Welcome to the Future, Decentralized

One of the major blockchain events of this year— Ethereal — took place on May 11-12 in New York City. Many prominent people participated in it and discussed the most recent developments and future projections of blockchain technology. Joseph Lubin who is the founder of ConsenSys gave an inspiring presentation about the Future of Blockchain and Ethereum. Below are some of the thoughts on the future of blockchain and how (quickly) it is going to affect perhaps every aspect of our daily lives.

“Nothing at Stake” Problem

Probably one of the biggest problems we are facing nowadays is that there are too few people today who feel that they can make an impact on society or that they are real stakeholders in the human enterprise. In fact, most of us are working for the benefit of others, being unable to pursue our own economic agency. More specifically, we can notice that in our current society there is too little ownership, not much self-sufficiency or personal sovereignty. On the contrary, most environments in which we interact are permeated by hierarchical structures and top-down command and control.

This “nothing at stake” problem could be solved if each of us had a little more ownership or sense that things we do can leave a mark or make this world a better place. Economies can function only where there is an excess of produced goods; excess of production enables us to build connections and interdependences, establish reliance on one another. This applies to interpersonal relationships as well as relations between states or corporations. Two entities who engage in a productive enterprise are less likely to wish each other harm or attempt to plunder each other’s resources.

Imagine a world of where everyone owns a stake in everyone else’s project and is tangibly incentivized to root for everyone’s success. In such a world, each and every one of us is builder and doer, rather than breakers of agreements or destroyers of value.

The Nature of the Firm, v.2.0

In 1937, an economist known under the name of Ronald Coase wrote a paper The Nature of the Firm. Coase looked at corporations through the lens of transaction costs. He wondered why in democratic, free, open and efficient markets such hierarchical entities as corporations still exist.

Coase determined certain inefficiencies when individuals interact with each other. For example, significant time and effort may be required to search for necessary resources, bargain and come to an agreement with a counter-party. He found out that search and bargaining costs can be reduced by internalizing certain economic activities: it may be cheaper and faster to make by myself than buy from somebody else. As the company grows, the cost of the marginal transaction may be decreasing than getting that done in an open market.

By employing the notion of “transaction costs”, Coase tried to identify the optimal size of corporations. As technologies develop and the cost of communication grow, we can notice that the size of an optimal corporation is shrinking and could be downsized to an individual. Furthermore, in a context in which communication becomes uber-fast and cheap, it makes sense to outsource almost everything. In fact, in the wake of technological development, we may be able to see small groups of individuals create and implement profound things.

Some people are afraid that new technologies such as artificial intelligence, robotics, AR/VR, or blockchain are going to destroy our jobs, or destroy our lives. Indeed, those recent technological advancements are gradually permeating more and more aspects of our lives. Instead of worrying that those technologies would destroy our jobs or cause irreparable harm, we can take a more optimistic view and believe that those technologies will create better jobs. We should think how these new technologies could free us from a scarcity mindset and help us re-orient our thinking towards pursuit of creativity, development, growth, physical and societal health.

Blockchain, or the Internet of Trusted Interactions

Blockchain enables us to move away from the society dominated by powerful and biased intermediaries towards a world are more atomic infrastructure. One of the core values of blockchain is that it creates a shared and trusted infrastructure. This is achieved by enabling different actors to have access to the data and that it is very difficult to cheat the system or regulate it. On a larger scale, the nature of our database systems influences the structure of the society (just stop and think about it).

Blockchain with its shared infrastructure is helping to create better collaborating systems. Together with robotics & AI, it enables us to move towards a society where we no longer need to be concerned about such bare necessities of life as food, shelter or transportation.

We are moving from a world where people are taking care of transportation where people are driving many hours to work and flipping burgers to earn an extra dime to a world in which we will be well-educated, festival-going gamers. :) Education will become playful, and we will be expressing ourselves in multiple different ways. We will be engaging in physical as well as virtual sports. We will be pursuing health. Wouldn’t it be interesting if the society freed from focusing on survival, scarcity mindset and becomes oriented to the pursuit of emotional and societal health? Blockchain enables us to think how we could extend our species from this blue dot we are living. Rather than being controlled by a single corporation or a single government, we can think about possible ways to collaborate on major projects such as space race.

Veridical, Trust minimizing Computing

The nature of our database systems influences the nature how we are able to structure societies. The society we live in now connected by intermediaries (“silos”), “siloed” databases and “siloed” businesses. That naturally has implications on how laws are written and how we conduct our lives. As we have this opportunity to build a shared data infrastructure, we can think of building better infrastructures.

One of the core values of blockchain is that it is building an infrastructure for trust. This is achieved because different actors on the network have access to the data which makes it almost impossible to manipulate or cheat the system When every stakeholder on the blockchain-based peer-to-peer network has their own copy of the data and their own copy of the rules (i.e., smart contracts) by which the state of the data may be affected, everyone can feel assured that there is no opportunity for improper manipulation of the system by rogue system administrators or hackers.

The Internet: So Awesome, yet Broken

The Internet is an amazing scalable resource: we can add computers to this network, we can build well-architected applications and process many hundreds of thousands of applications of transactions. With blockchain, we have taken all this ability and thrown it away (on Ethereum we can perform 20–25 transactions per second). On blockchain, we have traded all of that for a new and more trustworthy foundation. Upon this more radically decentralized foundation, we can start to rebuild scalability. In the period of the next 2–5 years we will see many applications that become ubiquitous. The first step will be to add more computers to increase the capacity of the whole network. At the same time, we are observing how the existing infrastructures are being moved to the decentralized applications.

In the blockchain space, we are stuck between those legacy databases and the tools on the blockchain. Legacy based structures are vulnerable and subject to various exploits. In legacy based structures it is possible to program and manipulate various data (such as your identity). On blockchain, the key issue now is to figure out how to build application layers.

Applications and business processes on blockchain will be much more secure. Blockchain will be a revolution in IT security because every against your infrastructure is strongly authenticated and granularly authorized (participants will need permissions to enroll in order to access and do anything on that application). In other words, we will no longer be subject to security by ring-fenced soft assets where, as we have seen, systems are regularly penetrated by hackers or nation-state actors. In this kind of decentralized architecture, it is very hard to own the whole system; hackers would have to work very hard to gain access to only a tiny bit.

Blockchain as a Force for Universal Disintermediation

More secure IT infrastructure combined together with veridical computing and peer-to-peer network (which is defined with a radically open free market and low barriers to enter it) will lead to “universal disintermediation”. In other words, if you take this new veridical, trust minimized systems, you have a force for universal disintermediation. Intermediation per se is a wonderful thing in the economy: it adds information, it reduces friction and reduces costs, it can also add value to transactions. However, intermediaries in various industries tend to interpose themselves into a transaction flow and they use their incumbency and their own rent-seeking and motivation to increase the spread between how much value they add and how much they are extracting from that transaction flow.

The blockchain is not about “radical” disintermediation; blockchain is not about getting rid of all of the banks, Facebook, Google and other kinds of intermediaries. The blockchain is about rightsizing intermediation. In this kind of context, disintermediation means enabling content creators, resource and service providers to have much more direct access to their consumers with little to no intermediary extracting value without adding commensurate value. In a disintermediated framework consumers have direct control over their private data and tokenized assets.

Civil is one of the projects on the Ethereum platform which aims to provide for “sustainable news”. At Civil, professional journalists get together to deliver high quality and honest product to the readers. Civil also aims to become a platform for discourse on the top of those studies and publications.

Cellarius is another project — an original transmedia cyberpunk franchise (stories, art, music) that leverages blockchain technology and user-generated assets to create a collaborative fan-curated story revolving around a super-intelligent AI. It will be up to the creators of Cellarius to define what is truth in that future.

Disintermediation means linking services directly to consumers. Some layers of such linkages are in the areas of labor, data storage, resources, bandwidth etc. Some examples: Bounties network — dynamic workforce assembly; Gitcoin — enabling open source contributors to get paid for their work; or Kauri — a technical knowledge network where contributors receive bounties or tips for responding to knowledge requests or generating quality knowledge; Pangea — democratizing real estate; Grid+ —deregulating energy market.

Building the Decentralized World Wide Web

The Internet began as a decentralized architecture. However, efficiency considerations and drive for wealth led to the creation of a siloed system dominated by intermediaries. The reason for such an unfortunate outcome could be attributed to a lack of a mechanism for shared ownership of open platforms.

Web 1.0 (“Internet of Information”) was mostly about images, texts, and hyperlinks. Web 2.0 added interactivity, e-commerce, mobile and social dimensions to the internet (“Internet of Mobile and Social Interactions”). Efficiencies and the desire for wealth led to siloed structures that are more transformational to our society than the Web 1.0 was.

We are now at the verge of Web 3.0 (“Internet of Smart Transactions”), which makes use of those commodities mentioned earlier (labor, resources, services). Web 3.0 is/will be based on trusted transactions, automated agreements, smart software objects on such networks as Ethereum. Web 3.0 will be reaching about various applications of protocols for such purposes as decentralized storage, distribution of energy, or heavy computing. All of this will enable people and corporations to interoperate much more fluidly.

In essence, the decentralization is when we are all fully empowered to make our own best decisions. (J. Lubin)

Web 4.0 (“Internet of Sensors and Machines”) will be even more interesting. We will experience an environment where intelligent agents that represent us, humans, will go on the web and act as agents in achieving pre-programmed functions for us. By means of the blockchain, digital scarcity, tokens that represent real value and smart contracting systems such as OpenLaw, machines can have real agency. OpenLaw already now offers smart contracts where digital currencies and other sorts of information are transferred by digital agents. These intelligent agents will enter into agreements with other kinds of entities. Those intelligent agents will be able to send data to markets, or, if it is a self-driving vehicle, it will be able to automatically arrange refilling of fuel or maintenance, form fleets to help us, humans, to move around. The internet of the machine economy will be very interesting, and it is coming very near to us through blockchain.

Tim Berners invented HTTP and HTML in 1989, and it took more or less 10 years until the internet reached mass-consumers. Now, 18 years later, it has transformed our societies into a global community.

With Blockchain, we can expect that it may take up to 5 years for the technology to become ubiquitous. There is a huge “intranet” interest in the development of this technology and public networks are growing exponentially. Currently, blockchain is suffering to similar concerns as in its early days the Internet did. But those issues, as well as scalability, will be worked out. Private and public permission systems will form the future of the blockchain.

(Reminder: People are linear, whereas technologies are exponential.)

Towards Exponential Growth of Blockchain

Even though many thousands of companies are working on various blockchain development projects, we still feel agonized and anxious to see some of the first most compelling use-cases and applications.

In particular, there four main areas in which blockchain needs to catch-up. So, first, data and organization (data feeds, oracles, data markets, smart metering, IoT, data protocols); second, agreements and certificates (legally and automatically enforceable agreements, government and educational certificates, decentralized rights management); third, tokenization and exchange mechanisms (fungible and non-fungible tokens, atomic swap protocols, asset-backed and price-stable tokens, etc.); and fourth, decentralized web protocols and commodities (storage, bandwidth, heavy computing, secure and confidential communication).

These issues will be fixed sooner than we realize, and in a year or two, or perhaps three it will feel like the blockchain is everywhere.

Another interesting thing about blockchain technology is that a network such as Ethereum can be considered to be as a single world computer: it is a single execution place. So if we put together a piece of adjacent music or insurance infrastructure and they seem to work well, it is very likely that similar synergies could be replicated in other industries as well. Hence, because of such great synergies, one new project can create 50 or 100 much more valuable projects.

Token-Curated Registries

Another interesting thing is the so-called “token-curated registry”. AdChain created such a token-curated registry which has three kinds of actors — consumers, entities and token holders — all of whom want to be on that list. All of them reap benefits from creating a better list. In the case of adChain, actors who want to get on that list (e.g., websites that want to host advertisements) state some money and their behavior can be looked at and removed from that list if token holders do not believe that they should be on that list. In the future, we will see many similar projects using such token-curated registries.

Sharing Economy and Protocol-based Open Platforms

Sharing economy has become one of the most defining features of the 21st century. We all use carpooling services or renting apartments through AirBnb. For instance, Netflix is a two-sided market where we are customers and Netflix is a service provider. Facebook is a three-sided market where an advertiser is a client, Facebook is an intermediary and all of us are products (!!).

ConsenSys currently is working on building protocol-based open platforms which are built on another protocol (Ethereum) in which many different actors who play different roles occupy sides of multi-sided markets. They bring their capabilities to a particular niche. The idea behind is to connect many different actors with each other without an intermediary which would be interested in somehow affecting the communication and value exchange between those actors of the system.

This will enable the business to take different tenor: instead of profit-based communication between businesses and clients, we will have a more honest set of communications on those open protocol-based platforms. Tokenization will help to bring different forms of incentives to the mechanism design that makes these networks work.

Possible use cases span from music/creative content sharing platforms, identity, custody, atomic swaps, supply chains, customer support, expert networks, longitudinal health, governance, poker, journalism, science reporting, financial analysis, education, fractional estate ownership and so on.

Self-Sovereign Identity

One of the worst concerns about the Internet is that it didn’t ever have a native identity construct. To remedy that, Ethereum built what is called “self-sovereign identity”: a blockchain-based construct that serves as the root of our identities. It enables each and every one of us instead of spraying aspects of your identity across the Internet (having those elements monetized by corporations and not adequately secured by corporations) to upload your data in encrypted form and control all of that information from our side of the browser. If we want to, we can monetize our identity or disclose it gradually and selectively (e.g., if we want to get better terms on a loan or to migrate to a different medical care provider).

This sort of identity system is going to enable us to benefit better from our data. Self-sovereign identity will also enable organizations to have proper (perhaps, paid-for) access to our data on data markets. Decentralized World Wide Web is going to be much less exploitative of personal information. General Data Protection Regulation in Europe is already forcing corporations to think more carefully and store personal information more securely. Situations like Cambridge Analytica and Facebook will push this idea of self-sovereign identity into prominence.

Even more importantly, in the developing world where there are so many people who don’t have a persistent portable identity or persistent portable reputation, self-sovereign identity is going to be a real life changer. Self-sovereign identity can serve as a single sign-on for multiple applications. In the developed world you can have a linkage to your legacy identity providers (e.g., government agencies and banks etc.) and have them log attest atoms of your identity or your behavior as a citizen (e.g., that you are a citizen of that you are standing. In the developing world where people don’t necessarily have those accesses to financial services or to identity, they can make use of their social context. For instance, if a group of people has access to the Internet, they can create a system to attest to their behavior and so develop identity and reputation. This would be extremely helpful if they have to leave their country and make payments or purchases, get micro-loans or bootstrap their businesses.

ConsenSys and its identity application uPort are making significant strides. uPort team is working with a team Switzerland where residents of Zug city (which has gradually become known as the “Crypto Valley”) are already able to be able to access government services through their self-established blockchain-based root identity. The next phase of the project will be to able directly participate in governing of their state and vote in plebiscites.

Decentralization of Energy Supply Markets

Many have realized that the centralized generation and long-distance transmission of electricity are inefficient, vulnerable and even brutal. Centralized energy generation and transmission are already being decentralized: cheap photovoltaics and cheap storage are enabling people around the world to buy panels and put them above their roofs. A company called Grid+ is pioneering to enable Alice on one side of the street to get paid for sharing electrons with Bob on the other side of the street.

This has some pretty profound implications for the robustness of the electricity infrastructure. Currently, many own photovoltaics but they’re not incentivized to own storage. This is so because they can not get paid directly so there’s no point in time shifting the use of electricity. Grid+ team has built hardware that enables bits to be put out on the network to buy electricity, it enables time-shifts to buy and use electricity. Energy is an exciting sector which will be greatly disrupted by decentralized applications.

OpenLaw & Legally Enforceable Smart Contracts

OpenLaw is another incredibly exciting project which is building the technology stack to help power the next generation of “smart” legally enforceable agreements. OpenLaw will touch upon every blockchain application and affect how we do business.

OpenLaws essentially is a protocol which enables to upload legal agreements and turn them into legally enforceable hybrid blockchain-based agreements. This is done by humans (and soon will be done by AI). OpenLaw can already be accessed and used by everyone and the number of blockchain-based smart agreements on OpenLaw is increasing on a daily basis.

OpenLaw will allow us to take an agreement, identify names, numbers, prices, and dates and turn all those things into elements in marked-down language (“legal mark-ups). In that way, it will be possible to type in names and numbers and populate the entire document.

The most interesting part about smart contracts is that some of the clauses in those agreements can be programs on the blockchain: this means that it is possible to escrow money into those agreements (the money would be transferred to another party automatically upon the occurrence of certain event or condition). So we are moving to a world where we have those static documents which are filed away and kept in folders to a world where software which helps to generate and operate legally enforceable agreements.

How Ujo is Decentralizing Music Industry

Ujo Music is a great example of what can be done with Self-Sovereign Identity and blockchain. Currently, the music industry serves the music companies and a small number of artists that are able to become successful. The music industry also serves the consumers reasonably well (albeit not as well with respect to diversity of content).

Ujo Music team has built the so-called “adjacent music industry platform”. Artists can utilize Ujo to upload their identities as individuals and their content. Using OpenLaw they are able to attach legally enforceable content usage policies. Consumers, artists, filmmaker, and any other interested stakeholder can come along in and get a license for a private or public performance or create derivative works, obtain synchronization rights. The license can be acquired and the payment can be made in real time. Then, the collected amounts can be distributed amongst all the collaborators in real time. This means that instead of not making very much and waiting for 12–18 months to get their money from a certain collection agency, artists will get paid in real time.

The Essence of Decentralization

Coming back to Ronald Coase’s notion of transaction costs, small groups and self-employed individuals are likely to be of the of the fluid very capable foundational elements of society as we move forward we believe that tokenizing everything will create fluid and highly efficient markets and we will all be able to wrap ourselves and APIs and be very effective members of the society.

One of the core tenets of decentralization is the ability to control our identities. In fact, our identity is directly affecting our economic agency and the ability to participate in economic, social and political interactions. Self-sovereign identity will enable us all to be true stakeholders in this human enterprise and to participate more equitably with one another.

Blockchain technologies enable us all to have sufficient freedom and resources — so that almost none of us is ever in a position in which we have to make bad decisions (i.e., decisions that we are forced to take care of the necessities of life).

As a global society, we are moving from a scarcity mindset to exponentially growing world of abundance which is driven by positive feedback loops recently set free from the constraints of the physical. The essence of decentralization is when we are all fully empowered to make our best decisions and blockchain is hopefully helping us achieve that.