientific publishing, such as priming, duplicate results, and carelessness.156 Just as Bitcoin is a digital payment mechanism for transactions between humans but could also empower the machine economy in machine-to-machine (M2M) and Internet of Things (IoT) payments, ExperimentalResultscoin could likewise serve as a mechanism for incentives, coordination, and tracking science executed by both humans and machines. Increasingly, both robotic lab aides and algorithmic programs are facilitating and generating scientific discovery. Some examples include Lipson’s computing algorithms that have distilled physical laws from experimental data,157 Muggleton’s microfluidic robot scientist,158 and Waltz and

tiny microtransaction recorded on a public blockchain; for example, blog-post tip-jar transactions could be batched into sidechains in which one overall daily transaction is recorded. Sidechains are more broadly proposed as an infrastructural mechanism by which multiblock chain ecosystems can exchange and transfer assets.160 Especially with M2M/IoT device-to-device communication, there are many open questions about the most effective ways to incorporate market principles (if at all) to coordinate resources, incentivize certain goal-directed behavior, and have tracking and payments remuneration. Even before we consider the potential economic models for M2M/IoT payments, we must work out general coordination protocols for how large swarms of devices can communicate, perhaps deploying control system and scheduling software for these machine social networks, adding new layers of communication protocols like a “chirp” for simple microcommunications such as on, off, start, and stop.161 In the farther future, different classes of blockchains for different kinds of applications could be optimized. Maybe there could be daily purchase blockchains for the grocery store and coffee shop purchases, and others for large-ticket items like real estate and automobiles. More stridently different functionality is needed for noneconomic-market blockchains, for government services, intellectual property registration, notary services, science activities, and health-record keeping. The key question is distinguishing the economic principles needed for the different range of functions with which blockchain technology could be helpful. However, not every operation is one of value registration and exchange.

Not all of the ideas described need a blockchain; they do not require sequential, public, and distributed data storage. They could instead be implemented through other technology such as cloud storage or distributed computing models more generally.

However, blockchain technology could be included to provide additional functionality, and further, it is not possible at present to see all of the potential future benefits and uses of blockchain technology that might emerge.

Another reason that the blockchain is not for every situation is because we do not want to “economify” everything. We do not want to reduce the qualitative aspects of life to a purely and nakedly economic situation. The idea of a remunerative coin accompanying many more situations and making the economics of situations more

CHAPTER 5

Advanced Concepts

Terminology and Concepts

The blockchain economy is triggering the invention of many new ideas and the reappropriation of existing concepts and terminology in innovative ways. It prompts investigating the definition of terms that have been taken for granted and passed unquestioned for years, such as money, currency, property, government, sovereignty, and intellectual property. The questioning of underlying definitions and the reappropriation of terms position these concepts more openly and accessibly for application to current situations. Blockchain-related concepts are more actively in people’s minds and ready to apply at the generalized level. For example, consider a library. At the more generalized conceptual level, a library is a system of value exchange; there are product and service offerings, like books and research, being taken up by those with whom the value proposition resonates. New models like blockchain technology force us to consider reality at the more generalized level of the concepts behind a specific instantiation. This leads us to imagine other specific situations that could be realized with those concepts. For example, a blockchain is a technology for decentralization.

for human collaboration, an anticensorship mechanism, a liberty and equality enhancement tool, and a new organizing model for the discovery, transfer, and coordination of all quanta or discrete units of anything. These are just some of the things that blockchain technology is at this higher level. Comprehending blockchain technology at this more generalized level—with so many meanings of “what it is” conceptually—helps to demonstrate its significant potential impact.

Currency, Token, Tokenizing

Currency is just one idea that the cryptoeconomy is forcing us to rethink. One traditional dictionary definition of currency is “a system of money in general use in a particular country.” This definition is already almost humorously and hopelessly outdated by Bitcoin’s transnationality, not to mention that a “system of money” connotes centralized top-down issuance and sovereign control over money supplies. A secondary definition is perhaps more useful: “the quality or state of being used or accepted by many people.” This claim is more applicable for cryptocurrencies, as we notice that although there is nothing backing Bitcoin like a gold standard, there is also nothing backing fiat currencies. What “backs” currency is the high adoption rate, being accepted by many people, the populace buying into the illusion of the concept of money. If more people were to accept the notion of cryptocurrencies and begin to use and trust them, they too could become as liquid as fiat currencies.

Just as the term Bitcoin can be used in a threefold manner to denote the underlying blockchain ledger, the Bitcoin transaction protocol, and the Bitcoin cryptocurrency, the term currency is being employed similarly to mean different things. In the cryptoeconomy context, one relevant way that the word currency is being used is in a generalized sense to connote “a unit of value that can be earned and used in a certain economic system,” which is then likely to be fungibly tradable into other economic systems. The nomenclature coin could just as easily be token—that is, a digital token or access or tracking mechanism for different activities. There could be Appcoin, Communitycoin, Apptoken, or other terms all referring to different kinds of economic operations taking place

markets.167 Regarding decentralized currency, Hayek posits a model in which financial institutions each issue their own currency and compete to maintain the value of their currencies through earnest productive activity.168 There can be multiple concurrent currencies. This model could be deployed on a much wider basis in the blockchain economy, with the possibility that not just every financial institution, but every person, organization, and society, would issue their own currency or token (which could have a completely legitimate use within its locality and always be fungibly convertible to other currencies like Bitcoin). The idea would be to let a million currencies bloom; everyone could have their own coin, or multiple coins, just like everyone has their own blog, Twitter, and Instagram account. An example of this is Tatianacoin, a musical artist coin issued by singer-songwriter Tatiana Moroz on the Counterparty protocol (@tatianacoin). Just as everyone became an author in the information revolution and their own personal health advocate in the genomic revolution, now everyone can become their own banker in the blockchain revolution.

Some groups of currencies could and should compete, whereas other classes of currencies could coexist cooperatively as complements in discrete and separate venues.

Campuscoin

Some of the most obvious communities with their own economies for which currency issuance makes sense are business and university campuses. There should be an open source, templated solution for any university (administrators and student groups alike) to easily issue Campuscoin (e.g., ASUcoin). The same templated altcoin issuance could extend to groups within these communities, like DeltaChiCoin or NeuroscienceConferenceCoin, to support any specific group’s activities. The Campuscoin issuance template could have specific prepackaged modules. First, there could be a module for buying and selling assets within the local community, an OpenBazaar- or Craigslist-like asset exchange module. Second, there could be a sharing economy module, a decentralized model of Airbnb for dorm rooms, Getaround for transportation including cars and bikes,

Coin Drops as a Strategy for Public Adoption

The MIT Bitcoin Project is effectively a coin drop, the simultaneous distribution of Bitcoin to entire populations to spur mainstream learning, trust, and adoption. A similar but larger-scale coin drop, the BitDrop, is scheduled for the Caribbean island nation of Dominica for March 14, 2015, as part of the Pi Day mathematical festival.

Bitcoin will be sent by SMS via Coinapult to all 70,000 residents.170 The goal is to create the world’s largest and highest density Bitcoin community. The project began as a brainstorming exercise to facilitate adoption and put Bitcoin into the hands of as many people as possible. Dominica was chosen as optimal because the country has a relatively small population, a high cellular telephony penetration rate, and a position as a regional education center, and it is the center of an active intraisland, intracurrency trade and remittance economy. Bitcoin ATMs and merchant point-of-sale (POS) systems are to be installed as part of the project to help foster ongoing use of Bitcoin after the coin drop.

Coin drops or airdrops have been used in other situations; for example, “Nationcoin” has been used to shore up national identity. Iceland targeted residents with free cryptocurrency in the Auroracoin project, and similar efforts include Scotcoin, Spaincoin, and Greececoin, although there does not appear to have been a high degree of ongoing activity with these Nationcoin cryptocurrencies.171 One reason that Ecuador banned Bitcoin was because it plans to launch its own national cryptocurrency.172 Nationcoin could help bolster a sentiment of national patrimony, especially as many Eurozone nations have suffered from European Central Bank regulation impositions as a result of participating in the Euro. The same kind of Nationcoin benefits could be available in the idea of Tribecoin as the patrimony-supporting coin issuance of native peoples. The Pine Ridge Indian Reservation in South Dakota was the first American Indian tribe to launch its own cryptocurrency, MazaCoin, using the tribal nation’s sovereignty to set its own rules on cryptocurrencies.173

currencies like loyalty points and airline miles; one estimate is that there are 4,000 such altcurrencies.174 Now there is also a multiplicity of blockchain-based cryptocurrencies like Bitcoin, Litecoin, and Dogecoin. Beyond monetary currencies, there is currency multiplicity in nonmonetary currencies too (as just discussed), such as reputation, intention, and attention.175 Market principles have been employed to develop metrics for measuring nonmonetary currencies such as influence, reach, awareness, authenticity, engagement, action taking, impact, spread, connectedness, velocity, participation, shared values, and presence.176 Now, blockchain technology could make these nonmonetary social currencies more trackable, transmissible, transactable, and monetizable. Social networks could become social economic networks. For example, reputation as one of the most recognizable nonmonetary currencies has always been an important intangible asset, but was not readily monetizable other than indirectly as an attribute of labor capital.

However, social network currencies can now become transactable with web-based cryptocurrency tip jars (like Reddcoin) and other micropayment mechanisms that were not previously feasible or transnationally scalable with traditional fiat currency.

Just as collaborative work projects such as open source software development can become more acknowledgeable and remunerable with GitHub commits and line-item contribution tracking, cryptocurrency tip jars can provide a measurable record and financial incentive for contribution-oriented online activities. One potential effect of this could be that if market principles were to become the norm for intangible resource allocation and exchange, all market agents might begin to have a more intuitive and pervasive sense and demonstration of exchange and reciprocity. Thus, social benefits such as a more collaborative society could be a result of what might initially seem to be only a deployment of economic principles.

Demurrage Currencies: Potentially Incitory and Redistributable

Currency is one such core concept in blockchain technology that is being stretched, extended, and reunderstood: currency as a digital token, a facilitation mechanism for quantized transfer. Within the

coin and savings in another. Different classes of coins could have features adapted to specific contexts for savings, investment, and real estate transactions, and so on. The concept of GBIcoin or Freicoin is essentially a Spendcoin, Cashcoin, or Debitcoin that could be denominated in the basic national currency (Nationcoin) like UScoin or Americoin for supporting basic day-to-day living expenses, or perhaps more administratively efficient at the state level in Statecoin, like NYcoin.

More broadly, complementary currency systems and multicurrency systems are just the application of the same phenomenon that has been used to reinvent many other areas of modern life. Multicurrency systems are the granularification of currency, finance, and money; the seemingly infinite explosion of long-tail power-law personalization and choice making that has come to coffee (Starbucks), books and movies (Amazon, Netflix), information (blogs, Twitter), learning (YouTube, MOOCs), and relationships (polyamory). Now is merely the advent of these various systems of personalized multiplicity coming to money and finance.

Healthcoin could be similarly conceived as a demurrage currency. Health-services spending could be denominated in Healthcoin. In the United States, many health plans such as Health Savings Accounts (HSAs) and Cafeteria Plans are already demurrage currencies in that they are set up to expire each year. The system resets, so strange bubbles and artificialities are not introduced. All national health services could be denominated and paid in Healthcoin.

In addition to the potential value loss and therefore “incentive to spend” aspect of a demurrage currency, another feature of a demurrage currency, which could be a feature of any cryptocurrency, is the possibility of periodic redistribution across network nodes. This also incentivizes currency holders to spend out the currency. At the more extreme end, and as an indication of connecting currency operations to policy objectives, this feature could provide the means for a society to periodically redistribute income across the populace.

An obvious limitation of managed demurrage currency systems is that because enterprising human agents are the constituents, it is likely, if incentives were not aligned, that they would find all manner of clever mechanisms and loopholes to circumvent the system—for example, to get around the antihoarding property of a demurrage

mechanism is that perhaps in the evening, you see a notification on your Fitbit or smartwatch telling you that you have taken 19,963 steps today, thus encouraging you to reach 20,000; the way that Fitbit and smartwatch present information is a demurrage mechanism that encourages you to take action. Thus, health as a demurrage currency can be used as a design principle in developing technology to facilitate action taking that is in the interest of the agent.

The dynamic redistribution property of the demurrage concept can also be applied to many other contexts, such as when resources are distributed across networks. Networks are an increasingly pervasive feature of the modern world. A clear use case for the demurrage dynamic redistribution feature is in the case of resource allocation through automatic networks or tradenets. Here, more efficient, larger, more scalable, more trackable systems are sought for the distribution of consumable resources like gas and electricity, transportation quanta (i.e., Uber/LaZooz, self-driving vehicles, or automated pod transport systems envisioned in the farther future), clean water, food, health-care services, relief aid, crisis-response supplies, and even emotional support or mental-performance coaching (for individuals permissioned in consumer EEG rigs). This is the idea of using the demurrage concept in other network systems to dynamically, automatically redistribute resources for optimization. The concept is combining networks and demurrage currency to enable new functionality like dynamic automatic redistribution across network nodes and enable the predictive and on-demand smart clustering of resources where needed. Some examples are predicting and delivering an increased load of Ubers and cabs to the airport when more flights are due to arrive, and preparing available electricity units on hotter days and fuel oil units on colder days. This is the idea of automatic resource redistribution in smart networks, possible using demurrage as a design element.

There are other examples of deploying the demurrage concept in smart networks.

Health is itself a network and a demurrage currency; an earnable and spendable commodity; a linked, continually autoredistributing enabler operating fractally at multiple organizational levels, among synapses, cells, organisms/humans, and societies. We can start to see the body and brain as a Dapp, DAO, or DAC where already many systems are automatically operating at the unconscious level,

CHAPTER 6

Limitations

The blockchain industry is still in the early stages of development, and there are many different kinds of potential limitations. The classes of limitations are both inter‐ nal and external, and include those related to technical issues with the underlying technology, ongoing industry thefts and scandals, public perception, government reg‐ ulation, and the mainstream adoption of technology.

Technical Challenges

A number of technical challenges related to the blockchain, whether a specific one or the model in general, have been identified.

The issues are in clear sight of developers, with different answers to the challenges posited, and avid discussion and coding of potential solutions. Insiders have different degrees of confidence as to whether and how these issues can be overcome to evolve into the next phases of blockchain industry development. Some think that the de facto standard will be the Bitcoin blockchain, as it is the incumbent, with the most widely deployed infrastructure and such network effects that it cannot help but be the standardized base. Others are building different new and separate blockchains (like Ethereum) or technology that does not use a blockchain (like Ripple). One central challenge with the underlying Bitcoin technology is scaling up from the current max‐ imum limit of 7 transactions per second (the VISA credit card processing network routinely handles 2,000 transactions per second and can accommodate peak volumes of 10,000 transactions per second), especially if there were to be mainstream adoption of Bitcoin.178 Some of the other issues include increasing the block size, addressing blockchain bloat, countering vulnerability to 51 percent mining attacks, and imple‐ menting hard forks (changes that are not backward compatible) to the code, as sum‐ marized here:179

modern “big data” era and data-intensive science with terabytes of data being the standard, this data can be compressed, whereas the blockchain cannot for security and accessibility reasons.

However, perhaps this is an opportunity to innovate new kinds of compression algorithms that would make the blockchain (at much larger future scales) still usable, and storable, while retaining its integrity and accessibility. One innovation to address blockchain bloat and make the data more accessible is APIs, like those from Chain and other vendors, that facilitate automated calls to the full Bitcoin blockchain. Some of the operations are to obtain address balances and balances changes, and notify user applications when new transactions or blocks are created on the network. Also, there are web-based block explorers (like https://blockchain.info/), middleware applications allowing partial queries of blockchain data, and frontend customer-facing mobile ewallets with greatly streamlined blockchain data.

Security

There are some potential security issues with the Bitcoin blockchain. The most worrisome is the possibility of a 51-percent attack, in which one mining entity could grab control of the blockchain and double-spend previously transacted coins into his own account.180 The issue is the centralization tendency in mining where the competition to record new transaction blocks in the blockchain has meant that only a few large mining pools control the majority of the transaction recording. At present, the incentive is for them to be good players, and some (like Ghash.io) have stated that they would not take over the network in a 51-percent attack, but the network is insecure.

181 Double-spending might also still be possible in other ways—for example, spoofing users to resend transactions, allowing malicious coders to double-spend coins.

Another security issue is that the current cryptography standard that Bitcoin uses, Elliptic Curve Cryptography, might be crackable as early as 2015; however, financial cryptography experts have proposed potential upgrades to address this weakness.182

Wasted resources

Mining draws an enormous amount of energy, all of it wasted. The

way, the blockchain industry’s development can be hastened, without every new business having to reinvent the wheel and worry about the fact that its first customer-facing ewallet was not multisig (or whatever the current industry standard is, as cryptographic security standards will likely continue to iterate).

Some of the partial proposed solutions to the technical issues discussed here are as follows:

Offline wallets to store the majority of coins

Different manner of offline wallets could be used to store the bulk of consumer cryptocoins—for example, paper wallets, cold storage, and bit cards.

Dark pools

There could be a more granular value chain such that big crypto-exchanges operate their own internal databases of transactions, and then periodically synchronize a summary of the transactions with the blockchain—an idea borrowed from the banking industry.

Alternative hashing algorithms

Litecoin and other cryptocurrencies use scrypt, which is at least slightly faster than Bitcoin, and other hashing algorithms could be innovated.

Alternatives to proof of work for Byzantine consensus

There are many other consensus models proposed—such as proof of stake, hybrids, and variants—that have lower latency, require less computational power, waste fewer resources, and improve security for smaller chains. Consensus without mining is another area being explored, such as in Tendermint’s modified version of DLS (the solution to the Byzantine Generals’ Problem by Dwork, Lynch, and Stockmeyer), with bonded coins belonging to byzantine participants.184 Another idea for consensus without mining or proof of work is through a consensus algorithm such as Hyperledger’s, which is based on the Practical Byzantine Fault Tolerance algorithm.

Only focus on the most recent or unspent outputs

Many blockchain operations could be based on surface calculations of the most recent or unspent outputs, similar to how credit card

user-friendly tools are obvious low-hanging fruit (for example, being targeted by Coinbase, Circle Internet Financial, and Xapo), as is improving the efficiency of the entire worldwide existing banking and finance infrastructure like Ripple—another almost “no brainer” project, when blockchain principles are understood. Looking ahead, reconfiguring all of business and commerce with smart contracts in the Bitcoin 2.0 era could likely be complicated and difficult to implement, with many opportunities for service providers to offer implementation services, customer education, standard setting, and other value-added facilitations. Some of the many types of business models that have developed with enterprise software and cloud computing might be applicable, too, for the Bitcoin economy—for example, the Red Hat model (fee-based services to implement open source software), and SaaS, providing Software as a Service, including with customization. One possible job of the future could be smart contract auditor, to confirm that AI smart contracts running on the blockchain are indeed doing as instructed, and determining and measuring how the smart contracts have self-rewritten to maximize the issuing agent’s utility.

Scandals and Public Perception

One of the biggest barriers to further Bitcoin adoption is its public perception as a venue for (and possible abettor of) the dark net’s money-laundering, drug-related, and other illicit activity—for example, illegal goods online marketplaces such as Silk Road. Bitcoin and the blockchain are themselves neutral, as any technology, and are “dual use”; that is, they can be used for good or evil. Although there are possibilities for malicious use of the blockchain, the potential benefits greatly outweigh the potential downsides. Over time, public perception can change as more individuals themselves have ewallets and begin to use Bitcoin. Still, it must be acknowledged that Bitcoin as a pseudonymous enabler can be used to facilitate illegal and malicious activities, and this invites in-kind “Red Queen” responses (context-specific evolutionary arms races) appropriate to the blockchain. Computer virus detection software arose in response to computer viruses; and so far some features of the same

a strong presence, as measured by diverse metrics such as coin market capitalizations, investment in the sector, number of startups and people working in the sector, lines of GitHub code committed, and the amount of “newspaper ink” devoted to the sector. Already the blockchain industry is bigger and better established than the previous run at digital currencies (virtual-world currencies like the Second Life Linden dollar). However, despite the progress to date and lofty ideals of Bitcoin, maybe it is still too early for digital currency; maybe all of the right safeguards and structures are not yet in place for digital currencies to go fully mainstream (although Apple Pay, more than any other factor, may pave the way to full mainstream acceptance of digital currencies). Apple Pay could quite possibly be enough for the short term. It will be a long time before Bitcoin has the same userfriendly attributes of Apple Pay, such as latency of confirmation time.

Government Regulation

How government regulation unfolds could be one of the most significant factors and risks in whether the blockchain industry will flourish into a mature financial services industry. In the United States, there could be federal- and state-level legislation; deliberations continue into a second comment period regarding a much-discussed New York Bitlicense.191 The New York Bitlicense could set the tone for worldwide regulation. On one hand, the Bitcoin industry is concerned about the extremely broad, wide-reaching, and extraterritorial language of the license as currently proposed. The license would encompass anyone doing anything with anyone else’s Bitcoins, including basic wallet software (like the QT wallet).192 However, on the other hand, regulated consumer protections for Bitcoin industry participants, like KYC (know your customer) requirements for money service businesses (MSBs), could hasten the mainstream development of the industry and eradicate consumer worry of the hacking raids that seem to plague the industry.

The deliberations and early rulings of worldwide governments on Bitcoin raise some interesting questions. One issue is the potential

governments in the future, like other industries, where automation is the forcing function, and the best “worker” for the job is a human/algorithmic pairing.193 Perfunctory repetitive tasks are automated with blockchain registries and smart contracts, whereas government employees can move up the value chain.

Privacy Challenges for Personal Records

There are many issues to be resolved before individuals would feel comfortable storing their personal records in a decentralized manner with a pointer and possibly access via the blockchain. The potential privacy nightmare is that if all your data is online and the secret key is stolen or exposed, you have little recourse. In the current cryptocurrency architecture, there are many scenarios in which this might happen, just as today with personal and corporate passwords being routinely stolen or databases hacked—with broad but shallow consequences; tens of thousands of people deal with a usually minor inconvenience. If a thorough personal record is stolen, the implications could be staggering for an individual: identity theft to the degree that you no longer have your identity at all.

Overall: Decentralization Trends Likely to Persist

However, despite all of the potential limitations with the still-nascent blockchain economy, there is virtually no question that Bitcoin is a disruptive force and that its impact will be significant. Even if all of the current infrastructure developed by the blockchain industry were to disappear (or fall out of popularity, as virtual worlds have), much of their legacy could persist. The blockchain economy has provided new larger-scale ideas about how to do things. Even if you don’t buy into the future of Bitcoin as a stable, long-term cryptocurrency, or blockchain technology as it is currently conceived and developing, there is a very strong case for decentralized models.

Decentralization is an idea whose time has come. The Internet is

CHAPTER 7

Conclusion

This book has tried to demonstrate that blockchain technology’s many concepts and features might be broadly extensible to a wide variety of situations. These features apply not just to the immediate context of currency and payments (Blockchain 1.0), or to contracts, property, and all financial markets transactions (Blockchain 2.0), but beyond to segments as diverse as government, health, science, literacy, publishing, economic development, art, and culture (Blockchain 3.0), and possibly even more broadly to enable orders-of-magnitude larger-scale human progress.

Blockchain technology could be quite complementary in a possibility space for the future world that includes both centralized and decentralized models. Like any new technology, the blockchain is an idea that initially disrupts, and over time it could promote the development of a larger ecosystem that includes both the old way and the new innovation. Some historical examples are that the advent of the radio in fact led to increased record sales, and ereaders such as the Kindle have increased book sales. Now, we obtain news from the New York Times, blogs, Twitter, and personalized drone feeds alike. We consume media from both large entertainment companies and YouTube. Thus, over time, blockchain technology could exist in a larger ecosystem with both centralized and decentralized models.

The blockchain is Hayek’s multiplicity of private complementary currencies for which there could be as many currencies as Twitter handles and blogs, all fully useful and accepted in their own hyperlocal contexts, and where Communitycoin issuance can improve the cohesion and actualization of any group. The blockchain is a cloud venue for transnational organizations. The blockchain is a means of offering personalized decentralized governance services, sponsoring literacy, and facilitating economic development. The blockchain is a tool that could prove the existence and exact contents of any document or other digital asset at a particular time. The blockchain is the integration and automation of human/ machine interaction and the machine-to-machine (M2M) and Internet of Things (IoT) payment network for the machine economy. The blockchain and cryptocurrency is a payment mechanism and accounting system enabler for M2M communication. The blockchain is a worldwide decentralized public ledger for the registration, acknowledgment, and transfer of all assets and societal interactions, a society’s public records bank, an organizing mechanism to facilitate large-scale human progress in previously unimagined ways. The blockchain is the technology and the system that could enable the global-scale coordination of seven billion intelligent agents. The blockchain is a consensus model at scale, and possibly the mechanism we have been waiting for that could help to usher in an era of friendly machine intelligence.

Blockchain AI: Consensus as the Mechanism to Foster “Friendly” AI

One forward-looking but important concern in the general future of technology is different ways in which artificial intelligence (AI) might arise and how to sponsor it such that it engenders a “friendly” or benevolent relationship with humans. There is the notion of a technological singularity, a moment when machine intelligence might supersede human intelligence. However, those in the field have not set forth any sort of robust plan for how to effect friendly AI, and many remain skeptical of this possibility.195 It is possible that blockchain technology could be a useful connector of humans and machines in a world of increasingly autonomous machine activity

related example is that of sociopaths in real-life society who exist but are often transparent because they are forced into good player behavior through the structure and incentives of society. Of course, there are many possible objections to the idea that the blockchain structure could enforce friendly AI: bad agents might build their own smart networks for resource access, they might behave duplicitously while earning trust, and so on. This does not change the key point of seeing blockchain technology as a system of checks and balances for incentivizing and producing certain kinds of behavior while attempting to limit others. The idea is to create Occam’s razor systems that are so useful in delivering benefits that it pays to play well, where the easiest best solution is to participate. Good player incentives are baked into the system.

Some of the key network operations that any digital intelligence might want to execute are secure access, authentication and validation, and economic exchange. Effectively, any network transaction that any intelligent agent cares about to conduct her goals will require some form of access or authentication that is consensus-signed, which cannot be obtained unless the agent has a good—which is to say benevolent— reputational standing on the network. This is how friendly AI might be effectuated in a blockchain consensus-based model.

Smart Contract Advocates on Behalf of Digital Intelligence

Not only could blockchain technology and consensus models be used potentially to obtain friendly AI behavior, the functionality might also be employed the other way around. For example, if you are an AI or a digitally uploaded human mindfile, smart contracts could possibly serve as your advocate in the future to confirm details about your existence and runtime environment. Another long-standing problem in AI has been that if you are a digital intelligence, how can you confirm your reality environment—that you still exist, that you are sufficiently backed up, that you are really running, and under what conditions? For example, you want to be sure that your data center has not shoved you onto an old DOS-based computer, or deleted you, or gone out of business. Smart contracts

Level one is dumb, unenhanced, unmodulated data. Level two could be posed as socially recommended data, data elements enriched by social network peer recommendation, which has been made possible by networked Internet models. The quality of the information is denser because it has been recommended by social peers. Now there is level three: blockchain consensus-validated data, data’s highest yet recommendation level based on group consensus-supported accuracy and quality. Not just peer recommendations, but a formal structure of intelligent agent experts has formed a consensus about the quality and accuracy of this data. Blockchain technology thus produces a consensus-derived third tier of information that is higher resolution in that it is more densely modulated with quality attributes and simultaneously more global, more egalitarian, and freer flowing. The blockchain as an information technology provides high-resolution modulation regarding the quality, authenticity, and derivation of information.

Consensus data is thus data that comes with a crowd-voted confirmation of quality, a seal of approval, the vote of a populace standing behind the quality, accuracy, and truth value of the data, in its current incarnation effectuated by a seamless automated mining mechanism. The bigger questions are “What can a society do with this kind of quality of data?” or more realistically, “What can a society do with this kind of widespread mechanism for confirming data quality?” Thinking of the benefits of consensus-derived information only helps to underline that blockchain technology might be precisely the kind of core infrastructural element as well as scalable information authentication and validation mechanism necessary to scale human progress and to expand into a global and eventually beyond-planetary society. The speculative endgame vision is that the universe is information, where the vector of progress means transitioning toward higher-resolution information flows. Information may be conserved, but its density is not. Even beyond conceiving of blockchain technology as a core infrastructural element to scale the future of human progress, ultimately it might be a tool for increasing the information resolution of the universe.

else Bitcoins, you need his address and the private-key part of your wallet where the software checks that you have control over the Bitcoins you would like to spend or transfer. To send someone Bitcoins, you scan his wallet address QR code or otherwise obtain his address characters or QR code (e.g., by email or SMS). The sender scans the QR code address of the receiver’s wallet and uses the wallet application to enter additional information about the transaction, such as amount, transaction fee (usually affirming the amount prespecified by the wallet software), and any other parameters to send the receiver Bitcoins. When the sender submits the transaction, a message is broadcast from the owner of the sending address to the network that x number of coins from that address now belong to the new address. This operation is authorized by the sender’s private key; if that wallet does not have the private key corresponding to those coins, the coins cannot be spent. A bona fide transaction is received nearly immediately in the receiver’s wallet application, with an “unconfirmed” status. It then takes about 10 minutes for the transaction to confirm and be inscribed in the blockchain per blockchain miners. So, for large purchases such as a car or real estate, you would want to wait to see the transaction confirmed, but you wouldn’t bother to do so for a coffee purchase.

Public/Private-Key Cryptography 101

When the wallet is initialized or set up for the first time, an address, public key, and private key are automatically generated. Bitcoin is based on public-key encryption, meaning that you can give out the public key freely but must keep the private key to yourself.

Bitcoin addresses are created by the software picking a random number and creating a public/private key pair (per the current standard, Elliptic Curve Digital Signature Algorithm, or ECDSA) that is mathematically related, and confirmed at the time of spending the Bitcoin. This startup operation generates the private key, but additional steps are required to generate the Bitcoin address. The Bitcoin address is not simply the public key; rather, the public key is further transformed for more effective use. It is cycled through additional encryption protocols (like SHA-256 and RIPEMD-160), a hashing operation (transforming a string of characters into a shorter

APPENDIX B

Ledra Capital Mega Master Blockchain List

New York–based venture capital firm Ledra Capital has an ongoing attempt to brainstorm and enumerate the wide range of potential uses of blockchain technology.

Some of these categories include financial instruments; public, private, and semipublic records; physical asset keys; intangibles; and other potential applications:

Financial instruments, records, and models

1. Currency

Private equities

3. Public equities

4. Bonds

5. Derivatives (futures, forwards, swaps, options, and more complex variations)

6. Voting rights associated with any of the preceding

7. Commodities

8. Spending records

9. Trading records

10. Mortgage/loan records

11. Servicing records

12. Crowdfunding

13. Microfinance

14. Microcharity

Public records

Land titles

16. Vehicle registries

17. Business license

18. Business incorporation/dissolution records

19. Business ownership records

20. Regulatory records

Physical asset keys

53. Home/apartment keys

54. Vacation home/timeshare keys

55. Hotel room keys

56. Car keys

57. Rental car keys

58. Leased cars keys

59. Locker keys

60. Safety deposit box keys

61. Package delivery (split key between delivery firm and receiver)

62. Betting records

Fantasy sports records

VI. Intangibles

64. Coupons

65. Vouchers

66. Reservations (restaurants, hotels, queues, etc.)

67. Movie tickets

68. Patents

69. Copyrights

70. Trademarks

71. Software licenses

72. Videogame licenses

73. Music/movie/book licenses (DRM)

74. Domain names

75. Online identities

76. Proof of authorship/proof of prior art

VII. Other

77. Documentary records (photos, audio, video)

78. Data records (sports scores, temperature, etc.)

79. Sim cards

80. GPS network identity

81. Gun unlock codes

82. Weapons unlock codes

83. Nuclear launch codes

84. Spam control (micropayments for posting)