How the blockchain enables a new economy This crypto economy will transfigure businesses, government and our society, perhaps even more profoundly than the internet did, says William Mougayar What started as Bitcoin, a model cryptocurrency that captured the imagination of many, is metamorphosing into something bigger: a ‘crypto-tech’ driven economy with unparalleled global value creation opportunities, not unlike the Web’s own economy. Welcome to the crypto economy. Contrary to what is seemingly visible today, this crypto economy will not be born by attempting to take over the current financial services system, nor by waiting for consumers to transfer money into cryptocurrency wallets; rather it will emerge by creating its own wealth, via new types of services and businesses that extend beyond money transactions. The crypto economy is the next phase of the internet’s evolution: the decentralization era. Its genesis is Bitcoin’s backbone technology: the ‘blockchain’, a key concept that has entered our technophilic vocabulary, but with applicability reach outside of just Bitcoin. At its core, the blockchain is a technology that permanently records transactions in a way that cannot be later erased but can only be sequentially updated, in essence keeping a never-ending historical trail. Blockchains also enable assets and value to be exchanged, providing a new, speedy rail for moving value of all kinds without unnecessary intermediaries. This seemingly simple functional description has gargantuan implications. It is making us rethink the old ways of creating transactions, storing data, and moving assets, and that’s only the beginning. This ‘value exchange’ modus operandi is the spark of a domino effect in innovation, unseen yet since the advent of the Web. To understand how cryptocurrencies are leading us into this new frontier, we need to go back and question the meaning of money, then combine those answers with an understanding of the powers of the blockchain. What is money? Money is a form of value. But not all value is money. We could argue that value has a higher hierarchy than money. In the digital realm, a cryptocurrency is the perfect digital money. The blockchain is a perfect exchange platform for digital value, and it rides on the internet, the largest connected network on the planet. The resulting combustion is spectacular: digital value that can move fast, freely, efficiently, and cheaply. That is why we have called the blockchain a new ‘value exchange’ network. Cryptocurrency, because of its programmability aspects, embodies digital information that can enable other capabilities. When you ‘pay’ via cryptocurrency, that transaction could also include additional trust-related rights, such as for property, information, custody, access, or voting. But money is not the only form of value that the blockchain could move. The genie is out of the bottle: what if the blockchain could move any digital asset? What if you could take any legally binding construct like identity, ownership, contracts, or rights, and attach it in a unique, unforgeable, and auditable way to the blockchain’s cryptographically secured ledger; then you open the path to millions of usage scenarios that gain wings by being tied on the blockchain. Going one step further, imagine a world of multiple blockchains, not just one; and we end-up with a huge overlay network of decentralized services that are open and accessible to anyone. Therefore, the blockchain enables a new form of meta-transaction where the value is represented by what it unlocks at the end of the transaction, not just by an intrinsic monetary value that gets deposited in a static account. It sounds like a type of stock market functionality that allows the trading of an unlimited number of unregulated value elements, unlike financial securities that are regulated. And, it is more distributed, more decentralized, and more active in the sense that your ‘wallet’ can trigger actions that are directly wired into the real world. How do we get there? With most enabling technologies, we typically begin by duplicating old habits, often by doing the same processes faster or cheaper. Then we start to innovate by doing things differently, and by applying new ideas that we couldn’t implement before. That’s how the internet took off as soon as we started to program it with ‘Web applications’, and it is precisely the path that the crypto-tech revolution is on. If Bitcoin (or any cryptocurrency) is programmable money, the blockchain is also programmable value, programmable governance, programmable contracts, programmable ownership, programmable trust, programmable rights, programmable assets, and more. This gets us to the next nugget in this emerging puzzle: how do we create new value? You create value by running services on the blockchain. Buckminster Fuller once said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” He is right. That is exactly what is happening. Bitcoin and cryptocurrencies will succeed; not by mounting frontal attacks on the current financial system, nor by seeking permissions from regulators and gatekeepers. Rather, change will start to happen by creating a parallel system that will get stronger and grow on its own over time. What are the several ways to create this new value in the new cryptospace? There is a precedent in what already happened in the cyberspace. With the internet, we had e-commerce, e-business, e-services, e-markets. Later, the social web arrived with large-scale social networks, and the mobile web scooped over 3 billion global users. Each one of these segments created its own wealth by existing on the internet. In the cryptospace, we will see a number of emerging businesses that will run on the blockchains, and they will generate a new source of natively earned wealth: 1) Services where a trust component can be stored on the blockchain. Since the blockchain acts as a verifiable and auditable place where transactions are really difficult to get tampered with, what if you could bind your digital assets to the blockchain, in essence finger printing your ownership (or rights) in irrevocable ways without the need for a central registration authority? Expect the following foundations to be disrupted: identity, rights, membership, ownership, voting, data ownership, time stamping, and content/services attributions. 2) Services where a contractual component can be executed on the blockchain. Also known as ‘smart contracts’, a term first popularized by Nick Szabo, these are small programs that can run on a blockchain and self-govern legal or contractual terms between various parties, without the need for intermediaries. They represent a simple form of decentralized trust. Why depend on a central authority when two (or more) parties can agree between themselves, and bake the terms, compliance and implications of their agreement programmatically? Applications areas being targeted include: wagers, family trusts, escrow, time stamping, proofs of work delivery, bounties, proof of bets, proof of compliance. 3) Decentralized peer-to-peer marketplaces. These represent an evolution from what we see today in the most successful marketplaces (ie. Uber, eBay, Amazon), but they actually threaten to replace some of these existing players. In a decentralized peer-to-peer marketplace, anyone can sell and anyone can buy, while the centre controls less, but facilitates more. Trust, rules, identity, reputation, and payment choices are embedded at the peer level. Participants arrive already trusted, and ‘decentrally’ acknowledged. The blockchain acts as the trusted virtual intermediary that checks rules, identity, reputation, payment choices. OpenBazaar (p2p ecommerce) and La’Zooz (p2p ride sharing) are some examples. 4) Distributed Autonomous Organizations (DAO) whose governance and operations run on the blockchain. Arguably, this is the epitome of business decentralization. A DAO issues its own cryptocurrency, a process called ‘crypto equity’. Members are also ‘workers’, and by virtue of their collective actions and activity levels, they contribute to increasing value for the DAO. Some examples of user actions could include sharing their computing power or internet access (eg. to create mesh networks), donating data they own, delivering on bounties, and other schemes that are germane to the type of vertical segment being targeted, such as transportation or health care. The above four sectors represent ‘decentralized applications’, an emergent segment of web software development. What they all have in common is that they run on a blockchain, can multiply and grow without central control, and they are fueled by cryptocurrency that powers the transactions and computer power they run on. The cryptocurrency is like fuel; it’s collected in part as toll, in part as earnout by the participating users and those that provide these services. So you can start to see how cryptocurrency is generated out of crypto-services to instigate a new economy of wealth creation. Once that happens, there will be a critical mass of users with significant cryptocurrency balances in their accounts. Only then, can we attempt to potentially make dents into the current financial system, and in the nation-currency sovereign government paradigm. The reality is that it’s very likely that the financial systems and governments will be the last bastions to be affected, and not the first ones. What the blockchain enables is a new ‘flow of value’, a concept related to economics Nobel laureate Michael Spence’s work on how digital technologies transform global value chains via the dynamics of information flows. The blockchain is another digital value leveller as it impacts and shifts value in the cryptospace. The blockchain moves the power of transactions closer to the individuals, and it empowers any user to align themselves with a decentralized application or organization, and start generating or moving their own nucleus of crypto value. A side benefit of this phenomenon is to put the sharing economy on steroids, as it melds (crypto) capital and labour with mobile, location-agnostic marketplace environments. As we prepare to get on-board the crypto economy, undoubtedly it looks fuzzy, foggy, buggy, risky, uncertain and unproven, but so did the internet in 1995. Then suddenly, it blossomed and grew into our lives, businesses, and it infiltrated society and culture, with more benefits than vices. We are in the early stages of understanding the movement, distribution and creation of ‘value’ outside of the traditional norms of currency, commodity and property as the main vehicles for value transfer and appreciation. Soon, this new frontier will appear. The blockchain symbolizes a shift in power from the centres to the edges of the networks. This is a vision that we may have romanced since the early days of the internet, but it can actually happen this time, because it is powered by an intrinsic monetary value, the internet’s own native cryptocurrency. Existing intermediaries will be at risk. And new intermediaries will be more virtual, transparent, and distributed entities that are trusted programmatically. This crypto economy is decentralized at birth, - politically and architecturally; and it lends equal access and lower barriers of entry to all. Anyone will be able to ‘work’ for a DAO without permission, and therefore will generate their own wealth. This crypto economy will transfigure businesses, government and our society, perhaps even more profoundly than the internet did, 20 years ago. This crypto economy is the newest phase of the internet, and it will unravel and blossom over the next 10 years. ABOUT THE AUTHOR William Mougayar is a globally recognized thought leader and advisor on blockchain strategy, and the best-selling author of The Business Blockchain: Promise, Practice and Application of the Next Internet Technology (Wiley, 2016). He is General Partner at Virtual Capital Ventures, and on the boards of leading blockchain organizations, such as the Ethereum Foundation, the Coin Center, OpenBazaar, and Bloq.
This crypto economy is the newest phase of the internet, and it will unravel and blossom over the next 10 years

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