Blockchain for Socially-Progressive Dummies

Smart Contracts and Exchanges of Value

Every time you buy insurance or register to use an online service you are asked to read and accept a set of terms and conditions almost as long as the four volumes of War and Peace. Of course, the gods among you may have read it all—Tolstoy and the legal agreements— but the the rest of us, mere humans, we struggle to find the time, so we cut one or two corners as we race through modern life.

Legal agreements regulate exchanges of value between two or more parties. As relationships become more complex over time, these contracts tend to grow exponentially. As a consequence, the transaction fine print has become so opaque and complex that parties must rely on intermediaries, such as corporations, lawyers, and regulators, to make sense of the endless pages of mind-numbing legal jargon. These brokers have taken full control of an ecosystem that relies heavily upon them and move to extract more value than they produce. The system becomes highly corrupt as the intermediaries who control it have the most to gain from its opaqueness, complexity, and inefficiency.

The emergence of smart contracts is an attempt to codify, in software, the transaction rules of a particular ecosystem, making it transparent and efficient, and able to disintermediate entire industries. The potential to eliminate a significant portion of disputes is real, but it’s important to recognise that code is not infallible, and that algorithms don't yet have the embedded ethics present in humans.

Best practices in the software industry teach developers to write the test before they code the feature. This method ensures that the developer has a solid understanding of the functionality to be delivered before they spend any time on coding the feature. Test-driven development is one of the most important practices in the elimination of waste and improvement of quality in software delivery. A smart contract uses the same principle; it forces the parties involved in a transaction to codify or verify the agreement before the exchange of value occurs.

Although software is undoubtedly the most important source of progress in the last century, we should not ignore that code is not infallible and that smart contracts could shift control from lawyers to software developers and to those who can afford computing power.

What is certain is that codification of rules into an executable program reduces ambiguity and increases clarity.

Crypto and Private Digital Interactions

Since the dawn of the internet, forward thinking technologists and futurists have strongly advocated for digital privacy, positioning encryption as a fundamental human right. In the 90s, the cypherpunk movement argued that we could not expect governments, corporations, or other organizations to grant us privacy because it is to their advantage to speak of us.

Over the last few decades, we have experienced an escalating debate between governments and technologists over the potential polarity between privacy and security. Gone are the days where the world was black and white, where heroes like Alan Turing saved the day by deciphering the secrets of the most despicable villains. Back then, the line between good and evil was as well defined as the border between Mordor and the rest of Middle-earth.

9/11 and subsequent terror attacks around the world escalated the rise of surveillance states and undermined the right to online privacy in Western nations. Paralysed by fear over the security threats coming from Islamic terrorism, citizens prioritised state intelligence over privacy concerns. The illusion of safety under an all-seeing eye provided some reassurance in unsettling times.

Snowden’s leaks and the rise of extreme right fundamentalism in Western nations challenged claims of an adversarial relationship between privacy and security. There is nothing secure about Trump, Farage or Hanson having access to personal data. The all seeing eye is looking a lot like the eye of Sauron.

These days, the fight for online privacy is increasingly lost on corporate battlefields. Yesterday’s freedom fighting geeks have grown up to build today’s global tech monopolies—the public companies that maximise shareholder value at the expense of consumers' online privacy. Government regulators, now acting as protectors of privacy, are unable to keep up with the speed of technical innovation. The cloud, the internet of things, mobility, artificial intelligence, robotics and drones, virtual reality, and biotech are just a few tectonic shifts to human lives and behaviours that we are experiencing today.

Governments and corporations continue to ramp up the personal data ‘gold rush’, storing our information in unsafe systems vulnerable to hacking and fraud. To date, they have struggled to make sense of it all. Overwhelmed by too much data they fail to spot the signal through the deafening noise. And yet, Machine Learning will quickly overcome any analytics challenges.

As encryption becomes stronger and more complex, so too does the computational power available to crack it. Quantum computing may become the “next” Bombe machine used to decipher the war messages from a future Enigma-like gadget. And yet, encryption is undoubtedly the most important defence for digital security and privacy.

It’s hard to identify the villains and the heroes in this unfolding tale. But, there should be no doubt that our privacy, security, and freedom are at risk in the digital realm, that we should remain actively involved in the ongoing debates, and that we should adopt solutions that enable us to protect our rights.

It’s not all doom and gloom, the marriage between cryptography and smart contracts is leading to the rise of digital democracy 2.0. Until recently, most cipher tools focused on point to point communication between two parties such as encrypted messaging. The emergence of smart contracts is shifting this paradigm, effectively enabling the encryption of group interactions and decisions. This critical technological advancement will yield significant benefits to digital democracy, enabling governance structures to remain private and secure while also open and transparent.

The Internet of Value

The internet of information is relatively borderless for those accessing it in democratic regimes and on the privileged side of the global digital divide. Meanwhile, E-commerce, with currency at its core, is contained within heavily taxed borders, and is controlled by intermediaries such as governments, banks, and corporate monopolies.

The primary constraint met by those attempting to exchange value online is the double-spending problem. The physical exchange of a few coins for a paper magazine is a straightforward transaction that does not require identification of parties or complex clearing and settlement of the financial exchange. The coins leave your hands, and you are unable to spend them again.When you use a credit card in store or purchase the digital copy of the same magazine on the internet, the transaction must be processed, verified and recorded by a number of intermediaries to ensure that you are unable to spend the funds twice. The brokers centralize the flow of capital, providing complex, slow and overly expensive services prone to hacking and exploitation.

The invention of Bitcoin resolved the double payment problem. The decentralized digital currency disintermediates banks and clearing houses, enabling cheap, peer to peer, borderless financial transactions over the internet. Bitcoin eliminated the need for identity verification or broker imposed pre-requisites, effectively mirroring physical cash transactions over the web.

Now free from costly brokered transaction fees, the cryptocurrency world can process micro-transactions and enable tiny exchanges of value so crucial in media and ecosystems that depend on digital rights management.Bitcoin relies upon a distributed platform that runs on a network of computers around the world. This decentralized system keeps a transparent ledger open to everyone. As transactions occur, they are verified, the ledger is updated and the transaction is recorded. Anyone, from any corner of the world can choose to be part of this network. The computer nodes running the system receive a very small payment in return for their processing power, a fee that is infinitesimally lower than the costs charged by banks and clearing houses.

Each transaction is replicated across the network, making it immutable and impossible to be tampered with. Transactions and smart contracts are open, transparent and available to anyone with a computer or smartphone.

“CONSUMERS CARE ABOUT IDENTITY THEFT, WHICH HAS BECOME A PLAGUE UPON THE INDUSTRY. AND, THE REASON IT HAS BECOME A PLAGUE UPON THE INDUSTRY IS BECAUSE PERSONALLY IDENTIFIABLE INFORMATION MUST BE COLLECTED BY EVERY INTERMEDIARY ON EVERY TRANSACTION, AND HOARDED, CREATING THESE GIANT HONEYPOTS THAT ATTRACT HACKERS LIKE FLIES. AND YOU CAN’T PROTECT THAT INFORMATION, IF YOU ARE REALISTIC ABOUT IT, NO ONE CAN PROTECT THAT INFORMATION. THE BANKS, RETAILERS, CREDIT CARD COMPANIES, AND NSA CAN’T PROTECT THAT INFORMATION. THE ONLY WAY TO PROTECT THAT INFORMATION IS NOT TO COLLECT IT.” – ANDREAS ANTONOPOULOS

The ledger keeps the details and history of each transaction, but does not know the identity of the parties involved. As a result, Bitcoin and other cryptocurrencies allow relatively anonymous digital exchanges of currency, and illicit black market entities tend to exploit this feature. Fortunately, some of these perpetrators find out the hard way that there is a difference between privacy and complete anonymity.

Some challenges remain, operating in a stateless and borderless parallel universe, cryptocurrencies struggle to achieve relative value stability, a requirement for mainstream adoption.

The emergence of Bitcoin is an important and groundbreaking innovation, but its underlying software and infrastructure can support much more than just digital currency. The convergence of this distributed mass collaboration network, smart contracts and cryptography enable the processing and recording of exchanges of value involving not only money, but also goods, property, work and votes.

This concept, mostly known as Blockchain, is as revolutionary as the invention of the internet, and it has tremendous power to disrupt and drive positive social change.The internet of information has disrupted the publishing industry, enabling anyone to create and distribute content digitally, and yet new intermediaries have emerged, including large media conglomerates, that still extract most of the value. Most of what we pay for movies, music or books lines the deep pockets of Amazon, Apple or Google. Another wave of positive disruption and disintermediation is upon us. The internet of value has arrived and, with it, the opportunity to cut some fat out of a number of industries, eliminating brokers that extract asymmetric value out of the ecosystem.

Blockchain brings transparency to all market participants. New intermediaries will emerge, but they will have a harder time extracting more value than they produce.

Hype, Fear, Investment and Regulation

Blockchain brings significant benefits to corporations, accommodating liquid and illiquid assets, reducing transaction costs and settlement times, and increasing transparency. Enterprises are racing to adopt Blockchain, and investment is flowing abundantly into the field.

R3 CEV, a consortium of 42 global banks investigating how to employ Blockchain technology in financial services, is expecting to raise up to $US200 million this year. New York tech startup, Digital Asset Holdings is building software to enable banks, investors, and other market participants to use Blockchain to improve the trading of loans, bonds, and other assets.

“AS LONG AS IT IS CHEAPER TO PERFORM A TRANSACTION INSIDE YOUR FIRM, KEEP IT THERE. BUT IF IT IS CHEAPER TO GO TO THE MARKETPLACE, DO NOT TRY TO DO IT INTERNALLY.” - WIKINOMICS BY DON TAPSCOTT AND ANTHONY WILLIAMS

Unfortunately, many of these initiatives seek to improve business models that will become irrelevant over time. It’s a bit like Blockbuster focusing on reducing rental costs and improving the quality of service within their brick and mortar business model. Large public enterprises will always lean towards incremental and efficiency led innovation, struggling to compete with startups when it comes to new and disruptive business models.

“THE WORST PLACE TO DEVELOP A NEW BUSINESS MODEL IS FROM WITHIN YOUR EXISTING BUSINESS MODEL.” – CLAYTON CHRISTENSEN

Change is coming, and the relationship between the old world and the new world will continue to be somewhat passive-aggressive. The old world is keen to use Blockchain to its advantage, seeking to control it and to contain the features that are most disruptive within their shareholder’s interests. And yet, the internet of value will still be unleashed with most of its potential; it’s not a question of ‘if’, but a question of ‘when’.

Timing is indeed the most interesting variable. The internet of value resembles the web pre-Google. Crypto-currency is simply not ready for mainstream adoption, and there are still many significant implementation challenges to be resolved.

The Ethereum Foundation, the creators of Ether, a cryptocurrency competitor to bitcoin, is focusing on building the platform that could become the ‘App store’ of Blockchain applications. This platform enables decentralised applications based on smart contracts. Microsoft and Deloitte are both investing in Blockchain partnerships and Ethereum based products and services.

Hyperledger, spearheaded by the Linux Foundation and by IBM, is attempting to standardise some of its infrastructure and services to make it more consumable across business applications.

Partnerships between startups and top-tier consulting firms bring pragmatism, integration expertise and access to large, global portfolios of clients to the Blockchain ecosystem. The big five can also help startups navigate through the regulatory landscape, although old paradigm regulation will limit the potential of the innovation.

Even faced with the disruptive nature of Blockchain to the global financial ecosystem, and with numerous examples of illicit exploitation, government regulators have not yet approached Blockchain with a heavy hand. State committees from around the world engage in Bitcoin and Blockchain briefings with a mix of curiosity and caution. The risk of a future stifling regulatory framework is still high, but in general, it is acknowledged that this technological advancement can help restore legitimacy to government, enabling state services to become cheaper, better, faster and more transparent.

The ecosystem is growing, the hype is high, and the communities are working to overcome current implementation challenges. Some are approaching it tactically, and others strategically; some wish to control it, others to unleash it. But the train has left the station, is moving full speed ahead, and nothing will stop it now.

Pragmatic Idealism over Hubris, Utopia, and Fundamentalism

“SMART CONTRACTS MEAN A DIFFERENT ORDER OF AUTOMATION: ECONOMIC TRANSACTIONS ARE PUT ON AUTO-PILOT. TRUE BELIEVERS WANT THEM TO DO AWAY ENTIRELY WITH INTERMEDIARIES, FROM BANKS TO GOVERNMENTS. BUT THEY SHOULD BE CAREFUL WHAT THEY WISH FOR.” – THE ECONOMIST

In the engine rooms of Bitcoin and Ethereum, you will find the insanely smart people that are truly powering this tectonic shift. They sit behind large screens implementing the code that will run the world in 20 years’ time. With a few exceptions, these change makers and rule breakers are mostly young Caucasian males, idealistic young people that sometimes lean towards utopian fundamentalism.When you spend your time representing the world in binary code, you tend to undermine the importance of human leadership, decision making and ethics in making sense of humanity’s shades of grey. The belief that code is law and that you can bypass humans altogether has been tested recently in one of the first implementations of a Decentralised Autonomous Organisation (DAO). Fortunately, common sense prevailed, mostly due to the leadership of the Ethereum Foundation and the response of the very human and intelligent community that, at the end of a hubris filled debate, chose pragmatism and ethics over utopian fundamentalism.

For this progressive, middle-aged, intersectional feminist, geek and business leader, someone who has roamed corporate boardrooms and led technology teams all her life, there is something very interesting in observing unguarded, unpolished and very public displays of hubris—the same hubris that lingers in the minds and actions of corporate executives, only this time it is not outwardly articulated.

When issues are discussed out in the open, they can be quickly called out and, sometimes, reasoned with; information flows freely, and education and progress occur faster. In this unmoderated, unsettling and enraging world, you quickly find out where you stand, and whether you want to waltz or to run for your life in the opposite direction.

What will happen now that Blockchain is swiftly moving from being a scrappy outsider to the mainstream darling? Can we prevent varnished politeness from taking over the battlefronts of progress?

“BITCOIN IS NOT SMOOTH JAZZ; BITCOIN IS PUNK ROCK. DEAL WITH IT.”
– ANDREAS ANTONOPOULOS

Diving into a Bitcoin or Ethereum Reddit forum is not for the fainthearted; there are plenty of opportunities to experience rage, frustration, fear and disbelief. But in and amongst the chaos, the hackers, the libertarian poker players, the opportunists, and the lack of inclusion and diversity, there is a community driving the most critical step toward global financial inclusion the world has ever experienced. So, look beyond the Silk Road, beyond the DAO drama, beyond dreams of building a Skynet, beyond the dry academic jargon, and beyond the hubris-fuelled discussions. Buy some Ether or Bitcoin, set up a wallet, read The Blockchain Revolution, and come and experience the messy and exciting birth of your future.

The outcome of this roller coaster ride will fall somewhere in between a corporate controlled Blockchain that loses some of its most socially-progressive qualities, and a Skynet-like Blockchain. Humanity loses in the edge cases. The question we should be asking is: in the space between extremities, where do we want to end up?

“WE MUST LOOK TO THE DISTRIBUTIVE QUALITIES OF DIGITAL TECHNOLOGIES FOR THEIR ABILITY TO PROMOTE ECONOMIC ACTIVITY RATHER THAN USURP IT. THE BEAUTY OF NETWORKS – UNLIKE INDUSTRIAL MACHINES – IS THAT THEY ARE BIASED TOWARD DISTRIBUTION AND CIRCULATION. EVERYTHING IS MOVING. THINGS DON’T TRAVEL FROM THE TOP DOWN OR EVEN THE BOTTOM UP, BUT TO AND FROM EVERYWHERE AT ONCE.

LIKEWISE, INSTEAD OF OPTIMIZING DIGITAL COMPANIES FOR SIMPLE EXTRACTION, WE SHOULD BE OPTIMIZING THEM FOR TRANSACTION OVER ACCUMULATION – FOR FLOW OVER GROWTH, OR WHAT ECONOMISTS WOULD CALL THE VELOCITY OF MONEY RATHER THAN CAPITAL APPRECIATION. THIS IS WHAT DIGITAL PLATFORMS DO BEST.” - DOUGLAS RUSHKOFF

Not since the dawn of the internet have the pundits been this excited about the world-changing possibilities of software. But, technology is just an enabler, humans continue to be in the driving seat.

The current participants in this internet of value don’t sound much different from a young Sergey, Larry, Steve, Mark or Bill. If we want different results we must work hard to practice inclusivity and to broaden the diversity of the community.