Chapter 11 introduces issues relating to governance and leadership in a new blockchain era. Bit introduction - What changes can you see that should occur in your organizational unit (i.e. your departm

IS B N : 9 781101980132 In te rn atio nal e d itio n I S B N : 9 780399564062 IS B N : 9 781101980156 ( e b ook) While t h e a u th or h as m ad e e v ery e ffo rt t o p ro vid e a ccu ra te t e le p hone n um bers , I n te rn et a d dre sse s, a n d o th er c o nta ct in fo rm atio n a t t h e t im e o f p ublic atio n, n eith er t h e p ublis h er n or t h e a u th or a ssu m es a n y r e sp onsib ility f o r e rro rs o r f o r ch an ges t h at o ccu r a fte r p ublic atio n. F urth er, t h e p ublis h er d oes n ot h av e a n y c o ntr o l o ver a n d d oes n ot a ssu m e a n y re sp onsib ility f o r a u th or o r t h ir d -p arty W eb s ite s o r t h eir c o nte n t.

Vers io n_1 To A na L opes a nd A m y W els m an f o r e n ablin g t h is b ook, a nd f o r u ndersta ndin g t h at “ it’ s all a bout t h e b lo ckch ain .” “ A m aste rp ie ce. G ra cefu lly d is se cts t h e p ote n tia l o f b lo ck ch ain t e ch nolo gy t o t a k e o n t o day ’s m ost p re ssin g g lo bal c h alle n ges.” —Hern an do D e S oto , E co n om is t a n d P resid en t, I n stit u te f o r L ib erty a n d D em ocra cy , P eru “ T he b lo ck ch ain i s t o t r u st a s t h e I n te rn et i s t o i n fo rm atio n. L ik e t h e o rig in al I n te rn et, b lo ck ch ain h as p ote n tia l t o t r a n sfo rm e v ery th in g. R ead t h is b ook a n d y ou w ill u nders ta n d.” —Joic h i I to , D ir ecto r, M IT M ed ia L ab “ In t h is e x tr a o rd in ary j o urn ey t o t h e f ro ntie rs o f f in an ce, t h e T ap sc o tts s h ed n ew l ig ht o n t h e b lo ck ch ain p hen om en on a n d m ak e a c o m pellin g c ase f o r w hy w e a ll n eed t o b ette r u nders ta n d i ts p ow er a n d p ote n tia l.” —Dave M cK ay, P resid en t a n d C EO , R oyal B an k o f C an ad a “ D eco nstr u cts t h e p ro m is e a n d p eril o f t h e b lo ck ch ain i n a w ay t h at i s a t o nce a ccessib le a n d e ru dite .

Blo ckch ain R evo lu tio n g iv es r e ad ers a p riv ile g ed s n eak p eak a t t h e f u tu re .” —Ale c R oss, a u th or, The I n du str ie s o f t h e F utu re “ If e v er t h ere w as a t o pic f o r d em ystif ic atio n, b lo ck ch ain i s i t. T ogeth er, t h e T ap sc o tts h av e a ch ie v ed t h is c o m pre h en siv ely a n d i n d oin g s o h av e c ap tu re d t h e e x cite m en t, t h e p ote n tia l, a n d t h e i m porta n ce o f t h is t o pic t o e v ery one.” —Bly th e M aste rs, C EO , D ig it a l A sse t H old in gs “ T his i s a b ook w ith t h e p re d ic tiv e q uality o f O rw ell’ s 1984 an d t h e v is io n o f E lo n M usk . R ead i t o r b eco m e e x tin ct.” —Tim D ra p er, F ou nder, D ra p er A sso cia te s, D FJ, a n d D ra p er U niv ersit y “ B lo ck ch ain i s a r a d ic al t e ch nolo gic al w av e a n d, a s h e h as d one s o o fte n , T ap sc o tt i s o ut t h ere , n ow w ith s o n A le x , s u rfin g a t d aw n. I t’ s q uite a r id e.” —Yoch ai B en kle r, B erk m an P ro fe sso r o f E ntr ep ren eu ria l L eg al S tu die s, H arv ard L aw S ch ool “ If y ou w ork i n b usin ess o r g overn m en t, y ou n eed t o u nders ta n d t h e b lo ck ch ain r e v olu tio n. N o o ne h as w ritte n a m ore t h oro ughly r e se arc h ed o r e n gag in g b ook o n t h is t o pic t h an T ap sc o tt a n d T ap sc o tt.” —Erik B ry n jo lf s so n , P ro fe sso r a t M IT ; c o au th or o f The S eco n d M ach in e A ge “ A n i n dis p en sa b le a n d u p-to -th e-m in ute a cco unt o f h ow t h e t e ch nolo gy u nderly in g b itc o in c o uld — an d s h ould — u nle ash t h e t r u e p ote n tia l o f a d ig ita l e co nom y f o r d is tr ib ute d p ro sp erity .” —Dou gla s R ush koff, a u th or o f Pre se n t S hock a n d Thro w in g R ock s a t t h e G oogle B us “ T ech nolo gic al c h an ge t h at u se d t o d ev elo p o ver a g en era tio n n ow h its u s i n a r e la tiv e b lin k o f t h e e y e, a n d n o o ne t e lls t h is s to ry b ette r t h an t h e T ap sc o tts .” —Eric S pie g el, P resid en t a n d C EO , S ie m en s U SA “ F ew l e ad ers p ush u s t o l o ok a ro und c o rn ers t h e w ay D on T ap sc o tt d oes. W ith Blo ckch ain Revo lu tio n h e a n d h is s o n A le x t e ach u s, c h alle n ge u s, a n d s h ow u s a n e n tir e ly n ew w ay t o t h in k a b out t h e f u tu re .” —Bill M cD erm ott, C EO , S A P S E “ B lo ckch ain R evo lu tio n i s a b rillia n t m ix o f h is to ry , t e ch nolo gy, a n d s o cio lo gy t h at c o vers a ll a sp ects o f t h e b lo ck ch ain p ro to co l— an i n ven tio n t h at i n t im e m ay p ro ve a s m om en to us a s t h e i n ven tio n o f p rin tin g.” —Jam es R ic k ard s, a u th or o f Curre n cy W ars a n d The D ea th o f M on ey “ B lo ckch ain R evo lu tio n s e rv es a s a n a tla s t o t h e w orld o f d ig ita l m oney , m aste rfu lly e x pla in in g t h e c u rre n t l a n dsc ap e w hile s im ulta n eo usly i llu m in atin g a p ath f o rw ard t o w ard a m ore e q uita b le , e ffic ie n t, a n d c o nnecte d g lo bal f in an cia l s y ste m .” —Jim B rey er, C EO , B rey er C ap it a l “ B lo ckch ain R evo lu tio n i s t h e i n dis p en sa b le a n d d efin itiv e g uid e t o t h is w orld -c h an gin g t e ch nolo gy.” —Jerry B rit o , E xecu tiv e D ir ecto r, C oin C en te r “ In cre d ib le . R eally i n cre d ib le . T he T ap sc o tts ’ e x am in atio n o f t h e b lo ck ch ain a s a m odel f o r i n clu sio n i n a n i n cre asin gly c en tr a liz ed w orld i s b oth n uan ced a n d e x tr a o rd in ary .” —Ste v e L uczo , C hair m an a n d C EO , S ea gate T ech nolo gy “M ak es a p ow erfu l c ase f o r b lo ck ch ain ’s a b ility t o i n cre ase t r a n sp are n cy b ut a ls o e n su re p riv acy . I n t h e a u th ors ’ word s, ‘ T he I n te rn et o f T hin gs n eed s a L ed ger o f T hin gs.’ ” —Chan dra C han dra se k ara n , C EO a n d M an agin g D ir ecto r, T ata C on su lt a n cy S erv ic es “T he e p ic en te r o f t r u st i s a b out t o d if fu se ! T he d efin itiv e n arra tiv e o n t h e r e v olu tio nary p ossib ilitie s o f a decen tr a liz ed t r u st s y ste m .” —Fra n k D ’S ou za , C EO , C ogn iz a n t “Id en tif ie s a p ro fo und n ew t e ch nolo gy m ovem en t a n d c o nnects i t t o t h e d eep est o f h um an n eed s: t r u st.

Thoro ughly r e se arc h ed a n d p ro vocativ ely w ritte n . E very s e rio us b usin essp ers o n a n d p olic y m ak er n eed s t o r e ad Blo ckch ain R evo lu tio n .” —Bria n F eth ersto n hau gh , C hair m an a n d C EO , O gilv yO ne W orld w id e “ Blo ckch ain R evo lu tio n s e ts t h e t a b le f o r a w av e o f t e ch nolo gic al a d van cem en t t h at i s o nly j u st b eg in nin g.” —Fra n k B ro w n, M an agin g D ir ecto r a n d C hie f O pera tin g O ffic e, G en era l A tla n tic “A m ust r e ad . Y ou’ll g ain a d eep u nders ta n din g o f w hy t h e b lo ck ch ain i s q uic k ly b eco m in g o ne o f t h e m ost im porta n t e m erg in g t e ch nolo gie s s in ce t h e I n te rn et.” —Bria n F ord e, D ir ecto r o f D ig it a l C urren cy I n it ia tiv e, M IT M ed ia L ab “B lo ck ch ain t e ch nolo gy h as t h e p ote n tia l t o r e v olu tio niz e i n dustr y , f in an ce, a n d g overn m en t— a m ust r e ad f o r an yone i n te re ste d i n t h e f u tu re o f m oney a n d h um an ity .” —Peria n ne B orin g, F ou nder a n d P resid en t, C ham ber o f D ig it a l C om merce “W hen g en era tio nal t e ch nolo gy c h an ges t h e w orld i n w hic h w e l iv e, w e a re t r u ly f o rtu nate t o h av e c arto gra p hers lik e D on T ap sc o tt, a n d n ow h is s o n A le x , t o e x pla in w here w e’re g oin g.” —Ray L an e, M an agin g P artn er, G rea tP oin t V en tu res; P artn er E m erit u s, K le in er P erk in s “D on a n d A le x h av e w ritte n t h e d efin itiv e g uid eb ook f o r t h ose t r y in g t o n av ig ate t h is n ew a n d p ro m is in g fro ntie r.” —Ben ja m in L aw sk y, F orm er S uperin te n den t o f F in an cia l S erv ic es, S ta te o f N ew Y ork ; C EO o f T he L aw sk y G ro u p “ Blo ckch ain R evo lu tio n i s a n i llu m in atin g, c ritic ally i m porta n t m an if e sto f o r t h e n ex t d ig ita l a g e.” —Dan P on te fr a ct, a u th or o f The P urp ose E ffe ct ; C hie f E nvis io n er, T ELU S “T he m ost w ell- re se arc h ed , t h oro ugh, a n d i n sig htf u l b ook o n t h e m ost e x citin g n ew t e ch nolo gy s in ce t h e I n te rn et.

A w ork o f e x cep tio nal c la rity a n d a sto nis h in gly b ro ad a n d d eep i n sig ht.” —Andrea s A nto n op ou lo s, a u th or o f Maste rin g B itc o in “ Blo ckch ain R evo lu tio n b eau tif u lly c ap tu re s a n d i llu m in ate s t h e b ra v e n ew w orld o f d ecen tr a liz ed , t r u stle ss money .” —Tyle r W in kle v oss, C ofo u nder, G em in i a n d W in kle v oss C ap it a l “A f a sc in atin g— an d r e assu rin g— in sig ht i n to a t e ch nolo gy w ith t h e p ow er t o r e m ak e t h e g lo bal e co nom y. W hat a priz e. W hat a b ook!” —Pau l P olm an , C EO , Unile v er CO NTEN TS A ls o b y D on T apsc o tt T itle P age C opyrig ht D ed ic a tio n P ra is e f o r D on T apsc o tt a nd A le x T apsc o tt A ckn ow le d gm en ts P A RT I :

S ay Y ou W an t a R ev olu tio n C H APT ER 1 :

The T ru st P ro to co l I n S ea rch o f t h e T ru st P ro to co l H ow T his W orld w id e L ed ger W ork s A R atio n al E xu bera n ce f o r t h e B lo ck ch ain A ch ie v in g T ru st i n t h e D ig it a l A ge R etu rn o f t h e I n te rn et Y ou r P erso n al A vata r a n d t h e B la ck B ox o f I d en tit y A P la n f o r P ro sp erit y P ro m is e a n d P eril o f t h e N ew P la tfo rm C H APT ER 2 :

Boots tr a p pin g t h e F utu re: S ev en D esig n P rin cip le s o f t h e B lo ck ch ain E co n om y T he S ev en D esig n P rin cip le s 1. N etw ork ed I n te g rit y 2. D is tr ib ute d P ow er 3. V alu e a s I n cen tiv e 4. S ecu rit y 5. P riv acy 6. R ig h ts P rese rv ed 7. I n clu sio n D esig n in g t h e F utu re PA RT I I:

T ra n sfo rm atio n s CH APT ER 3 :

Rein ven tin g F in an cia l S erv ic es A N ew L ook f o r t h e W orld ’s S eco n d-O ld est P ro fe ssio n The G old en E ig h t: H ow t h e F in an cia l S erv ic es S ecto r W ill C han ge Fro m S to ck E xch an ges t o B lo ck E xch an ges Dr. F au st’s B lo ck ch ain B arg ain The B an k A pp: W ho W ill W in i n R eta il B an kin g Google T ra n sla te f o r B usin ess: N ew F ra m ew ork s f o r A cco u ntin g a n d C orp ora te Govern an ce Rep uta tio n : Y ou A re Y ou r C red it S co re The B lo ck ch ain I P O The M ark et f o r P red ic tio n M ark ets Road M ap f o r t h e G old en E ig h t CH APT ER 4 :

Re-a rch it e ctin g t h e F ir m : T he C ore a n d t h e E dges Build in g C on se n Sys Chan gin g t h e B ou ndarie s o f t h e F ir m Dete rm in in g C orp ora te B ou ndarie s CH APT ER 5 :

New B usin ess M od els : M ak in g I t R ain o n t h e B lo ck ch ain bA ir b nb V ersu s A ir b nb Glo b al C om putin g: T he R is e o f D is tr ib ute d A pplic a tio n s The D App K in gs: D is tr ib ute d B usin ess E ntit ie s Auto n om ou s A gen ts Dis tr ib ute d A uto n om ou s E nte rp ris e s The B ig S ev en : O pen N etw ork ed E nte rp ris e B usin ess M od els Hack in g Y ou r F utu re: B usin ess M od el I n novatio n CH APT ER 6 :

The L ed ger o f T hin gs: A nim atin g t h e P hysic a l W orld Pow er t o t h e P eo p le The E volu tio n o f C om putin g: F ro m M ain fr a m es t o S m art P ills The I n te rn et o f T hin gs N eed s a L ed ger o f T hin gs The T w elv e D is r u ptio n s: A nim atin g T hin gs The E co n om ic P ayoff The F utu re: F ro m U ber t o S U ber Hack in g Y ou r F utu re f o r a W orld o f S m art T hin gs CH APT ER 7 :

Solv in g t h e P ro sp erit y P ara d ox: E co n om ic I n clu sio n a n d Entr ep ren eu rsh ip A P ig I s N ot a P ig gy B an k The N ew P ro sp erit y P ara d ox Road M ap t o P ro sp erit y Rem it ta n ces: T he S to ry o f A nalie D om in go Blo ck ch ain H um an it a ria n A id Safe a s H ou se s? T he R oad t o A sse t O wnersh ip Im ple m en ta tio n C halle n ges a n d L ea d ersh ip O pportu nit ie s CH APT ER 8 :

Reb uild in g G overn m en t a n d D em ocra cy Som eth in g I s R otte n i n t h e S ta te Hig h -P erfo rm an ce G overn m en t S erv ic es a n d O pera tio n s Em pow erin g P eo p le t o S erv e S elv es a n d O th ers The S eco n d E ra o f D em ocra cy Blo ck ch ain V otin g Alt e rn ativ e M od els o f P olit ic s a n d J u stic e Engagin g C it iz en s t o S olv e B ig P ro b le m s Wie ld in g T ools o f T w en ty -fir st-C en tu ry D em ocra cy CH APT ER 9 :

Freein g C ult u re o n t h e B lo ck ch ain : M usic t o O ur E ars Fair T ra d e M usic : F ro m S tr ea m in g M usic t o M ete rin g R ig h ts Artle ry f o r A rt L overs: C on nectin g A rtis ts a n d P atr o n s Priv acy , F ree S peech , a n d F ree P ress o n t h e B lo ck ch ain Gettin g t h e W ord O ut: T he C rit ic a l R ole o f E duca tio n Cult u re o n t h e B lo ck ch ain a n d Y ou PA RT I II:

P ro m is e a n d P eril CH APT ER 1 0:

Overco m in g S how sto p pers: T en I m ple m en ta tio n C halle n ges 1. T he T ech nolo gy I s N ot R ea d y f o r P rim e T im e 2. T he E nerg y C on su m ed I s U nsu sta in ab le 3. G overn m en ts W ill S tif le o r T w is t I t 4. P ow erfu l I n cu m ben ts o f t h e O ld P ara d ig m W ill U su rp I t 5. T he I n cen tiv es A re I n ad eq uate f o r D is tr ib ute d M ass C olla b ora tio n 6. T he B lo ck ch ain I s a J ob K ille r 7. G overn in g t h e P ro to co ls I s L ik e H erd in g C ats 8. D is tr ib ute d A uto n om ou s A gen ts W ill F orm S kyn et 9. B ig B ro th er I s ( S till) W atc h in g Y ou 10. C rim in als W ill U se I t Rea so n s B lo ck ch ain W ill F ail o r I m ple m en ta tio n C halle n ges?

CH APT ER 1 1:

Lea d ersh ip f o r t h e N ex t E ra Who W ill L ea d a R ev olu tio n ?

The B lo ck ch ain E co sy ste m : Y ou C an ’t T ell t h e P la yers W it h ou t a R oste r A C au tio n ary T ale o f B lo ck ch ain R eg u la tio n The S en ato r W ho W ou ld C han ge t h e W orld Cen tr a l B an ks i n a D ecen tr a liz ed E co n om y Reg u la tio n V ersu s G overn an ce A N ew F ra m ew ork f o r B lo ck ch ain G overn an ce A N ew A gen da f o r t h e N ex t D ig it a l A ge The T ru st P ro to co l a n d Y ou Note s In dex ACK NOW LED GM EN TS T his b ook c am e f ro m t h e m eetin g o f t w o m in ds a n d t w o l if e t r a je cto rie s. D on h ad b een l e ad in g a $ 4 m illio n s y ndic ate d r e se arc h p ro gra m c alle d G lo bal S olu tio n N etw ork s ( G SN ) a t t h e R otm an S ch ool o f M an ag em en t, U niv ers ity o f T oro nto . T he i n itia tiv e w as i n vestig atin g n ew , n etw ork ed m odels o f g lo bal p ro ble m s o lv in g a n d g overn an ce. H e r e se arc h ed h ow t h e I n te rn et w as g overn ed b y a m ultis ta k eh old er e co sy ste m a n d b ecam e i n te re ste d i n d ig ita l c u rre n cie s a n d t h eir g overn an ce. M ean w hile , A le x w as a n e x ecu tiv e w ith t h e i n vestm en t b an k C an acco rd G en uity .

H e n otic ed t h e g ro w in g e n th usia sm f o r e arly -s ta g e b itc o in a n d b lo ck ch ain c o m pan ie s i n 2 013 a n d b eg an l e ad in g h is f ir m ’s e ffo rts i n t h e s p ace. D urin g a f a th er-s o n s k i t r ip t o M ont- T re m bla n t i n e arly 2 014, w e b ra in sto rm ed o ver d in ner a b out c o lla b ora tin g o n t h is t o pic , a n d A le x a g re ed t o l e ad a r e se arc h p ro je ct o n t h e g overn an ce o f d ig ita l c u rre n cie s, c u lm in atin g i n h is w hite p ap er, t itle d A B itc o in G overn ance N etw ork . T he m ore w e d ug i n to t h e i s su es, t h e m ore w e c o nclu ded t h at t h is c o uld b e t h e n ex t b ig t h in g.

Mean w hile o ur a g en t, W es N eff a t t h e L eig h B ure au , a lo ng w ith D on’s p ublis h er A dria n Z ack heim a t P ortf o lio /P en guin ( Wik in om ic s , Macro w ik in om ic s ), w as e n co ura g in g D on t o f o rm ula te a n ew b ook c o ncep t. W hen A le x ’s p ap er b ecam e w id ely r e co gniz ed a s l e ad in g t h in kin g i n t h is a re a, D on a p pro ach ed A le x t o b e h is c o au th or. A dria n , t o h is c re d it, m ad e u s a n o ffe r w e c o uld n’t r e fu se a n d t h e b ook n ev er w en t t o a u ctio n, a s i s n orm ally t h e c ase .

We t h en m ad e w hat i n h in dsig ht w as a s m art d ecis io n. W e a p pro ach ed t h e b est b ook e d ito r w e k new , K ir s te n S an dberg , f o rm erly o f H arv ard B usin ess S ch ool P re ss, a n d a sk ed h er t o e d it o ur b ook p ro posa l. S he d id a s p ecta cu la r j o b a n d o ur c o lla b ora tio n w as s o e ffo rtle ss t h at w e a sk ed h er t o b e a f u ll- tim e m em ber o f t h e b ook r e se arc h t e am . K ir s te n p artic ip ate d w ith u s i n m ore t h an o ne h undre d i n te rv ie w s a n d c o lla b ora te d i n r e al t im e a s w e t r ie d t o u nders ta n d t h e m yria d i s su es o n t h e t a b le a n d d ev elo p h elp fu l f o rm ula tio ns t o e x pla in t h is e x tr a o rd in ary s e t o f d ev elo pm en ts t o a n onte ch nic al a u die n ce. S he h elp ed u s b rin g t h e s to ry t o l if e . I n t h at s e n se , s h e w as o ur c o au th or a n d t h is b ook w ould n ot h av e a p peare d , a t l e ast i n i ts c u rre n t c o m pre h en sib le f o rm , w ith out h er. F or t h at, a n d f o r a ll t h e s tim ula tio n a n d l a u gh l in es, w e a re v ery g ra te fu l.

Our h eartf e lt t h an ks t o t h e p eo ple b elo w w ho g en ero usly s h are d t h eir tim e a n d i n sig hts w ith u s a n d w ith out w hom t h is b ook w ould n ot b e p ossib le . I n a lp hab etic al o rd er:

J e re m y A lla ir e , F ounder, C hair m an , a n d C EO , C ir c le M arc A ndre esse n , C ofo under, A ndre esse n H oro w itz G av in A ndre se n , C hie f S cie n tis t, B itc o in F oundatio n D in o A ngaritis , C EO , S m artw alle t A ndre as A nto nopoulo s, A uth or, Maste rin g B itc o in F ed eric o A st, C ro w dJu ry S usa n A th ey , E co nom ic s o f T ech nolo gy P ro fe sso r, S ta n fo rd G ra d uate S ch ool o f B usin ess A dam B ack , C ofo under a n d P re sid en t, B lo ck str e am Bill B arh ydt, C EO , A bra Chris to pher B av itz , M an ag in g D ir e cto r, C yberla w C lin ic , H arv ard L aw S ch ool Geo ff B eattie , C hair m an , R ela y V en tu re s Ste v e B eau re g ard , C EO a n d F ounder, G oC oin Maria n o B elin ky, M an ag in g P artn er, S an ta n der I n noV en tu re s Yoch ai B en kle r, B erk m an P ro fe sso r o f E ntr e p re n eu ria l S tu die s, H arv ard L aw S ch ool Ja k e B en so n, C EO a n d F ounder, L ib ra T ax Tim B ern ers -L ee, I n ven to r, W orld W id e W eb Doug B la ck , S en ato r, C an ad ia n S en ate , G overn m en t o f C an ad a Perria n e B orin g, F ounder a n d P re sid en t, C ham ber o f D ig ita l C om merc e Dav id B ra y , 2 015 E is e n how er F ello w a n d H arv ard V is itin g E xecu tiv e i n R esid en ce Je rry B rito , E xecu tiv e D ir e cto r, C oin C en te r Pau l B ro dy, A m eric as S tr a te g y L ead er, T ech nolo gy G ro up, E Y ( fo rm erly I o T a t I B M ) Ric h ard G . B ro w n, C TO , R 3 C EV ( fo rm er E xecu tiv e A rc h ite ct f o r I n dustr y I n novatio n a n d Busin ess D ev elo pm en t, I B M ) Vita lik B ute rin , F ounder, E th ere u m Patr ic k B yrn e, C EO , O vers to ck Bru ce C ah an , V is itin g S ch ola r, S ta n fo rd E ngin eerin g; S ta n fo rd S usta in ab le B an kin g I n itia tiv e Ja m es C arly le , C hie f E ngin eer, M D, R 3 C EV Nic o la s C ary , C ofo under, B lo ck ch ain L td .

Toni L an e C asse rly , C EO , C oin T ele g ra p h Chris tia n C ata lin i, A ssis ta n t P ro fe sso r, M IT S lo an S ch ool o f M an ag em en t Ann C av oukia n , E xecu tiv e D ir e cto r, P riv acy a n d B ig D ata I n stitu te , R yers o n U niv ers ity Vin t C erf, C o-c re ato r o f t h e I n te rn et a n d C hie f I n te rn et E van gelis t, G oogle Ben C han , S en io r S oftw are E ngin eer, B itG o Robin C hase , C ofo under a n d F orm er C EO , Z ip car Fad i C heh ad i, C EO , I C A NN Consta n ce C hoi, P rin cip al, S ev en A dvis o ry Jo hn H . C lip pin ger, C EO , I D 3, R ese arc h S cie n tis t, M IT M ed ia L ab Bra m C ohen , C re ato r, B itT orre n t Am y C orte se , J o urn alis t, F ounder, L ocav est J-F C ourv ille , C hie f O pera tin g O ffic er, R BC W ealth M an ag em en t Patr ic k D eeg an , C TO , P ers o nal B la ck B ox Prim av era D e F ilip pi, P erm an en t R ese arc h er, C N RS a n d F acu lty A sso cia te a t t h e B erk m an Cen te r f o r I n te rn et a n d S ocie ty a t H arv ard L aw S ch ool Hern an do d e S oto , P re sid en t, I n stitu te f o r L ib erty a n d D em ocra cy Pero net D esp eig nes, S pecia l O ps, A ugur Ja co b D ie n elt, B lo ck ch ain A rc h ite ct a n d C FO , i tB it a n d F acto m Jo el D ie tz , S w arm C orp Hele n D is n ey , ( fo rm erly ) B itc o in F oundatio n Adam D ra p er, C EO a n d F ounder, B oost V C Tim oth y C ook D ra p er, V en tu re C ap ita lis t; F ounder, D ra p er F is h er J u rv ets o n Andre w D udle y , F ounder a n d C EO , E arth O bse rv atio n Jo sh ua F air fie ld , P ro fe sso r o f L aw , W ash in gto n a n d L ee U niv ers ity Gra n t F ondo, P artn er, S ecu ritie s L itig atio n a n d W hite C olla r D efe n se G ro up, P riv acy a n d D ata Secu rity P ra ctic e, G oodw in P ro cte r L LP Bria n F ord e, F orm er S en io r A dvis e r, T he W hite H ouse ; D ir e cto r, D ig ita l C urre n cy , M IT M ed ia Lab Mik e G au lt, C EO , G uard tim e Geo rg e G ild er, F ounder a n d P artn er, G ild er T ech nolo gy F und Geo ff G ord on, C EO , V ogogo Vin ay G upta , R ele ase C oord in ato r, E th ere u m Ja m es H azard , F ounder, C om mon A cco rd Im ogen H eap , G ra m my-W in nin g M usic ia n a n d S ongw rite r Mik e H earn , F orm er G oogle E ngin eer, V in um eris /L ig hth ouse Austin H ill, C ofo under a n d C hie f I n stig ato r, B lo ck str e am Toom as H en drik I lv es, P re sid en t o f E sto nia Jo ic h i I to , D ir e cto r, M IT M ed ia L ab Eric J e n nin gs, C ofo under a n d C EO , F ila m en t Iz ab ella K am in sk a, F in an cia l R ep orte r, Fin ancia l T im es Pau l K em p-R oberts o n, C ofo under a n d E dito ria l D ir e cto r, C onta g io us C om munic atio ns Andre w K ey s, C onse n su s S yste m s Jo yce K im , E xecu tiv e D ir e cto r, S te lla r D ev elo pm en t F oundatio n Pete r K ir b y, C EO a n d C ofo under, F acto m Jo ey K ru g, C ore D ev elo per, A ugur Halu k K ulin , C EO , P ers o nal B la ck B ox Chris L ars e n , C EO , R ip ple L ab s Ben ja m in L aw sk y, F orm er S uperin te n den t o f F in an cia l S erv ic es f o r t h e S ta te o f N ew Y ork ; CEO , T he L aw sk y G ro up Charlie L ee, C re ato r, C TO ; F orm er E ngin eerin g M an ag er, L ite co in Matth ew L eib ow itz , P artn er, P la za V en tu re s Vin ny L in gham , C EO , G yft Ju an L la n os, E V P o f S tr a te g ic P artn ers h ip s a n d C hie f T ra n sp are n cy O ffic er, B itr e se rv e.o rg Jo se p h L ubin , C EO , C onse n su s S yste m s Adam L udw in , F ounder, C hain .c o m Chris tia n L undkvis t, B ala n c3 Dav id M cK ay , P re sid en t a n d C hie f E xecu tiv e O ffic er, R BC Ja n na M cM an us, G lo bal P R D ir e cto r, B itF ury Mic k ey M cM an us, M ay a I n stitu te Je sse M cW ate rs , F in an cia l I n novatio n S pecia lis t, W orld E co nom ic F oru m Bly th e M aste rs , C EO , D ig ita l A sse t H old in gs Alis ta ir M itc h ell, M an ag in g P artn er, G en era tio n V en tu re s Carlo s M ore ir a , F ounder, C hair m an , a n d C EO , W IS eK ey Tom M orn in i, F ounder a n d C usto m er A dvocate , S uble d ger Eth an N ad elm an n, E xecu tiv e D ir e cto r, D ru g P olic y A llia n ce Adam N an je e, H ead o f F in te ch C lu ste r, M aR S Dan ie l N eis , C EO a n d C ofo under, K OIN A Kelly O ls o n, N ew B usin ess I n itia tiv e, I n te l Ste v e O m ohundro , P re sid en t, S elf -A ware S yste m s Jim O rla n do, M an ag in g D ir e cto r, O M ER S V en tu re s Law re n ce O rs in i, C ofo under a n d P rin cip al, L O 3 E nerg y Pau l P acif ic o , C EO , F eatu re d A rtis ts C oalitio n Jo se P ag lie ry , S ta ff R ep orte r, C N NM oney Ste p hen P air , C ofo under a n d C EO , B itP ay I n c.

Vik ra m P an dit, F orm er C EO , C itig ro up; C oin base I n vesto r, P ortla n d S quare C ap ita l Ja ck P ete rs o n, C ore D ev elo per, A ugur Eric P is c in i, P rin cip al, B an kin g/T ech nolo gy, D elo itte C onsu ltin g Kau sik R ajg opal, S ilic o n V alle y O ffic e L ead er, M cK in se y a n d C om pan y Sure sh R am am urth i, C hair m an a n d C TO , C BW B an k Sunny R ay , C EO , U noco in .c o m Cate rin a R in di, C om munity M an ag er, S w arm C orp Eduard o R oble s E lv ir a , C TO , A gora V otin g Keo nne R odrig uez, P ro duct L ead , B lo ck ch ain L td .

Matth ew R osz ak , F ounder a n d C EO , T ally C ap ita l Colin R ule , C hair m an a n d C EO , M odria .c o m Marc o S an to ri, C ounse l, P ills b ury W in th ro p S haw P ittm an L LP Fra n k S ch uil, C EO , S afe llo Barry S ilb ert, F ounder a n d C EO , D ig ita l C urre n cy G ro up Thom as S paas, D ir e cto r, B elg iu m B itc o in A sso cia tio n Bala ji S rin iv asa n , C EO , 2 1; P artn er, A ndre esse n H oro w itz Lynn S t. A m our, F orm er P re sid en t, T he I n te rn et S ocie ty Bre tt S ta p per, F ounder a n d C EO , F alc o n G lo bal C ap ita l L LC Eliz ab eth S ta rk , V is itin g F ello w , Y ale L aw S ch ool Ju tta S te in er, E th ere u m /P ro ven an ce Mela n ie S w an , F ounder, I n stitu te f o r B lo ck ch ain S tu die s Nic k S zab o, G W U L aw Ash le y T ay lo r, C onen sy s S yste m s Sim on T ay lo r, V P E ntr e p re n eu ria l P artn ers h ip s, B arc la y s Dav id T hom so n, F ounder, A rtle ry Mic h elle T in sle y , D ir e cto r, M obility a n d P ay m en t S ecu rity , I n te l Pete r T odd, C hie f N ay sa y er, C oin K ite Ja so n T yra , C oin D esk Vale ry V av ilo v, C EO , B itF ury Ann L ouis e V eh ovec, S en io r V ic e P re sid en t, S tr a te g ic P ro je cts , R BC F in an cia l G ro up Roger V er, “ T he B itc o in J e su s,” M em ory deale rs K K Akse li V ir ta n en , H ed ge F und M an ag er, R obin H ood A sse t M an ag em en t Erik V oorh ees, C EO a n d F ounder, S hap eS hif t Jo e W ein berg , C ofo under a n d C EO , P ay case Dere k W hite , C hie f D esig n a n d D ig ita l O ffic er, B arc la y s B an k Ted W hite h ead , S en io r M an ag in g D ir e cto r, M an ulif e A sse t M an ag em en t Zooko W ilc o x-O ’H earn , C EO , L east A uth ority E nte rp ris e s Caro ly n W ilk in s, S en io r D ep uty G overn or, B an k o f C an ad a Robert W ilk in s, C EO , m yV BO Cam ero n W in kle v oss, F ounder, W in kle v oss C ap ita l Tyle r W in kle v oss, F ounder, W in kle v oss C ap ita l Pin dar W ong, I n te rn et P io neer, C hair m an o f V eriF i Gab rie l W oo, V ic e P re sid en t o f I n novatio n, R BC F in an cia l G ro up Gav in W ood, C TO , E th ere u m F oundatio n Aaro n W rig ht, P ro fe sso r, C ard ozo L aw S ch ool, Y esh iv a U niv ers ity Jo nath an Z ittr a in , H arv ard L aw S ch ool Als o s p ecia l t h an ks t o a f e w p eo ple w ho r e ally r o lle d u p t h eir s le ev es t o h elp . A nth ony W illia m s an d J o an B ig ham o f t h e G SN p ro je ct w ork ed c lo se ly w ith Ale x o n t h e o rig in al d ig ita l c u rre n cie s govern an ce p ap er. F orm er C is c o e x ecu tiv e J o an M cC alla d id d eep r e se arc h f o r t h e c h ap te rs o n th e I n te rn et o f T hin gs a n d a ls o G overn m en t a n d D em ocra cy . W e r e ceiv ed a l o t o f f a m ilia l su pport. I T e x ecu tiv e B ob T ap sc o tt s p en t m an y d ay s d ow nlo ad in g a n d g ettin g u nder t h e h ood o f th e e n tir e b itc o in b lo ck ch ain t o g iv e u s f ir s th an d i n sig hts o n s o m e o f t h e t e ch nic al i s su es.

Tech nolo gy e n tr e p re n eu r B ill T ap sc o tt c am e u p w ith t h e r e v olu tio nary i d ea o f a b lo ck ch ain - base d p ers o nal c arb on c re d it t r a d in g s y ste m , a n d t e ch nolo gy e x ecu tiv e N ik i T ap sc o tt a n d h er husb an d, f in an cia l a n aly st J a m es L eo , h av e b een g re at s o undin g b oard s t h ro ughout. K ath erin e MacL ella n o f t h e T ap sc o tt G ro up ( c o nven ie n tly a l a w yer) t a ck le d s o m e o f t h e t o ugher i s su es aro und s m art c o ntr a cts a s w ell a s m an ag in g t h e i n te rv ie w p ro cess. P hil C ourn ey eu r w as o n t h e lo okout d aily f o r j u ic y m ate ria l, a n d D av id T ic o ll p ro vid ed h elp fu l i n sig hts a b out t h e s ta te o f t h e dig ita l a g e s o f a r. W es N eff a n d B ill L eig h o f t h e L eig h B ure au h elp ed u s c ra ft t h e b ook c o ncep t (h ow m an y b ooks i s t h is , g uys? ). A s a lw ay s ( n ow m ore t h an t w en ty y ears ), J o dy S te v en s fla w le ssly m an ag ed t h e a d m in is tr a tio n f o r t h e e n tir e p ro je ct i n clu din g d ata b ase s, f in an ces, a n d docu m en t m an ag em en t, a s w ell a s t h e p ro ofre ad in g a n d p ro ductio n p ro cess— a f u ll- tim e j o b, i n ad ditio n t o h er o th er f u ll- tim e j o bs a t t h e T ap sc o tt G ro up.

Specia l t h an ks t o D in o M ark A ngaritis , t h e C EO o f b lo ck ch ain c o m pan y S m artw alle t; Jo se p h L ubin , C EO o f t h e E th ere u m d ev elo pm en t s tu dio C onse n su s S yste m s; a n d C arlo s More ir a o f f a st- g ro w in g s e cu rity c o m pan y W IS eK ey — who e ach s p en t c o nsid era b le t im e w ith u s bra in sto rm in g i d eas. T hey a re e ach b rillia n t a n d s o k in d t o h elp u s o ut. N ow w e g et t o e n jo y witn essin g t h e s u ccess o f e ach o f t h eir b usin esse s i n t h is s p ace. A ls o b ig t h an ks t o t h e g re at t e am at P en guin R an dom H ouse l e d b y o ur e d ito r J e sse M aesh ir o a n d o vers e en b y A dria n Z ack heim .

Most i m porta n t, w e’d l ik e t o g iv e o ur h eartf e lt t h an ks t o o ur w iv es, A na L opes ( D on) a n d Am y W els m an ( A le x ), w ho m ore t h an t o le ra te d o ur o bse ssio n w ith c ra ck in g t h is b ig n ut o ver t h e bette r p art o f a y ear. W e a re b oth v ery f o rtu nate t o h av e s u ch w onderfu l l if e p artn ers .

Writin g t h is b ook h as b een a j o yous e x perie n ce f o r b oth o f u s a n d i t’ s f a ir t o s a y t h at w e lo ved e v ery m in ute o f i t. A s s o m eo ne f a m ous o nce s a id , “ If t w o p eo ple a g re e o n e v ery th in g, o ne of t h em i s u nnecessa ry .” W e c h alle n ged e ach o th er d aily t o t e st o ur b elie fs a n d a ssu m ptio ns, a n d th is b ook i s l iv in g p ro of o f t h at h ealth y a n d v ig oro us c o lla b ora tio n. M in d y ou, c o lla b ora tin g d oes se em e ffo rtle ss w hen y ou s h are s o m uch D NA a n d h av e a s h are d t h ir ty -y ear h is to ry o f e x plo rin g th e w orld t o geth er. W e d o h ope y ou f in d t h e p ro duct o f t h is c o lla b ora tio n i m porta n t a n d h elp fu l.

Don T ap sc o tt a n d A le x T ap sc o tt, J an uary 2 016 PA RT I SA Y Y OU W ANT A REV OLU TIO N I CH APT ER 1 TH E T R U ST P R O TO CO L t a p pears t h at o nce a g ain , t h e t e ch nolo gic al g en ie h as b een u nle ash ed f ro m i ts b ottle .

Sum moned b y a n u nknow n p ers o n o r p ers o ns w ith u ncle ar m otiv es, a t a n u ncerta in t im e i n h is to ry , t h e g en ie i s n ow a t o ur s e rv ic e f o r a n oth er k ic k a t t h e c an — to t r a n sfo rm t h e e co nom ic p ow er g rid a n d t h e o ld o rd er o f h um an a ffa ir s f o r t h e b ette r. I f w e w ill i t.

Let u s e x pla in .

The f ir s t f o ur d ecad es o f t h e I n te rn et b ro ught u s e -m ail, t h e W orld W id e W eb , d ot- c o m s, s o cia l m ed ia , t h e m obile W eb , b ig d ata , c lo ud c o m putin g, a n d t h e e arly d ay s o f t h e I n te rn et o f T hin gs. I t h as b een g re at f o r r e d ucin g t h e c o sts o f s e arc h in g, c o lla b ora tin g, a n d e x ch an gin g i n fo rm atio n. I t h as l o w ere d t h e b arrie rs t o e n tr y f o r n ew m ed ia a n d e n te rta in m en t, n ew f o rm s o f r e ta ilin g a n d o rg an iz in g w ork , a n d u npre ced en te d d ig ita l v en tu re s. T hro ugh s e n so r t e ch nolo gy, i t h as i n fu se d i n te llig en ce i n to o ur w alle ts , o ur c lo th in g, o ur a u to m obile s, o ur b uild in gs, o ur c itie s, a n d e v en o ur b io lo gy. I t i s s a tu ra tin g o ur e n vir o nm en t s o c o m ple te ly t h at s o on w e w ill n o l o nger “ lo g o n” b ut r a th er g o a b out o ur b usin ess a n d o ur l iv es i m mers e d i n p erv asiv e t e ch nolo gy.

Overa ll, t h e I n te rn et h as e n ab le d m an y p ositiv e c h an ges— fo r t h ose w ith a ccess t o i t— but i t h as s e rio us l im ita tio ns f o r b usin ess a n d e co nom ic a ctiv ity .

The N ew Y ork er c o uld r e ru n P ete r S te in er’s 1 993 c arto on o f o ne d og t a lk in g t o a n oth er w ith out r e v is io n: “ O n t h e I n te rn et, n obody k now s y ou’re a d og.” O nlin e, w e s till c an ’t r e lia b ly e sta b lis h o ne a n oth er’s i d en titie s o r t r u st o ne a n oth er t o t r a n sa ct a n d e x ch an ge m oney w ith out v alid atio n f ro m a t h ir d p arty l ik e a b an k o r a g overn m en t. T hese s a m e i n te rm ed ia rie s c o lle ct o ur d ata a n d i n vad e o ur p riv acy f o r c o m merc ia l g ain a n d n atio nal se cu rity . E ven w ith t h e I n te rn et, t h eir c o st s tr u ctu re e x clu des s o m e 2 .5 b illio n p eo ple f ro m t h e g lo bal f in an cia l s y ste m . D esp ite t h e p ro m is e o f a p eer-to -p eer e m pow ere d w orld , t h e e co nom ic a n d p olitic al b en efits h av e p ro ven t o b e a sy m metr ic al— with p ow er a n d p ro sp erity c h an nele d t o t h ose w ho a lr e ad y h av e i t, e v en i f t h ey ’re n o l o nger e arn in g i t. M oney i s m ak in g m ore m oney t h an m an y p eo ple d o.

Tech nolo gy d oesn ’t c re ate p ro sp erity a n y m ore t h an i t d estr o ys p riv acy . H ow ev er, i n t h is d ig ita l a g e, t e ch nolo gy i s a t t h e h eart o f j u st a b out e v ery th in g— good a n d b ad . I t e n ab le s h um an s t o v alu e a n d t o v io la te o ne a n oth er’s r ig hts i n p ro fo und n ew w ay s. T he e x plo sio n i n o nlin e c o m munic atio n a n d c o m merc e i s c re atin g m ore o pportu nitie s f o r c y berc rim e. M oore ’s l a w o f t h e a n nual d oublin g o f p ro cessin g p ow er d ouble s t h e p ow er o f f ra u dste rs a n d t h ie v es— “M oore ’s O utla w s” 1 —not t o m en tio n s p am mers , i d en tity t h ie v es, p his h ers , s p ie s, z o m bie f a rm ers , h ack ers , c y berb ullie s, a n d d ata n ap pers — crim in als w ho u nle ash r a n so m ware t o h old d ata h osta g e— th e l is t g oes o n. IN S E A RCH O F T H E T R UST P R O TO CO L As e arly a s 1 981, i n ven to rs w ere a tte m ptin g t o s o lv e t h e I n te rn et’ s p ro ble m s o f p riv acy , s e cu rity , an d i n clu sio n w ith c ry pto gra p hy. N o m atte r h ow t h ey r e en gin eere d t h e p ro cess, t h ere w ere alw ay s l e ak s b ecau se t h ir d p artie s w ere i n volv ed . P ay in g w ith c re d it c ard s o ver t h e I n te rn et w as in se cu re b ecau se u se rs h ad t o d iv ulg e t o o m uch p ers o nal d ata , a n d t h e t r a n sa ctio n f e es w ere t o o hig h f o r s m all p ay m en ts .

In 1 993, a b rillia n t m ath em atic ia n n am ed D av id C hau m c am e u p w ith e C ash , a d ig ita l pay m en t s y ste m t h at w as “ a t e ch nic ally p erfe ct p ro duct w hic h m ad e i t p ossib le t o s a fe ly a n d an onym ously p ay o ver t h e I n te rn et. . . . I t w as p erfe ctly s u ite d t o s e n din g e le ctr o nic p en nie s, nic k els , a n d d im es o ver t h e I n te rn et.” 2 I t w as s o p erfe ct t h at M ic ro so ft a n d o th ers w ere i n te re ste d in i n clu din g e C ash a s a f e atu re i n t h eir s o ftw are .

3 T he t r o uble w as, o nlin e s h oppers d id n’t c are ab out p riv acy a n d s e cu rity o nlin e t h en . C hau m ’s D utc h c o m pan y D ig iC ash w en t b an kru pt i n 1998.

Aro und t h at t im e, o ne o f C hau m ’s a sso cia te s, N ic k S zab o, w ro te a s h ort p ap er e n title d “ T he God P ro to co l,” a t w is t o n N obel l a u re ate L eo n L ed erm an ’s p hra se “ th e G od p artic le ,” r e fe rrin g to t h e i m porta n ce o f t h e H ig gs boso n t o m odern p hysic s. I n h is p ap er, S zab o m use d a b out t h e cre atio n o f a b e-a ll e n d-a ll t e ch nolo gy p ro to co l, o ne t h at d esig nate d G od t h e t r u ste d t h ir d p arty i n th e m id dle o f a ll t r a n sa ctio ns: “ A ll t h e p artie s w ould s e n d t h eir i n puts t o G od. G od w ould re lia b ly d ete rm in e t h e r e su lts a n d r e tu rn t h e o utp uts . G od b ein g t h e u ltim ate i n c o nfe ssio nal dis c re tio n, n o p arty w ould l e arn a n yth in g m ore a b out t h e o th er p artie s’ i n puts t h an t h ey c o uld le arn f ro m t h eir o w n i n puts a n d t h e o utp ut.” 4 H is p oin t w as p ow erfu l: D oin g b usin ess o n t h e In te rn et r e q uir e s a l e ap o f f a ith . B ecau se t h e i n fra str u ctu re l a ck s t h e m uch -n eed ed s e cu rity , w e ofte n h av e l ittle c h oic e b ut t o t r e at t h e m id dle m en a s i f t h ey w ere d eitie s.

A d ecad e l a te r i n 2 008, t h e g lo bal f in an cia l i n dustr y c ra sh ed . P erh ap s p ro pitio usly , a pse u donym ous p ers o n o r p ers o ns n am ed S ato sh i N ak am oto o utlin ed a n ew p ro to co l f o r a p eer- to -p eer e le ctr o nic c ash s y ste m u sin g a c ry pto cu rre n cy c alle d b itc o in . C ry pto cu rre n cie s ( d ig ita l cu rre n cie s) a re d if fe re n t f ro m t r a d itio nal f ia t c u rre n cie s b ecau se t h ey a re n ot c re ate d o r c o ntr o lle d by c o untr ie s. T his p ro to co l e sta b lis h ed a s e t o f r u le s— in t h e f o rm o f d is tr ib ute d c o m puta tio ns— th at e n su re d t h e in te g rity of t h e d ata e x ch an ged a m ong t h ese b illio ns o f d ev ic es with out g oin g th ro ugh a t r u ste d t h ir d p arty .

T his s e em in gly s u btle a ct s e t o ff a s p ark t h at h as e x cite d , t e rrif ie d , or o th erw is e c ap tu re d t h e i m ag in atio n o f t h e c o m putin g w orld a n d h as s p re ad l ik e w ild fir e t o busin esse s, g overn m en ts , p riv acy a d vocate s, s o cia l d ev elo pm en t a ctiv is ts , m ed ia t h eo ris ts , a n d jo urn alis ts , t o n am e a f e w , e v ery w here .

“T hey ’re l ik e, ‘ O h m y g od, t h is i s i t. T his i s t h e b ig b re ak th ro ugh. T his i s t h e t h in g w e’v e been w aitin g f o r,’ ” s a id M arc A ndre esse n , t h e c o cre ato r o f t h e f ir s t c o m merc ia l W eb b ro w se r, Nets c ap e, a n d a b ig i n vesto r i n t e ch nolo gy v en tu re s. “ ‘H e s o lv ed a ll t h e p ro ble m s. W hoev er h e i s sh ould g et t h e N obel P riz e— he’s a g en iu s.’ T his i s t h e t h in g! T his i s t h e d is tr ib ute d t r u st n etw ork th at t h e I n te rn et a lw ay s n eed ed a n d n ev er h ad .” 5 Today t h oughtf u l p eo ple e v ery w here a re t r y in g t o u nders ta n d t h e i m plic atio ns o f a p ro to co l th at e n ab le s m ere m orta ls t o m an ufa ctu re t r u st t h ro ugh c le v er c o de. T his h as n ev er h ap pen ed befo re — tr u ste d t r a n sa ctio ns d ir e ctly b etw een t w o o r m ore p artie s, a u th en tic ate d b y m ass co lla b ora tio n a n d p ow ere d b y c o lle ctiv e s e lf -in te re sts , r a th er t h an b y l a rg e c o rp ora tio ns motiv ate d b y p ro fit. It m ay n ot b e t h e A lm ig hty , b ut a t r u stw orth y g lo bal p la tf o rm f o r o ur t r a n sa ctio ns i s so m eth in g v ery b ig . W e’re c allin g i t t h e T ru st P ro to co l.

This p ro to co l i s t h e f o undatio n o f a g ro w in g n um ber o f g lo bal d is tr ib ute d l e d gers c alle d blo ck ch ain s— of w hic h t h e b itc o in b lo ck ch ain i s t h e l a rg est. W hile t h e t e ch nolo gy i s c o m plic ate d an d t h e w ord blo ckch ain i s n ’t e x actly s o noro us, t h e m ain i d ea i s s im ple . B lo ck ch ain s e n ab le u s to s e n d m oney d ir e ctly a n d s a fe ly f ro m m e t o y ou, w ith out g oin g t h ro ugh a b an k, a c re d it c ard co m pan y, o r P ay P al.

Rath er t h an t h e I n te rn et o f I n fo rm atio n, i t’ s t h e I n te rn et o f V alu e o r o f M oney . I t’ s a ls o a pla tf o rm f o r e v ery one t o k now w hat i s t r u e— at l e ast w ith r e g ard t o s tr u ctu re d r e co rd ed in fo rm atio n. A t i ts m ost b asic , i t i s a n o pen s o urc e c o de: a n yone c an d ow nlo ad i t f o r f re e, r u n i t, an d u se i t t o d ev elo p n ew t o ols f o r m an ag in g t r a n sa ctio ns o nlin e. A s s u ch , i t h old s t h e p ote n tia l fo r u nle ash in g c o untle ss n ew a p plic atio ns a n d a s y et u nre aliz ed c ap ab ilitie s t h at h av e t h e pote n tia l t o t r a n sfo rm m an y t h in gs.

HOW T H IS W ORLD W ID E L ED G ER W ORK S Big b an ks a n d s o m e g overn m en ts a re i m ple m en tin g b lo ck ch ain s a s d is tr ib ute d l e d gers t o re v olu tio niz e t h e w ay i n fo rm atio n i s s to re d a n d t r a n sa ctio ns o ccu r. T heir g oals a re l a u dab le — sp eed , l o w er c o st, s e cu rity , f e w er e rro rs , a n d t h e e lim in atio n o f c en tr a l p oin ts o f a tta ck a n d fa ilu re . T hese m odels d on’t n ecessa rily i n volv e a c ry pto cu rre n cy f o r p ay m en ts .

How ev er, t h e m ost i m porta n t a n d f a r-re ach in g b lo ck ch ain s a re b ase d o n S ato sh i’ s b itc o in model. H ere ’s h ow t h ey w ork .

Bitc o in o r o th er d ig ita l c u rre n cy i s n ’t s a v ed i n a f ile s o m ew here ; i t’ s r e p re se n te d b y tr a n sa ctio ns r e co rd ed i n a b lo ck ch ain — kin d o f l ik e a g lo bal s p re ad sh eet o r l e d ger, w hic h le v era g es t h e r e so urc es o f a l a rg e p eer-to -p eer b itc o in n etw ork t o v erif y a n d a p pro ve e ach b itc o in tr a n sa ctio n. E ach b lo ck ch ain , l ik e t h e o ne t h at u se s b itc o in , i s dis tr ib ute d : i t r u ns o n c o m pute rs pro vid ed b y v olu nte ers a ro und t h e w orld ; t h ere i s n o c en tr a l d ata b ase t o h ack . T he b lo ck ch ain i s public : a n yone c an v ie w i t a t a n y t im e b ecau se i t r e sid es o n t h e n etw ork , n ot w ith in a s in gle in stitu tio n c h arg ed w ith a u ditin g t r a n sa ctio ns a n d k eep in g r e co rd s. A nd t h e b lo ck ch ain i s en cry p te d : i t u se s h eav y-d uty e n cry ptio n i n volv in g p ublic a n d p riv ate k ey s ( ra th er l ik e t h e t w o- key s y ste m t o a ccess a s a fe ty d ep osit b ox) t o m ain ta in vir tu al s e cu rity . Y ou n eed n’t w orry a b out th e w eak f ir e w alls o f T arg et o r H om e D ep ot o r a t h ie v in g s ta ffe r o f M org an S ta n le y o r t h e U .S .

fe d era l g overn m en t.

Every t e n m in ute s, l ik e t h e h eartb eat o f t h e b itc o in n etw ork , a ll t h e t r a n sa ctio ns c o nducte d are v erif ie d , c le are d , a n d s to re d i n a b lo ck w hic h i s l in ked t o t h e p re ced in g b lo ck , t h ere b y cre atin g a c h ain . E ach b lo ck m ust r e fe r t o t h e p re ced in g b lo ck t o b e v alid . T his s tr u ctu re perm an en tly t im e-s ta m ps a n d s to re s e x ch an ges o f v alu e, p re v en tin g a n yone f ro m a lte rin g t h e le d ger. I f y ou w an te d t o s te al a b itc o in , y ou’d h av e t o r e w rite t h e c o in ’s e n tir e h is to ry o n t h e blo ck ch ain i n b ro ad d ay lig ht. T hat’ s p ra ctic ally i m possib le . S o t h e b lo ck ch ain i s a d is tr ib ute d le d ger r e p re se n tin g a n etw ork c o nse n su s o f e v ery t r a n sa ctio n t h at h as e v er o ccu rre d . L ik e t h e World W id e W eb o f i n fo rm atio n, i t’ s t h e W orld W id e L ed ger o f v alu e— a d is tr ib ute d l e d ger t h at ev ery one c an d ow nlo ad a n d r u n o n t h eir p ers o nal c o m pute r.

Som e s c h ola rs h av e a rg ued t h at t h e i n ven tio n o f d ouble -e n tr y b ookkeep in g e n ab le d t h e r is e of c ap ita lis m a n d t h e n atio n-s ta te . T his n ew d ig ita l l e d ger o f e co nom ic t r a n sa ctio ns c an b e pro gra m med t o r e co rd v ir tu ally e v ery th in g o f v alu e a n d i m porta n ce t o h um an kin d: b ir th a n d death c ertif ic ate s, m arria g e l ic en se s, d eed s a n d t itle s o f o w ners h ip , e d ucatio nal d eg re es, f in an cia l acco unts , m ed ic al p ro ced ure s, i n su ra n ce c la im s, v ote s, p ro ven an ce o f f o od, a n d a n yth in g e ls e th at c an b e e x pre sse d i n c o de.

The n ew p la tf o rm e n ab le s a r e co ncilia tio n o f d ig ita l r e co rd s r e g ard in g j u st a b out e v ery th in g in r e al t im e. I n f a ct, s o on b illio ns o f s m art t h in gs i n t h e p hysic al w orld w ill b e s e n sin g, re sp ondin g, c o m munic atin g, b uyin g t h eir o w n e le ctr ic ity a n d s h arin g i m porta n t d ata , d oin g ev ery th in g f ro m p ro te ctin g o ur e n vir o nm en t t o m an ag in g o ur h ealth . T his I n te rn et o f E very th in g need s a L ed ger o f E very th in g. B usin ess, c o m merc e, a n d t h e e co nom y n eed a D ig ita l R eck onin g.

So w hy s h ould y ou c are ? W e b elie v e t h e t r u th ca n s e t u s f re e a n d d is tr ib ute d t r u st w ill pro fo undly a ffe ct p eo ple i n a ll w alk s o f l if e . M ay be y ou’re a m usic l o ver w ho w an ts a rtis ts t o mak e a l iv in g o ff t h eir a rt. O r a c o nsu m er w ho w an ts t o k now w here t h at h am burg er m eat r e ally cam e f ro m . P erh ap s y ou’re a n i m mig ra n t w ho’s s ic k o f p ay in g b ig f e es t o s e n d m oney h om e t o lo ved o nes i n y our a n cestr a l l a n d. O r a S au di w om an w ho w an ts t o p ublis h h er o w n f a sh io n mag azin e. M ay be y ou’re a n a id w ork er w ho n eed s t o id en tif y l a n d t itle s o f l a n dow ners s o y ou can r e b uild t h eir h om es a fte r a n e arth quak e. O r a c itiz en f e d u p w ith t h e l a ck o f t r a n sp are n cy a n d acco unta b ility o f p olitic al l e ad ers . O r a u se r o f s o cia l m ed ia w ho v alu es y our p riv acy a n d t h in ks all t h e d ata y ou g en era te m ig ht b e w orth s o m eth in g— to y ou. E ven a s w e w rite , i n novato rs a re build in g b lo ck ch ain -b ase d a p plic atio ns t h at s e rv e t h ese e n ds. A nd t h ey a re j u st t h e b eg in nin g.

A R ATIO NAL E X UBER ANCE F O R T H E B LO CK CH AIN For s u re , b lo ck ch ain t e ch nolo gy h as p ro fo und i m plic atio ns f o r m an y i n stitu tio ns. W hic h h elp s ex pla in a ll t h e e x cite m en t f ro m m an y s m art a n d i n flu en tia l p eo ple . B en L aw sk y q uit h is j o b a s th e s u perin te n den t o f f in an cia l s e rv ic es f o r N ew Y ork S ta te t o b uild a n a d vis o ry c o m pan y i n t h is sp ace. H e t o ld u s, “ In f iv e t o t e n y ears , t h e f in an cia l s y ste m m ay b e u nre co gniz ab le . . . a n d I wan t t o b e p art o f t h e c h an ge.” 6 B ly th e M aste rs , f o rm erly c h ie f f in an cia l o ffic er a n d h ead o f Glo bal C om moditie s a t J P M org an ’s i n vestm en t b an k, l a u nch ed a b lo ck ch ain -fo cu se d te ch nolo gy s ta rt- u p t o t r a n sfo rm t h e i n dustr y . T he c o ver o f t h e O cto ber 2 015 Blo om berg Mark ets fe atu re d M aste rs w ith t h e h ead lin e “ It’ s A ll A bout t h e B lo ck ch ain .” L ik ew is e , The E co nom is t r a n an O cto ber 2 015 c o ver s to ry , “ T he T ru st M ach in e,” w hic h a rg ued t h at “ th e t e ch nolo gy b eh in d bitc o in c o uld c h an ge h ow t h e e co nom y w ork s.” 7 T o The E co nom is t , b lo ck ch ain t e ch nolo gy i s “th e g re at c h ain o f b ein g s u re a b out t h in gs.” B an ks e v ery w here a re s c ra m blin g t o p-le v el t e am s t o in vestig ate o pportu nitie s, s o m e o f t h ese w ith d ozen s o f c ra ck erja ck t e ch nolo gis ts . B an kers l o ve th e i d ea o f s e cu re , f ric tio nle ss, a n d i n sta n t t r a n sa ctio ns, b ut s o m e f lin ch a t t h e i d ea o f o pen ness, decen tr a liz atio n, a n d n ew f o rm s o f c u rre n cy . T he f in an cia l s e rv ic es i n dustr y h as a lr e ad y re b ra n ded a n d p riv atiz ed b lo ck ch ain t e ch nolo gy, r e fe rrin g t o i t a s dis tr ib ute d l e d ger t e ch nolo gy, in a n a tte m pt t o r e co ncile t h e b est o f b itc o in — se cu rity , s p eed , a n d c o st— with a n e n tir e ly c lo se d sy ste m t h at r e q uir e s a b an k o r f in an cia l i n stitu tio n’s p erm is sio n t o u se . T o t h em , b lo ck ch ain s a re more r e lia b le d ata b ase s t h an w hat t h ey a lr e ad y h av e, d ata b ase s t h at e n ab le k ey s ta k eh old ers — buyers , s e lle rs , c u sto dia n s, a n d r e g ula to rs — to k eep s h are d , i n delib le r e co rd s, t h ere b y r e d ucin g co st, m itig atin g s e ttle m en t r is k , a n d e lim in atin g c en tr a l p oin ts o f f a ilu re .

In vestin g i n b lo ck ch ain s ta rt- u ps i s t a k in g o ff, a s d id i n vestin g i n dot- c o m s i n t h e 1 990s.

Ven tu re c ap ita lis ts a re s h ow in g e n th usia sm a t a l e v el t h at w ould m ak e a 1 990s d ot- c o m i n vesto r blu sh . I n 2 014 a n d 2 015 a lo ne, m ore t h an $ 1 b illio n o f v en tu re c ap ita l f lo oded i n to t h e e m erg in g blo ck ch ain e co sy ste m , a n d t h e r a te o f i n vestm en t i s a lm ost d oublin g a n nually .

8 “ W e’re q uite co nfid en t,” s a id M arc A ndre esse n i n a n i n te rv ie w w ith The W ash in gto n P ost, “th at w hen w e’re sittin g h ere i n 2 0 y ears , w e’ll b e t a lk in g a b out [ b lo ck ch ain t e ch nolo gy] t h e w ay w e t a lk a b out t h e In te rn et t o day .” 9 Reg ula to rs h av e a ls o s n ap ped t o a tte n tio n, e sta b lis h in g t a sk f o rc es t o e x plo re w hat k in d o f le g is la tio n, i f a n y, m ak es s e n se . A uth orita ria n g overn m en ts l ik e R ussia ’s h av e b an ned o r se v ere ly l im ite d t h e u se o f b itc o in , a s h av e d em ocra tic s ta te s t h at s h ould k now b ette r, l ik e Arg en tin a, g iv en i ts h is to ry o f c u rre n cy c ris e s. M ore t h oughtf u l g overn m en ts i n t h e W est a re in vestin g c o nsid era b ly i n u nders ta n din g h ow t h e n ew t e ch nolo gy c o uld t r a n sfo rm n ot o nly cen tr a l b an kin g a n d t h e n atu re o f m oney , b ut a ls o g overn m en t o pera tio ns a n d t h e n atu re o f dem ocra cy . C aro ly n W ilk in s, t h e s e n io r d ep uty g overn or o f t h e B an k o f C an ad a, b elie v es i t’ s tim e f o r c en tr a l b an ks e v ery w here t o s e rio usly s tu dy t h e i m plic atio ns o f m ovin g e n tir e n atio nal cu rre n cy s y ste m s t o d ig ita l m oney . T he B an k o f E ngla n d’s t o p e co nom is t, A ndre w H ald an e, h as pro pose d a n atio nal d ig ita l c u rre n cy f o r t h e U nite d K in gdom .

10 These a re h ead y t im es. T o b e s u re , t h e g ro w in g t h ro ng o f e n th usia sts h as i ts s h are o f opportu nis ts , s p ecu la to rs , a n d c rim in als . T he f ir s t t a le m ost p eo ple h ear a b out d ig ita l c u rre n cie s is t h e b an kru ptc y o f t h e M t. G ox e x ch an ge o r t h e c o nvic tio n o f R oss W illia m U lb ric h t, f o under of t h e S ilk R oad d ark net m ark et s e iz ed b y t h e F ed era l B ure au o f I n vestig atio n f o r t r a ffic k in g ille g al d ru gs, c h ild p orn ogra p hy, a n d w eap ons u sin g t h e b itc o in b lo ck ch ain a s a p ay m en t s y ste m .

Bitc o in ’s p ric e h as f lu ctu ate d d ra stic ally , a n d t h e o w ners h ip o f b itc o in s i s s till c o ncen tr a te d . A 2013 s tu dy s h ow ed t h at 9 37 p eo ple o w ned h alf o f a ll b itc o in , a lth ough t h at i s c h an gin g t o day .

11 How d o w e g et f ro m p orn a n d P onzi s c h em es t o p ro sp erity ? T o b eg in , i t’ s n ot b itc o in , t h e still s p ecu la tiv e a sse t, t h at s h ould i n te re st y ou, u nle ss y ou’re a t r a d er. T his b ook i s a b out so m eth in g b ig ger t h an t h e a sse t. I t’ s a b out t h e p ow er a n d p ote n tia l o f t h e u nderly in g te ch nolo gic al p la tf o rm .

This i s n ot t o s a y t h at b itc o in o r c ry pto cu rre n cie s p er s e a re u nim porta n t, a s s o m e p eo ple hav e s u ggeste d a s t h ey s c ra m ble t o d is a sso cia te t h eir p ro je cts f ro m t h e s c an dalo us v en tu re s o f th e p ast. T hese c u rre n cie s a re critic al t o t h e b lo ck ch ain r e v olu tio n, w hic h i s f ir s t a n d f o re m ost ab out t h e p eer-to -p eer e x ch an ge o f v alu e, e sp ecia lly m oney .

ACH IE V IN G T R UST I N T H E D IG IT A L A G E Tru st i n b usin ess i s t h e e x pecta tio n t h at t h e o th er p arty w ill b eh av e a cco rd in g t o t h e f o ur prin cip le s o f i n te g rity : h onesty , c o nsid era tio n, a cco unta b ility , a n d t r a n sp are n cy .

12 Hon esty i s n ot j u st a n e th ic al i s su e; i t h as b eco m e a n e co nom ic o ne. T o e sta b lis h t r u stin g re la tio nsh ip s w ith e m plo yees, p artn ers , c u sto m ers , s h are h old ers , a n d t h e p ublic , o rg an iz atio ns must b e t r u th fu l, a ccu ra te , a n d c o m ple te i n c o m munic atio ns. N o l y in g t h ro ugh o m is sio n, n o obfu sc atio n t h ro ugh c o m ple x ity .

Con sid era tio n i n b usin ess o fte n m ean s a f a ir e x ch an ge o f b en efits o r d etr im en ts t h at p artie s will o pera te i n g ood f a ith . B ut t r u st r e q uir e s a g en uin e r e sp ect f o r t h e i n te re sts , d esir e s, o r fe elin gs o f o th ers , a n d t h at p artie s c an o pera te w ith g oodw ill t o w ard o ne a n oth er.

Acco u nta b ilit y m ean s m ak in g c le ar c o m mitm en ts t o s ta k eh old ers a n d a b id in g b y t h em .

In div id uals a n d i n stitu tio ns a lik e m ust d em onstr a te t h at t h ey h av e h onore d t h eir c o m mitm en ts an d o w ned t h eir b ro ken p ro m is e s, p re fe ra b ly w ith t h e v erif ic atio n o f t h e s ta k eh old ers t h em se lv es or i n dep en den t o uts id e e x perts . N o p assin g t h e b uck , n o p la y in g t h e b la m e g am e.

Tra n sp aren cy m ean s o pera tin g o ut i n t h e o pen , i n t h e l ig ht o f d ay . “ W hat a re t h ey h id in g?” is a s ig n o f p oor t r a n sp are n cy t h at l e ad s t o d is tr u st. O f c o urs e , c o m pan ie s h av e l e g itim ate r ig hts to t r a d e s e cre ts a n d o th er k in ds o f p ro prie ta ry i n fo rm atio n. B ut w hen i t c o m es t o p ertin en t in fo rm atio n f o r c u sto m ers , s h are h old ers , e m plo yees, a n d o th er s ta k eh old ers , a ctiv e o pen ness i s cen tr a l t o e arn in g t r u st. R ath er t h an d re ssin g f o r s u ccess, c o rp ora tio ns c an u ndre ss f o r s u ccess.

Tru st i n b usin ess a n d o th er i n stitu tio ns i s m ostly a t a n a ll- tim e l o w . T he p ublic r e la tio ns co m pan y E delm an ’s 2 015 “ T ru st B aro m ete r” i n dic ate s t h at t r u st i n i n stitu tio ns, e sp ecia lly co rp ora tio ns, h as f a lle n b ack t o l e v els f ro m t h e d is m ally l o w p erio d o f t h e 2 008 g re at r e cessio n.

Edelm an n ote d t h at e v en t h e o nce i m pre g nab le t e ch nolo gy i n dustr y , s till t h e m ost t r u ste d busin ess s e cto r, s a w d eclin es i n t h e m ajo rity o f c o untr ie s f o r t h e f ir s t t im e. G lo bally , C EO s a n d govern m en t o ffic ia ls c o ntin ue t o b e t h e l e ast c re d ib le in fo rm atio n s o urc es, l a g gin g f a r b eh in d acad em ic o r i n dustr y e x perts .

13 S im ila rly , G allu p r e p orte d i n i ts 2 015 s u rv ey o f A m eric an co nfid en ce i n i n stitu tio ns t h at “ b usin ess” r a n ked s e co nd l o w est a m ong t h e f if te en i n stitu tio ns measu re d ; f e w er t h an 2 0 p erc en t o f r e sp onden ts i n dic ate d t h ey h ad c o nsid era b le o r h ig h l e v els o f tr u st. O nly t h e U .S . C ongre ss h ad a l o w er s c o re .

14 In t h e p re b lo ck ch ain w orld , t r u st i n t r a n sa ctio ns d eriv ed f ro m i n div id uals , i n te rm ed ia rie s, o r oth er o rg an iz atio ns a ctin g w ith i n te g rity . B ecau se w e o fte n c an ’t k now o ur c o unte rp artie s, l e t alo ne w heth er t h ey h av e i n te g rity , w e’v e c o m e t o r e ly o n t h ir d p artie s n ot o nly t o v ouch f o r str a n gers , b ut a ls o t o m ain ta in t r a n sa ctio n r e co rd s a n d p erfo rm t h e b usin ess l o gic a n d t r a n sa ctio n lo gic t h at p ow ers c o m merc e o nlin e. T hese p ow erfu l i n te rm ed ia rie s— ban ks, g overn m en ts , Pay P al, V is a , U ber, A pple , G oogle , a n d o th er d ig ita l c o nglo m era te s— harv est m uch o f t h e v alu e.

In t h e e m erg in g b lo ck ch ain w orld , t r u st d eriv es f ro m t h e n etw ork a n d e v en f ro m o bje cts o n th e n etw ork . C arlo s M ore ir a o f t h e c ry pto gra p hic s e cu rity c o m pan y W IS eK ey s a id t h at t h e n ew te ch nolo gie s e ffe ctiv ely d ele g ate t r u st— ev en t o p hysic al t h in gs. “ If a n o bje ct, w heth er i t b e a se n so r o n a c o m munic atio ns t o w er, a l ig ht b ulb , o r a h eart m onito r, i s n ot t r u ste d t o p erfo rm w ell or p ay f o r s e rv ic es i t w ill b e r e je cte d b y t h e o th er o bje cts a u to m atic ally .” 15 T he l e d ger i ts e lf i s th e f o undatio n o f t r u st.

16 To b e c le ar, “ tr u st” r e fe rs t o b uyin g a n d s e llin g g oods a n d s e rv ic es a n d t o t h e i n te g rity a n d pro te ctio n o f i n fo rm atio n, n ot t r u st i n a ll b usin ess a ffa ir s . H ow ev er, y ou w ill r e ad t h ro ughout t h is book h ow a g lo bal l e d ger o f t r u th fu l i n fo rm atio n c an h elp b uild i n te g rity i n to a ll o ur i n stitu tio ns an d c re ate a m ore s e cu re a n d t r u stw orth y w orld . I n o ur v ie w , c o m pan ie s t h at c o nduct s o m e o r a ll of t h eir t r a n sa ctio ns o n t h e b lo ck ch ain w ill e n jo y a t r u st b um p i n s h are p ric e. S hare h old ers a n d citiz en s w ill c o m e t o e x pect a ll p ublic ly t r a d ed f ir m s a n d t a x pay er-fu nded o rg an iz atio ns t o r u n th eir t r e asu rie s, a t m in im um , o n t h e b lo ck ch ain . B ecau se o f i n cre ase d t r a n sp are n cy , i n vesto rs will b e a b le t o s e e w heth er a C EO r e ally d ese rv ed t h at f a t b onus. S m art c o ntr a cts e n ab le d b y blo ck ch ain s w ill r e q uir e c o unte rp artie s t o a b id e b y t h eir c o m mitm en ts a n d v ote rs w ill b e a b le t o se e w heth er t h eir r e p re se n ta tiv es a re b ein g h onest o r a ctin g w ith f is c al i n te g rity .

RETU RN O F T H E I N TER NET The f ir s t e ra o f t h e I n te rn et s ta rte d w ith t h e e n erg y a n d s p ir it o f a y oung L uke S kyw alk er— with th e b elie f t h at a n y k id f ro m a h ars h d ese rt p la n et c o uld b rin g d ow n a n e v il e m pir e a n d s ta rt a n ew civ iliz atio n b y l a u nch in g a d ot- c o m . N aïv e t o b e s u re , b ut m an y p eo ple , p re se n t c o m pan y in clu ded , h oped t h e I n te rn et, a s e m bodie d i n t h e W orld W id e W eb , w ould d is ru pt t h e i n dustr ia l world w here p ow er w as g rip ped b y t h e f e w a n d p ow er s tr u ctu re s w ere h ard t o c lim b a n d h ard er to t o pple . U nlik e t h e o ld m ed ia t h at w ere c en tr a liz ed a n d c o ntr o lle d b y p ow erfu l f o rc es, a n d where t h e u se rs w ere i n ert, t h e n ew m ed ia w ere d is tr ib ute d a n d n eu tr a l, a n d e v ery one w as a n activ e p artic ip an t r a th er t h an a p assiv e r e cip ie n t. L ow c o st a n d m assiv e p eer-to -p eer co m munic atio n o n t h e I n te rn et w ould h elp u nderm in e t r a d itio nal h ie ra rc h ie s a n d h elp w ith t h e in clu sio n o f d ev elo pin g w orld c itiz en s i n t h e g lo bal e co nom y. V alu e a n d r e p uta tio n w ould d eriv e fro m q uality o f c o ntr ib utio n, n ot s ta tu s. I f y ou w ere s m art a n d h ard w ork in g i n I n dia , y our m erit would b rin g y ou r e p uta tio n. T he w orld w ould b e f la tte r, m ore m erito cra tic , m ore f le x ib le , a n d more f lu id . M ost i m porta n t, t e ch nolo gy w ould c o ntr ib ute t o p ro sp erity f o r e v ery one, n ot j u st wealth f o r t h e f e w .

Som e o f t h is h as c o m e t o p ass. T here h av e b een m ass c o lla b ora tio ns l ik e W ik ip ed ia , L in ux, an d G ala x y Z oo. O uts o urc in g a n d n etw ork ed b usin ess m odels h av e e n ab le d p eo ple i n t h e dev elo pin g w orld t o p artic ip ate i n t h e g lo bal e co nom y b ette r. T oday t w o b illio n p eo ple co lla b ora te a s p eers s o cia lly . W e a ll h av e a ccess t o i n fo rm atio n i n u npre ced en te d w ay s.

How ev er, t h e E m pir e s tr u ck b ack . I t h as b eco m e c le ar t h at c o ncen tr a te d p ow ers i n b usin ess an d g overn m en t h av e b en t t h e o rig in al d em ocra tic a rc h ite ctu re o f t h e I n te rn et t o t h eir w ill.

Huge i n stitu tio ns n ow c o ntr o l a n d o w n t h is n ew m ean s o f p ro ductio n a n d s o cia l i n te ra ctio n —its u nderly in g i n fra str u ctu re ; m assiv e a n d g ro w in g t r e asu re t r o ves o f d ata ; t h e a lg orith m s t h at in cre asin gly g overn b usin ess a n d d aily l if e ; t h e w orld o f a p ps; a n d e x tr a o rd in ary e m erg in g cap ab ilitie s, m ach in e l e arn in g, a n d a u to nom ous v eh ic le s. F ro m S ilic o n V alle y a n d W all S tr e et t o Shan ghai a n d S eo ul, t h is n ew a ris to cra cy u se s i ts i n sid er a d van ta g e t o e x plo it t h e m ost ex tr a o rd in ary t e ch nolo gy e v er d ev is e d t o e m pow er p eo ple a s e co nom ic a cto rs , t o b uild sp ecta cu la r f o rtu nes a n d s tr e n gth en i ts p ow er a n d i n flu en ce o ver e co nom ie s a n d s o cie tie s.

Man y o f t h e d ark s id e c o ncern s r a is e d b y e arly d ig ita l p io neers h av e p re tty m uch mate ria liz ed .

17 W e h av e g ro w th i n g ro ss d om estic p ro duct b ut n ot c o m men su ra te j o b g ro w th i n most d ev elo ped c o untr ie s. W e h av e g ro w in g w ealth c re atio n a n d g ro w in g s o cia l i n eq uality .

Pow erfu l t e ch nolo gy c o m pan ie s h av e s h if te d m uch a ctiv ity f ro m t h e o pen , d is tr ib ute d , eg alita ria n , a n d e m pow erin g W eb t o c lo se d o nlin e w alle d g ard en s o r p ro prie ta ry , r e ad -o nly ap plic atio ns t h at a m ong o th er t h in gs k ill t h e c o nvers a tio n. C orp ora te f o rc es h av e c ap tu re d m an y of t h ese w onderfu l p eer-to -p eer, d em ocra tic , a n d o pen t e ch nolo gie s a n d a re u sin g t h em t o e x tr a ct an i n ord in ate s h are o f v alu e.

The u psh ot i s t h at, i f a n yth in g, e co nom ic p ow er h as g otte n s p ik ie r, m ore c o ncen tr a te d , a n d more e n tr e n ch ed . R ath er t h an d ata b ein g m ore w id ely a n d d em ocra tic ally d is tr ib ute d , i t i s b ein g hoard ed a n d e x plo ite d b y f e w er e n titie s t h at o fte n u se i t t o c o ntr o l m ore a n d a cq uir e m ore p ow er.

If y ou a ccu m ula te d ata a n d t h e p ow er t h at c o m es w ith i t, y ou c an f u rth er f o rtif y y our p ositio n b y pro ducin g p ro prie ta ry k now le d ge. T his p riv ile g e t r u m ps m erit, r e g ard le ss o f i ts o rig in .

Furth er, p ow erfu l “ d ig ita l c o nglo m era te s” s u ch a s A m azo n, G oogle , A pple , a n d F aceb ook— all I n te rn et s ta rt- u ps a t o ne t im e— are c ap tu rin g t h e t r e asu re t r o ves o f d ata t h at c itiz en s a n d in stitu tio ns g en era te o fte n i n p riv ate d ata s ilo s r a th er t h an o n t h e W eb . W hile t h ey c re ate g re at valu e f o r c o nsu m ers , o ne u psh ot i s t h at d ata i s b eco m in g a n ew a sse t c la ss— one t h at m ay t r u m p pre v io us a sse t c la sse s. A noth er i s t h e u nderm in in g o f o ur t r a d itio nal c o ncep ts o f p riv acy a n d t h e au to nom y o f t h e i n div id ual. Govern m en ts o f a ll k in ds u se t h e I n te rn et t o i m pro ve o pera tio ns a n d s e rv ic es, b ut t h ey n ow als o d ep lo y t e ch nolo gy t o m onito r a n d e v en m an ip ula te c itiz en s. I n m an y d em ocra tic c o untr ie s, govern m en ts u se i n fo rm atio n a n d c o m munic atio ns t e ch nolo gie s t o s p y o n c itiz en s, c h an ge p ublic opin io n, f u rth er t h eir p aro ch ia l i n te re sts , u nderm in e r ig hts a n d f re ed om s, a n d o vera ll t o s ta y i n pow er. R ep re ssiv e g overn m en ts l ik e t h ose o f C hin a a n d I ra n e n clo se t h e I n te rn et, e x plo itin g i t t o cra ck d ow n o n d is se n t a n d m obiliz e c itiz en s a ro und t h eir o bje ctiv es.

This i s n ot t o s a y t h at t h e W eb i s d ead , a s s o m e h av e s u ggeste d . T he W eb i s c ritic al t o t h e fu tu re o f t h e d ig ita l w orld a n d a ll o f u s s h ould s u pport e ffo rts u nder w ay t o d efe n d i t, s u ch a s th ose o f t h e W orld W id e W eb F oundatio n, w ho a re f ig htin g t o k eep i t o pen , n eu tr a l, a n d co nsta n tly e v olv in g.

Now , w ith b lo ck ch ain t e ch nolo gy, a w orld o f n ew p ossib ilitie s h as o pen ed u p t o r e v ers e a ll th ese t r e n ds. W e n ow h av e a t r u e p eer-to -p eer p la tf o rm t h at e n ab le s t h e m an y e x citin g t h in gs we’v e d is c u sse d i n t h is b ook. W e c an e ach o w n o ur i d en titie s a n d o ur p ers o nal d ata . W e c an d o tr a n sa ctio ns, c re atin g a n d e x ch an gin g v alu e w ith out p ow erfu l i n te rm ed ia rie s a ctin g a s t h e arb ite rs o f m oney a n d i n fo rm atio n. B illio ns o f e x clu ded p eo ple c an s o on e n te r t h e g lo bal eco nom y. W e c an p ro te ct o ur p riv acy a n d m onetiz e o ur o w n i n fo rm atio n. W e c an e n su re t h at cre ato rs a re c o m pen sa te d f o r t h eir i n te lle ctu al p ro perty . R ath er t h an t r y in g t o s o lv e t h e p ro ble m of g ro w in g s o cia l i n eq uality t h ro ugh t h e r e d is tr ib utio n o f w ealth o nly , w e c an s ta rt t o c h an ge t h e way w ealth i s dis tr ib ute d —how i t i s c re ate d i n t h e f ir s t p la ce, a s p eo ple e v ery w here f ro m fa rm ers t o m usic ia n s c an s h are m ore f u lly , a p rio ri, i n t h e w ealth t h ey c re ate . T he s k y d oes s e em to b e t h e l im it.

It’ s m ore Y oda t h an G od. B ut t h is n ew p ro to co l, i f n ot d iv in e, d oes e n ab le t r u ste d co lla b ora tio n t o o ccu r i n a w orld t h at n eed s i t, a n d t h at’ s a l o t. E xcite d , w e a re .

YO UR P E R SO NAL A VATA R A ND T H E B LA CK B O X O F I D EN TIT Y Thro ughout h is to ry , e ach n ew f o rm o f m ed ia h as e n ab le d m an kin d t o t r a n sc en d t im e, s p ace, a n d morta lity . T hat— dare w e s a y — div in e a b ility i n ev ita b ly r a is e s a n ew t h e e x is te n tia l q uestio n o f id en tity : W ho a re w e? W hat d oes i t m ean t o b e h um an ? H ow d o w e c o ncep tu aliz e o urs e lv es? A s Mars h all M cL uhan o bse rv ed , t h e m ed iu m b eco m es t h e m essa g e o ver t im e. P eo ple s h ap e a n d a re sh ap ed b y m ed ia . O ur b ra in s a d ap t. O ur i n stitu tio ns a d ap t. S ocie ty a d ap ts .

“T oday y ou n eed a n o rg an iz atio n w ith e n dow ed r ig hts t o p ro vid e y ou w ith a n i d en tity , l ik e a ban k c ard , a f re q uen t f ly er c ard , o r a c re d it c ard ,” 18 s a id C arlo s M ore ir a o f W IS eK ey . Y our pare n ts g av e y ou a n am e, t h e s ta te -lic en se d o bste tr ic ia n o r m id w if e w ho d eliv ere d y ou t o ok y our fo otp rin t a n d v ouch ed f o r y our w eig ht a n d l e n gth , a n d b oth p artie s a tte ste d t o t h e t im e, d ate , a n d pla ce o f y our a rriv al b y s ig nin g y our b ir th c ertif ic ate . N ow t h ey c an r e co rd t h is c ertif ic ate o n t h e blo ck ch ain a n d l in k b ir th a n nouncem en ts a n d a c o lle g e f u nd t o i t. F rie n ds a n d f a m ily c an co ntr ib ute b itc o in t o y our h ig her e d ucatio n. T here , y our d ata f lo w b eg in s.

In t h e e arly d ay s o f t h e I n te rn et, T om P ete rs w ro te , “ Y ou a re y our p ro je cts .” 19 H e m ean t t h at our c o rp ora te a ffilia tio ns a n d j o b t itle s n o l o nger d efin ed u s. W hat i s e q ually t r u e n ow : “ Y ou a re your d ata .” T ro uble i s , M ore ir a s a id , “ T hat i d en tity i s n ow y ours , b ut t h e d ata t h at c o m es f ro m i ts in te ra ctio n i n t h e w orld i s o w ned b y s o m eo ne e ls e .” 20 T hat’ s h ow m ost c o rp ora tio ns a n d in stitu tio ns v ie w y ou, b y y our d ata c o ntr a il a cro ss t h e I n te rn et. T hey a g gre g ate y our d ata i n to a vir tu al r e p re se n ta tio n o f y ou, a n d t h ey p ro vid e t h is “ v ir tu al y ou” w ith e x tr a o rd in ary n ew b en efits bey ond y our p are n ts ’ h ap pie st d re am s.

21 B ut c o nven ie n ce c o m es w ith a p ric e: p riv acy . T hose who s a y “ p riv acy i s d ead — get o ver i t” a re w ro ng.

22 P riv acy i s t h e f o undatio n o f f re e s o cie tie s.

“P eo ple h av e a v ery s im plis tic v ie w o f i d en tity ,” 23 s a id b lo ck ch ain t h eo ris t A ndre as Anto nopoulo s. W e u se t h e w ord id en tity t o d esc rib e t h e s e lf , t h e p ro je ctio n o f t h at s e lf t o t h e world , a n d a ll t h ese a ttr ib ute s t h at w e a sso cia te w ith t h at s e lf o r o ne o f i ts p ro je ctio ns. T hese m ay co m e f ro m n atu re , f ro m t h e s ta te , f ro m p riv ate o rg an iz atio ns. W e m ay h av e o ne o r m ore r o le s an d a s e rie s o f m etr ic s a tta ch ed t o t h ose r o le s, a n d t h e r o le s m ay c h an ge. C onsid er y our l a st j o b.

Did y our r o le c h an ge o rg an ic ally b ecau se o f c h an ges i n t h e w ork t h at n eed ed t o b e d one o r becau se o f r e v is io ns t o y our j o b d esc rip tio n?

What i f “ th e v ir tu al y ou” w as i n f a ct o w ned b y y ou— your p ers o nal a v ata r— an d “ liv ed ” i n th e b la ck b ox o f y our i d en tity s o t h at y ou c o uld m onetiz e y our d ata s tr e am a n d r e v eal o nly w hat you n eed ed t o , w hen a sse rtin g a p artic u la r r ig ht. W hy d oes y our d riv er’s l ic en se c o nta in m ore in fo rm atio n t h an t h e f a ct t h at y ou h av e p asse d y our d riv in g t e st a n d d em onstr a te d y our a b ility t o driv e? I m ag in e a n ew e ra o f t h e I n te rn et w here y our p ers o nal a v ata r m an ag es a n d p ro te cts t h e co nte n ts o f y our b la ck b ox. T his t r u sty s o ftw are s e rv an t c o uld r e le ase o nly t h e r e q uir e d d eta il o r am ount f o r e ach s itu atio n a n d a t t h e s a m e t im e w his k u p y our d ata c ru m bs a s y ou n av ig ate t h e dig ita l w orld .

This m ay s o und l ik e t h e s tu ff o f s c ie n ce f ic tio n a s p ortr a y ed i n f ilm s l ik e The M atr ix o r Ava ta r . B ut t o day b lo ck ch ain t e ch nolo gie s m ak e i t p ossib le . J o e L ubin , C EO o f C onse n su s Syste m s, r e fe rs t o t h is c o ncep t a s a “ p ers is te n t d ig ita l I D a n d p ers o na” o n a b lo ck ch ain . “ I s h ow a d if fe re n t a sp ect o f m yse lf t o m y c o lle g e f rie n ds c o m pare d t o w hen I a m s p eak in g a t t h e Chic ag o F ed ,” h e s a id . “ In t h e o nlin e d ig ita l e co nom y, I w ill r e p re se n t my v ario us a sp ects a n d in te ra ct i n t h at w orld f ro m t h e p la tf o rm o f d if fe re n t p ers o nas.” L ubin e x pects t o h av e a “can onic al p ers o na,” t h e v ers io n o f h im t h at p ay s t a x es, o bta in s l o an s, a n d g ets i n su ra n ce. “ I w ill hav e p erh ap s a b usin ess p ers o na a n d a f a m ily p ers o na t o s e p ara te t h e c o ncern s t h at I c h oose t o lin k t o m y c an onic al p ers o na. I m ay h av e a g am er p ers o na t h at I d on’t w an t l in ked t o m y busin ess p ers o na. I m ig ht e v en h av e a d ark w eb p ers o na t h at i s n ev er l in kab le t o t h e o th ers .” 24 Your b la ck b ox m ay i n clu de i n fo rm atio n s u ch a s a g overn m en t- is su ed I D , S ocia l S ecu rity num ber, m ed ic al i n fo rm atio n, s e rv ic e a cco unts , f in an cia l a cco unts , d ip lo m as, p ra ctic e l ic en se s, bir th c ertif ic ate , v ario us o th er c re d en tia ls , a n d i n fo rm atio n s o p ers o nal y ou d on’t w an t t o r e v eal i t but d o w an t t o m onetiz e i ts v alu e, s u ch a s s e x ual p re fe re n ce o r m ed ic al c o nditio n, f o r a p oll o r a re se arc h s tu dy. Y ou c o uld l ic en se t h ese d ata f o r s p ecif ic p urp ose s t o s p ecif ic e n titie s f o r s p ecif ic perio ds o f t im e. Y ou c o uld s e n d a s u bse t o f y our a ttr ib ute s t o y our e y e d octo r a n d a d if fe re n t su bse t t o t h e h ed ge f u nd t h at y ou w ould l ik e t o i n vest i n . Y our a v ata r c o uld a n sw er y es-n o questio ns w ith out d is c lo sin g w ho y ou a re : “ A re y ou t w en ty -o ne y ears o r o ld er? D id y ou e arn more t h an $ 100,0 00 i n e ach o f t h e l a st t h re e y ears ? D o y ou h av e a b ody m ass i n dex i n t h e n orm al ra n ge?” 25 In t h e p hysic al w orld , y our r e p uta tio n i s l o cal— your l o cal s h opkeep er, y our e m plo yer, y our frie n ds a t a d in ner p arty a ll h av e a c erta in o pin io n a b out y ou. I n t h e d ig ita l e co nom y, t h e re p uta tio ns o f v ario us p ers o nas i n y our a v ata r w ill b e p orta b le . P orta b ility w ill h elp b rin g p eo ple ev ery w here i n to t h e d ig ita l e co nom y. P eo ple w ith a d ig ita l w alle t a n d a v ata r i n A fric a c o uld esta b lis h t h e r e p uta tio n r e q uir e d t o , s a y , b orro w m oney t o s ta rt a b usin ess. “ S ee, a ll t h ese p eo ple know m e a n d h av e v ouch ed f o r m e. I a m f in an cia lly t r u stw orth y. I a m a n e n fra n ch is e d c itiz en o f th e g lo bal d ig ita l e co nom y.” Id en tity i s o nly a s m all p art o f i t. T he r e st i s a c lo ud— an i d en tity c lo ud— of p artic u la te s lo ose ly o r t ig htly l in ked t o y our i d en tity . I f w e t r y t o r e co rd a ll t h ese i n to t h e b lo ck ch ain , a n im muta b le l e d ger, w e l o se n ot o nly t h e n uan ce o f s o cia l i n te ra ctio n b ut a ls o t h e g if t o f f o rg ettin g.

Peo ple o ught n ev er b e d efin ed b y t h eir w ors t d ay .

A P L A N F O R P R O SP E R IT Y In t h is b ook, y ou’ll r e ad d ozen s o f s to rie s a b out i n itia tiv es e n ab le d b y t h is t r u st p ro to co l t h at cre ate n ew o pportu nitie s f o r a m ore p ro sp ero us w orld . P ro sp erity f ir s t a n d f o re m ost i s a b out one’s s ta n dard o f l iv in g. T o a ch ie v e i t, p eo ple m ust h av e t h e m ean s, t o ols , a n d o pportu nitie s t o cre ate m ate ria l w ealth a n d t h riv e e co nom ic ally . B ut f o r u s i t i n clu des m ore — se cu rity o f t h e pers o n, s a fe ty , h ealth , e d ucatio n, e n vir o nm en ta l s u sta in ab ility , o pportu nitie s t o s h ap e a n d c o ntr o l one’s d estin y a n d t o p artic ip ate i n a n e co nom y a n d s o cie ty . I n o rd er t o a ch ie v e p ro sp erity , a n in div id ual m ust p osse ss, a t m in im um , a ccess t o s o m e f o rm o f b asic f in an cia l s e rv ic es t o r e lia b ly sto re a n d m ove v alu e, c o m munic atio n, a n d t r a n sa ctio nal t o ols t o c o nnect t o t h e g lo bal e co nom y, an d s e cu rity , p ro te ctio n, a n d e n fo rc em en t o f t h e t itle t o l a n d a n d o th er a sse ts t h ey p osse ss le g ally .

26 T his a n d m ore i s t h e p ro m is e o f t h e b lo ck ch ain . T he s to rie s y ou w ill r e ad s h ould g iv e you a s e n se o f a f u tu re w here t h ere i s p ro sp erity f o r e v ery one, n ot j u st m ore w ealth a n d p ow er fo r t h e w ealth y a n d p ow erfu l. P erh ap s e v en a w orld w here w e o w n o ur d ata a n d c an p ro te ct o ur priv acy a n d p ers o nal s e cu rity . A n o pen w orld w here e v ery one c an c o ntr ib ute t o o ur t e ch nolo gy in fra str u ctu re , r a th er t h an a w orld o f w alle d g ard en s w here b ig c o m pan ie s o ffe r p ro prie ta ry a p ps.

A w orld w here b illio ns o f e x clu ded p eo ple c an n ow p artic ip ate i n t h e g lo bal e co nom y a n d s h are in i ts l a rg esse . H ere ’s a p re v ie w .

Crea tin g a T ru e P eer-to -P eer S harin g E co n om y Pundits o fte n r e fe r t o A ir b nb, U ber, L yft, T ask R ab bit, a n d o th ers a s p la tf o rm s f o r t h e “ sh arin g eco nom y.” I t’ s a n ic e n otio n— th at p eers c re ate a n d s h are i n v alu e. B ut t h ese b usin esse s h av e little t o d o w ith s h arin g. I n f a ct, t h ey a re s u ccessfu l p re cis e ly b ecau se t h ey d o n ot s h are — th ey ag gre g ate . I t i s a n a g gre g atin g e co nom y. U ber i s a $ 65 b illio n c o rp ora tio n t h at a g gre g ate s d riv in g se rv ic es. A ir b nb, t h e $ 25 b illio n S ilic o n V alle y d arlin g, a g gre g ate s v acan t r o om s. O th ers ag gre g ate e q uip m en t a n d h an dym en t h ro ugh t h eir c en tr a liz ed , p ro prie ta ry p la tf o rm s a n d t h en re se ll t h em . I n t h e p ro cess, t h ey c o lle ct d ata f o r c o m merc ia l e x plo ita tio n. N one o f t h ese co m pan ie s e x is te d a d ecad e a g o b ecau se t h e t e ch nolo gic al p re co nditio ns w ere n ot t h ere :

ubiq uito us s m art p hones, f u ll G PS, a n d s o phis tic ate d pay m en t s y ste m s. N ow w ith b lo ck ch ain s, th e t e ch nolo gy e x is ts t o r e in ven t t h ese i n dustr ie s a g ain . T oday ’s b ig d is ru pte rs a re a b out t o g et dis ru pte d .

Im ag in e i n ste ad o f t h e c en tr a liz ed c o m pan y A ir b nb, a d is tr ib ute d a p plic atio n— call i t blo ck ch ain A ir b nb o r b A ir b nb— esse n tia lly a c o opera tiv e o w ned b y i ts m em bers . W hen a r e n te r wan ts t o f in d a l is tin g, t h e b A ir b nb s o ftw are s c an s t h e b lo ck ch ain f o r a ll t h e l is tin gs a n d f ilte rs an d d is p la y s t h ose t h at m eet h er c rite ria . B ecau se t h e n etw ork c re ate s a r e co rd o f t h e t r a n sa ctio n on t h e b lo ck ch ain , a p ositiv e u se r r e v ie w i m pro ves t h eir r e sp ectiv e r e p uta tio ns a n d e sta b lis h es th eir i d en titie s— now w ith out a n i n te rm ed ia ry . S ay s V ita lik B ute rin , f o under o f t h e E th ere u m blo ck ch ain : “ W here as m ost t e ch nolo gie s t e n d t o a u to m ate w ork ers o n t h e p erip hery d oin g men ia l t a sk s, b lo ck ch ain s a u to m ate a w ay t h e c en te r. I n ste ad o f p uttin g t h e t a x i d riv er o ut o f a jo b, b lo ck ch ain p uts U ber o ut o f a j o b a n d l e ts t h e t a x i d riv ers w ork w ith t h e c u sto m er dir e ctly .” 27 Rew ir in g t h e F in an cia l S yste m f o r S peed a n d I n clu sio n The f in an cia l s e rv ic es i n dustr y m ak es o ur g lo bal e co nom y h um , b ut t h e s y ste m t o day i s f ra u ght with p ro ble m s. F or o ne, i t i s a rg uab ly t h e m ost c en tr a liz ed i n dustr y i n t h e w orld a n d t h e l a st in dustr y t o f e el t h e t r a n sfo rm atio nal e ffe ct o f t h e t e ch nolo gic al r e v olu tio n. B astio ns o f t h e o ld fin an cia l o rd er s u ch a s b an ks g o t o g re at l e n gth s t o d efe n d m onopolie s a n d o fte n s ty m ie dis ru ptiv e i n novatio n. T he f in an cia l s y ste m a ls o r u ns o n o utm oded t e ch nolo gy a n d i s g overn ed by r e g ula tio ns d atin g b ack t o t h e n in ete en th c en tu ry . I t i s r if e w ith c o ntr a d ic tio ns a n d u nev en dev elo pm en ts , m ak in g i t s o m etim es s lo w , o fte n tim es i n se cu re , a n d l a rg ely o paq ue t o m an y sta k eh old ers .

Dis tr ib ute d l e d ger t e ch nolo gy c an l ib era te m an y f in an cia l s e rv ic es f ro m t h e c o nfin es o f o ld in stitu tio ns, f o ste rin g c o m petitio n a n d i n novatio n. T hat’ s g ood f o r t h e e n d u se r. E ven w hen co nnecte d t o t h e o ld I n te rn et, b illio ns o f p eo ple a re e x clu ded f ro m t h e e co nom y f o r t h e s im ple re aso n t h at f in an cia l i n stitu tio ns d on’t p ro vid e s e rv ic es l ik e b an kin g t o t h em b ecau se t h ey w ould be u npro fita b le a n d r is k y c u sto m ers . W ith t h e b lo ck ch ain t h ese p eo ple c an n ot o nly b eco m e co nnecte d , b ut m ore i m porta n t b eco m e i n clu ded i n f in an cia l a ctiv ity , a b le t o p urc h ase , b orro w , se ll, a n d o th erw is e h av e a c h an ce a t b uild in g a p ro sp ero us l if e .

Sim ila rly i n cu m ben t i n stitu tio ns c an t r a n sfo rm t h em se lv es a ro und b lo ck ch ain t e ch nolo gy, i f th ey c an f in d t h e l e ad ers h ip t o d o i t. T he t e ch nolo gy h old s g re at p ro m is e t o r e v olu tio niz e t h e in dustr y f o r t h e g ood— fro m b an ks t o s to ck e x ch an ges, i n su ra n ce c o m pan ie s t o a cco untin g f ir m s, bro kera g es, m ic ro le n ders , c re d it c ard n etw ork s, r e al e sta te a g en ts , a n d e v ery th in g i n b etw een .

When e v ery one s h are s t h e s a m e d is tr ib ute d l e d ger, s e ttle m en ts d on’t t a k e d ay s, t h ey o ccu r in sta n tly f o r a ll t o s e e. B illio ns w ill b en efit, a n d t h is s h if t c o uld l ib era te a n d e m pow er en tr e p re n eu rs e v ery w here .

Pro te ctin g E co n om ic R ig h ts G lo b ally Pro perty r ig hts a re s o i n ex ora b ly t ie d t o o ur s y ste m o f c ap ita lis t d em ocra cy t h at J e ffe rs o n’s f ir s t dra ft o f t h e D ecla ra tio n o f I n dep en den ce l is te d t h e i n alie n ab le r ig hts o f m an a s l if e , l ib erty , a n d th e p urs u it o f pro perty , n ot h ap pin ess.

28 W hile t h ose a sp ir a tio nal t e n ets l a id t h e g ro undw ork f o r th e m odern e co nom y a n d s o cie ty w e e n jo y i n m uch o f t h e d ev elo ped w orld , t o t h is d ay m uch o f th e w orld ’s p opula tio n d oes n ot r e ap t h eir b en efits . E ven t h ough s o m e p ro gre ss h as b een m ad e i n th e d ep artm en ts o f l if e a n d l ib erty , a m ajo rity o f t h e w orld ’s p ro perty h old ers c an h av e t h eir hom es o r t h eir b it o f l a n d s e iz ed a rb itr a rily b y c o rru pt g overn m en t f u nctio narie s, w ith t h e f lic k o f a s o ftw are s w itc h i n t h eir c en tr a liz ed g overn m en t p ro perty d ata b ase . W ith out p ro of o f p ro perty ow ners h ip , l a n dow ners c an ’t s e cu re a l o an , g et a b uild in g p erm it, o r s e ll t h e p ro perty a n d t h ey can b e e x pro pria te d — all s e rio us i m ped im en ts t o p ro sp erity .

Peru via n e co nom is t a n d p re sid en t o f t h e I n stitu te f o r L ib erty a n d D em ocra cy H ern an do d e Soto , o ne o f t h e w orld ’s f o re m ost e co nom ic m in ds, s u ggests t h at a s m an y a s f iv e b illio n p eo ple in t h e w orld a re b arre d f ro m p artic ip atin g f u lly i n t h e v alu e c re ate d t h ro ugh g lo baliz atio n becau se t h ey h av e a t e n uous r ig ht t o t h eir l a n d. B lo ck ch ain , h e a rg ues, c o uld c h an ge a ll t h at.

“T he c en tr a l i d ea t o b lo ck ch ain i s t h at t h e r ig hts t o g oods c an b e t r a n sa cte d , w heth er t h ey b e fin an cia l, h ard a sse ts o r i d eas. T he g oal i s n ot m ere ly t o r e co rd t h e p lo t o f l a n d b ut r a th er t o re co rd t h e r ig hts i n volv ed s o t h at t h e r ig hts h old er c an not b e v io la te d .” 29 U niv ers a l p ro perty rig hts c o uld l a y t h e g ro undw ork f o r a n ew a g en da o f g lo bal j u stic e, e co nom ic g ro w th , p ro sp erity , an d p eace. I n t h is n ew p ara d ig m , r ig hts a re p ro te cte d , n ot b y guns o r m ilitia s o r m in ute m en , b ut by t e ch nolo gy. “ B lo ck ch ain i s f o r a w orld t h at’ s g overn ed b y r e al t h in gs i n ste ad o f f ic titio us th in gs. A nd I t h in k t h at’ s g ood,” 30 s a id d e S oto . A nd i t’ s d ecen tr a liz ed . N o c en tr a l a u th ority co ntr o ls i t, e v ery body k now s w hat’ s h ap pen in g, a n d i t r e m em bers f o re v er.

Endin g t h e R em it ta n ce R ip -o ff Ju st a b out e v ery r e p ort, a rtic le , o r b ook r e v ie w in g t h e b en efits o f c ry pto cu rre n cie s d is c u sse s t h e opportu nity o f r e m itta n ces. A nd f o r g ood r e aso n. T he l a rg est f lo w o f f u nds i n to t h e d ev elo pin g world i s n ot f o re ig n a id o r d ir e ct f o re ig n i n vestm en t. R ath er, i t i s r e m itta n ce m oney r e p atr ia te d t o poor c o untr ie s f ro m t h eir d ia sp ora s l iv in g a b ro ad . T he p ro cess t a k es t im e, p atie n ce, a n d so m etim es c o ura g e t o t r a v el e ach w eek t o t h e s a m e w ir e t r a n sfe r o ffic e’s s e ed y n eig hborh ood, fill o ut t h e s a m e p ap erw ork e ach t im e, a n d p ay t h e s a m e 7 p erc en t f e e. T here i s a b ette r w ay .

Abra a n d o th er c o m pan ie s a re b uild in g p ay m en t n etw ork s u sin g t h e b lo ck ch ain . A bra ’s g oal is t o t u rn e v ery o ne o f i ts u se rs i n to a t e lle r. T he w hole p ro cess— fro m t h e f u nds l e av in g o ne co untr y t o t h eir a rriv in g i n a n oth er— ta k es a n h our r a th er t h an a w eek a n d c o sts 2 p erc en t v ers u s 7 p erc en t o r h ig her. A bra w an ts i ts p ay m en t n etw ork t o o utn um ber a ll p hysic al A TM s i n t h e world . I t t o ok W este rn U nio n 1 50 y ears t o g et t o 5 00,0 00 a g en ts w orld w id e. A bra w ill h av e t h at man y t e lle rs i n i ts f ir s t y ear.

Cuttin g O ut B urea u cra cy a n d C orru ptio n i n F oreig n A id Could b lo ck ch ain s o lv e p ro ble m s w ith f o re ig n a id ? T he 2 010 H aiti e arth quak e w as o ne o f t h e dead lie st n atu ra l d is a ste rs i n r e co rd ed h is to ry . S om ew here b etw een 1 00,0 00 a n d 3 00,0 00 p eo ple peris h ed . T he g overn m en t i n H aiti p ro ved i ts e lf a l ia b ility i n t h e a fte rm ath . T he g lo bal co m munity d onate d m ore t h an $ 500 m illio n t o t h e R ed C ro ss, a k now n b ra n d. A n a fte r-a ctio n in vestig atio n r e v eale d t h at f u nds w ere m is sp en t o r w en t m is sin g a lto geth er.

The b lo ck ch ain c an i m pro ve t h e d eliv ery o f f o re ig n a id b y e lim in atin g t h e m id dle m en w ho ta k e t h e a id b efo re i t r e ach es i ts d estin atio n. S eco nd, a s a n i m muta b le l e d ger o f t h e f lo w o f f u nds, blo ck ch ain h old s i n stitu tio ns m ore a cco unta b le f o r t h eir a ctio ns. I m ag in e i f y ou c o uld t r a ck e ach dolla r you g av e t o t h e R ed C ro ss f ro m i ts s ta rtin g p oin t o n y our s m art p hone t o t h e p ers o n i t ben efite d . Y ou c o uld p ark y our f u nds i n e sc ro w , r e le asin g a m ounts a fte r t h e R ed C ro ss r e ach ed each m ile sto ne.

Feed in g t h e C rea to rs o f V alu e F ir st Under t h e f ir s t g en era tio n o f t h e I n te rn et, m an y c re ato rs o f i n te lle ctu al p ro perty d id n ot r e ceiv e pro per c o m pen sa tio n f o r i t. E xhib it A w as m usic ia n s a n d c o m pose rs w ho h ad s ig ned w ith r e co rd la b els w hose l e ad ers f a ile d t o i m ag in e h ow t h e I n te rn et w ould a ffe ct t h eir i n dustr y . T hey f a ile d to e m bra ce t h e d ig ita l a g e a n d r e in ven t t h eir o w n b usin ess m odels , s lo w ly c ed in g c o ntr o l t o in novativ e o nlin e d is tr ib uto rs .

Consid er t h e m ajo r l a b els ’ r e actio n t o N ap ste r, t h e p eer-to -p eer m usic f ile -s h arin g p la tf o rm la u nch ed i n 1 999. I n cu m ben ts i n t h e m usic i n dustr y t e am ed u p t o s u e t h e n ew v en tu re , i ts fo unders , and e ig hte en t h ousa nd o f i ts u se rs , d is m an tlin g t h e p la tf o rm b y J u ly 2 001. A le x Win te r, d ir e cto r o f a d ocu m en ta ry o n N ap ste r, t o ld The G uard ia n , “ I h av e a p ro ble m w ith b la ck - an d-w hite t h in kin g w hen i t c o m es t o b ig c u ltu ra l c h an ges. . . . W ith N ap ste r, t h ere w as a n en orm ous a m ount o f g re y ” b etw een t h e ‘ I c an s h are e v ery th in g I ’v e p aid f o r’ p ositio n a n d t h e ‘Y ou’re a c rim in al e v en i f y ou s h are o nly o ne o f t h e f ile s y ou’v e p urc h ase d ’ p oin t o f v ie w .” 31 We a g re e. C ocre atin g w ith c o nsu m ers i s u su ally a m ore s u sta in ab le b usin ess m odel t h an su in g t h em . T he w hole i n cid en t t u rn ed a h uge h ot s p otlig ht o n t h e m usic i n dustr y , e x posin g i ts outd ate d m ark etin g p ra ctic es, g ro ss d is tr ib utio n i n effic ie n cie s, a n d w hat s o m e i n te rp re te d a s an tim usic ia n p olic ie s.

Very l ittle h as c h an ged s in ce t h en . U ntil n ow . W e l o ok a t t h e n ew m usic e co sy ste m em erg in g o n t h e b lo ck ch ain , l e d b y B ritis h s in ger-s o ngw rite r I m ogen H eap , c ellis t Z oë K eatin g, an d b lo ck ch ain d ev elo pers a n d e n tr e p re n eu rs . E very c u ltu ra l i n dustr y i s u p f o r d is ru ptio n, a n d th e p ro m is e i s t h at c re ato rs g et f u lly c o m pen sa te d f o r t h e v alu e t h ey c re ate .

Reco n fig u rin g t h e C orp ora tio n a s t h e E ngin e o f C ap it a lis m With t h e r is e o f a g lo bal p eer-to -p eer p la tf o rm f o r i d en tity , t r u st, r e p uta tio n, a n d t r a n sa ctio ns, w e will f in ally b e a b le t o r e -a rc h ite ct t h e d eep str u ctu re s o f t h e f ir m f o r i n novatio n, s h are d -v alu e cre atio n, a n d p erh ap s e v en p ro sp erity f o r t h e m an y, r a th er t h an j u st w ealth f o r t h e f e w . T his doesn ’t m ean s m alle r f ir m s i n t e rm s o f r e v en ue o r i m pact. T o t h e c o ntr a ry , w e’re t a lk in g a b out build in g t w en ty -fir s t- c en tu ry c o m pan ie s, s o m e t h at m ay b e m assiv e w ealth c re ato rs a n d p ow erfu l in t h eir r e sp ectiv e m ark ets . W e d o t h in k e n te rp ris e s w ill l o ok m ore l ik e n etw ork s r a th er t h an t h e vertic ally i n te g ra te d h ie ra rc h ie s o f t h e i n dustr ia l a g e. A s s u ch t h ere i s a n o pportu nity t o d is tr ib ute (n ot r e d is tr ib ute ) w ealth m ore d em ocra tic ally .

We’ll a ls o t a k e y ou o n a s tr o ll t h ro ugh t h e m in d-b ogglin g w orld o f s m art c o ntr a cts , n ew au to nom ous e co nom ic a g en ts , a n d w hat w e c all d is tr ib ute d a u to nom ous e n te rp ris e s w here in te llig en t s o ftw are t a k es o ver t h e m an ag em en t a n d o rg an iz atio n o f m an y r e so urc es a n d cap ab ilitie s, p erh ap s d is p la cin g c o rp ora tio ns. S m art c o ntr a cts e n ab le t h e c re atio n o f w hat w e c all open n etw ork ed e n te rp ris e s b ase d o n a n ew s e t o f b usin ess m odels , o r o ld b usin ess m odels w ith a blo ck ch ain t w is t.

Anim atin g O bje cts a n d P uttin g T hem t o W ork Tech nolo gis ts a n d s c ie n ce f ic tio n w rite rs h av e l o ng e n vis io ned a w orld w here a s e am le ss g lo bal netw ork o f I n te rn et- c o nnecte d s e n so rs c o uld c ap tu re e v ery e v en t, a ctio n, a n d c h an ge o n e arth .

Blo ck ch ain t e ch nolo gy w ill e n ab le t h in gs t o c o lla b ora te , e x ch an ge u nits o f v alu e— en erg y, t im e, an d m oney — an d r e co nfig ure s u pply c h ain s a n d p ro ductio n p ro cesse s a cco rd in g t o s h are d in fo rm atio n o n d em an d a n d c ap acity . W e c an a tta ch m eta d ata t o s m art d ev ic es a n d p ro gra m t h em to r e co gniz e o th er o bje cts b y t h eir m eta d ata a n d t o a ct o r r e act t o d efin ed c ir c u m sta n ces w ith out ris k o f e rro r o r t a m perin g.

As t h e p hysic al w orld c o m es t o l if e , e v ery one c an p ro sp er— fro m s m all f a rm ers i n t h e Austr a lia n o utb ack w ho n eed e le ctr ic al p ow er f o r t h eir b usin esse s t o h om e o w ners e v ery w here who c an b eco m e p art o f a d is tr ib ute d b lo ck ch ain p ow er g rid .

Cult iv atin g t h e B lo ck ch ain E ntr ep ren eu r Entr e p re n eu rs h ip i s e sse n tia l t o a t h riv in g e co nom y a n d a p ro sp ero us s o cie ty . T he I n te rn et w as su ppose d t o l ib era te e n tr e p re n eu rs , g iv in g t h em th e t o ols a n d c ap ab ilitie s o f b ig c o m pan ie s with out m an y o f t h e l ia b ilitie s, s u ch a s l e g acy c u ltu re , o ssif ie d p ro cesse s, a n d d ead w eig ht.

How ev er, t h e h ig h-fly in g s u ccess o f d ot- c o m b illio nair e s o bfu sc ate s a n u nse ttlin g t r u th :

en tr e p re n eu rs h ip a n d n ew b usin ess s ta rts h av e b een s te ad ily d eclin in g f o r t h ir ty y ears i n m an y dev elo ped e co nom ie s.

32 I n t h e d ev elo pin g w orld , t h e I n te rn et h as d one l ittle t o l o w er t h e b arrie rs of w ould -b e e n tr e p re n eu rs w ho m ust s u ffe r d ead en in g g overn m en t b ure au cra cie s. T he I n te rn et has a ls o n ot l ib era te d t h e f in an cia l t o ols e sse n tia l t o s ta rtin g a b usin ess a v aila b le t o b illio ns o f peo ple . N ot e v ery one i s d estin ed t o b e a n e n tr e p re n eu r, o f c o urs e , b ut e v en f o r t h e a v era g e pers o n t r y in g t o e arn a d ecen t w ag e, t h e l a ck o f f in an cia l t o ols a n d t h e p re v ale n ce o f g overn m en t re d t a p e m ak e d oin g s o c h alle n gin g.

This i s a c o m ple x i s su e, b ut b lo ck ch ain c an h elp s u perc h arg e e n tr e p re n eu rs h ip a n d t h ere fo re pro sp erity i n m an y i m porta n t w ay s. F or t h e a v era g e p ers o n l iv in g i n t h e d ev elo pin g w orld t o hav e a r e lia b le s to re o f v alu e a n d a w ay t o c o nduct b usin ess b ey ond h is c o m munity , a ll h e n eed s now i s a n I n te rn et- e n ab le d d ev ic e. A ccess t o t h e g lo bal e co nom y m ean s g re ate r a ccess t o n ew so urc es o f c re d it, f u ndin g, s u pplie rs , p artn ers , a n d i n vestm en t o pportu nitie s. N o t a le n t o r re so urc e i s t o o s m all t o m onetiz e o n t h e b lo ck ch ain .

Rea liz in g G overn m en ts b y t h e P eo p le f o r t h e P eo p le Buck le u p f o r b ig c h an ges i n g overn m en t a n d g overn an ce t o o. B lo ck ch ain t e ch nolo gy i s a lr e ad y re v olu tio niz in g t h e m ach in ery o f g overn m en t a n d h ow w e c an m ak e i t h ig h p erfo rm an ce— bette r an d c h eap er. I t’ s a ls o c re atin g n ew o pportu nitie s t o c h an ge d em ocra cy i ts e lf — how g overn m en ts can b e m ore o pen a n d f re e f ro m l o bbyis t c o ntr o l, a n d b eh av e w ith t h e f o ur v alu es o f i n te g rity .

We l o ok a t h ow b lo ck ch ain t e ch nolo gie s c an c h an ge w hat i t m ean s t o b e a c itiz en a n d p artic ip ate in t h e p olitic al p ro cess, f ro m v otin g a n d a ccessin g s o cia l s e rv ic es t o s o lv in g s o m e o f s o cie ty ’s big h air y p ro ble m s a n d h old in g e le cte d r e p re se n ta tiv es a cco unta b le f o r t h e p ro m is e s t h at g ot th em e le cte d .

PR O M IS E A ND P E R IL O F T H E N EW P L A TFO RM If t h ere a re s ix m illio n p eo ple i n t h e n ak ed c ity , 33 t h en t h ere a re s ix m illio n o bsta cle s t o t h is te ch nolo gy f u lf illin g i ts p ote n tia l. F urth er, t h ere a re s o m e w orris o m e d ow nsid es. S om e s a y t h e te ch nolo gy i s n ot r e ad y f o r p rim e t im e; t h at i t’ s s till h ard t o u se , a n d t h at t h e k ille r a p plic atio ns are n asc en t. O th er c ritic s p oin t t o t h e m assiv e a m ount o f e n erg y c o nsu m ed t o r e ach c o nse n su s i n ju st t h e b itc o in n etw ork : W hat h ap pen s w hen t h ousa n ds o r p erh ap s m illio ns o f i n te rc o nnecte d blo ck ch ain s a re e ach p ro cessin g b illio ns o f t r a n sa ctio ns a d ay ? A re t h e i n cen tiv es g re at e n ough fo r p eo ple t o p artic ip ate a n d b eh av e s a fe ly o ver t im e, a n d n ot t r y t o o verp ow er t h e n etw ork ? I s blo ck ch ain t e ch nolo gy t h e w ors t j o b k ille r e v er?

These a re q uestio ns o f l e ad ers h ip a n d g overn an ce, n ot o f t e ch nolo gy. T he f ir s t e ra o f t h e In te rn et t o ok o ff b ecau se o f t h e v is io n a n d c o m mon i n te re sts o f i ts k ey s ta k eh old ers — govern m en ts , c iv il s o cie ty o rg an iz atio ns, d ev elo pers , a n d e v ery day p eo ple l ik e y ou. B lo ck ch ain re q uir e s s im ila r l e ad ers h ip . W e d is c u ss a t g re ate r l e n gth i n t h e b ook w hy l e ad ers o f t h is n ew dis tr ib ute d p ara d ig m w ill n eed t o s ta k e t h eir c la im a n d u nle ash a w av e o f e co nom ic a n d in stitu tio nal i n novatio n, t o e n su re t h is t im e t h at t h e p ro m is e i s f u lf ille d . W e i n vite y ou t o b e o ne of t h ese .

This b ook g re w o ut o f t h e $ 4 m illio n G lo bal S olu tio n N etw ork s p ro gra m a t t h e R otm an Sch ool o f M an ag em en t a t t h e U niv ers ity o f T oro nto . F unded p rim arily b y l a rg e t e ch nolo gy co rp ora tio ns a lo ng w ith t h e R ock efe lle r a n d S koll f o undatio ns, t h e U .S . S ta te D ep artm en t, a n d In dustr y C an ad a, t h e i n itia tiv e e x plo re d n ew a p pro ach es t o g lo bal p ro ble m s o lv in g a n d govern an ce. W e w ere b oth i n volv ed i n r u nnin g t h e p ro gra m . ( D on f o unded i t; A le x l e d t h e pro je ct o n c ry pto cu rre n cie s.) I n 2 014, w e l a u nch ed a o ne-y ear i n itia tiv e o n t h e b lo ck ch ain re v olu tio n a n d i ts i m plic atio ns f o r b usin ess a n d s o cie ty , c u lm in atin g i n t h is b ook. I n i t, w e h av e atte m pte d t o p ut t h e p ro m is e a n d t h e p eril o f t h e n ew p la tf o rm i n to p ers p ectiv e.

If b usin ess, g overn m en t, a n d c iv il s o cie ty i n novato rs g et t h is r ig ht, w e w ill m ove f ro m a n In te rn et d riv en p rim arily b y t h e f a llin g c o sts o f s e arc h , c o ord in atio n, d ata c o lle ctio n, a n d decis io n m ak in g— where t h e n am e o f t h e g am e w as m onito rin g, m ed ia tin g, a n d m onetiz in g in fo rm atio n a n d t r a n sa ctio ns o n t h e W eb — to o ne d riv en b y t h e f a llin g c o sts o f b arg ain in g, polic in g, a n d e n fo rc in g s o cia l a n d c o m merc ia l a g re em en ts , w here t h e n am e of t h e g am e w ill b e in te g rity , s e cu rity , c o lla b ora tio n, t h e p riv acy o f a ll t r a n sa ctio ns, a n d t h e c re atio n a n d d is tr ib utio n of v alu e. T hat’ s a 1 80-d eg re e t u rn i n s tr a te g y. T he r e su lt c an b e a n e co nom y o f p eers w ith in stitu tio ns t h at a re t r u ly d is tr ib ute d , i n clu siv e, a n d e m pow erin g— an d t h ere b y l e g itim ate . B y fu ndam en ta lly c h an gin g w hat w e c an d o o nlin e, h ow w e d o i t, a n d w ho c an p artic ip ate , t h e n ew pla tf o rm m ay e v en c re ate t h e t e ch nolo gic al p re co nditio ns t o r e co ncilin g s o m e o f o ur m ost v ex in g so cia l a n d e co nom ic c h alle n ges.

If w e g et t h is w ro ng, b lo ck ch ain t e ch nolo gy, w hic h h old s s o m uch p ro m is e , w ill b e co nstr a in ed o r e v en c ru sh ed . W ors e , i t c o uld b eco m e a t o ol p ow erfu l i n stitu tio ns u se t o e n tr e n ch th eir w ealth o r, i f h ack ed b y g overn m en ts , a p la tf o rm f o r s o m e k in d o f n ew s u rv eilla n ce s o cie ty .

The t ig htly r e la te d t e ch nolo gie s o f d is tr ib ute d s o ftw are , c ry pto gra p hy, a u to nom ous a g en ts , a n d ev en a rtif ic ia l i n te llig en ce c o uld g et o ut o f c o ntr o l a n d t u rn a g ain st t h eir h um an p ro gen ito rs .

It i s p ossib le t h at t h is n ew t e ch nolo gy m ay b e d ela y ed , s ta lle d , u nderu tiliz ed , o r w ors e . T he blo ck ch ain a n d c ry pto cu rre n cie s, p artic u la rly b itc o in , a lr e ad y h av e m assiv e m om en tu m , b ut we’re n ot p re d ic tin g w heth er o r n ot a ll t h is w ill s u cceed , a n d i f i t d oes, h ow f a st i t w ill o ccu r.

34 Pre d ic tio n i s a lw ay s a r is k y b usin ess. S ay s t e ch nolo gy t h eo ris t D av id T ic o ll: “ M an y o f u s d id a bad j o b o f p re d ic tin g t h e f u ll i m pact o f t h e I n te rn et. I S IS t y pe b ad p hen om en a a re a m ong w hat we m is se d , a n d s o m e b ig o ptim is tic p re d ic tio ns t u rn ed o ut w ro ng.” H e s a y s, “ If t h e b lo ck ch ain i s as b ig a n d u niv ers a l a s t h e N et, w e a re l ik ely t o d o a c o m para b ly b ad j o b o f p re d ic tin g b oth i ts upsid es a n d d ow nsid es.” 35 So r a th er t h an p re d ic tin g a b lo ck ch ain f u tu re , w e’re a d vocatin g f o r i t. W e’re a rg uin g t h at i t sh ould s u cceed , b ecau se i t c o uld h elp u s u sh er i n a n ew e ra o f p ro sp erity . W e b elie v e t h at t h e eco nom y w ork s b est w hen i t w ork s f o r e v ery one, a n d t h is n ew p la tf o rm i s a n e n gin e o f i n clu sio n.

It d ra stic ally l o w ers t h e c o st o f t r a n sm ittin g s u ch f u nds a s r e m itta n ces. I t s ig nif ic an tly l o w ers t h e barrie r t o h av in g a b an k a cco unt, o bta in in g c re d it, a n d i n vestin g. A nd i t s u pports en tr e p re n eu rs h ip a n d p artic ip atio n i n g lo bal t r a d e. I t c ata ly zes d is tr ib ute d c ap ita lis m , n ot j u st a re d is tr ib ute d c ap ita lis m .

Every one s h ould s to p f ig htin g i t a n d t a k e t h e r ig ht s te p s t o g et o n b oard . L et’ s h arn ess t h is fo rc e n ot f o r t h e i m med ia te b en efit o f t h e f e w b ut f o r t h e l a stin g b en efit o f t h e m an y.

Today , b oth o f u s a re e x cite d a b out t h e p ote n tia l o f t h is n ex t r o und o f t h e I n te rn et. W e’re en th usia stic a b out t h e m assiv e w av e o f i n novatio n t h at i s b ein g u nle ash ed a n d i ts p ote n tia l f o r pro sp erity a n d a b ette r w orld . T his b ook i s o ur c ase t o y ou t o b eco m e i n te re ste d , u nders ta n d t h is nex t w av e, a n d t a k e a ctio n t o e n su re t h at t h e p ro m is e i s f u lf ille d .

So h an g o n t o y our s e at a n d r e ad o n! W e’re a t o ne o f t h ose c ritic al j u nctu re s i n h um an his to ry .

F CH APT ER 2 BO OTST R A PPIN G T H E F U TU RE:

SE V EN D ESIG N P R IN CIP L ES O F T H E B LO CK CH AIN E C O NOM Y re ed om i s p re d ic ate d o n p riv acy ,” s a id A nn C av oukia n , e x ecu tiv e d ir e cto r o f t h e P riv acy a n d Big D ata I n stitu te a t R yers o n U niv ers ity . “ I f ir s t l e arn ed t h at t h ir ty y ears a g o w hen I s ta rte d g oin g t o c o nfe re n ces i n G erm an y. I t i s n o a ccid en t t h at G erm an y i s t h e l e ad in g p riv acy a n d d ata p ro te ctio n c o untr y i n t h e w orld . T hey h ad t o e n dure t h e a b use s o f t h e T hir d R eic h a n d t h e c o m ple te c essa tio n o f a ll o f t h eir f re ed om s, w hic h s ta rte d w ith t h e c o m ple te r e m oval o f t h eir p riv acy . W hen t h at e n ded , t h ey s a id , ‘ N ev er a g ain .’ ” 1 And s o i t i s i r o nic — or t o ta lly f ittin g— th at o ne o f t h e f ir s t d ecen tr a liz ed p eer-to -p eer c o m puta tio nal p la tf o rm s t o g uara n te e u se r p riv acy i s c alle d E nig m a, a ls o t h e n am e g iv en t o t h e m ach in e d ev elo ped b y G erm an e n gin eer A rth ur S ch erb iu s t o t r a n sc rib e c o ded i n fo rm atio n.

S ch erb iu s d esig ned E nig m a f o r c o m merc ia l u se : t h ro ugh h is d ev ic e, g lo bal c o m pan ie s c o uld q uic k ly a n d s a fe ly c o m munic ate t h eir t r a d e s e cre ts , s to ck t ip s, a n d o th er i n sid er i n fo rm atio n.

W ith in a f e w y ears , G erm an y’s m ilita ry f o rc es w ere m an ufa ctu rin g t h eir o w n v ers io ns o f E nig m a t o b ro ad cast c o ded m essa g es o ver r a d io t o t r o ops. D urin g t h e w ar, t h e N azis u se d E nig m a t o d is se m in ate s tr a te g ic p la n s, d eta ils o f t a rg ets , a n d t h e t im in g o f a tta ck s. I t w as a t o ol o f s u ffe rin g a n d o ppre ssio n.

Our c o nte m pora ry E nig m a i s a t o ol o f f re ed om a n d p ro sp erity . D esig ned a t M IT M ed ia L ab b y G uy Z ysk in d a n d O z N ath an , t h e n ew E nig m a c o m bin es t h e v ir tu es o f b lo ck ch ain ’s p ublic l e d ger, t h e t r a n sp are n cy o f whic h “ p ro vid es s tr o ng i n cen tiv es f o r h onest b eh av io r,” w ith s o m eth in g k now n a s h om om orp hic e n cry p tio n a n d s e cu re m ultip arty c o m puta tio n.

2 M ore s im ply p ut, “ E nig m a t a k es y our i n fo rm atio n— an y i n fo rm atio n— bre ak s i t u p, a n d e n cry pts i t i n to p ie ces o f d ata t h at a re r a n dom ly d is tr ib ute d t o n odes i n t h e n etw ork . I t d oesn ’t e x is t i n o ne s p ot,” s a id C av oukia n . “ E nig m a u se s b lo ck ch ain t e ch nolo gy t o e m bed t h e d ata a n d t r a ck a ll t h e p ie ces o f i n fo rm atio n.” 3 Y ou c an s h are i t w ith t h ir d p artie s a n d t h ose p artie s c an u se i t i n c o m puta tio ns w ith out e v er d ecry ptin g i t.

4 I f i t w ork s, i t c o uld r e sh ap e h ow w e a p pro ach o ur o w n i d en tity o nlin e. I m ag in e h av in g a b la ck b ox o f y our p ers o nal i n fo rm atio n t h at y ou a lo ne c o ntr o l a n d c an a ccess.

No m atte r h ow c o ol i t m ay s o und, t h ere a re r e aso ns t o t r e ad c au tio usly o n t h e c ry pto gra p hic f ro ntie r. F ir s t, i t n eed s t o b oots tr a p a l a rg e n etw ork o f p artic ip an ts . S eco nd, “ cry pto gra p hy i s a n a re a w here y ou n ev er w an t t o b e u sin g t h e n ew est a n d g re ate st, b ecau se t h ere i s a n e n tir e h is to ry o f a n a lg orith m t h at e v ery one b elie v es i s s e cu re , t h at’ s o ut t h ere f o r f o ur o r f iv e y ears , a n d s o m e v ery i n sp ir e d s c ie n tis t w ill c o m e o ut a n d s a y , t h ere ’s a f la w , a n d t h e e n tir e t h in g t u m ble s,” s a id Austin H ill o f B lo ck str e am . “ T hat’ s w hy w e g en era lly p re fe r c o nse rv ativ e, v ery w ell- e sta b lis h ed , lo ng-s ta n din g a lg orith m s. T his s tu ff i s v ery , v ery w ell f u tu re -p ro ofe d , a n d b itc o in w as d esig ned with t h at i n m in d.” 5 Still, t h e c o ncep t i s w orth t a k in g v ery s e rio usly , a s i t h as p ro fo und i m plic atio ns f o r p riv acy , se cu rity , a n d s u sta in ab ility . “ E nig m a i s o ffe rin g w hat t h ey s a y g uara n te es p riv acy ,” C av oukia n sa id . “ T hat i s a b ig c la im , b ut t h at’ s t h e k in d o f t h in g w e i n cre asin gly n eed i n t h is c o nnecte d , in te rc o nnecte d w orld .” 6 In o ur r e se arc h , w e c am e a cro ss a n um ber o f p ro je cts i n itia te d o n b lo ck ch ain t e ch nolo gie s whose d ev elo pers h ad s im ila r a sp ir a tio ns f o r e n ab lin g b asic h um an r ig hts — not o nly t h e r ig hts t o priv acy a n d s e cu rity , b ut a ls o t h e r ig hts t o p ro perty , r e co gnitio n a s a p ers o n u nder t h e l a w , a n d partic ip atio n i n g overn m en t, c u ltu re , a n d t h e e co nom y. I m ag in e a t e ch nolo gy t h at c o uld p re se rv e our f re ed om t o c h oose f o r o urs e lv es a n d o ur f a m ilie s, t o e x pre ss t h ese c h oic es i n t h e w orld , a n d to c o ntr o l o ur o w n d estin y, n o m atte r w here w e l iv ed o r w ere b orn . W hat n ew t o ols a n d n ew j o bs co uld w e c re ate w ith t h ose c ap ab ilitie s? W hat n ew b usin esse s a n d s e rv ic es? H ow s h ould w e th in k a b out t h e o pportu nitie s? T he a n sw ers w ere r ig ht i n f ro nt o f u s, c o m plim en ts o f S ato sh i Nak am oto .

TH E S E V EN D ESIG N P R IN CIP L ES We b elie v e t h at t h is n ex t e ra c o uld b e i n sp ir e d b y S ato sh i N ak am oto ’s v is io n, d esig ned a ro und a se t o f i m plic it p rin cip le s, a n d r e aliz ed b y t h e c o lla b ora tiv e s p ir it o f m an y p assio nate a n d e q ually ta le n te d l e ad ers i n t h e c o m munity .

His g ra n d v is io n w as l im ite d t o m oney , n ot t o s o m e g re ate r g oal o f c re atin g a s e co nd gen era tio n o f t h e I n te rn et. T here w as n o d is c u ssio n o f r e in ven tin g t h e f ir m , c h an gin g o ur in stitu tio ns, o r t r a n sfo rm in g c iv iliz atio n f o r t h e b ette r. S till, S ato sh i’ s v is io n w as s tu nnin g i n i ts sim plic ity , o rig in ality , a n d i n sig ht i n to h um an kin d. I t b ecam e c le ar t o t h ose w ho r e ad t h e 2 008 pap er t h at a n ew e ra o f t h e d ig ita l e co nom y w as a b out t o b eg in . W here t h e f ir s t e ra o f t h e d ig ita l eco nom y w as s p ark ed b y a c o nverg en ce o f c o m putin g a n d c o m munic atio ns t e ch nolo gie s, t h is se co nd e ra w ould b e p ow ere d b y a c le v er c o m bin atio n o f c o m pute r e n gin eerin g, m ath em atic s, cry pto gra p hy, a n d b eh av io ra l e co nom ic s.

Folk sin ger G ord on L ig htf o ot c ro oned , “ If y ou c o uld r e ad m y m in d, l o ve, w hat a t a le m y th oughts c o uld t e ll.” S ato sh i h as b een i n co m munic ad o s in ce 2 011 ( th ough t h e n am e p ops u p o n dis c u ssio n b oard s f ro m t im e t o t im e), b ut w e t h in k t h e t r u st p ro to co l h e b oots tr a p ped l e n ds i ts e lf to p rin cip le s f o r r e co nfig urin g o ur i n stitu tio ns a n d e co nom y.

Every one w e t a lk ed t o h as b een e ag er t o s h are i n sig hts i n to b lo ck ch ain t e ch nolo gy w ith u s.

Each c o nvers a tio n, e ach w hite p ap er, e ach f o ru m t h re ad h as s u rfa ced a n um ber o f t h em es t h at we’v e r e v ers e -e n gin eere d i n to d esig n p rin cip le s— prin cip le s f o r c re atin g s o ftw are , s e rv ic es, busin ess m odels , m ark ets , o rg an iz atio ns, a n d e v en g overn m en ts o n t h e b lo ck ch ain . S ato sh i n ev er wro te a b out t h ese p rin cip le s, b ut t h ey a re i m plic it i n t h e t e ch nolo gy p la tf o rm h e u nle ash ed . W e se e t h em a s p rin cip le s f o r s h ap in g t h e n ex t e ra o f t h e d ig ita l e co nom y, a n d a n e ra o f r e n ew ed tr u st.

If y ou’re n ew t o t h is s p ace, w e h ope t h ese p rin cip le s w ill h elp y ou u nders ta n d t h e b asic s o f th e b lo ck ch ain r e v olu tio n. I f y ou’re a d ie -h ard s k ep tic o f t h e b itc o in b lo ck ch ain , t h ey s h ould s till se rv e y ou a s y ou c o nte m pla te y our f u tu re a s a n e n tr e p re n eu r, i n ven to r, e n gin eer, o r a rtis t w ho se ek s c re ativ e c o lla b ora tio ns w ith l ik e-m in ded p eo ple ; a s a n o w ner o r i n vesto r i n a sse ts o f a ll kin ds; o r a s a m an ag er w ho w an ts t o r e im ag in e y our r o le i n t h is n asc en t b lo ck ch ain e co nom y.

1.

N etw ork ed I n te g rity Prin cip le :

Tru st i s i n tr in sic , n ot e x tr in sic . I n te g rity i s e n co ded i n e v ery s te p o f t h e p ro cess a n d dis tr ib ute d , n ot v este d i n a n y s in gle m em ber. P artic ip an ts c an e x ch an ge v alu e d ir e ctly w ith t h e ex pecta tio n t h at t h e o th er p arty w ill a ct w ith i n te g rity . T hat m ean s t h at t h e v alu es o f i n te g rity — honesty i n o ne’s w ord s a n d d eed s, c o nsid era tio n f o r o th ers ’ i n te re sts , a cco unta b ility f o r t h e co nse q uen ces o f o ne’s d ecis io ns a n d a ctio ns, a n d t r a n sp are n cy i n d ecis io n m ak in g a n d a ctio n ta k in g— are c o ded i n d ecis io n r ig hts , i n cen tiv e s tr u ctu re s, a n d o pera tio ns s o t h at a ctin g w ith out in te g rity e ith er i s i m possib le o r c o sts a l o t m ore t im e, m oney , e n erg y, a n d r e p uta tio n.

Pro b le m t o B e S olv ed :

On t h e I n te rn et, p eo ple h av en ’t b een a b le t o t r a n sa ct o r d o b usin ess dir e ctly f o r t h e s im ple r e aso n t h at m oney i s n ’t l ik e o th er i n fo rm atio n g oods a n d i n te lle ctu al pro perty p er s e . Y ou c an s e n d t h e s a m e s e lf ie t o a ll y our f rie n ds, b ut y ou o ught n ot g iv e y our frie n d a d olla r t h at y ou’v e a lr e ad y g iv en t o s o m eo ne e ls e . T he m oney m ust l e av e y our a cco unt an d g o i n to y our f rie n d’s . I t c an ’t e x is t i n b oth p la ces, l e t a lo ne m ultip le p la ces. A nd s o t h ere ’s a ris k o f y our s p en din g a u nit o f d ig ita l c u rre n cy i n t w o p la ces a n d h av in g o ne o f t h em b ounce l ik e a b ad c h eck . T hat’ s c alle d t h e double -s p en d p ro ble m . T hat’ s g ood f o r f ra u dste rs w ho w an t t o sp en d t h eir m oney t w ic e. I t’ s b ad f o r t h e r e cip ie n t o f t h e b ounced a m ount a n d b ad f o r y our re p uta tio n o nlin e. T ra d itio nally , w hen m ak in g o nlin e p ay m en ts , w e s o lv e t h e d ouble -s p en d pro ble m b y c le arin g e v ery t r a n sa ctio n t h ro ugh t h e c en tr a l d ata b ase s o f o ne o r m an y t h ir d p artie s, su ch a s a m oney t r a n sfe r s e rv ic e ( lik e W este rn U nio n), a c o m merc ia l b an k ( C itic o rp ), a govern m en t b ody ( C om monw ealth B an k o f A ustr a lia ), a c re d it c ard c o m pan y ( V is a ), o r a n onlin e p ay m en t p la tf o rm ( P ay P al) . S ettle m en t c an t a k e d ay s o r e v en w eek s i n s o m e p arts o f t h e world .

Brea k th ro u gh :

Sato sh i l e v era g ed a n e x is tin g d is tr ib ute d p eer-to -p eer n etw ork a n d a b it o f cle v er c ry pto gra p hy t o c re ate a co nse n su s m ech anis m t h at c o uld s o lv e t h e d ouble -s p en d p ro ble m as w ell a s, i f n ot b ette r t h an , a t r u ste d t h ir d p arty . O n t h e b itc o in b lo ck ch ain , t h e n etw ork t im e- sta m ps t h e f ir s t t r a n sa ctio n w here t h e o w ner s p en ds a p artic u la r c o in a n d r e je cts s u bse q uen t sp en ds o f t h e c o in , t h us e lim in atin g a d ouble s p en d. N etw ork p artic ip an ts w ho r u n f u lly opera tin g b itc o in n odes— calle d min ers— gath er u p r e cen t t r a n sa ctio ns, s e ttle t h em i n t h e f o rm o f a b lo ck o f d ata , a n d r e p eat t h e p ro cess e v ery t e n m in ute s. E ach b lo ck m ust r e fe r t o t h e p re ced in g blo ck t o b e v alid . T he p ro to co ls a ls o i n clu de a m eth od f o r r e cla im in g d is k s p ace s o t h at a ll n odes can e ffic ie n tly s to re t h e f u ll b lo ck ch ain . F in ally , t h e b lo ck ch ain i s p ublic . A nyone c an s e e tr a n sa ctio ns t a k in g p la ce. N o o ne c an h id e a t r a n sa ctio n, a n d t h at m ak es b itc o in m ore t r a ceab le th an c ash .

Sato sh i s o ught n ot o nly t o d is in te rm ed ia te t h e c en tr a l b an kin g p ow ers b ut a ls o t o e lim in ate th e a m big uity a n d c o nflic tin g i n te rp re ta tio ns o f w hat h ap pen ed . L et t h e c o de s p eak f o r i ts e lf . L et th e n etw ork r e ach c o nse n su s a lg orith m ic ally o n w hat h ap pen ed a n d r e co rd i t c ry pto gra p hic ally on t h e b lo ck ch ain . T he m ech an is m f o r r e ach in g c o nse n su s i s c ritic al. “ C onse n su s i s a s o cia l pro cess,” b lo gged V ita lik B ute rin , p io neer o f t h e E th ere u m b lo ck ch ain . “ H um an b ein gs a re f a ir ly good a t e n gag in g i n c o nse n su s . . . w ith out a n y h elp f ro m a lg orith m s.” H e e x pla in ed t h at, o nce a sy ste m s c ale s b ey ond a n i n div id ual’ s a b ility t o d o t h e m ath , p eo ple t u rn t o s o ftw are a g en ts . I n peer-to -p eer n etw ork s, t h e c o nse n su s a lg orith m d iv vie s u p t h e r ig ht t o u pdate t h e s ta tu s o f t h e netw ork , t h at i s , t o v ote o n t h e t r u th . T he a lg orith m d ole s o ut t h is r ig ht t o a g ro up o f p eers w ho co nstitu te a n e co nom ic s e t, a s e t t h at h as s k in i n t h e g am e, s o t o s p eak . A cco rd in g t o B ute rin , what’ s i m porta n t a b out t h is e co nom ic s e t i s t h at i ts m em bers a re s e cu re ly d is tr ib ute d : n o s in gle mem ber o r c arte l s h ould b e a b le t o o verta k e a m ajo rity , e v en i f t h ey h ad t h e m ean s a n d i n cen tiv e to d o s o .

7 To a ch ie v e c o nse n su s, t h e b itc o in n etw ork u se s w hat’ s c alle d a pro of o f w ork ( P oW ) mech an is m . T his m ay s o und c o m plic ate d b ut t h e i d ea i s a s im ple o ne. B ecau se w e c an ’t r e ly o n th e i d en tity o f t h e m in ers t o s e le ct w ho c re ate s t h e n ex t b lo ck , w e i n ste ad c re ate a p uzzle t h at i s hard t o s o lv e ( i.e ., i t t a k es a l o t o f work ), b ut e asy t o v erif y ( i.e ., e v ery one e ls e c an c h eck t h e an sw er v ery q uic k ly ). P artic ip an ts a g re e t h at w hoev er s o lv es t h e p ro ble m f ir s t g ets t o c re ate t h e nex t b lo ck . M in ers h av e t o e x pen d r e so urc es ( c o m putin g h ard w are a n d e le ctr ic ity ) t o s o lv e t h e puzzle b y f in din g t h e r ig ht h ash , a k in d o f u niq ue f in gerp rin t f o r a t e x t o r a d ata f ile . F or e ach blo ck t h ey f in d, m in ers r e ceiv e b itc o in a s a r e w ard . T he p uzzle i s m ath em atic ally s e t u p t o m ak e it i m possib le t o f in d a s h ortc u t t o s o lv e i t. T hat’ s w hy, w hen t h e r e st o f t h e n etw ork s e es t h e an sw er, e v ery one t r u sts t h at a l o t o f w ork w en t i n to p ro ducin g i t. A ls o , t h is p uzzle s o lv in g i s co ntin uous “ to t h e t u ne o f 5 00,0 00 t r illio n h ash es p er s e co nd,” a cco rd in g t o D in o M ark Angaritis . M in ers a re “ lo okin g f o r a h ash t h at m eets t h e t a rg et. I t i s sta tis tic ally b ound t o o ccu r ev ery t e n m in ute s. I t’ s a P ois so n p ro cess, s o t h at s o m etim es i t t a k es o ne m in ute a n d s o m etim es one h our, b ut o n a v era g e, i t’ s t e n m in ute s.” A ngaritis e x pla in ed h ow i t w ork s: “ M in ers g ath er a ll th e p en din g t r a n sa ctio ns t h at t h ey f in d o n t h e n etw ork a n d r u n t h e d ata t h ro ugh a c ry pto gra p hic dig est f u nctio n c alle d t h e s e cu re h ash a lg orith m ( S H A-2 56), w hic h o utp uts a 3 2-b yte hash v a lu e .

If t h e h ash v alu e i s b elo w a c erta in t a rg et ( s e t b y t h e n etw ork a n d a d ju ste d e v ery 2 ,0 16 b lo ck s), th en t h e m in er h as f o und t h e a n sw er t o t h e p uzzle a n d h as ‘ s o lv ed ’ t h e b lo ck . U nfo rtu nate ly f o r th e m in er, f in din g t h e r ig ht h ash v alu e i s v ery d if fic u lt. I f t h e h ash v alu e i s w ro ng, t h e m in er ad ju sts t h e i n put d ata s lig htly a n d t r ie s a g ain . E ach a tte m pt r e su lts i n a n en tir e ly d iffe re n t h ash valu e. M in ers h av e t o t r y m an y t im es t o f in d t h e r ig ht a n sw er. A s o f N ovem ber 2 015, t h e n um ber of h ash a tte m pts i s o n a v era g e 3 50 m illio n t r illio n. T hat’ s a l o t o f w ork !” 8 You m ay h ear a b out o th er c o nse n su s m ech an is m s. T he f ir s t v ers io n o f t h e E th ere u m blo ck ch ain — Fro ntie r— als o u se s p ro of o f w ork , b ut t h e d ev elo pers o f E th ere u m 1 .1 e x pect t o re p la ce i t w ith a pro of o f s ta ke m ech an is m . P ro of o f s ta k e r e q uir e s m in ers t o i n vest i n a n d h an g on t o s o m e s to re o f v alu e ( i.e ., t h e n ativ e t o ken o f t h e b lo ck ch ain s u ch a s P eerc o in , N XT, e tc .) .

They n eed n’t s p en d e n erg y t o v ote . O th er b lo ck ch ain s, s u ch a s R ip ple a n d S te lla r, r e ly o n s o cia l netw ork s f o r c o nse n su s a n d m ay r e co m men d t h at n ew p artic ip an ts ( i.e ., n ew n odes) g en era te a uniq ue n ode l is t o f a t l e ast o ne h undre d n odes t h ey c an t r u st i n v otin g o n t h e s ta te o f a ffa ir s . T his ty pe o f p ro of i s b ia se d : n ew co m ers n eed s o cia l i n te llig en ce a n d r e p uta tio n t o p artic ip ate .

Pro of o f activ ity i s a n oth er m ech an is m ; i t c o m bin es p ro of o f w ork a n d p ro of o f s ta k e, w here a r a n dom num ber o f m in ers m ust s ig n o ff o n t h e b lo ck u sin g a c ry pto key b efo re t h e b lo ck b eco m es offic ia l.

9 Pro of o f c a pacity r e q uir e s m in ers t o a llo t a s iz ab le v olu m e o f t h eir h ard d riv e t o min in g. A s im ila r c o ncep t, pro of o f s to ra ge , r e q uir e s m in ers t o a llo cate a n d s h are d is k s p ace i n a dis tr ib ute d c lo ud.

Sto ra g e d oes m atte r. D ata o n b lo ck ch ain s a re d if fe re n t f ro m d ata o n t h e I n te rn et i n o ne im porta n t w ay . O n t h e I n te rn et, m ost o f t h e i n fo rm atio n i s m alle ab le a n d f le etin g, a n d t h e e x act date a n d t im e o f i ts p ublic atio n i s n ’t c ritic al t o p ast o r f u tu re i n fo rm atio n. O n t h e b lo ck ch ain , bitc o in m ovem en t a cro ss t h e n etw ork i s p erm an en tly s ta m ped , f ro m t h e m om en t o f i ts c o in ag e. For a b itc o in t o b e v alid , i t m ust r e fe re n ce i ts o w n h is to ry a s w ell a s t h e his to ry o f t h e blo ck ch ain . T here fo re , t h e b lo ck ch ain m ust b e p re se rv ed i n i ts e n tir e ty .

So i m porta n t a re t h e p ro cesse s o f m in in g— asse m blin g a b lo ck o f t r a n sa ctio ns, s p en din g so m e r e so urc e, s o lv in g t h e p ro ble m , r e ach in g c o nse n su s, m ain ta in in g a c o py o f t h e f u ll l e d ger— th at s o m e h av e c alle d t h e b itc o in b lo ck ch ain a p ublic u tility l ik e t h e I n te rn et, a u tility t h at re q uir e s p ublic s u pport. P au l B ro dy o f E rn st & Y oung t h in ks t h at a ll o ur a p plia n ces s h ould donate t h eir p ro cessin g p ow er t o t h e u pkeep o f a b lo ck ch ain : “ Y our l a w nm ow er o r d is h w ash er i s goin g t o c o m e w ith a C PU t h at i s p ro bab ly a t h ousa n d t im es m ore p ow erfu l t h an i t a ctu ally need s, a n d s o w hy n ot h av e i t m in e? N ot f o r t h e p urp ose o f m ak in g y ou m oney , b ut t o m ain ta in your s h are o f t h e b lo ck ch ain ,” 10 h e s a id . R eg ard le ss o f t h e c o nse n su s m ech an is m , t h e b lo ck ch ain en su re s i n te g rity t h ro ugh c le v er c o de r a th er t h an t h ro ugh h um an b ein gs w ho c h oose t o d o t h e rig ht t h in g.

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

Rath er t h an t r u stin g b ig c o m pan ie s a n d govern m en ts t o v erif y p eo ple ’s i d en titie s a n d v ouch f o r t h eir r e p uta tio ns, w e c an t r u st t h e netw ork .

For t h e f ir st t im e e ver, w e h ave a p la tfo rm t h at e n su re s t r u st i n t r a nsa ctio ns a nd m uch re co rd ed i n fo rm atio n n o m atte r h ow t h e o th er p arty a cts .

The i m plic atio ns f o r m ost s o cia l, p olitic al, a n d e co nom ic a ctiv ity a re s ta g gerin g. I t’ s n ot j u st ab out w ho m arrie d w hom , w ho v ote d f o r w hom , w ho p aid w hom , i t’ s a b out a n y e n deav or t h at re q uir e s t r u ste d r e co rd s a n d a ssu re d t r a n sa ctio ns. W ho o w ns w hat? W ho h old s w hic h r ig hts t o th is i n te lle ctu al p ro perty ? W ho g ra d uate d f ro m m ed ic al s c h ool? W ho b ought g uns? W ho m ad e th ese N ik e s h oes, t h is A pple d ev ic e, o r t h is b ab y f o rm ula ? W here d id t h ese d ia m onds c o m e fro m ? T ru st i s t h e s in e q ua n on o f t h e d ig ita l e co nom y, a n d a p la tf o rm f o r s e cu re a n d r e lia b le mass c o lla b ora tio n h old s m an y p ossib ilitie s f o r a n ew k in d o f o rg an iz atio n a n d s o cie ty .

2.

D is tr ib ute d P ow er Prin cip le :

The s y ste m d is tr ib ute s p ow er a cro ss a p eer-to -p eer n etw ork w ith n o s in gle p oin t o f co ntr o l. N o s in gle p arty c an s h ut t h e s y ste m d ow n. I f a c en tr a l a u th ority m an ag es t o b la ck o ut o r cu t o ff a n i n div id ual o r g ro up, t h e s y ste m w ill s till s u rv iv e. I f o ver h alf t h e n etw ork a tte m pts t o overw helm t h e w hole , e v ery one w ill s e e w hat’ s h ap pen in g.

Pro b le m t o B e S olv ed :

In t h e f ir s t e ra o f t h e I n te rn et, a n y l a rg e in stitu tio n w ith a l a rg e esta b lis h ed b ase o f u se rs , b e t h ey e m plo yees, c itiz en s, c u sto m ers , o r o th er o rg an iz atio ns, t h ought little o f t h eir s o cia l c o ntr a ct. T im e a n d t im e a g ain , c en tr a l p ow ers h av e p ro ven t h at t h ey ’re willin g a n d a b le t o o verrid e u se rs , w are h ouse a n d a n aly ze u se r d ata , r e sp ond t o g overn m en t re q uests f o r d ata w ith out u se rs ’ k now le d ge, a n d i m ple m en t l a rg e-s c ale c h an ges w ith out u se rs ’ co nse n t.

Brea k th ro u gh :

The e n erg y c o sts o f o verp ow erin g t h e b itc o in b lo ck ch ain w ould o utw eig h th e f in an cia l b en efits . S ato sh i d ep lo yed a p ro of-o f-w ork m eth od t h at r e q uir e s u se rs t o e x pen d a lo t o f c o m putin g p ow er ( w hic h r e q uir e s a l o t o f e le ctr ic ity ) t o d efe n d t h e n etw ork a n d m in t n ew co in s. H e w as i n sp ir e d b y c ry pto gra p her A dam B ack ’s s o lu tio n, H ash cash , t o m itig ate s p am a n d den ia l- o f-s e rv ic e a tta ck s. B ack ’s m eth od r e q uir e d e -m aile rs t o p ro vid e p ro of o f w ork w hen se n din g t h e m essa g e. I t i n e ffe ct s ta m ped “ sp ecia l d eliv ery ” o n a n e -m ail t o s ig nal t h e m essa g e’s im porta n ce t o i ts s e n der. “ T his m essa g e i s s o c ritic al t h at I ’v e s p en t a ll t h is e n erg y i n s e n din g i t to y ou.” I t i n cre ase s t h e c o sts o f s e n din g s p am , m alw are , a n d r a n so m ware . Anyone c an d ow nlo ad t h e b itc o in p ro to co l f o r f re e a n d m ain ta in a c o py o f t h e b lo ck ch ain . I t le v era g es boots tr a ppin g , a t e ch niq ue f o r u plo ad in g t h e p ro gra m o nto a v olu nte er’s c o m pute r o r mobile d ev ic e t h ro ugh a f e w s im ple i n str u ctio ns t h at s e t t h e r e st o f t h e p ro gra m i n m otio n. I t’ s fu lly d is tr ib ute d a cro ss a v olu nte er n etw ork l ik e B itT orre n t, a s h are d d ata b ase o f i n te lle ctu al pro perty t h at r e sid es o n t e n s o f t h ousa n ds o f c o m pute rs w orld w id e.

To b e s u re , t h is s h ie ld s t h e n etw ork f ro m t h e h an ds o f t h e s ta te , w hic h c o uld b e g ood o r b ad dep en din g o n t h e s itu atio n— sa y a d is sid en t i n a t o ta lita ria n c o untr y f ig htin g f o r w om en ’s r ig hts vers u s a c rim in al i n a d em ocra tic c o untr y c o nductin g e x to rtio n. T ota lita ria n r e g im es c o uld n ot fre eze b an k a cco unts o r s e iz e f u nds o f p olitic al a ctiv is ts . S ta te s c o uld n ot a rb itr a rily s e iz e a sse ts on t h e b lo ck ch ain a s F ra n klin D ela n o R oose v elt’ s a d m in is tr a tio n d id t h ro ugh F D R’s E xecu tiv e Ord er 6 102, w hic h r e q uir e d c itiz en s t o t u rn t h eir “ g old c o in , g old b ullio n, a n d g old c ertif ic ate s” over t o t h e g overn m en t o r r is k f in es o r i m pris o nm en t.

11 J o sh F air fie ld o f W ash in gto n a n d L ee Univ ers ity p ut i t b lu ntly : “ T here ’s n o m id dle m an t o g o a fte r a n ym ore .” 12 T he b lo ck ch ain r e sid es ev ery w here . V olu nte ers m ain ta in i t b y k eep in g t h eir c o py o f t h e b lo ck ch ain u p t o d ate a n d le n din g t h eir s p are c o m pute r p ro cessin g u nits f o r m in in g. N o b ack door d ealin g. E very a ctio n o r tr a n sa ctio n i s b ro ad cast a cro ss t h e n etw ork f o r s u bse q uen t v erif ic atio n an d v alid atio n. N oth in g passe s t h ro ugh a c en tr a l t h ir d p arty ; n oth in g i s s to re d o n a c en tr a l s e rv er.

Sato sh i a ls o d is tr ib ute d t h e min t by l in kin g t h e i s su an ce o f b itc o in s t o t h e c re atio n o f a n ew blo ck i n t h e l e d ger, p uttin g t h e p ow er t o m in t i n to a ll t h e h an ds o f t h e p eer n etw ork . W hic h ev er min er s o lv ed t h e p uzzle a n d s u bm itte d p ro of o f w ork f ir s t c o uld r e ceiv e a n um ber o f n ew bitc o in s. T here i s n o F ed era l R ese rv e, c en tr a l b an k, o r t r e asu ry w ith c o ntr o l o ver t h e m oney su pply . M ore o ver, e ach b itc o in c o nta in s d ir e ct l in ks t o i ts g en esis b lo ck a n d a ll s u bse q uen t tr a n sa ctio ns.

So n o i n te rm ed ia rie s a re r e q uir e d . T he f u nctio nin g o f t h e b lo ck ch ain i s m ass c o lla b ora tio n a t its b est. Y ou h av e p ow er o ver y our d ata , y our p ro perty , a n d y our l e v el o f p artic ip atio n. I t’ s dis tr ib ute d c o m putin g p ow er e n ab lin g d is tr ib ute d a n d c o lle ctiv e h um an p ow er.

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

Perh ap s s u ch a p la tf o rm c o uld e n ab le n ew dis tr ib ute d m odels o f w ealth c re atio n. P erh ap s n ew k in ds o f p eer-to -p eer c o lla b ora tio ns c o uld ta rg et h um an ity ’s m ost v ex in g s o cia l p ro ble m s. P erh ap s w e c o uld s o lv e t h e c ris is o f c o nfid en ce an d e v en l e g itim acy i n t o day ’s i n stitu tio ns b y s h if tin g r e al p ow er t o w ard c itiz en s, e q uip pin g th em w ith r e al o pportu nitie s f o r p ro sp erity a n d p artic ip atio n i n s o cie ty , r a th er t h an t h ro ugh P R tr ic k ery .

3.

V alu e a s I n cen tiv e Prin cip le :

The s y ste m a lig ns t h e i n cen tiv es o f a ll s ta k eh old ers . B itc o in o r s o m e t o ken o f v alu e i s in te g ra l t o t h is a lig nm en t a n d c o rre la tiv e o f r e p uta tio n. S ato sh i p ro gra m med t h e s o ftw are t o re w ard t h ose w ho w ork o n i t a n d b elo ng t o t h ose w ho h old a n d u se i ts t o ken s, s o t h at t h ey a ll ta k e c are o f i t. S ort o f t h e u ltim ate T am ag otc h i, t h e b lo ck ch ain i s a g lo bally d is tr ib ute d n est eg g.

13 Pro b le m t o B e S olv ed :

In t h e f ir s t e ra o f t h e I n te rn et, t h e c o ncen tr a tio n o f p ow er i n co rp ora tio ns, c o m bin ed w ith t h eir s h eer s iz e, c o m ple x ity , a n d o pacity , e n ab le d t h em t o e x tr a ct dis p ro portio nate v alu e f ro m t h e v ery n etw ork s t h at e n dow ed t h em w ith r ig hts . L arg e b an ks ex plo ite d t h e f in an cia l s y ste m t o i ts b re ak in g p oin t b ecau se “ in cen tiv e s tr u ctu re s f o r m ost o f t h e to p e x ecu tiv es a n d m an y o f t h e l e n din g o ffic ers o f t h ese b an ks [ w ere ] d esig ned t o e n co ura g e sh ort- s ig hte d b eh av io r a n d e x cessiv e r is k -ta k in g,” a cco rd in g t o e co nom is t J o se p h S tig litz . T hat in clu ded “ p re y in g o n t h e poore st A m eric an s.” H e s u m med u p t h e p ro ble m : “ If y ou g iv e p eo ple bad i n cen tiv es, t h ey b eh av e b ad ly , a n d t h ey b eh av ed j u st a s o ne w ould h av e e x pecte d .” 14 Larg e d ot- c o m s d an gle d f re e s e rv ic es i n r e ta il, s e arc h , a n d s o cia l m ed ia i n e x ch an ge f o r u se r data . A cco rd in g t o a n E rn st & Y oung s u rv ey , n early t w o t h ir d s o f m an ag ers p olle d s a id t h ey co lle cte d c o nsu m er d ata t o d riv e b usin ess, a n d n early 8 0 p erc en t c la im ed t o h av e i n cre ase d re v en ues f ro m t h is d ata m in in g. B ut w hen t h ese f ir m s g et h ack ed , i t’ s t h e c o nsu m ers w ho h av e t o cle an u p t h e m ess o f s to le n c re d it c ard a n d b an k a cco unt i n fo rm atio n. I t’ s n ot s u rp ris in g t h at, i n th e s a m e s u rv ey , n early h alf o f c o nsu m ers s a id t h ey ’d b e c u ttin g o ff a ccess t o t h eir d ata i n t h e nex t f iv e y ears , a n d o ver h alf s a id t h ey w ere a lr e ad y p ro vid in g l e ss d ata , i n clu din g c en so rin g th em se lv es o n s o cia l m ed ia , t h an i n t h e p re v io us f iv e y ears .

15 Brea k th ro u gh :

Sato sh i e x pecte d p artic ip an ts t o a ct i n t h eir o w n s e lf -in te re sts . H e unders to od g am e t h eo ry . H e k new t h at n etw ork s w ith out g ate k eep ers h av e b een v uln era b le t o Sybil a tta ck s, w here n odes f o rg e m ultip le i d en titie s, d ilu te r ig hts , a n d d ep re cia te t h e v alu e o f re p uta tio n.

16 T he i n te g rity o f t h e p eer-to -p eer n etw ork a n d t h e r e p uta tio n o f i ts p eers b oth dim in is h i f y ou d on’t k now w heth er y ou’re d ealin g w ith t h re e p artie s o r o ne p arty u sin g t h re e id en titie s. S o S ato sh i p ro gra m med t h e s o urc e c o de s o t h at, n o m atte r h ow s e lf is h ly p eo ple a cte d , th eir a ctio ns w ould b en efit t h e s y ste m o vera ll a n d a ccru e t o t h eir r e p uta tio ns, h ow ev er t h ey ch ose t o i d en tif y t h em se lv es. T he r e so urc e r e q uir e m en ts o f t h e c o nse n su s m ech an is m , c o m bin ed with b itc o in s a s r e w ard , c o uld c o m pel p artic ip an ts t o d o t h e r ig ht t h in g, m ak in g t h em t r u stw orth y in t h e s e n se t h at t h ey w ere p re d ic ta b le . S ybil a tta ck s w ould b e e co nom ic ally u nvia b le .

Sato sh i w ro te , “ B y c o nven tio n, t h e f ir s t t r a n sa ctio n i n a b lo ck i s a s p ecia l t r a n sa ctio n t h at sta rts a n ew c o in o w ned b y t h e c re ato r o f t h e b lo ck . T his a d ds a n i n cen tiv e f o r n odes t o s u pport th e n etw ork .” 17 B itc o in i s a n i n cen tiv e f o r m in ers t o p artic ip ate i n c re atin g a b lo ck a n d l in kin g i t to t h e p re v io us b lo ck . T hose w ho c o m ple te a b lo ck f ir s t g et a q uan tity o f b itc o in s f o r t h eir effo rts . S ato sh i’ s p ro to co l r e w ard ed e arly a d opte rs h an dso m ely w ith b itc o in : f o r t h e f ir s t f o ur years , m in ers r e ceiv ed 5 0 b itc o in s ( B TC ) f o r e ach b lo ck . E very f o ur y ears , t h e r e w ard p er b lo ck would h alv e: 2 5 B TC , 1 2.5 B TC , a n d s o o n. B ecau se t h ey n ow o w n b itc o in , t h ey h av e a n in cen tiv e t o e n su re t h e p la tf o rm ’s l o ng-te rm s u ccess, b uyin g t h e b est e q uip m en t t o ru n m in in g opera tio ns, s p en din g e n erg y a s e ffic ie n tly a s p ossib le , a n d m ain ta in in g t h e l e d ger. B itc o in i s a ls o a c la im o n t h e b lo ck ch ain , n ot j u st a s a n i n cen tiv e t o p artic ip ate i n m in in g a n d t r a n sa ctin g w ith oth ers b ut t h ro ugh o w ners h ip i n t h e p la tf o rm i ts e lf . D is tr ib ute d u se r a cco unts a re t h e m ost b asic ele m en t o f t h e c ry pto gra p hic n etw ork i n fra str u ctu re . B y o w nin g a n d u sin g b itc o in , o ne i s fin an cin g t h e b lo ck ch ain ’s d ev elo pm en t.

Sato sh i c h ose a s t h e e co nom ic s e t t h e ow ners o f c o m putin g p ow er . T his r e q uir e s t h ese min ers t o c o nsu m e a r e so urc e e x te rn al t o t h e n etw ork , n am ely e le ctr ic ity , i f t h ey w an t t o partic ip ate i n t h e r e w ard s y ste m . E very s o o fte n , d if fe re n t m in ers f in d t w o e q ually v alid b lo ck s of e q ual h eig ht, a n d t h e r e st o f t h e m in ers m ust c h oose w hic h b lo ck t o b uild o n n ex t. T hey gen era lly p ic k w hic h ev er t h ey t h in k w ill w in r a th er t h an b uild in g o n b oth , b ecau se t h ey ’d oth erw is e h av e t o s p lit t h eir p ro cessin g p ow er b etw een t h e f o rk s, a n d t h at’ s a s tr a te g y f o r l o sin g valu e. T he l o ngest c h ain r e p re se n ts t h e g re ate st a m ount o f w ork a n d t h ere fo re p artic ip an ts ch oose i t a s t h e c an onic al s ta te o f t h e b lo ck ch ain . I n c o ntr a st, E th ere u m c h ose ow ners o f c o in as its e co nom ic s e t. R ip ple a n d S te lla r c h ose t h e s o cia l n etw ork . The p ara d ox o f t h ese c o nse n su s s c h em es i s t h at b y a ctin g i n o ne’s s e lf -in te re st, o ne i s se rv in g t h e p eer-to -p eer ( P 2P ) n etw ork , a n d t h at i n t u rn a ffe cts o ne’s r e p uta tio n a s a m em ber o f th e e co nom ic s e t. B efo re b lo ck ch ain t e ch nolo gie s, p eo ple c o uld n’t e asily l e v era g e t h e v alu e o f th eir r e p uta tio n o nlin e. I t w asn ’t o nly b ecau se o f S ybil a tta ck s, w here a c o m pute r c o uld i n hab it multip le r o le s. I d en tity i s m ultif a cete d , n uan ced , a n d t r a n sie n t. F ew p eo ple s e e a ll s id es, l e t a lo ne th e s u btle tie s a n d t h e a rc o f o ur i d en tity . F or d if fe re n t c o nte x ts , w e h av e t o p ro duce s o m e docu m en t o r o th er t o a tte st t o s o m e d eta il o f o ur i d en tity . P eo ple “ w ith out p ap ers ” a re c o nfin ed to c o lla b ora tin g w ith t h eir s o cia l c ir c le . O n b lo ck ch ain s l ik e S te lla r, t h at’ s a n e x celle n t s ta rt, a mean s o f c re atin g a p ers is te n t d ig ita l p re se n ce a n d e sta b lis h in g r e p uta tio n t h at i s p orta b le w ell bey ond o ne’s g eo gra p hic c o m munity .

Anoth er b re ak th ro ugh t o p re se rv e v alu e i s t h e moneta ry p olic y p ro gra m med i n to t h e so ftw are . “ A ll m oney m an kin d h as e v er u se d h as b een i n se cu re i n o ne w ay o r a n oth er,” s a id Nic k S zab o. “ T his i n se cu rity h as b een m an if e ste d i n a w id e v arie ty o f w ay s, f ro m c o unte rfe itin g to t h eft, b ut t h e m ost p ern ic io us o f w hic h h as p ro bab ly b een i n fla tio n.” 18 S ato sh i c ap ped t h e su pply o f b itc o in s a t 2 1 m illio n t o b e i s su ed o ver t im e t o p re v en t arb itr a ry i n fla tio n. G iv en t h e halv in g e v ery f o ur y ears o f b itc o in s m in ed i n a b lo ck a n d t h e c u rre n t r a te o f m in in g— six b lo ck s per h our— th ose 2 1 m illio n B TC s h ould b e i n c ir c u la tio n a ro und t h e y ear 2 140. N o hyperin fla tio n o r c u rre n cy d ev alu atio n c au se d b y i n co m pete n t o r c o rru pt b ure au cra cie s.

Curre n cie s a re n ot t h e o nly a sse ts t h at w e c an t r a d e o n t h e b lo ck ch ain . “ W e’v e o nly b eg un t o sc ra tc h t h e s u rfa ce o n w hat’ s p ossib le ,” s a id H ill o f B lo ck str e am . “ W e’re s till a t t h at 1 994 p oin t in t e rm s o f a p plic atio ns a n d p ro to co ls t h at r e ally t a k e a d van ta g e o f t h e n etw ork a n d s h ow t h e world , ‘ H ere ’s w hat y ou c an d o t h at i s t o ta lly g ro undbre ak in g.’ ” 19 H ill e x pects t o s e e d if fe re n t fin an cia l i n str u m en ts , f ro m p ro of-o f-a sse t a u th en tic ity t o p ro of-o f-p ro perty o w ners h ip . H e a ls o ex pects t o s e e b itc o in a p plic atio ns i n t h e M eta v ers e ( a v ir tu al w orld ) w here y ou c an c o nvert bitc o in i n to K ongbuck s a n d h ir e H ir o P ro ta g onis t t o h ack y ou s o m e d ata .

20 O r j a ck y ours e lf i n to th e O ASIS ( a w orld o f m ultip le v ir tu al u to pia s) w here y ou a ctu ally d o d is c o ver t h e E aste r e g g, win H allid ay ’s e sta te , l ic en se O ASIS ’s v ir tu al p ositio nin g r ig hts t o G oogle , a n d b uy a s e lf - driv in g c ar t o n av ig ate T oro nto .

21 And, o f c o urs e , t h ere ’s t h e I n te rn et o f T hin gs, w here w e r e g is te r o ur d ev ic es, a ssig n t h em a n id en tity ( In te l i s a lr e ad y d oin g t h is ), a n d c o ord in ate p ay m en t a m ong t h em u sin g b itc o in r a th er th an m ultip le f ia t c u rre n cie s. “ Y ou c an d efin e a ll t h ese n ew b usin ess c ase s t h at y ou w an t t o d o, an d h av e i t i n te ro pera te w ith in t h e n etw ork , a n d u se t h e n etw ork i n fra str u ctu re w ith out h av in g t o boots tr a p a n ew b lo ck ch ain , j u st f o r y ours e lf ,” s a id H ill.

22 Unlik e f ia t c u rre n cy , e ach b itc o in i s d iv is ib le t o e ig ht d ecim al p la ces. I t e n ab le s u se rs t o co m bin e a n d s p lit v alu e o ver t im e i n a s in gle t r a n sa ctio n, m ean in g t h at a n i n put c an h av e multip le o utp uts o ver m ultip le p erio ds o f t im e, w hic h i s f a r m ore e ffic ie n t t h an a s e rie s o f tr a n sa ctio ns. U se rs c an s e t u p s m art c o ntr a cts t o m ete r u sa g e o f a s e rv ic e a n d m ak e t in y f ra ctio ns of p ay m en ts a t r e g ula r i n te rv als .

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

The f ir s t e ra o f t h e I n te rn et m is se d a ll t h is .

Now w e h av e a p la tf o rm w here p eo ple a n d e v en t h in gs h av e p ro per f in an cia l i n cen tiv es t o co lla b ora te e ffe ctiv ely a n d c re ate j u st a b out a n yth in g. I m ag in e o nlin e d is c u ssio n g ro ups w here partic ip an ts h av e r e p uta tio ns w orth e n han cin g, i n p art b ecau se b ad b eh av io r w ill c o st t h em fin an cia lly . T ro lls n eed n ot a p ply . I m ag in e a p eer-to -p eer n etw ork o f s o la r p an els w here h om e ow ners r e ceiv e r e al- tim e c o m pen sa tio n o n t h e blo ck ch ain f o r g en era tin g s u sta in ab le e n erg y. Im ag in e a n o pen s o urc e s o ftw are p ro je ct w here a c o m munity o f d ev elo pers c o m pen sa te s su perc o ntr ib uto rs f o r a ccep ta b le c o de. I m ag in e t h ere ’s n o c o untr ie s. I t i s n ’t h ard t o d o.

23 4.

S ecu rity Prin cip le :

Safe ty m easu re s a re e m bed ded i n t h e n etw ork w ith n o s in gle p oin t o f f a ilu re , a n d t h ey pro vid e n ot o nly c o nfid en tia lity , b ut a ls o a u th en tic ity a n d n onre p udia tio n t o a ll a ctiv ity . A nyone who w an ts t o p artic ip ate m ust u se c ry pto gra p hy— optin g o ut i s n ot a n o ptio n— an d t h e co nse q uen ces o f r e ck le ss b eh av io r a re i s o la te d t o t h e p ers o n w ho b eh av ed r e ck le ssly .

Pro b le m t o B e S olv ed :

Hack in g, i d en tity t h eft, f ra u d, c y berb ully in g, p his h in g, s p am , malw are , r a n so m ware — all o f t h ese u nderm in e t h e s e cu rity o f t h e i n div id ual i n s o cie ty . T he f ir s t era o f t h e I n te rn et, r a th er t h an b rin gin g t r a n sp are n cy a n d i m pair in g v io la tio ns, s e em s t o h av e done l ittle t o i n cre ase s e cu rity o f p ers o ns, i n stitu tio ns, a n d e co nom ic a ctiv ity . T he a v era g e In te rn et u se r o fte n h as t o r e ly o n f lim sy p assw ord s t o p ro te ct e -m ail a n d o nlin e a cco unts b ecau se se rv ic e p ro vid ers o r e m plo yers i n sis t o n n oth in g s tr o nger. C onsid er t h e t y pic al f in an cia l in te rm ed ia ry : i t d oesn ’t s p ecia liz e i n d ev elo pin g s e cu re t e ch nolo gy; i t s p ecia liz es i n f in an cia l in novatio n. I n t h e y ear t h at S ato sh i p ublis h ed h is w hite p ap er, d ata b re ach es a t s u ch f in an cia l fir m s a s B N Y M ello n, C ountr y w id e, a n d G E M oney a cco unte d f o r o ver 5 0 p erc en t o f a ll i d en tity th efts r e p orte d t h at y ear, a cco rd in g t o t h e I d en tity T heft R eso urc e C en te r.

24 B y 2 014, t h at f ig ure had f a lle n t o 5 .5 p erc en t f o r t h e f in an cia l s e cto r, b ut b re ach es i n m ed ic al a n d h ealth c are j u m ped to 4 2 p erc en t o f t h e y ear’s t o ta l. I B M r e p orte d t h at t h e a v era g e c o st o f a d ata b re ach i s $ 3.8 millio n, w hic h m ean s t h at d ata b re ach es h av e c o st a t l e ast $ 1.5 b illio n o ver t h e l a st t w o y ears .

25 The a v era g e c o st t o a n i n div id ual o f m ed ic al i d en tity f ra u d i s c lo se t o $ 13,5 00, a n d o ffe n se s a re on t h e r is e . C onsu m ers d on’t k now w hic h a sp ect o f t h eir l if e w ill b e h ack ed n ex t.

26 I f t h e n ex t sta g e o f t h e d ig ita l r e v olu tio n i n volv es c o m munic atin g m oney d ir e ctly b etw een p artie s, t h en co m munic atio n n eed s t o b e h ack pro of.

Brea k th ro u gh :

S ato sh i r e q uir e d p artic ip an ts t o u se p ublic k ey i n fra str u ctu re ( P K I) f o r esta b lis h in g a s e cu re p la tf o rm . P K I i s a n a d van ced f o rm o f “ asy m metr ic ” c ry pto gra p hy, w here use rs g et t w o k ey s t h at d on’t p erfo rm t h e s a m e f u nctio n: o ne i s f o r e n cry ptio n a n d o ne f o r decry ptio n. H en ce, t h ey a re a sy m metr ic . T he b itc o in b lo ck ch ain i s n ow t h e l a rg est civ ilia n dep lo ym en t o f P K I i n t h e w orld , a n d s e co nd o vera ll t o t h e U .S . D ep artm en t o f D efe n se c o m mon access s y ste m .

27 Pio neere d i n t h e 1 970s, 28 a sy m metr ic c ry pto gra p hy g ain ed s o m e t r a ctio n i n t h e 1 990s i n t h e fo rm o f e -m ail e n cry ptio n f re ew are s u ch a s P re tty G ood P riv acy . P G P i s p re tty s e cu re , a n d p re tty much a h assle t o u se b ecau se e v ery one i n y our n etw ork n eed s t o b e u sin g i t, a n d y ou h av e t o keep t r a ck o f y our t w o k ey s a n d e v ery one’s p ublic k ey s. T here ’s n o p assw ord -re se t f u nctio n. I f you f o rg et y ours , y ou h av e t o s ta rt a ll o ver. A cco rd in g t o t h e V ir tr u C orp ora tio n, “ th e u se o f em ail e n cry ptio n i s o n t h e r is e . S till, o nly 5 0 p erc en t o f e m ails a re e n cry pte d i n t r a n sit, a n d e n d- to -e n d e m ail e n cry ptio n i s r a re r s till.” 29 S om e p eo ple u se dig ita l c ertific a te s , p ie ces o f c o de t h at pro te ct m essa g es w ith out t h e e n cry pt- d ecry pt o pera tio ns, b ut u se rs m ust a p ply ( a n d p ay a n an nual f e e) f o r t h eir i n div id ual c ertif ic ate s, a n d t h e most c o m mon e -m ail s e rv ic es— Google , Outlo ok, a n d Y ah oo!— don’t s u pport t h em .

“P ast s c h em es f a ile d b ecau se t h ey l a ck ed i n cen tiv e, a n d p eo ple n ev er a p pre cia te d p riv acy a s in cen tiv e e n ough t o s e cu re t h ose s y ste m s,” 30 A ndre as A nto nopoulo s s a id . T he b itc o in b lo ck ch ain so lv es n early a ll t h ese p ro ble m s b y p ro vid in g t h e i n cen tiv e f o r w id e a d optio n o f P K I f o r a ll tr a n sa ctio ns o f v alu e, n ot o nly t h ro ugh t h e u se o f b itc o in b ut a ls o i n t h e s h are d b itc o in p ro to co ls .

We n eed n’t w orry a b out w eak f ir e w alls , t h ie v in g e m plo yees, o r i n su ra n ce h ack ers . I f w e’re b oth usin g b itc o in , i f w e c an s to re a n d e x ch an ge b itc o in s e cu re ly , t h en w e c an s to re a n d e x ch an ge hig hly c o nfid en tia l i n fo rm atio n a n d d ig ita l a sse ts s e cu re ly o n t h e b lo ck ch ain .

Here ’s h ow i t w ork s. D ig ita l c u rre n cy i s n ’t s to re d i n a f ile p er s e . I t’ s r e p re se n te d b y tr a n sa ctio ns i n dic ate d b y a c ry pto gra p hic hash . U se rs h old t h e c ry pto key s t o t h eir o w n m oney an d t r a n sa ct d ir e ctly w ith o ne a n oth er. W ith t h is s e cu rity c o m es t h e r e sp onsib ility o f k eep in g one’s p riv ate k ey s p riv ate .

Secu rity s ta n dard s m atte r. T he b itc o in b lo ck ch ain r u ns o n t h e v ery w ell- k now n a n d esta b lis h ed S H A-2 56 p ublis h ed b y t h e U .S . N atio nal I n stitu te o f S ta n dard s a n d T ech nolo gy a n d accep te d a s a U .S . F ed era l I n fo rm atio n P ro cessin g S ta n dard . T he d if fic u lty o f t h e m an y re p etitio ns o f t h is m ath em atic al c alc u la tio n r e q uir e d t o f in d a b lo ck s o lu tio n f o rc es t h e co m puta tio nal d ev ic e t o c o nsu m e s u bsta n tia l e le ctr ic ity i n o rd er t o s o lv e a p uzzle a n d e arn n ew bitc o in . O th er a lg orith m s s u ch a s p ro of o f s ta k e b urn m uch l e ss e n erg y.

Rem em ber w hat A ustin H ill s a id a t t h e s ta rt o f t h is c h ap te r a b out n ev er usin g t h e n ew est a n d gre ate st i n a lg orith m s. H ill, w ho w ork s w ith c ry pto gra p her A dam B ack a t B lo ck str e am , ex pre sse d c o ncern o ver c ry pto cu rre n cie s t h at d on’t u se p ro of o f w ork . “ I d on’t t h in k p ro of o f sta k e u ltim ate ly w ork s. T o m e, i t’ s a s y ste m w here t h e r ic h g et r ic h er, w here p eo ple w ho h av e to ken s g et t o d ecid e w hat t h e c o nse n su s i s , w here as p ro of o f w ork u ltim ate ly i s a s y ste m r o ote d in p hysic s. I r e ally l ik e t h at b ecau se i t’ s v ery s im ila r t o t h e s y ste m f o r g old .” 31 Fin ally , t h e l o ngest c h ain i s g en era lly t h e s a fe st c h ain . T he s e cu rity o f S ato sh i’ s b lo ck ch ain ben efits g re atly f ro m i ts r e la tiv e m atu rity a n d i ts e sta b lis h ed b ase o f b itc o in u se rs a n d m in ers .

Hack in g i t w ould r e q uir e m ore c o m putin g p ow er t h an a tta ck in g s h ort c h ain s. H ill s a id , “W hen ev er o ne o f t h ese n ew n etw ork s s ta rt u p w ith a n a ll n ew c h ain , t h ere ’s a b unch o f p eo ple who d ir e ct t h eir l a te n t c o m pute r p ow er, a ll t h e c o m pute rs a n d C PU s t h at t h ey t o ok o fflin e f ro m min in g b itc o in , t h ey p oin t a t t h ese n ew n etw ork s t o m an ip ula te t h em a n d t o e sse n tia lly a tta ck t h e netw ork s.” 32 Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

In t h e d ig ita l a g e, t e ch nolo gic al s e cu rity i s obvio usly t h e p re co nditio n t o s e cu rity o f a p ers o n i n s o cie ty . T oday b its c an p ass t h ro ugh o ur fir e w alls a n d w alle ts . T hie v es c an p ic k o ur p ock ets o r h ija ck o ur c ars f ro m t h e o th er s id e o f t h e world . A s e ach o f u s r e lie s m ore o n d ig ita l t o ols a n d p la tf o rm s, s u ch t h re ats h av e m ultip lie d i n way s t h at m ost o f u s d o n ot u nders ta n d. W ith t h e b itc o in b lo ck ch ain , w ith i ts m ore s e cu re d esig n an d i ts t r a n sp are n cy , w e c an m ak e t r a n sa ctio ns o f v alu e a n d p ro te ct w hat h ap pen s t o o ur d ata .

5.

P riv acy Prin cip le :

Peo ple s h ould c o ntr o l t h eir o w n d ata . P erio d. P eo ple o ught t o h av e t h e r ig ht t o d ecid e what, w hen , h ow , a n d h ow m uch a b out t h eir i d en titie s t o s h are w ith a n ybody e ls e . R esp ectin g one’s r ig ht t o p riv acy i s n ot t h e s a m e a s a ctu ally r e sp ectin g o ne’s p riv acy . W e n eed t o d o b oth .

By e lim in atin g t h e n eed t o t r u st o th ers , S ato sh i e lim in ate d t h e n eed t o k now t h e t r u e i d en titie s o f th ose o th ers i n o rd er t o i n te ra ct w ith t h em . “ I’v e s p oken t o m an y e n gin eers a n d c o m pute r sc ie n tis ts , a n d t h ey a ll t e ll m e— ev ery s in gle o ne— ‘O f c o urs e , w e c an e m bed p riv acy i n to d ata arc h ite ctu re , i n to t h e d esig n o f t h e p ro gra m s. O f c o urs e w e c an ,’ ” 33 s a id A nn C av oukia n .

Pro b le m t o B e S olv ed :

Priv acy i s a b asic h um an r ig ht a n d t h e f o undatio n o f f re e s o cie tie s.

In t h e l a st t w en ty y ears o f t h e I n te rn et, c en tr a l data b ase s i n b oth p ublic a n d p riv ate s e cto rs h av e accu m ula te d a ll s o rts o f c o nfid en tia l i n fo rm atio n a b out i n div id uals a n d i n stitu tio ns, s o m etim es with out t h eir k now le d ge. E very w here p eo ple w orry t h at c o rp ora tio ns a re c re atin g w hat w e c o uld call cyb erc lo nes o f t h em b y f ra ck in g t h e d ig ita l w orld f o r t h eir d ata . E ven d em ocra tic govern m en ts a re c re atin g s u rv eilla n ce n atio ns, e v id en ced b y t h e r e cen t U .S . N atio nal S ecu rity Agen cy ’s o vere x te n din g i ts s u rv eilla n ce r ig hts b y c o nductin g w arra n tle ss s p yin g o ver t h e In te rn et. T hese a re d ouble p riv acy o ffe n se s, f ir s t c o lle ctin g a n d u sin g o ur d ata w ith out o ur unders ta n din g o r o ur p erm is sio n, t h en n ot p ro te ctin g t h e h oney pot f ro m h ack ers . “ It’ s a ll a b out ab an donin g z ero -s u m p urs u its , e ith er-o r p ro positio ns, w in -lo se , y ou c an h av e o ne i n te re st o r t h e oth er. T hat, t o m e, i s s o d ate d , s o y este rd ay , a n d s o c o unte rp ro ductiv e,” s a id C av oukia n . “ W e su bstitu te a p ositiv e-s u m m odel w hic h i s , e sse n tia lly , y ou c an h av e p riv acy a n d— fill i n t h e bla n k.” 34 Brea k th ro u gh :

Sato sh i i n sta lle d n o i d en tity r e q uir e m en t f o r t h e n etw ork l a y er i ts e lf , mean in g t h at n o o ne h ad t o p ro vid e a n am e, e -m ail a d dre ss, o r a n y o th er p ers o nal d ata i n o rd er t o dow nlo ad a n d u se t h e b itc o in s o ftw are . T he b lo ck ch ain d oesn ’t n eed t o k now w ho a n ybody i s .

(A nd S ato sh i d id n’t n eed t o c ap tu re a n ybody’s d ata t o m ark et o th er p ro ducts . H is o pen s o urc e so ftw are w as t h e u ltim ate i n t h ought l e ad ers h ip m ark etin g.) T hat’ s h ow t h e S ocie ty f o r World w id e I n te rb an k F in an cia l T ele co m munic atio n w ork s— if y ou p ay i n c ash , t h en S W IF T doesn ’t g en era lly a sk f o r i d en tif ic atio n— but w e’re g uessin g t h at m an y S W IF T o ffic es h av e cam era s, a n d f in an cia l i n stitu tio ns m ust c o m ply w ith a n ti– m oney l a u nderin g/k now y our cu sto m er ( A M L/K YC) r e q uir e m en ts t o j o in a n d u se S W IF T .

Additio nally , t h e i d en tif ic atio n a n d v erif ic atio n l a y ers a re s e p ara te f ro m t h e t r a n sa ctio n l a y er, mean in g t h at P arty A b ro ad casts t h e t r a n sfe r o f b itc o in s f ro m P arty A ’s a d dre ss t o P arty B ’s ad dre ss. T here ’s n o r e fe re n ce t o a n yone’s i d en tity i n t h at t r a n sa ctio n. T hen t h e n etw ork c o nfir m s th at P arty A n ot o nly c o ntr o lle d t h e a m ount o f b itc o in s p ecif ie d b ut a ls o a u th oriz ed t h e tr a n sa ctio n b efo re r e co gniz in g P arty A ’s m essa g e a s “ u nsp en t t r a n sa ctio n o utp ut” a sso cia te d with P arty B ’s a d dre ss. O nly w hen P arty B g oes t o s p en d t h at a m ount d oes t h e n etw ork v erif y th at P arty B n ow c o ntr o ls t h at b itc o in .

Com pare t h at w ith u sin g c re d it c ard s, a v ery i d en tity -c en tr ic m odel. T hat’ s w hy m illio ns o f peo ple ’s a d dre sse s a n d p hone n um bers a re s to le n ev ery t im e a d ata b ase g ets b re ach ed . C onsid er th e n um ber o f r e co rd s a tta ch ed t o a f e w o f t h e m ore r e cen t d ata b re ach es: T -M obile , 1 5 m illio n re co rd s; J P M org an C hase , 7 6 m illio n; A nth em B lu e C ro ss B lu e S hie ld , 8 0 m illio n; e B ay , 1 45 millio n; O ffic e o f P ers o nnel M an ag em en t, 3 7 m illio n; H om e D ep ot, 5 6 m illio n; T arg et, 7 0 millio n; a n d S ony, 7 7 m illio n; a n d t h ere w ere s m alle r b re ach es o f a ir lin es, u niv ers itie s, g as a n d ele ctr ic u tilitie s, a n d h osp ita l f a cilitie s, s o m e o f o ur m ost p re cio us i n fra str u ctu re a sse ts .

35 On t h e b lo ck ch ain , p artic ip an ts c an c h oose t o m ain ta in a d eg re e o f p ers o nal a n onym ity i n t h e se n se t h at t h ey n eed n’t a tta ch a n y o th er d eta ils t o t h eir i d en tity o r s to re t h ose d eta ils i n a c en tr a l data b ase . W e c an ’t u nders c o re h ow h uge t h is i s .

There a re n o h oneyp ots o f p erso nal d ata o n t h e blo ckch ain .

The b lo ck ch ain p ro to co ls a llo w u s t o c h oose t h e l e v el o f p riv acy w e’re c o m fo rta b le with i n a n y g iv en t r a n sa ctio n o r e n vir o nm en t. I t h elp s u s t o b ette r m an ag e o ur i d en titie s a n d o ur in te ra ctio n w ith t h e w orld .

A s ta rt- u p c alle d P ers o nal B la ck B ox C om pan y, L LC , i s a im in g t o h elp l a rg e c o rp ora tio ns tr a n sfo rm t h eir r e la tio nsh ip t o c o nsu m er d ata . P B B’s c h ie f m ark etin g o ffic er, H alu k K ulin , t o ld us, “ C om pan ie s s u ch a s U nile v er o r P ru den tia l a re c o m in g t o u s a n d s a y in g, ‘ W e’re v ery in te re ste d i n b uild in g b ette r d ata r e la tio nsh ip s. C an w e l e v era g e y our p la tf o rm ? W e’re v ery in te re ste d i n r e d ucin g o ur d ata l ia b ility .’ T hey ’re s e ein g t h at d ata i s i n cre asin gly a t o xic a sse t in sid e o f c o rp ora tio ns.” 36 I ts p la tf o rm g iv es c lie n ts a ccess t o a n onym ous d ata — much l ik e a clin ic al t r ia l, w here p harm aceu tic als k now o nly t h e r e le v an t a sp ects o f p atie n ts ’ h ealth — with out ta k in g o n a n y d ata s e cu rity r is k . S om e c o nsu m ers m ay g iv e a w ay m ore i n fo rm atio n i n e x ch an ge fo r b itc o in s o r o th er c o rp ora te b en efits . O n t h e b ack e n d, P B B’s p la tf o rm d ep lo ys P K I s o t h at only c o nsu m ers h av e a ccess t o t h eir d ata t h ro ugh t h eir p riv ate k ey s. N ot e v en P B B h as a ccess t o co nsu m er d ata .

The b lo ck ch ain o ffe rs a p la tf o rm f o r d oin g s o m e v ery f le x ib le f o rm s o f s e le ctiv e a n d an onym ous a tte sta tio n. A ustin H ill l ik en ed i t t o t h e I n te rn et. “ A T C P/I P a d dre ss i s n ot i d en tif ie d to a p ublic I D . T he n etw ork l a y er i ts e lf d oesn ’t k now . A nyone c an j o in t h e I n te rn et, g et a n I P ad dre ss, a n d s ta rt s e n din g a n d r e ceiv in g p ack ets f re ely a ro und t h e w orld . A s a s o cie ty , w e’v e se en a n i n cre d ib le b en efit a llo w in g t h at l e v el o f p se u donym ity . . . . B itc o in o pera te s a lm ost ex actly l ik e t h is . T he n etw ork i ts e lf d oes n ot e n fo rc e i d en tity . T hat’ s a g ood t h in g f o r s o cie ty a n d fo r p ro per n etw ork d esig n.” 37 So w hile t h e b lo ck ch ain i s p ublic — an yone c an v ie w i t a t a n y t im e b ecau se i t r e sid es o n t h e netw ork , n ot w ith in a c en tr a liz ed i n stitu tio n c h arg ed w ith a u ditin g t r a n sa ctio ns a n d k eep in g re co rd s— use rs ’ i d en titie s a re p se u donym ous. T his m ean s t h at y ou h av e t o d o a c o nsid era b le am ount o f t r ia n gula tin g o f d ata t o f ig ure o ut w ho o r w hat o w ns a p artic u la r p ublic k ey . T he se n der c an p ro vid e o nly t h e m eta d ata t h at t h e r e cip ie n t n eed s t o k now . M ore o ver, a n yone c an ow n m ultip le p ublic /p riv ate k ey s e ts , j u st a s a n yone c an h av e m ultip le d ev ic es o r a ccess p oin ts t o th e I n te rn et a n d m ultip le e -m ail a d dre sse s u nder v ario us p se u donym s.

That s a id , I n te rn et s e rv ic e p ro vid ers l ik e T im e W arn er t h at a ssig n I P a d dre sse s d o k eep re co rd s l in kin g i d en titie s t o a cco unts . L ik ew is e , i f y ou g et a b itc o in w alle t f ro m a l ic en se d o nlin e ex ch an ge s u ch a s C oin base , t h at e x ch an ge i s r e q uir e d t o d o i ts d ue d ilig en ce u nder A M L/K YC re q uir e m en ts . F or e x am ple , h ere i s C oin base ’s p riv acy p olic y : “ W e c o lle ct i n fo rm atio n s e n t t o u s th ro ugh y our c o m pute r, m obile p hone, o r o th er a ccess d ev ic e. T his i n fo rm atio n m ay i n clu de y our IP a d dre ss, d ev ic e i n fo rm atio n i n clu din g, b ut n ot l im ite d t o , i d en tif ie r, d ev ic e n am e a n d t y pe, opera tin g s y ste m , l o catio n, m obile n etw ork i n fo rm atio n a n d s ta n dard w eb l o g i n fo rm atio n, s u ch as y our b ro w se r t y pe, t r a ffic t o a n d f ro m o ur s ite a n d t h e p ag es y ou a ccesse d o n o ur w eb site .” 38 So g overn m en ts c an s u bpoen a I S Ps a n d e x ch an ges f o r t h is t y pe o f u se r d ata . B ut t h ey c an ’t su bpoen a t h e b lo ck ch ain .

It’ s a ls o i m porta n t t o k now t h at w e c an d esig n h ig her l e v els o f t r a n sp are n cy i n to a n y s e t o f tr a n sa ctio ns, a p plic atio n, o r b usin ess m odel, s h ould a ll t h e s ta k eh old ers a g re e t o d o s o . I n vary in g s itu atio ns w e w ill s e e n ew c ap ab ilitie s w here r a d ic al t r a n sp are n cy m ak es a l o t o f s e n se .

When c o m pan ie s t e ll t h e t r u th t o c u sto m ers , s h are h old ers , o r b usin ess p artn ers , t h ey b uild t r u st.

39 That i s , p riv acy f o r i n div id uals , t r a n sp are n cy f o r o rg an iz atio ns, i n stitu tio ns, a n d p ublic o ffic ia ls .

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

To b e s u re , t h e b lo ck ch ain p ro vid es opportu nitie s t o s to p t h e s ta m ped e t o a s u rv eilla n ce s o cie ty . N ow t h in k a b out t h e p ro ble m o f co rp ora te b ig d ata f o r e ach o f u s. W hat d oes i t m ean f o r a c o rp ora tio n t o h av e p erfe ct in fo rm atio n a b out y ou? W e a re s o m e t w en ty y ears i n to t h e g lo bal I n te rn et e ra , a n d o nly a t t h e beg in nin g o f c o rp ora te a ccess t o t h e m ost i n tim ate d eta ils o f o ur p ers o nal l iv es. C om in g u p f a st are p ers o nal h ealth a n d f itn ess d ata , o ur d aily c o m in gs a n d goin gs, t h e i n ner l iv es o f o ur h om es, an d, w ell, y ou n am e i t. M an y p eo ple a re s im ply u naw are o f t h e m an y m ic ro -F au stia n d eals t h ey mak e o nlin e e v ery d ay . B y s im ply u sin g W eb s ite s, c o nsu m ers a u th oriz e t h eir o w ners t o c o nvert tr a ils o f d ig ita l c ru m bs i n to d eta ile d r o ad m ap s f o r p riv ate c o m merc ia l b en efit.

Unle ss w e s h if t t o t h e n ew p ara d ig m , i t’ s n ot s c ie n ce f ic tio n t o f o re se e h undre d s o f m illio ns of a v ata rs h um min g a w ay i n t o m orro w ’s d ata c en te rs . W ith b lo ck ch ain t e ch nolo gy, y ou c o uld ow n y our p ers o nal a v ata rs a s y ou d o i n t h e S eco nd L if e v ir tu al w orld , b ut w ith r e al- w orld im plic atio ns. T he V ir tu al Y ou c o uld p ro te ct y our p ers o nal i n fo rm atio n, g iv in g a w ay o nly t h e in fo rm atio n r e q uir e d i n a n y s o cia l o r e co nom ic e x ch an ge w ork u nder y our c o m man d a n d m ak e su re y ou r e ceiv e c o m pen sa tio n f o r a n y o f y our d ata t h at h as v alu e t o a n oth er p arty . I t’ s a s h if t fro m b ig d ata t o p riv ate d ata . C all i t “ little d ata .” 6.

R ig hts P re se rv ed Prin cip le :

Owners h ip r ig hts a re t r a n sp are n t a n d e n fo rc eab le . I n div id ual f re ed om s a re r e co gniz ed an d r e sp ecte d . W e h old t h is t r u th t o b e s e lf -e v id en t— th at a ll o f u s a re b orn w ith c erta in in alie n ab le r ig hts t h at s h ould a n d c an b e p ro te cte d .

Pro b le m t o B e S olv ed :

The f ir s t e ra o f t h e d ig ita l e co nom y w as a b out f in din g w ay s t o ex erc is e t h ese r ig hts m ore e ffic ie n tly . T he I n te rn et b ecam e a m ed iu m f o r n ew f o rm s o f a rt, n ew s, an d e n te rta in m en t, f o r e sta b lis h in g c o pyrig ht o f p oem s, s o ngs, s to rie s, p hoto gra p hs, a n d a u dio an d v id eo r e co rd in gs. W e c o uld a p ply t h e U nif o rm C om merc ia l C ode f u rth er t o d o o nlin e w hat th e c o de h ad a lr e ad y e x ped ite d i n p hysic al s p ace, w hic h w as t o e lim in ate t h e n eed t o n eg otia te an d c re ate c o ntr a cts f o r e v ery s in gle i te m , l ik e a t u be o f t o oth paste , n o m atte r h ow s m all i ts p ric e.

Even s o , w e h ad t o t r u st m id dle m en t o m an ag e t r a n sa ctio ns, a n d t h ey h ad t h e p ow er t o d en y t h e tr a n sa ctio n, d ela y i t, a n d h old t h e m oney i n t h eir o w n a cco unt ( b an kers c all t h is “ flo at” ), o r c le ar it o nly t o r e v ers e i t l a te r. T hey e x pecte d a p erc en ta g e o f p eo ple t o c h eat a n d a ccep te d a c erta in le v el o f f ra u d a s u nav oid ab le .

In t h is g re at b urs t o f e ffic ie n cy , l e g itim ate r ig hts g ot t r a m ple d , t h e r ig hts n ot o nly t o p riv acy an d s e cu rity b ut a ls o f re e s p eech , r e p uta tio n, a n d e q ual p artic ip atio n. P eo ple c o uld a n onym ously cen so r u s, d efa m e u s, a n d b lo ck u s a t l ittle c o st o r r is k t o t h em se lv es. F ilm mak ers w ho d ep en ded on re v en ues f ro m s y ndic atio n, v id eo o n d em an d, e n han ced D VD s a le s, a n d c ab le r ig hts t o f ilm s re le ase d d ecad es e arlie r f o und t h eir r e v en ue s tr e am d ry in g u p t o a t r ic k le a s t h eir f a n s u plo ad ed dig ita l f ile s f o r o th ers t o d ow nlo ad f o r f re e.

Brea k th ro u gh :

The p ro of o f w ork r e q uir e d t o m in t c o in s a ls o t im e-s ta m ps t r a n sa ctio ns, s o th at o nly t h e f ir s t s p en d o f a c o in w ould c le ar a n d s e ttle . C om bin ed w ith P K I, t h e b lo ck ch ain n ot only p re v en ts a d ouble s p en d b ut a ls o c o nfir m s o w ners h ip o f e v ery c o in i n c ir c u la tio n, a n d e ach tr a n sa ctio n i s i m muta b le a n d i r re v ocab le . I n o th er w ord s, w e c an ’t t r a d e w hat i s n ’t o urs o n t h e blo ck ch ain , w heth er i t’ s r e al p ro perty , i n te lle ctu al p ro perty , o r r ig hts o f p ers o nhood. N or c an w e tr a d e w hat w e a re n ’t a u th oriz ed t o t r a d e o n s o m eb ody e ls e ’s b eh alf i n a n a g en cy r o le , p erh ap s a s a l a w yer o r a c o m pan y m an ag er. A nd w e c an ’t s tif le p eo ple ’s f re ed om o f e x pre ssio n, a sse m bly , an d r e lig io n.

Halu k K ulin o f P ers o nal B la ck B ox s a id i t b est: “ In t h e t h ousa n ds o f y ears o f h um an s o cia l in te ra ctio n, e v ery t im e w e’v e t a k en t h e r ig ht o f p artic ip atio n f ro m t h e p eo ple , t h ey h av e c o m e back a n d b ro ken t h e s y ste m . W e’re d is c o verin g t h at, e v en i n d ig ita l, s te alin g t h eir c o nse n t i s n ot su sta in ab le .” 40 A s t h e L ed ger o f E very th in g, t h e b lo ck ch ain c an s e rv e a s a p ublic r e g is tr y th ro ugh s u ch t o ols a s P ro of o f E xis te n ce ( P oE ), a s ite t h at c re ate s a n d r e g is te rs c ry pto gra p hic dig ests o f d eed s, t itle s, r e ceip ts , o r l ic en se s o n t h e b lo ck ch ain . P ro of o f E xis te n ce d oesn ’t main ta in a c o py o f a n y o rig in al d ocu m en t; t h e h ash o f t h e d ocu m en t i s c alc u la te d o n t h e u se r’s mach in e, n ot o n t h e P oE s ite , t h us e n su rin g c o nfid en tia lity o f c o nte n t. E ven i f a c en tr a l a u th ority sh uts d ow n P ro of o f E xis te n ce, t h e p ro of r e m ain s o n t h e b lo ck ch ain .

41 S o t h e b lo ck ch ain pro vid es m ean s o f p ro vin g o w ners h ip a n d p re se rv in g r e co rd s w ith out c en so rs h ip .

On t h e I n te rn et, w e c o uld n’t n ecessa rily e n fo rc e c o ntr a ctu al r ig hts o r o vers e e im ple m en ta tio n. A nd s o , f o r m ore c o m ple x t r a n sa ctio ns i n volv in g b undle s o f r ig hts a n d m ultip le partie s, w e n ow h av e t h e sm art c o ntr a ct , a p ie ce o f s p ecia l p urp ose c o de t h at e x ecu te s a c o m ple x se t o f i n str u ctio ns o n t h e b lo ck ch ain . “ T hat i n te rs e ctio n o f l e g al d esc rip tio ns a n d s o ftw are i s fu ndam en ta l, a n d t h e s m art c o ntr a cts a re t h e f ir s t s te p i n t h at d ir e ctio n,” s a id S te v e O m ohundro , pre sid en t o f t h in k t a n k S elf -A ware S yste m s. “ O nce t h e p rin cip le s o f h ow y ou c o dif y l a w dig ita lly b eco m e m ore u nders to od, t h en I t h in k e v ery c o untr y w ill s ta rt d oin g i t. . . . E ach ju ris d ic tio n w ould en co de i ts l a w s, p re cis e ly a n d d ig ita lly , a n d t h ere w ould b e t r a n sla tio n pro gra m s b etw een t h em . . . . G ettin g r id o f t h e f ric tio n o f a ll l e g al s tu ff i s g oin g t o b e a h uge eco nom ic g ain .” 42 A s m art c o ntr a ct p ro vid es a m ean s f o r a ssig nin g u sa g e r ig hts t o a n oth er p arty , a s a c o m pose r mig ht a ssig n a c o m ple te d s o ng t o a m usic p ublis h er. T he c o de o f t h e c o ntr a ct c o uld i n clu de t h e te rm o r d ura tio n o f t h e a ssig nm en t, t h e m ag nitu de o f r o yaltie s t h at w ould f lo w f ro m t h e publis h er’s t o t h e c o m pose r’s b itc o in a cco unt d urin g t h e t e rm , a n d s o m e t r ig gers f o r t e rm in atin g th e c o ntr a ct. F or e x am ple , i f t h e c o m pose r’s a cco unt r e ceiv ed l e ss t h an a q uarte r o f a b itc o in i n a co nse cu tiv e t h ir ty -d ay p erio d, t h en a ll r ig hts w ould a u to m atic ally r e v ert t o t h e c o m pose r, a n d t h e publis h er w ould n o l o nger h av e a ccess t o t h e c o m pose r’s w ork r e g is te re d o n t h e b lo ck ch ain . T o se t t h is s m art c o ntr a ct i n m otio n, b oth t h e c o m pose r a n d t h e p ublis h er— an d p erh ap s re p re se n ta tiv es o f t h e p ublis h er’s f in an ce a n d l e g al t e am s— would s ig n u sin g t h eir p riv ate k ey s.

A s m art c o ntr a ct a ls o p ro vid es a m ean s f o r o w ners o f a sse ts t o p ool t h eir r e so urc es a n d cre ate a c o rp ora tio n o n t h e b lo ck ch ain , w here t h e a rtic le s o f i n co rp ora tio n a re c o ded i n to t h e co ntr a ct, c le arly s p ellin g o ut a n d e n fo rc in g t h e r ig hts o f t h ose o w ners . A sso cia te d a g en cy - em plo ym en t c o ntr a cts c o uld d efin e t h e d ecis io n r ig hts o f m an ag ers b y c o din g w hat t h ey c o uld an d c o uld n’t d o w ith c o rp ora te r e so urc es w ith out o w ners h ip p erm is sio n.

Sm art c o ntr a cts a re u npre ced en te d m eth ods o f e n su rin g c o ntr a ctu al c o m plia n ce, i n clu din g so cia l c o ntr a cts . “ If y ou h av e a b ig t r a n sa ctio n w ith a s p ecif ic c o ntr o l s tr u ctu re , y ou c an p re d ic t th e o utc o m e a t a n y p erio d i n t im e,” s a id A nto nopoulo s. “ If I h av e a f u lly v erif ie d s ig ned tr a n sa ctio n w ith a n um ber o f s ig natu re s i n a m ultis ig natu re a cco unt, I c an p re d ic t w heth er t h at tr a n sa ctio n w ill b e v erif ia b le b y t h e n etw ork . A nd i f i t i s v erif ia b le b y t h e n etw ork , t h en t h at tr a n sa ctio n c an b e r e d eem ed a n d i r re v ocab ly s o . N o c en tr a l a u th ority o r t h ir d p arty c an r e v oke i t, no o ne c an o verrid e t h e c o nse n su s o f t h e n etw ork . T hat’ s a n ew c o ncep t i n b oth l a w a n d f in an ce.

The b itc o in s y ste m p ro vid es a v ery h ig h d eg re e o f c erta in ty a s t o t h e o utc o m e o f a c o ntr a ct.” 43 The c o ntr a ct c o uld n’t b e s e iz ed , s to pped , o r r e d ir e cte d t o a d if fe re n t b itc o in a d dre ss. Y ou need o nly t o t r a n sm it t h e s ig ned t r a n sa ctio n t o a n y o f t h e b itc o in n etw ork n odes f ro m a n yw here usin g a n y m ed iu m . S aid Anto nopoulo s, “ P eo ple c o uld s h ut d ow n t h e I n te rn et, a n d I c o uld s till tr a n sm it t h at t r a n sa ctio n o ver s h ortw av e r a d io w ith M ors e c o de. A g overn m en t a g en cy c o uld t r y to c en so r m y c o m munic atio n, a n d I c o uld s till t r a n sm it t h at t r a n sa ctio n a s a s e rie s o f s m ile y em otic o ns o ver S kype. A s l o ng a s s o m eo ne o n t h e o th er e n d c o uld d eco de t h e t r a n sa ctio n a n d re co rd i t i n t h e b lo ck ch ain , I c o uld e ffe ct t h e [ s m art c o ntr a ct] . S o w e’v e c o nverte d s o m eth in g th at, i n l a w , i s a lm ost i m possib le t o g uara n te e i n to s o m eth in g t h at h as v erif ia b le m ath em atic al certa in ty .” 44 Consid er p ro perty r ig hts , b oth r e al a n d i n te lle ctu al: “ O wners h ip i s j u st a r e co gnitio n b y a govern m en t o r a n a g en cy t h at y ou o w n s o m eth in g a n d t h ey w ill d efe n d y our c la im s o n t h at ow ners h ip ,” s a id S te p hen P air , C EO o f B itP ay . “ T hat’ s j u st a c o ntr a ct t h at c an b e s ig ned b y whate v er a u th ority t h at w ill d efe n d y our r ig hts f o r y ou a n d t h ey s ig n i t o ver t o y our i d en tity , a n d th en o nce y ou h av e t h at, a n d t h at o w ners h ip i s r e co rd ed , y ou t h en c an t r a n sfe r i t t o o th er p eo ple .

That’ s v ery s tr a ig htf o rw ard .” 45 C om munitie s w ith s h are d r e so urc es c o uld c o nsid er a s p ectr u m o f rig hts , b orro w in g f ro m N obel P riz e– w in nin g e co nom is t E lin or O str o m ’s p yra m id o f r ig hts , a peck in g o rd er o f s o rts . A t t h e l o w est l e v el, t h ere a re a u th oriz ed u se rs w ho m ay o nly a ccess a n d with dra w r e so urc es; c la im an ts w ho h av e t h ose r ig hts b ut c an a ls o e x clu de o th ers f ro m a ccess; pro prie to rs w ho h old m an ag em en t r ig hts b ey ond a ccess a n d e x clu sio n; a n d o w ners w ho c an access, u se , e x clu de o th ers , m an ag e, a n d s e ll t h e r e so urc e ( i.e ., r ig ht o f a lie n atio n).

46 Now c o nsid er t h e r ig hts t o p riv acy a n d p ublic ity : “ O ur m odel i s r e ally r ig hts a p plie d t o t h e mark et,” s a id K ulin o f P ers o nal B la ck B ox. H is c o m pan y u se s b lo ck ch ain t e ch nolo gy t o r e p re se n t an d e n fo rc e t h e r ig hts o f i n div id uals t o e x tr a ct v alu e f ro m t h eir p ers o nal d ata . “ T he b lo ck ch ain pro vid es u s a w hole g ro up o f p eo ple w ho a re b oth m is sio n-a lig ned a n d t e ch nolo gy-a lig ned t o cre ate d if fe re n t w ay s t h at e n te rp ris e s c an l e v era g e t h ese u niq ue d ata s e ts r a th er t h an p ro te ct t h eir data s ilo s.” 47 S im ply p ut, p eo ple c re ate b ette r d ata t h an w hat a c o m pan y c an f ra ck f ro m t h em , an d c o nsu m ers a re m uch b ette r a t e m otio nally a lig nin g w ith b ra n ds a n d i n flu en cin g t h eir p eers th an c o m pan ie s a re .

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

As a n e co nom ic d esig n p rin cip le , e n fo rc in g rig hts m ust s ta rt w ith c la rif y in g r ig hts . I n t h e f ie ld o f m an ag em en t s c ie n ce, t h e h ola cra cy movem en t i s a n i n te re stin g, i f n ot c o ntr o vers ia l, e x am ple o f h ow m em bers o f o rg an iz atio ns a re defin in g t h e work t h at n eed s t o b e d one a n d t h en a ssig nin g r ig hts a n d t h e r e sp onsib ility t o d o t h is work a s p art o f a w hole .

48 W ho d id w e a g re e s h ould h av e t h is s e t o f d ecis io ns a n d a ctiv itie s a t our c o m pan y? T he a n sw er t o t h at q uestio n c an b e c o dif ie d i n a s m art c o ntr a ct a n d p la ced o n t h e blo ck ch ain s o t h at t h e d ecis io ns, p ro gre ss t o w ard t h e g oal, a n d i n cen tiv es a re a ll t r a n sp are n t a n d re ach ed b y c o nse n su s.

To b e s u re , t h is i s n ot s im ply a b out t e ch nolo gy. I t’ s m uch b ig ger t h an p hysic al a sse ts , in te lle ctu al p ro perty , o r P ers o nal B la ck B ox’s p riv acy t o ol w ith a p ublic ity r ig hts m odule f o r t h e Kard ash ia n s. W e n eed g re ate r e d ucatio n a b out r ig hts a n d t h e d ev elo pm en t o f n ew unders ta n din gs a b out r ig hts m an ag em en t s y ste m s. W e’ll h av e v otin g r ig hts m an ag em en t s y ste m s an d p ro perty r ig hts m an ag em en t s y ste m s. S om e s ta rt- u p w ill c re ate a r ig hts d ash board t h at w ill in dic ate a p ers o n’s l e v el o f c iv ic e n gag em en t, w here v otin g i s b ut o ne o f s e v era l m easu re s, l ik e donatin g s k ills , r e p uta tio n, t im e, a n d b itc o in o r p ro vid in g f re e a ccess t o o ne’s p hysic al o r in te lle ctu al p ro perty . B uck le u p.

7.

I n clu sio n Prin cip le :

The e co nom y w ork s b est w hen i t w ork s f o r e v ery one. T hat m ean s l o w erin g t h e barrie rs t o p artic ip atio n. I t m ean s c re atin g p la tf o rm s f o r dis tr ib ute d c a pita lis m , n ot j u st a re d is tr ib ute d c ap ita lis m .

Pro b le m t o B e S olv ed :

The f ir s t e ra o f t h e I n te rn et c re ate d m an y w onders f o r m an y p eo ple .

But a s w e h av e p oin te d o ut, a m ajo rity o f t h e w orld ’s p opula tio n i s s till e x clu ded — not j u st f ro m access t o t e ch nolo gy b ut a ls o f ro m a ccess t o t h e f in an cia l s y ste m a n d e co nom ic o pportu nity .

More o ver, t h e p ro m is e t h at t h is n ew c o m munic atio ns m ed iu m w ould b rin g p ro sp erity t o a ll h as ru ng h ollo w . Y es, i t h elp ed c o m pan ie s i n t h e d ev elo ped w orld p ro vid e j o bs f o r m illio ns i n t h e em erg in g e co nom ie s. I t l o w ere d t h e b arrie rs t o e n tr y f o r e n tr e p re n eu rs a n d g av e t h e dis a d van ta g ed a ccess t o o pportu nitie s a n d b asic i n fo rm atio n.

That’ s n ot e n ough. T here a re s till t w o b illio n 49 p eo ple w ith out a b an k a cco unt, a n d i n t h e dev elo ped w orld , p ro sp erity i s a ctu ally d eclin in g a s s o cia l i n eq uality c o ntin ues t o g ro w . I n dev elo pin g e co nom ie s, m obile i s o fte n t h e o nly a ffo rd ab le m ean s o f c o nnectin g. M ost f in an cia l in stitu tio ns h av e m obile p ay m en t a p ps t h at c o m bin e c am era s a n d Q R c o des. H ow ev er, t h e f e es need ed t o s u pport t h ese i n te rm ed ia rie s m ak e m ic ro pay m en ts im pra ctic al. C onsu m ers a t t h e botto m o f t h e p yra m id s till c an ’t a ffo rd t h e m in im um a cco unt b ala n ces, m in im um p ay m en t am ounts , o r t r a n sa ctio n f e es t o u se t h e s y ste m . I ts i n fra str u ctu re c o sts m ak e m ic ro pay m en ts a n d mic ro acco unts u nfe asib le .

Brea k th ro u gh :

Sato sh i d esig ned t h e s y ste m t o w ork o n t o p o f t h e I n te rn et s ta ck ( T C P/I P ), but i t c o uld r u n w ith out t h e I n te rn et i f n ecessa ry . S ato sh i i m ag in ed t h at t h e t y pic al p ers o n w ould be i n te ra ctin g w ith t h e b lo ck ch ain t h ro ugh w hat h e c alle d “ sim plif ie d p ay m en t v erif ic atio n” (S PV ) m ode t h at c an w ork o n c ell p hones t o m obiliz e t h e b lo ck ch ain . N ow a n yone w ith a f lip phone c an p artic ip ate i n t h e e co nom y, o r i n a m ark et, a s a p ro ducer o r c o nsu m er. N o b an k acco unt r e q uir e d , n o p ro of o f c itiz en sh ip r e q uir e d , n o b ir th c ertif ic ate r e q uir e d , n o h om e a d dre ss re q uir e d , n o s ta b le l o cal c u rre n cy r e q uir e d t o u se t h e b lo ck ch ain t e ch nolo gie s. T he b lo ck ch ain dra stic ally l o w ers t h e c o st o f t r a n sm ittin g s u ch f u nds a s r e m itta n ces. I t s ig nif ic an tly l o w ers t h e barrie r t o h av in g a b an k a cco unt, o bta in in g c re d it, a n d i n vestin g. A nd i t s u pports en tr e p re n eu rs h ip a n d p artic ip atio n i n g lo bal t r a d e.

That w as p art o f S ato sh i’ s v is io n. H e u nders to od t h at, f o r p eo ple i n d ev elo pin g e co nom ie s, th e s itu atio n w as w ors e . W hen c o rru pt o r i n co m pete n t b ure au cra ts i n f a ile d s ta te s n eed f u ndin g to r u n t h e g overn m en t, t h eir c en tr a l b an ks a n d t r e asu rie s s im ply p rin t m ore c u rre n cy a n d t h en pro fit f ro m t h e d if fe re n ce b etw een t h e c o st o f m an ufa ctu rin g a n d t h e f a ce v alu e o f t h e c u rre n cy .

That’ s s e ig nio ra g e. T he i n cre ase i n t h e m oney s u pply d eb ase s t h e c u rre n cy . I f t h e l o cal e co nom y re ally t a n ked — as i t d id i n A rg en tin a a n d U ru guay , a n d m ore r e cen tly i n C ypru s a n d G re ece— th ese c en tr a l b odie s c o uld f re eze t h e b an k a sse ts o f w hoev er c o uld n’t a ffo rd a b rib e. G iv en s u ch a p ossib ility , t h e w ealth y c o uld s to re t h eir a sse ts i n m ore t r u stw orth y j u ris d ic tio ns a n d m ore sta b le c u rre n cie s.

But n ot t h e p oor. W hate v er m oney t h ey h av e b eco m es w orth le ss. O ffic ia ls c o uld s ip hon o ff in flo w s o f f o re ig n a id a n d r ib bon t h eir b ord ers w ith r e d t a p e, a d din g f ric tio n t o e v ery a tte m pt a t help in g t h eir p eo ple , f ro m m oth ers a n d c h ild re n n eed in g f o od a n d m ed ic in e t o v ic tim s o f w ar, pro lo nged d ro ught, a n d o th er n atu ra l d is a ste rs .

The A ustr a lia m ic ro pay m en t s e rv ic e m HIT s ( s h ort f o r M obile H an dse t I n itia te d Tra n sa ctio ns) h as l a u nch ed a n ew s e rv ic e, B itM oby, t h at e n ab le s c o nsu m ers i n m ore t h an o ne hundre d c o untr ie s t o t o p u p t h eir m obile p hone c re d it b y t e x tin g m HIT s a n a m ount o f b itc o in .

50 Acco rd in g t o b itc o in co re d ev elo per G av in A ndre se n , “ Y ou d on’t s e e e v ery t r a n sa ctio n; y ou s e e only t h e t r a n sa ctio ns y ou c are a b out. Y ou’re n ot t r u stin g p eers w ith y our m oney , y ou’re j u st tr u stin g t h em t o g iv e y ou t h e i n fo rm atio n t o urin g a cro ss t h e n etw ork .” 51 “T he p ote n tia l o f u sin g t h e b lo ck ch ain f o r p ro perty r e co rd s i n t h e e m erg in g w orld , w here th at’ s a h uge i s su e r e la te d t o p overty ,” i s s ig nif ic an t, s a id A ustin H ill. “ T here i s n ’t a t r u ste d en tity t h at h as g overn an ce o ver l a n d t itle , a n d s o a llo w in g p eo ple t o a ctu ally s a y , ‘ I o w n t h is pro perty ,’ a n d t h en u se t h at f o r c o lla te ra l t o i m pro ve t h em a n d t h eir f a m ily s itu atio n i s a fa sc in atin g u se c ase .” 52 On a t e ch nic al n ote , A ndre se n c alle d o n N ie ls e n ’s l a w o f I n te rn et b an dw id th , w here h ig h-e n d use r b an dw id th i n cre ase s b y 5 0 p erc en t e ach y ear, w here as t h e b an dw id th o f t h e m asse s t e n ds t o la g b y t w o o r t h re e y ears . B an dw id th l a g s b eh in d c o m pute r p ro cessin g p ow er, w hic h i n cre ase s by a b out 6 0 p erc en t a n nually ( M oore ’s l a w ). S o b an dw id th i s t h e g atin g f a cto r, a cco rd in g t o Ja k ob N ie ls e n .

53 M ost d esig ns— in te rfa ces, W eb s ite s, d ig ita l p ro ducts , s e rv ic es, o rg an iz atio ns, an d s o f o rth — will n eed t o a cco m modate t h e t e ch nolo gy o f t h e m asse s t o l e v era g e n etw ork effe cts . S o i n clu sio n m ean s c o nsid erin g t h e f u ll s p ectr u m o f u sa g e— not j u st t h e s ta te o f t h e sc ie n ce o f h ig h-e n d u se rs , b ut t h e s lo w t e ch a n d s p ora d ic p ow er o uta g es o f u se rs i n r e m ote re g io ns o f t h e w orld ’s p oore st c o untr ie s.

Im plic a tio n s f o r t h e B lo ck ch ain E co n om y:

Late r i n t h e b ook, w e t a ck le t h e i s su e o f t h e pro sp erity p ara d ox— how t h e f ir s t e ra o f t h e I n te rn et b en efite d m an y, b ut o vera ll p ro sp erity i n th e W este rn w orld f o r m ost p eo ple i s n o l o nger i m pro vin g. T he f o undatio n f o r p ro sp erity i s in clu sio n, a n d b lo ck ch ain s c an h elp . L et’ s b e c le ar t h at i n clu sio n h as m ultip le d im en sio ns. I t mean s a n e n d t o s o cia l, e co nom ic , a n d r a cia l h eg em ony, a n e n d t o d is c rim in atio n b ase d o n health , g en der, s e x ual i d en tif ic atio n, o r s e x ual p re fe re n ce. I t m ean s e n din g b arrie rs t o a ccess becau se o f w here a p ers o n l iv es, w heth er a p ers o n s p en t a n ig ht i n j a il, o r h ow a p ers o n v ote d , but a ls o a n e n d t o g la ss c eilin gs, a n d g ood o l’ b oys’ c lu bs o f c o untle ss v arie tie s.

DESIG NIN G T H E F U TU RE Our c o nvers a tio n w ith A nn C av oukia n i n sp ir e d u s t o f o llo w u p o n G erm an y’s “ N ev er a g ain ” pro m is e . W e c am e a cro ss t h e w ord s o f G erm an f e d era l pre sid en t J o ach im G au ck o n t h e D ay o f Rem em bra n ce o f t h e V ic tim s o f N atio nal S ocia lis m , v ic tim s o f H itle r’s r e g im e. “ O ur m ora l oblig atio ns c an not b e f u lf ille d s o le ly a t t h e l e v el o f r e m em bra n ce. T here a ls o e x is ts w ith in u s a deep a n d a b id in g c erta in ty t h at r e m em bra n ce b esto w s a m is sio n o n u s. T hat m is sio n t e lls u s t o pro te ct a n d p re se rv e h um an ity . I t t e lls u s t o p ro te ct a n d p re se rv e t h e r ig hts o f e v ery h um an bein g.” 54 W as h e a llu din g t o g en ocid e i n S yria , I ra q , D arfu r, S re b re n ic a, R w an da, a n d Cam bodia , a fte r t h e G erm an p eo ple h ad v ow ed , “ N ev er a g ain ”?

We b elie v e t h at b lo ck ch ain t e ch nolo gy c o uld b e a n i m porta n t t o ol f o r p ro te ctin g a n d pre se rv in g h um an ity a n d t h e r ig hts o f e v ery h um an b ein g, a m ean s o f c o m munic atin g t h e t r u th , dis tr ib utin g p ro sp erity , a n d— as t h e n etw ork r e je cts t h e f ra u dule n t t r a n sa ctio ns— of r e je ctin g th ose e arly c an cero us c ells f ro m a s o cie ty t h at c an g ro w i n to t h e u nth in kab le .

Adm itte d ly , a b old s ta te m en t. R ead o n a n d j u dge f o r y ours e lf .

Fro m a m ore p aro ch ia l a n d p ra ctic al p ers p ectiv e, t h ese s e v en p rin cip le s c an s e rv e a s a g uid e to d esig nin g t h e n ex t g en era tio n o f h ig h-p erfo rm an ce a n d i n novativ e c o m pan ie s, o rg an iz atio ns, an d i n stitu tio ns. I f w e d esig n f o r i n te g rity , p ow er, v alu e, p riv acy , s e cu rity , r ig hts , a n d i n clu sio n, th en w e w ill b e r e d esig nin g o ur e co nom y a n d s o cia l i n stitu tio ns t o b e w orth y o f t r u st. W e n ow tu rn o ur a tte n tio n t o h ow t h is c o uld r o ll o ut a n d w hat y ou s h ould c o nsid er d oin g. PA RT I I TR A NSFO RM ATIO NS T CH APT ER 3 REIN VEN TIN G F IN ANCIA L S E R V IC ES he g lo bal f in an cia l s y ste m m oves t r illio ns o f d olla rs d aily , s e rv es b illio ns o f p eo ple , a n d su pports a g lo bal e co nom y w orth m ore t h an $ 100 t r illio n.

1 I t’ s t h e w orld ’s m ost p ow erfu l i n dustr y , t h e f o undatio n o f g lo bal c ap ita lis m , a n d i ts l e ad ers a re k now n a s t h e M aste rs o f t h e U niv ers e . C lo se r u p, i t’ s a R ube G old berg c o ntr a p tio n o f u nev en d ev elo pm en ts a n d b iz arre c o ntr a d ic tio ns. F ir s t, t h e m ach in e h asn ’t h ad a n u pgra d e i n a w hile . N ew t e ch nolo gy h as b een w eld ed o nto a g in g i n fra str u ctu re h elte r-s k elte r. C onsid er t h e b an k o ffe rin g I n te rn et b an kin g b ut s till i s su in g p ap er c h eck s a n d r u nnin g m ain fra m e c o m pute rs f ro m t h e 1 970s. W hen o ne o f i ts c u sto m ers t a p s h er c re d it c ard o n a s ta te -o f-th e-a rt c ard r e ad er t o b uy a S ta rb uck s g ra n de l a tte , h er m oney p asse s t h ro ugh n o f e w er t h an f iv e d if fe re n t i n te rm ed ia rie s b efo re r e ach in g S ta rb uck s’s b an k a cco unt. T he t r a n sa ctio n t a k es s e co nds t o c le ar b ut d ay s t o s e ttle .

Then t h ere a re t h e l a rg e m ultin atio nals l ik e A pple o r G E t h at h av e t o m ain ta in h undre d s o f b an k a cco unts i n l o cal c u rre n cie s a ro und t h e w orld j u st t o f a cilita te t h eir o pera tio ns.

2 W hen s u ch a c o rp ora tio n n eed s t o m ove m oney b etw een t w o s u bsid ia rie s i n t w o d if fe re n t c o untr ie s, t h e m an ag er o f o ne s u bsid ia ry s e n ds a b an k w ir e f ro m h is o pera tio n’s b an k a cco unt t o t h e o th er s u bsid ia ry ’s b an k a cco unt. T hese t r a n sfe rs a re n eed le ssly c o m plic ate d a n d t a k e d ay s, s o m etim es w eek s t o s e ttle . D urin g t h at t im e, n eith er s u bsid ia ry c an u se t h e m oney t o f u nd o pera tio ns o r i n vestm en t, b ut t h e i n te rm ed ia rie s c an e arn i n te re st o n t h e f lo at. “ T he a d ven t o f t e ch nolo gy e sse n tia lly t o ok p ap er-b ase d p ro cesse s a n d t u rn ed t h em i n to s e m ia u to m ate d , s e m ie le ctr o nic p ro cesse s b ut t h e l o gic w as s till p ap er b ase d ,” s a id V ik ra m P an dit, f o rm er C EO o f C itig ro up.

3 Aro und e v ery c o rn er, a n oth er b iz arre p ara d ox: T ra d ers b uy a n d s e ll s e cu ritie s o n t h e w orld ’s s to ck e x ch an ges i n n an ose co nds; t h eir t r a d es c le ar i n sta n tly b ut t a k e t h re e f u ll d ay s t o s e ttle .

L ocal g overn m en ts u se n o f e w er t h an t e n d if fe re n t a g en ts — ad vis e rs , l a w yers , i n su re rs , b an kers , a n d m ore — to f a cilita te t h e i s su an ce o f a m unic ip al b ond.

4 A d ay l a b ore r i n L os A ngele s c ash es h is p ay ch eck a t a m oney m art f o r a 4 p erc en t f e e, a n d t h en w alk s h is f is tf u l o f d olla rs o ver t o a c o nven ie n ce s to re t o w ir e i t h om e t o h is f a m ily i n G uate m ala , w here h e g ets d in ged a g ain o n f la t f e es, e x ch an ge r a te s, a n d o th er h id den c o sts . O nce h is f a m ily h as d iv vie d u p t h e s u m a m ong i ts m an y m em bers , n obody h as e n ough t o o pen a b an k a cco unt o r g et c re d it. T hey a re a m ong t h e 2 .2 b illio n p eo ple w ho l iv e o n l e ss t h an t w o d olla rs a d ay .

5 T he p ay m en ts t h ey n eed t o m ak e a re t in y, t o o s m all f o r c o nven tio nal p ay m en t n etw ork s s u ch a s d eb it a n d c re d it c ard s, w here m in im um f e es m ak e s o -c alle d m ic ro pay m en ts i m possib le . B an ks s im ply d on’t v ie w s e rv in g t h ese p eo ple a s a “ p ro fita b le p ro positio n,” a cco rd in g t o a r e cen t H arv ard B usin ess S ch ool s tu dy.

6 A nd s o t h e m oney m ach in e i s n ’t t r u ly g lo bal i n s c ale a n d s c o pe. Moneta ry p olic y m ak ers a n d f in an cia l r e g ula to rs o fte n f in d t h em se lv es l a ck in g a ll t h e f a cts , th an ks t o t h e p la n ned o pacity o f m an y l a rg e f in an cia l o pera tio ns a n d t h e c o m partm en ta liz atio n o f overs ig ht. T he g lo bal f in an cia l c ris is o f 2 008 w as a c ase i n p oin t. E xcess l e v era g e, a l a ck o f tr a n sp are n cy , a n d a s e n se o f c o m pla cen cy d riv en b y s k ew ed i n cen tiv es p re v en te d a n yone f ro m id en tif y in g t h e p ro ble m u ntil i t w as n early t o o l a te . “ H ow c an y ou h av e a n yth in g w ork , f ro m t h e polic e f o rc e t o a m oneta ry s y ste m , i f y ou d on’t h av e n um bers a n d l o catio ns? ” p ondere d Hern an do d e S oto .

7 R eg ula to rs a re s till t r y in g t o m an ag e t h is m ach in e w ith r u le s d ev is e d f o r t h e in dustr ia l a g e. I n N ew Y ork S ta te , m oney t r a n sm is sio n l a w s d ate b ack t o t h e C iv il W ar w hen t h e prim ary m ean s o f m ovin g m oney a ro und w as h ors e a n d b uggy.

It’ s F ra n ken -fin an ce, f u ll o f a b su rd c o ntr a d ic tio ns, i n co ngru itie s, h ot p ip es, a n d p re ssu re pots . W hy, f o r e x am ple , d oes W este rn U nio n n eed 5 00,0 00 p oin ts o f s a le a ro und t h e w orld , when m ore t h an h alf t h e w orld ’s p opula tio n h as a s m art p hone?

8 E rik V oorh ees, a n e arly b itc o in pio neer a n d o uts p oken c ritic o f t h e b an kin g s y ste m , t o ld u s, “ It i s f a ste r t o m ail a n a n vil t o C hin a th an i t i s t o s e n d m oney t h ro ugh t h e b an kin g s y ste m t o C hin a. T hat’ s c ra zy ! M oney i s a lr e ad y dig ita l, i t’ s n ot l ik e t h ey ’re s h ip pin g p alle ts o f c ash w hen y ou d o a w ir e !” 9 Why i s i t s o i n effic ie n t? A cco rd in g t o P au l D av id , t h e e co nom is t w ho c o in ed t h e t e rm pro ductiv ity p ara dox , l a y in g n ew t e ch nolo gie s o ver e x is tin g i n fra str u ctu re i s “ n ot u nusu al d urin g his to ric al t r a n sitio ns f ro m o ne t e ch nolo gic al p ara d ig m t o t h e n ex t.” 10 F or e x am ple , man ufa ctu re rs n eed ed f o rty y ears t o e m bra ce c o m merc ia l e le ctr if ic atio n o ver s te am p ow er, a n d ofte n t h e t w o w ork ed s id e b y s id e b efo re m an ufa ctu re rs f in ally s w itc h ed o ver f o r g ood. D urin g th at p erio d o f r e tr o fittin g, p ro ductiv ity a ctu ally d ecre ase d . I n t h e f in an cia l s y ste m , h ow ev er, t h e pro ble m i s c o m pounded b ecau se t h ere h as b een n o c le an t r a n sitio n f ro m o ne t e ch nolo gy t o t h e nex t; t h ere a re m ultip le l e g acy t e ch nolo gie s, s o m e h undre d s o f y ears o ld , n ev er q uite l iv in g u p t o th eir f u ll p ote n tia l.

Why? I n p art, b ecau se f in an ce i s a m onopoly b usin ess. I n h is a sse ssm en t o f t h e f in an cia l cris is , N obel l a u re ate J o se p h S tig litz w ro te t h at b an ks “ w ere d oin g e v ery th in g t h ey c o uld t o in cre ase t r a n sa ctio n c o sts i n e v ery w ay p ossib le .” H e a rg ued t h at, e v en a t t h e r e ta il l e v el, pay m en ts f o r b asic g oods a n d s e rv ic es “ sh ould c o st a f ra ctio n o f a p en ny.” “ Y et h ow m uch d o th ey c h arg e?” h e w ondere d . “ O ne, t w o, o r t h re e p erc en t o f t h e v alu e o f w hat i s s o ld o r m ore .

Cap ita l a n d s h eer s c ale , c o m bin ed w ith a r e g ula to ry a n d s o cia l l ic en se t o o pera te a llo w s b an ks t o ex tr a ct a s m uch a s t h ey c an , i n c o untr y a fte r c o untr y , e sp ecia lly i n t h e U nite d S ta te s, m ak in g billio ns o f d olla rs o f p ro fits .” 11 H is to ric ally , t h e o pportu nity f o r l a rg e c en tr a liz ed i n te rm ed ia rie s has b een e n orm ous. N ot o nly t r a d itio nal b an ks ( e .g ., B an k o f A m eric a), b ut a ls o c h arg e c ard co m pan ie s ( V is a ), i n vestm en t b an ks ( G old m an S ach s), s to ck e x ch an ges ( N YSE ), c le arin ghouse s (C M E), w ir e /r e m itta n ce s e rv ic es ( W este rn U nio n), i n su re rs ( L lo yd’s ), s e cu ritie s l a w f ir m s (S kad den , A rp s), c en tr a l b an ks ( F ed era l R ese rv e), a sse t m an ag ers ( B la ck R ock ), a cco unta n cie s (D elo itte ), c o nsu lta n cie s ( A ccen tu re ), a n d c o m moditie s t r a d ers ( V ito l G ro up) m ak e u p t h is ex pan siv e l e v ia th an . T he g ears o f t h e f in an cia l s y ste m — pow erfu l i n te rm ed ia rie s t h at c o nso lid ate cap ita l a n d i n flu en ce a n d o fte n i m pose m onopoly e co nom ic s— mak e t h e s y ste m w ork , b ut a ls o slo w i t d ow n, a d d c o st, a n d g en era te o uts iz ed b en efits f o r t h em se lv es. B ecau se o f t h eir m onopoly positio n, m an y i n cu m ben ts h av e n o i n cen tiv e t o i m pro ve p ro ducts , i n cre ase e ffic ie n cy , i m pro ve th e c o nsu m er e x perie n ce, o r a p peal t o t h e n ex t g en era tio n. A N EW L O OK F O R T H E W ORLD ’S S E C O ND-O LD EST P R O FE SSIO N The d ay s o f F ra n ken -fin an ce a re n um bere d a s b lo ck ch ain t e ch nolo gy p ro m is e s t o m ak e t h e n ex t decad e o ne o f g re at u pheav al a n d d is lo catio n b ut a ls o i m men se o pportu nity f o r t h ose w ho s e iz e it. T he g lo bal f in an cia l s e rv ic es i n dustr y t o day i s f ra u ght w ith p ro ble m s: I t i s a n tiq uate d , b uilt o n decad es-o ld t e ch nolo gy t h at i s a t o dds w ith o ur r a p id ly a d van cin g d ig ita l w orld , m ak in g i t ofte n tim es s lo w a n d u nre lia b le . I t i s e x clu siv e, l e av in g b illio ns o f p eo ple w ith n o a ccess t o b asic fin an cia l t o ols . I t i s c en tr a liz ed , e x posin g i t t o d ata b re ach es, o th er a tta ck s, o r o utr ig ht f a ilu re .

And i t i s m onopolis tic , r e in fo rc in g t h e s ta tu s q uo a n d s tif lin g i n novatio n. B lo ck ch ain p ro m is e s t o so lv e t h ese p ro ble m s a n d m an y m ore a s i n novato rs a n d e n tr e p re n eu rs d ev is e n ew w ay s t o c re ate valu e o n t h is p ow erfu l p la tf o rm .

There a re s ix k ey r e aso ns w hy b lo ck ch ain t e ch nolo gy w ill b rin g a b out p ro fo und c h an ges t o th is i n dustr y , b ustin g t h e f in an ce m onopoly , a n d o ffe rin g i n div id uals a n d i n stitu tio ns a lik e r e al ch oic e i n h ow t h ey c re ate a n d m an ag e v alu e. I n dustr y p artic ip an ts t h e w orld o ver s h ould t a k e notic e.

Atte sta tio n :

F or t h e f ir s t t im e i n h is to ry , t w o p artie s w ho n eith er k now n or t r u st e ach oth er c an t r a n sa ct a n d d o b usin ess. V erif y in g i d en tity a n d e sta b lis h in g t r u st i s n o l o nger th e r ig ht a n d p riv ile g e o f t h e f in an cia l i n te rm ed ia ry . M ore o ver, i n t h e c o nte x t o f f in an cia l se rv ic es, t h e t r u st p ro to co l t a k es o n a d ouble m ean in g. T he b lo ck ch ain c an a ls o e sta b lis h tr u st w hen t r u st i s n eed ed b y v erif y in g t h e i d en tity a n d c ap acity o f a n y c o unte rp arty th ro ugh a c o m bin atio n o f p ast t r a n sa ctio n h is to ry ( o n t h e b lo ck ch ain ), r e p uta tio n s c o re s base d o n a g gre g ate r e v ie w s, a n d o th er s o cia l a n d e co nom ic i n dic ato rs .

Cost:

O n t h e b lo ck ch ain , t h e n etw ork b oth c le ars a n d s e ttle s p eer-to -p eer v alu e t r a n sfe rs , an d i t d oes s o c o ntin ually s o t h at i ts l e d ger i s a lw ay s u p t o d ate . F or s ta rte rs , i f b an ks harn esse d t h at c ap ab ility , t h ey c o uld e lim in ate a n e stim ate d $ 20 b illio n i n b ack -o ffic e ex pen se s with out c h angin g t h eir u nderly in g b usin ess m odel , a cco rd in g t o t h e S pan is h ban k S an ta n der, t h ough t h e a ctu al n um ber i s s u re ly m uch g re ate r.

12 W ith r a d ic ally l o w er co sts , b an ks c o uld o ffe r i n div id uals a n d b usin esse s g re ate r a ccess t o f in an cia l s e rv ic es, mark ets , a n d cap ita l i n u nders e rv ed c o m munitie s. T his c an b e a b oon n ot o nly t o in cu m ben ts b ut a ls o t o s c ra p py u psta rts a n d e n tr e p re n eu rs e v ery w here . A nyone, an yw here , w ith a s m art p hone a n d a n I n te rn et c o nnectio n c o uld t a p i n to t h e v ast a rte rie s of g lo bal f in an ce.

Speed :

T oday , r e m itta n ces t a k e t h re e t o s e v en d ay s t o s e ttle . S to ck t r a d es t a k e t w o t o th re e d ay s, w here as b an k l o an t r a d es t a k e o n a v era g e a s ta g gerin g t w en ty -th re e d ay s t o se ttle .

13 T he S W IF T n etw ork h an dle s f if te en m illio n p ay m en t o rd ers a d ay b etw een t e n th ousa n d f in an cia l i n stitu tio ns g lo bally b ut t a k es d ay s t o c le ar a n d s e ttle t h em .

14 T he sa m e i s t r u e o f t h e A uto m ate d C le arin g H ouse ( A CH ) s y ste m , w hic h h an dle s t r illio ns o f dolla rs o f U .S . p ay m en ts a n nually . T he b itc o in n etw ork t a k es a n a v era g e o f t e n m in ute s to c le ar a n d s e ttle a ll t r a n sa ctio ns c o nducte d d urin g t h at p erio d. O th er b lo ck ch ain netw ork s a re e v en f a ste r, a n d n ew i n novatio ns, s u ch a s t h e B itc o in L ig htn in g N etw ork , aim t o d ra m atic ally s c ale t h e c ap acity o f t h e b itc o in b lo ck ch ain w hile d ro ppin g se ttle m en t a n d c le arin g t im es t o a f ra ctio n o f a s e co nd.

15 “ In t h e c o rre sp ondin g b an kin g world , w here y ou h av e a s e n der i n o ne n etw ork a n d a r e ceiv er i n a n oth er, y ou h av e t o g o th ro ugh m ultip le l e d gers , m ultip le i n te rm ed ia rie s, m ultip le h ops. T hin gs c an l ite ra lly f a il in t h e m id dle . T here ’s a ll k in ds o f c ap ita l r e q uir e m en ts f o r t h at,” s a id R ip ple L ab s C EO Chris L ars e n .

16 I n deed , t h e s h if t t o i n sta n t a n d f ric tio nle ss v alu e t r a n sfe r w ould f re e u p cap ita l o th erw is e t r a p ped i n t r a n sit, b ad n ew s f o r a n yone p ro fitin g f ro m t h e f lo at.

Ris k M an agem en t:

B lo ck ch ain t e ch nolo gy p ro m is e s t o m itig ate s e v era l f o rm s o f fin an cia l r is k . T he f ir s t i s se ttle m en t r is k , t h e r is k t h at y our t r a d e w ill b ounce b ack becau se o f s o m e g litc h i n t h e s e ttle m en t p ro cess. T he s e co nd i s co unte rp arty r is k , t h e ris k t h at y our c o unte rp arty w ill d efa u lt b efo re s e ttlin g a t r a d e. T he m ost s ig nif ic an t i s sy ste m ic r is k , t h e t o ta l s u m o f a ll o uts ta n din g c o unte rp arty r is k i n t h e s y ste m . V ik ra m Pan dit c alle d t h is Hersta tt r is k , nam ed a fte r a G erm an b an k t h at c o uld n’t m eet i ts lia b ilitie s a n d s u bse q uen tly w en t u nder : “ W e f o und t h ro ugh t h e f in an cia l c ris is o ne o f th e r is k s w as, i f I ’m t r a d in g w ith s o m eb ody, h ow d o I k now t h ey ’re g oin g t o s e ttle o n t h e oth er s id e?” A cco rd in g t o P an dit, i n sta n t s e ttle m en t o n t h e b lo ck ch ain c o uld e lim in ate th at r is k c o m ple te ly . A cco unta n ts c o uld lo ok i n to t h e i n ner w ork in gs o f a c o m pan y a t an y p oin t i n t im e a n d s e e w hic h t r a n sa ctio ns w ere o ccu rrin g a n d h ow t h e n etw ork w as re co rd in g t h em . I rre v ocab ility o f a t r a n sa ctio n a n d i n sta n t r e co ncilia tio n o f f in an cia l re p ortin g w ould e lim in ate o ne a sp ect o f agen cy r is k —th e r is k t h at u nsc ru pulo us man ag ers w ill e x plo it t h e c u m bers o m e p ap er t r a il a n d s ig nif ic an t t im e d ela y t o c o nceal wro ngdoin g.

Valu e I n novatio n :

T he b itc o in b lo ck ch ain w as d esig ned f o r m ovin g b itc o in s, n ot f o r han dlin g o th er f in an cia l a sse ts . H ow ev er, t h e t e ch nolo gy i s o pen s o urc e, i n vitin g ex perim en ta tio n. S om e i n novato rs a re d ev elo pin g s e p ara te b lo ck ch ain s, k now n a s altc o in s, b uilt f o r s o m eth in g o th er t h an b itc o in p ay m en ts . O th ers a re l o okin g t o l e v era g e th e b itc o in b lo ck ch ain ’s s iz e a n d l iq uid ity t o c re ate “ sp in -o ff” c o in s o n s o -c alle d sid ech ain s t h at c an b e “ co lo re d ” t o r e p re se n t a n y a sse t o r l ia b ility , p hysic al o r d ig ita l— a co rp ora te s to ck o r b ond, a b arre l o f o il, a b ar o f g old , a c ar, a c ar p ay m en t, a r e ceiv ab le or a p ay ab le , o r o f c o urs e a c u rre n cy . S id ech ain s a re b lo ck ch ain s t h at h av e d if fe re n t fe atu re s a n d f u nctio ns f ro m t h e b itc o in b lo ck ch ain b ut t h at l e v era g e b itc o in ’s e sta b lis h ed netw ork a n d h ard w are i n fra str u ctu re w ith out d im in is h in g i ts s e cu rity f e atu re s. S id ech ain s in te ro pera te w ith t h e b lo ck ch ain t h ro ugh a t w o-w ay p eg , a c ry pto gra p hic m ean s o f tr a n sfe rrin g a sse ts o ff t h e b lo ck ch ain a n d b ack a g ain w ith out a t h ir d p arty e x ch an ge.

Oth ers s till a re t r y in g t o r e m ove t h e c o in o r t o ken a lto geth er, b uild in g t r a d in g p la tf o rm s on p riv ate b lo ck ch ain s. F in an cia l i n stitu tio ns a re a lr e ad y u sin g b lo ck ch ain t e ch nolo gy t o re co rd , e x ch an ge, a n d t r a d e a sse ts a n d l ia b ilitie s, a n d c o uld e v en tu ally u se i t t o r e p la ce tr a d itio nal e x ch an ges a n d c en tr a liz ed m ark ets , u pen din g h ow w e d efin e a n d t r a d e v alu e.

Open S ou rce:

T he f in an cia l s e rv ic es i n dustr y i s a t e ch nolo gy s ta ck o f l e g acy s y ste m s sta n din g t w en ty m ile s h ig h a n d o n t h e v erg e o f t e ete rin g o ver. C han ges a re d if fic u lt t o mak e b ecau se e ach i m pro vem en t m ust b e b ack w ard c o m patib le . A s o pen s o urc e te ch nolo gy, b lo ck ch ain c an c o nsta n tly i n novate , i te ra te , a n d i m pro ve, b ase d o n co nse n su s i n t h e n etw ork . These b en efits — atte sta tio n, d ra m atic ally l o w er c o sts , l ig htn in g s p eed , l o w er r is k s, g re at in novatio n o f v alu e, a d ap ta b ility — hav e t h e p ote n tia l t o tr a n sfo rm n ot o nly p ay m en ts , b ut a ls o th e s e cu ritie s i n dustr y , i n vestm en t b an kin g, a cco untin g a n d a u dit, v en tu re c ap ita l, i n su ra n ce, en te rp ris e r is k m an ag em en t, r e ta il b an kin g, a n d o th er p illa rs o f t h e i n dustr y . R ead o n.

TH E G OLD EN E IG HT: H OW T H E F IN ANCIA L S E R VIC ES S E C TO R W IL L C H ANG E Here a re w hat w e b elie v e t o b e t h e e ig ht c o re f u nctio ns r ip e f o r d is ru ptio n. T hey a re a ls o su m mariz ed i n t h e t a b le here .

1.

A uth en tic a tin g I d en tit y a n d V alu e:

T oday w e r e ly o n p ow erfu l i n te rm ed ia rie s t o esta b lis h t r u st a n d v erif y i d en tity i n a f in an cia l t r a n sa ctio n. T hese i n te rm ed ia rie s a re t h e ultim ate a rb ite rs f o r a ccess t o b asic f in an cia l s e rv ic es, s u ch a s b an k a cco unts a n d l o an s.

Blo ck ch ain l o w ers a n d s o m etim es e lim in ate s t r u st a lto geth er i n c erta in t r a n sa ctio ns. T he te ch nolo gy w ill a ls o e n ab le p eers t o e sta b lis h i d en tity t h at i s v erif ia b le , r o bust, a n d cry pto gra p hic ally s e cu re a n d t o e sta b lis h t r u st w hen t r u st i s n eed ed .

2.

M ovin g V alu e:

D aily , t h e f in an cia l s y ste m m oves m oney a ro und t h e w orld , m ak in g su re t h at n o d olla r i s s p en t t w ic e: f ro m t h e n in ety -n in e-c en t p urc h ase o f a s o ng o n i T unes to t h e t r a n sfe r o f b illio ns o f d olla rs t o s e ttle a n i n tr a co m pan y f u nd t r a n sfe r, p urc h ase a n asse t, o r a cq uir e a c o m pan y. B lo ck ch ain c an b eco m e t h e c o m mon s ta n dard f o r t h e movem en t o f a n yth in g o f v alu e— cu rre n cie s, s to ck s, b onds, a n d t itle s— in b atc h es b ig an d s m all, t o d is ta n ces n ear a n d f a r, a n d t o c o unte rp artie s k now n a n d u nknow n. T hus, blo ck ch ain c an d o f o r t h e m ovem en t o f v alu e w hat t h e s ta n dard s h ip pin g c o nta in er d id fo r t h e m ovem en t o f g oods: d ra m atic ally l o w er c o st, i m pro ve s p eed , r e d uce f ric tio n, a n d boost e co nom ic g ro w th a n d p ro sp erity .

3.

S to rin g V alu e:

Fin an cia l i n stitu tio ns a re t h e r e p osito rie s o f v alu e f o r p eo ple , in stitu tio ns, a n d g overn m en ts . F or t h e a v era g e J o e, a b an k s to re s v alu e i n a s a fe ty d ep osit box, a s a v in gs a cco unt, o r a c h eck in g a cco unt. F or l a rg e i n stitu tio ns t h at w an t r e ad y liq uid ity w ith t h e g uara n te e o f a s m all r e tu rn o n t h eir c ash e q uiv ale n ts , s o -c alle d r is k -fre e in vestm en ts s u ch a s m oney m ark et f u nds o r T re asu ry b ills w ill do t h e t r ic k . I n div id uals need n ot r e ly o n b an ks a s t h e p rim ary s to re s o f v alu e o r a s p ro vid ers o f s a v in gs a n d ch eck in g a cco unts , a n d i n stitu tio ns w ill h av e a m ore e ffic ie n t m ech an is m t o b uy a n d hold r is k -fre e f in an cia l a sse ts .

4.

L en din g V alu e:

Fro m h ouse h old m ortg ag es t o T -b ills , f in an cia l i n stitu tio ns f a cilita te th e i s su an ce o f c re d it s u ch a s c re d it c ard d eb t, m ortg ag es, c o rp ora te b onds, m unic ip al bonds, g overn m en t b onds, a n d a sse t- b ack ed s e cu ritie s. T he l e n din g b usin ess h as sp aw ned a n um ber o f a n cilla ry i n dustr ie s t h at p erfo rm c re d it c h eck s, c re d it s c o re s, a n d cre d it r a tin gs. F or t h e i n div id ual, i t’ s a c re d it s c o re . F or a n i n stitu tio n, i t’ s a c re d it r a tin g —fro m i n vestm en t g ra d e t o j u nk. O n t h e b lo ck ch ain , a n yone w ill b e a b le t o i s su e, t r a d e, an d s e ttle t r a d itio nal d eb t i n str u m en ts d ir e ctly , t h ere b y r e d ucin g f ric tio n a n d r is k b y in cre asin g s p eed a n d t r a n sp are n cy . C onsu m ers w ill b e a b le t o a ccess l o an s f ro m p eers . This i s p artic u la rly s ig nif ic an t f o r t h e w orld ’s u nban ked a n d f o r e n tr e p re n eu rs ev ery w here .

5.

E xch an gin g V alu e:

D aily , m ark ets g lo bally f a cilita te t h e e x ch an ge o f t r illio ns o f dolla rs o f f in an cia l a sse ts . T ra d in g i s t h e b uyin g a n d s e llin g o f a sse ts a n d f in an cia l in str u m en ts f o r t h e p urp ose o f i n vestin g, s p ecu la tin g, h ed gin g, a n d a rb itr a g in g a n d in clu des t h e p osttr a d e l if e c y cle o f c le arin g, s e ttlin g, a n d s to rin g v alu e. B lo ck ch ain c u ts se ttle m en t t im es o n a ll t r a n sa ctio ns f ro m d ay s a n d w eek s t o m in ute s a n d s e co nds. T his sp eed a n d e ffic ie n cy c re ate s o pportu nitie s f o r u nban ked a n d u nderb an ked p eo ple t o partic ip ate i n w ealth c re atio n.

6.

F undin g a n d I n vestin g:

In vestin g i n a n a sse t, c o m pan y, o r n ew e n te rp ris e g iv es a n in div id ual t h e o pportu nity t o e arn a r e tu rn , i n t h e f o rm o f c ap ita l a p pre cia tio n, d iv id en ds, in te re st, r e n ts , o r s o m e c o m bin atio n. T he i n dustr y m ak es m ark ets : m atc h in g i n vesto rs with e n tr e p re n eu rs a n d b usin ess o w ners a t e v ery s ta g e o f g ro w th — fro m a n gels t o I P O s an d b ey ond. R ais in g m oney n orm ally r e q uir e s i n te rm ed ia rie s— in vestm en t b an kers , ven tu re c ap ita lis ts , a n d l a w yers t o n am e a f e w . T he b lo ck ch ain a u to m ate s m an y o f t h ese fu nctio ns, e n ab le s n ew m odels f o r p eer-to -p eer f in an cin g, a n d co uld a ls o m ak e r e co rd in g div id en ds a n d p ay in g c o upons m ore e ffic ie n t, t r a n sp are n t, a n d s e cu re .

7.

I n su rin g V alu e a n d M an agin g R is k :

R is k m an ag em en t, o f w hic h i n su ra n ce i s a su bse t, i s i n te n ded t o p ro te ct i n div id uals a n d c o m pan ie s f ro m u ncerta in l o ss o r cata str o phe. M ore b ro ad ly , r is k m an ag em en t i n f in an cia l m ark ets h as s p aw ned m yria d deriv ativ e p ro ducts a n d o th er f in an cia l i n str u m en ts m ean t t o h ed ge a g ain st u npre d ic ta b le or u nco ntr o lla b le e v en ts . A t l a st c o unt t h e n otio nal v alu e o f a ll o uts ta n din g o ver-th e- co unte r d eriv ativ es i s $ 600 t r illio n. B lo ck ch ain s u pports d ecen tr a liz ed m odels f o r in su ra n ce, m ak in g t h e u se o f d eriv ativ es f o r r is k m an ag em en t f a r m ore t r a n sp are n t.

Usin g r e p uta tio nal s y ste m s b ase d o n a p ers o n’s s o cia l a n d e co nom ic c ap ita l, t h eir actio ns, a n d o th er r e p uta tio nal a ttr ib ute s, i n su re rs w ill h av e a m uch c le are r p ic tu re o f t h e actu aria l r is k a n d c an m ak e m ore i n fo rm ed d ecis io ns.

8.

A cco u ntin g f o r V alu e:

A cco untin g i s t h e m easu re m en t, p ro cessin g, a n d co m munic atio n o f f in an cia l i n fo rm atio n a b out e co nom ic e n titie s. I t i s a m ultib illio n- dolla r i n dustr y c o ntr o lle d b y f o ur m assiv e a u dit f ir m s— Delo itte T ouch e T ohm ats u , Pric ew ate rh ouse C oopers , E rn st & Y oung, a n d K PM G. T ra d itio nal a cco untin g p ra ctic es will n ot s u rv iv e t h e v elo city a n d c o m ple x ity o f m odern f in an ce. N ew a cco untin g meth ods u sin g b lo ck ch ain ’s d is tr ib ute d l e d ger w ill m ak e a u dit a n d f in an cia l r e p ortin g tr a n sp are n t a n d o ccu r i n r e al t im e. I t w ill a ls o d ra m atic ally i m pro ve t h e c ap acity f o r re g ula to rs a n d o th er s ta k eh old ers t o s c ru tin iz e f in an cia l a ctio ns w ith in a c o rp ora tio n.

FR O M S T O CK E X CH ANG ES T O B LO CK E X CH ANG ES “W all S tr e et h as w oken u p i n a b ig w ay ,” 17 s a id A ustin H ill o f B lo ck str e am . H e w as s p eak in g o f th e f in an cia l i n dustr y ’s d eep i n te re st i n b lo ck ch ain t e ch nolo gie s. C onsid er B ly th e M aste rs , o ne o f th e m ost p ow erfu l p eo ple o n W all S tr e et. S he b uilt J P M org an ’s d eriv ativ es a n d c o m moditie s desk i n to a g lo bal j u ggern au t a n d p io neere d t h e d eriv ativ es m ark et. A fte r a b rie f pse u dore tir e m en t, s h e j o in ed a N ew Y ork –base d s ta rt- u p, D ig ita l A sse t H old in gs, a s C EO . T he decis io n s u rp ris e d m an y. S he u nders to od t h at t h e TH E G OLD EN E IG HT Blo ck ch ain T ra n sfo rm atio ns o f F in an cia l S erv ic es FU NCTIO N BLO CK CH AIN I M PA CT ST A K EH OLD ER 1.

A uth en tic atin g I d en tity a n d V alu e Verif ia b le a n d r o bust i d en titie s, c ry pto gra p hic ally s e cu re d Ratin g a g en cie s, c o nsu m er d ata a n aly tic s, mark etin g, r e ta il b an kin g, w hole sa le b an kin g, pay m en t c ard n etw ork s, r e g ula to rs 2.

M ovin g V alu e— mak e a p ay m en t, t r a n sfe r money , a n d p urc h ase g oods a n d s e rv ic es Tra n sfe r o f v alu e i n v ery l a rg e a n d v ery s m all i n cre m en ts with out i n te rm ed ia ry w ill d ra m atic ally r e d uce c o st a n d sp eed o f p ay m en ts Reta il b an kin g, w hole sa le b an kin g, p ay m en t c ard netw ork s, m oney t r a n sfe r s e rv ic es, te le co m munic atio ns, r e g ula to rs 3.

S to rin g V alu e— cu rre n cie s, c o m moditie s, an d f in an cia l a sse ts a re s to re s o f v alu e.

Safe ty d ep osit b ox, a s a v in gs a cco unt, o r a ch eck in g a cco unt. M oney m ark et f u nds o r Tre asu ry b ills Pay m en t m ech an is m c o m bin ed w ith a r e lia b le a n d s a fe sto re o f v alu e r e d uces n eed f o r t y pic al f in an cia l s e rv ic es; ban k s a v in gs a n d c h eck in g a cco unts w ill b eco m e o bso le te Reta il b an kin g, b ro kera g es, i n vestm en t b an kin g, asse t m an ag em en t, t e le co m munic atio ns, r e g ula to rs 4.

L en din g V alu e— cre d it c ard d eb t, mortg ag es, c o rp ora te b onds, m unic ip al bonds, g overn m en t b onds, a sse t- b ack ed se cu ritie s, a n d o th er f o rm s o f c re d it Deb t c an b e i s su ed , t r a d ed , a n d s e ttle d o n t h e b lo ck ch ain ; in cre ase s e ffic ie n cy , r e d uces f ric tio n, i m pro ves s y ste m ic ris k . C onsu m ers c an u se r e p uta tio n t o a ccess l o an s f ro m peers ; s ig nif ic an t f o r t h e w orld ’s u nban ked a n d f o r en tr e p re n eu rs Whole sa le , c o m merc ia l, a n d r e ta il b an kin g, p ublic fin an ce ( i.e ., g overn m en t f in an ce), m ic ro le n din g, cro w dfu ndin g, r e g ula to rs , c re d it r a tin g a g en cie s, cre d it s c o re s o ftw are c o m pan ie s 5.

E xch an gin g V alu e— sp ecu la tin g, h ed gin g, an d a rb itr a g in g. M atc h in g o rd ers , c le arin g tr a d es, c o lla te ra l m an ag em en t a n d v alu atio n, se ttle m en t a n d c u sto dy Blo ck ch ain t a k es s e ttle m en t t im es o n a ll t r a n sa ctio ns f ro m day s a n d w eek s t o m in ute s a n d s e co nds. T his s p eed a n d effic ie n cy a ls o c re ate s o pportu nitie s f o r u nban ked a n d underb an ked t o p artic ip ate i n w ealth c re atio n In vestm en t, w hole sa le b an kin g, f o re ig n e x ch an ge tr a d ers , h ed ge f u nds, p en sio n f u nds, r e ta il bro kera g e, c le arin ghouse s, s to ck , f u tu re s, co m moditie s e x ch an ges; c o m moditie s b ro kera g es, cen tr a l b an ks, r e g ula to rs 6.

F undin g a n d I n vestin g i n a n A sse t, Com pan y, S ta rt- u p— cap ita l a p pre cia tio n, div id en ds, i n te re st, r e n ts , o r s o m e co m bin atio n New m odels f o r p eer-to -p eer f in an cin g, r e co rd in g o f co rp ora te a ctio ns s u ch a s d iv id en ds p aid a u to m atic ally th ro ugh s m art c o ntr a cts . T itle s r e g is tr y t o a u to m ate c la im s to r e n ta l i n co m e a n d o th er f o rm s o f y ie ld In vestm en t b an kin g, v en tu re c ap ita l, l e g al, a u dit, pro perty m an ag em en t, s to ck e x ch an ges, cro w dfu ndin g, r e g ula to rs 7.

I n su rin g V alu e a n d M an ag in g R is k — pro te ct a sse ts , h om es, l iv es, h ealth , b usin ess pro perty , a n d b usin ess p ra ctic es, d eriv ativ e pro ducts Usin g r e p uta tio nal s y ste m s, i n su re rs w ill b ette r e stim ate actu aria l r is k , c re atin g d ecen tr a liz ed m ark ets f o r in su ra n ce. M ore t r a n sp are n t d eriv ativ es In su ra n ce, r is k m an ag em en t, w hole sa le b an kin g, bro kera g e, c le arin ghouse s, r e g ula to rs 8.

A cco untin g f o r V alu e— new c o rp ora te govern an ce Dis tr ib ute d l e d ger w ill m ak e a u dit a n d f in an cia l r e p ortin g re al t im e, r e sp onsiv e, a n d t r a n sp are n t, w ill d ra m atic ally im pro ve c ap acity o f r e g ula to rs t o s c ru tin iz e f in an cia l actio ns w ith in a c o rp ora tio n Audit, a sse t m an ag em en t, s h are h old er w atc h dogs, re g ula to rs blo ck ch ain w ould t r a n sfo rm h er b usin ess a s t h e I n te rn et t r a n sfo rm ed o th er i n dustr ie s: “ I w ould ta k e i t a b out a s s e rio usly a s y ou s h ould h av e t a k en t h e c o ncep t o f t h e I n te rn et i n t h e 1 990s. I t’ s a big d eal a n d i t i s g oin g t o c h an ge t h e w ay o ur f in an cia l w orld o pera te s.” 18 Maste rs h ad d is m is se d m an y o f t h e e arly t a le s o f b itc o in , e x plo ite d b y d ru g d eale rs , harn esse d b y g am ble rs , a n d h aile d b y l ib erta ria n s a s c re atin g a n ew w orld o rd er. T hat c h an ged i n la te 2 014. M aste rs t o ld u s, “ I h ad a n ‘ a h a m om en t’ w here I b eg an t o a p pre cia te t h e p ote n tia l im plic atio ns o f t h e t e ch nolo gy f o r t h e w orld t h at I k new w ell. W hils t t h e c ry pto cu rre n cy ap plic atio n o f t h e d is tr ib ute d l e d gers t e ch nolo gy w as i n te re stin g a n d h ad i m plic atio ns f o r pay m en ts , t h e u nderly in g d ata b ase t e ch nolo gy i ts e lf h ad f a r b ro ad er i m plic atio ns.” 19 A cco rd in g to M aste rs , b lo ck ch ain c o uld r e d uce i n effic ie n cie s a n d c o sts “ b y a llo w in g m ultip le p artie s t o r e ly on t h e s a m e i n fo rm atio n r a th er t h an d uplic atin g a n d r e p lic atin g i t a n d h av in g t o r e co ncile i t.” A s a m ech an is m f o r s h are d , d ecen tr a liz ed , r e p lic ate d t r a n sa ctio n r e co rd s, b lo ck ch ain i s t h e “ g old en so urc e,” s h e s a y s.

20 “B ear i n m in d t h at f in an cia l s e rv ic es i n fra str u ctu re s h av e n ot e v olv ed i n d ecad es. T he f ro nt en d h as e v olv ed b ut n ot t h e b ack e n d,” s a y s M aste rs . “ It’ s b een a n a rm s r a ce i n t e ch nolo gy in vestm en t o rie n te d t o w ard s p eed in g u p t r a n sa ctio n e x ecu tio n s o t h at, n ow ad ay s, c o m petitiv e ad van ta g es a re m easu re d i n f ra ctio ns o f n an ose co nds. T he i r o ny i s t h at t h e p osttr a d e in fra str u ctu re h asn ’t r e ally e v olv ed a t a ll.” I t s till t a k es “ d ay s a n d i n s o m e c ase s w eek s o f d ela y to d o t h e p osttr a d e p ro cessin g t h at g oes i n to a ctu ally s e ttlin g f in an cia l t r a n sa ctio ns a n d k eep in g re co rd o f t h em .” 21 Maste rs i s n ot a lo ne i n h er e n th usia sm f o r b lo ck ch ain t e ch nolo gy. N ASD AQ C EO B ob Gre if e ld s a id , “ I a m a b ig b elie v er i n t h e a b ility o f b lo ck ch ain t e ch nolo gy t o e ffe ct f u ndam en ta l ch an ge i n t h e i n fra str u ctu re o f t h e f in an cia l s e rv ic e i n dustr y .” 22 G re if e ld i s i n te g ra tin g blo ck ch ain ’s d is tr ib ute d l e d ger t e ch nolo gy i n to N ASD AQ’s p riv ate m ark ets p la tf o rm t h ro ugh a pla tf o rm c alle d N ASD AQ L in q. E xch an ges a re c en tr a liz ed m ark etp la ces f o r s e cu ritie s a n d t h ey are a ls o r ip e f o r d is ru ptio n. O n J a n uary 1 , 2 016, N ASD AQ L in q c o m ple te d i ts f ir s t t r a d e o n blo ck ch ain . A cco rd in g t o B lo ck str e am ’s H ill, o ne o f t h e l a rg est a sse t m an ag ers i n t h e w orld “ h as more p eo ple d ed ic ate d t o i ts b lo ck ch ain i n novatio n g ro up t h an w e h av e i n o ur e n tir e c o m pan y.” Hill’ s c o m pan y h as r a is e d o ver $ 75 m illio n a n d e m plo ys m ore t h an t w en ty p eo ple . “ T hese g uys are s e rio us a b out m ak in g s u re th at t h ey u nders ta n d h ow t h ey c an u se t h e t e ch nolo gy t o c h an ge how t h ey d o b usin ess.” 23 T he N YSE , G old m an S ach s, S an ta n der, D elo itte , R BC, B arc la y s, U BS, an d v ir tu ally e v ery m ajo r f in an cia l f ir m g lo bally h av e t a k en a s im ila r s e rio us i n te re st. I n 2 015, Wall S tr e et’ s o pin io n o f b lo ck ch ain t e ch nolo gy b ecam e univ ersa lly positiv e: i n o ne s tu dy, 9 4 perc en t o f r e sp onden ts s a id b lo ck ch ain c o uld p la y a n i m porta n t r o le i n f in an ce.

24 Alth ough m an y o th er a p plic atio ns p iq ue t h e i n te re st o f W all S tr e et, w hat i n te re sts f in an cia l ex ecu tiv es e v ery w here i s t h e n otio n o f u sin g t h e b lo ck ch ain t o p ro cess a n y t r a d e s e cu re ly f ro m beg in nin g t o e n d, w hic h c o uld d ra m atic ally l o w er c o sts , i n cre ase s p eed a n d e ffic ie n cy , a n d mitig ate r is k i n t h eir b usin esse s. M aste rs s a id , “ T he e n tir e l if e c y cle o f a t r a d e i n clu din g i ts ex ecu tio n, t h e n ettin g o f m ultip le t r a d es a g ain st e ach o th er, t h e r e co ncilia tio n o f w ho d id w hat with w hom a n d w heth er t h ey a g re e, c an o ccu r a t t h e t r a d e e n tr y l e v el, m uch e arlie r i n t h e s ta ck of p ro cess, t h an o ccu rs i n t h e m ain str e am f in an cia l m ark et.” 25 G re if e ld p ut i t t h is w ay : “ W e cu rre n tly s e ttle t r a d es ‘ T +3’ ( th at i s , t h re e d ay s). W hy n ot s e ttle i n f iv e t o t e n m in ute s? ” 26 Wall S tr e et t r a d es i n r is k , a n d t h is t e ch nolo gy c an m ate ria lly r e d uce c o unte rp arty r is k , se ttle m en t r is k , a n d t h us s y ste m ic r is k a cro ss t h e s y ste m . J e sse M cW ate rs , f in an cia l i n novatio n le ad a t t h e W orld E co nom ic F oru m , t o ld u s, “ T he m ost e x citin g t h in g a b out d is tr ib ute d l e d ger te ch nolo gy i s h ow t r a ceab ility c an i m pro ve s y ste m ic s ta b ility .” H e b elie v es t h ese “ n ew t o ols allo w r e g ula to rs t o u se a l ig hte r t o uch .” 27 T he b lo ck ch ain ’s p ublic n atu re — its t r a n sp are n cy , i ts se arc h ab ility — plu s i ts a u to m ate d s e ttle m en t a n d i m muta b le t im e s ta m ps, a llo w r e g ula to rs t o s e e what’ s h ap pen in g, e v en s e t u p a le rts s o t h at t h ey d on’t m is s a n yth in g.

DR. F A UST ’S B LO CK CH AIN B A RG AIN Ban ks a n d t r a n sp are n cy r a re ly g o h an d i n h an d. M ost f in an cia l a cto rs g ain c o m petitiv e a d van ta g e fro m i n fo rm atio n a sy m metr ie s a n d g re ate r k now -h ow t h an t h eir c o unte rp artie s. H ow ev er, t h e bitc o in b lo ck ch ain a s c o nstr u cte d i s a r a d ic ally t r a n sp are n t s y ste m . F or b an ks, t h is m ean s open in g t h e k im ono, s o t o s p eak . S o h ow d o w e r e co ncile a n o pen p la tf o rm w ith t h e c lo se d -d oor polic y o f b an ks?

Austin H ill c alle d i t W all S tr e et’ s “ F au stia n b arg ain ,” a n o nero us tr a d e-o ff.

28 “ P eo ple l o ve th e i d ea o f n ot h av in g t o w ait t h re e d ay s t o s e ttle t r a n sa ctio ns b ut h av in g t h em c le are d w ith in min ute s a n d k now in g t h at t h ey ’re f in al a n d t h at t h ey ’re t r u e,” s a id H ill. “ T he c o unte rp art t o t h at is a ll t r a n sa ctio ns o n t h e [ b itc o in ] b lo ck ch ain a re c o m ple te ly p ublic . T hat t e rrif ie s a n um ber o f peo ple o n W all S tr e et.” T he s o lu tio n? C onfid en tia l t r a n sa ctio ns o n s o -c alle d p erm is sio ned blo ck ch ain s, a ls o k now n a s p riv ate b lo ck ch ain s. W here as t h e b itc o in b lo ck ch ain i s e n tir e ly o pen an d perm is sio nle ss —th at i s , a n yone c an a ccess i t a n d i n te ra ct w ith i t— perm is sio ned blo ck ch ain s re q uir e u se rs t o h av e c erta in c re d en tia ls , g iv in g t h em a l ic en se t o o pera te o n t h at p artic u la r blo ck ch ain . H ill h as d ev elo ped t h e t e ch nolo gy w here b y o nly a f e w s ta k eh old ers s e e t h e v ario us co m ponen ts o f a t r a n sa ctio n a n d c an e n su re i ts i n te g rity .

At f ir s t b lu sh , p riv ate a n d p erm is sio ned b lo ck ch ain s w ould a p pear t o h av e a f e w c le ar ad van ta g es. F or o ne, i ts m em bers c an e asily c h an ge t h e r u le s o f t h e b lo ck ch ain i f t h ey s o d esir e .

Costs c an b e k ep t d ow n a s t r a n sa ctio ns n eed o nly v alid atio n f ro m t h e m em bers t h em se lv es, re m ovin g t h e n eed f o r a n onym ous m in ers w ho u se l o ts o f e le ctr ic ity . A ls o , b ecau se a ll p artie s a re tr u ste d , a 5 1 p erc en t a tta ck i s u nlik ely . N odes c an b e t r u ste d t o b e w ell c o nnecte d , a s i n m ost u se case s t h ey a re l a rg e f in an cia l i n stitu tio ns. F urth erm ore , t h ey a re e asie r f o r r e g ula to rs t o m onito r.

How ev er, t h ese a d van ta g es a ls o c re ate w eak nesse s. T he e asie r i t i s t o c h an ge t h e r u le s, t h e m ore lik ely a m em ber i s t o f lo ut t h em . P riv ate b lo ck ch ain s a ls o p re v en t t h e n etw ork e ffe cts t h at e n ab le a t e ch nolo gy t o s c ale r a p id ly . I n te n tio nally l im itin g c erta in f re ed om s b y c re atin g n ew r u le s c an in hib it n eu tr a lity . F in ally , w ith n o o pen v alu e i n novatio n, t h e t e ch nolo gy i s m ore l ik ely t o sta g nate a n d b eco m e v uln era b le .

29 T his i s n ot t o s a y p riv ate b lo ck ch ain s w on’t f lo uris h , b ut fin an cia l s e rv ic es s ta k eh old ers m ust s till t a k e t h ese c o ncern s s e rio usly .

Rip ple L ab s, w hic h h as g ain ed t r a ctio n w ith in b an kin g c ir c le s, i s d ev elo pin g o th er c le v er way s t o r e lie v e F au st. “ R ip ple L ab s i s a im ed a t w hole sa le b an kin g, a n d w e u se a c o nse n su s meth od, r a th er t h an a p ro of-o f-w ork s y ste m ,” s a id C EO C hris L ars e n , m ean in g n o m in ers a n d n o an onym ous n odes a re v alid atin g t r a n sa ctio ns.

30 T he c o m pan y C hain h as i ts o w n s tr a te g y. W ith $30 m illio n i n f u ndin g f ro m V is a , N ASD AQ, C iti, C ap ita l O ne, F is e rv , a n d O ra n ge, C hain p la n s on b uild in g e n te rp ris e -fo cu se d b lo ck ch ain s o lu tio ns, t a rg etin g t h e f in an cia l s e rv ic es i n dustr y fir s t, w here i t a lr e ad y h as a d eal w ith N ASD AQ. “ A ll a sse ts i n t h e f u tu re w ill b e d ig ita l b eare r in str u m en ts r u nnin g o n m ultip le b lo ck ch ain s,” a rg ued C hain C EO A dam L udw in . B ut t h is w on’t be t h e s ilo ed w orld W all S tr e et i s a ccu sto m ed t o , “ b ecau se e v ery one i s b uild in g o n t h e s a m e open s p ecs.” 31 W all S tr e ete rs m ig ht w an t t o c ap tu re t h is t e ch nolo gy, b ut t h ey w ill h av e t o co nte n d w ith t h e v alu e i n novatio n i t e n ab le s, s o m eth in g t h ey c an ’t c o ntr o l o r p re d ic t.

Maste rs a ls o s e es t h e v ir tu es o f p erm is sio ned b lo ck ch ain s. F or h er, o nly a s m all c o te rie o f tr a d in g p artn ers , s o m e v en dors a n d o th er c o unte rp artie s, a n d r e g ula to rs n eed h av e a ccess. T hose se le ct f e w c h ose n w ill b e g ra n te d b lo ck ch ain c re d en tia ls . T o M aste rs , “ p erm is sio ned l e d gers hav e t h e a d van ta g e o f n ev er e x posin g a r e g ula te d f in an cia l i n stitu tio n t o t h e r is k o f e ith er tr a n sa ctin g w ith a n u nknow n p arty , a n u naccep ta b le a ctiv ity f ro m a r e g ula to ry p oin t o f v ie w , o r cre atin g a d ep en den cy u pon a n u nknow n s e rv ic e p ro vid er s u ch a s a t r a n sa ctio n p ro cesso r, a ls o unaccep ta b le f ro m a r e g ula to ry p oin t o f v ie w .” 32 T hese p erm is sio ned b lo ck ch ain s, o r priv a te ch ain s, a p peal t o t r a d itio nal f in an cia l i n stitu tio ns w ary o f b itc o in a n d e v ery th in g a sso cia te d w ith it.

While B ly th e M aste rs i s t h e C EO o f a s ta rt- u p, h er k een i n te re st r e p re se n ts b ro ad er in volv em en t o f t r a d itio nal f in an cia l a cto rs i n t h is s e cto r. T his e m bra ce o f n ew t e ch nolo gy r e fle cts a g ro w in g c o ncern t h at t e ch s ta rt- u ps c an a ls o u pen d h ig h f in an ce. F or E ric P is c in i o f D elo itte , whose c lie n ts h av e u nderg one a g re at a w ak en in g o ver t h e p ast y ear, t h e “ su dden i n te re st i n t e ch was n ot s o m eth in g t h at a n yone w as e x pectin g.” 33 T he e n th usia sm i s s p re ad in g l ik e a c o nta g io n in to s o m e o f t h e l a rg est a n d o ld est f in an cia l i n stitu tio ns i n t h e w orld .

Barc la y s i s o ne o f d ozen s o f f in an cia l i n stitu tio ns e x plo rin g o pportu nitie s i n b lo ck ch ain te ch nolo gy. A cco rd in g t o D ere k W hite , B arc la y s’s c h ie f d esig n a n d d ig ita l o ffic er, “ te ch nolo gie s lik e t h e b lo ck ch ain a re g oin g t o r e sh ap e o ur i n dustr y .” W hite i s b uild in g a n o pen i n novatio n pla tf o rm t h at w ill a llo w t h e b an k t o e n gag e a w id e a rra y o f b uild ers a n d t h in kers i n t h is i n dustr y .

“W e’re k een t o b e s h ap ers . B ut w e’re a ls o k een t o c o nnect w ith t h e s h ap ers o f t h e t e ch nolo gie s an d t h e t r a n sla to rs o f t h ose t e ch nolo gie s,” h e s a id .

34 B arc la y s i s p uttin g i ts m oney w here i ts mouth i s , c u ttin g t e n s o f t h ousa n ds o f j o bs i n t r a d itio nal a re as a n d d oublin g d ow n o n t e ch nolo gy, nota b ly b y l a u nch in g t h e B arc la y s A ccele ra to r. A cco rd in g t o W hite , “ th re e o ut o f t h e t e n co m pan ie s i n o ur l a st c o hort w ere b lo ck ch ain o r b itc o in c o m pan ie s. B lo ck ch ain i s t h e g re ate st ev id en ce o f t h e w orld m ovin g f ro m clo se d s y ste m s t o o pen s y ste m s a n d h as h uge p ote n tia l im pact o n t h e f u tu re o f n ot j u st f in an cia l s e rv ic es b ut m an y i n dustr ie s.” 35 B an ks t a lk in g a b out open s y ste m s— mon D ie u !

The F in an cia l U tilit y In t h e a u tu m n o f 2 015, n in e o f t h e w orld ’s l a rg est b an ks— Barc la y s, J P M org an , C re d it S uis se , Gold m an S ach s, S ta te S tr e et, U BS, R oyal B an k o f S co tla n d, B BV A, a n d C om monw ealth B an k of A ustr a lia — an nounced a p la n t o c o lla b ora te o n c o m mon s ta n dard s f o r b lo ck ch ain t e ch nolo gy, dubbed t h e R 3 C onso rtiu m . T hir ty -tw o m ore h av e s in ce j o in ed t h e e ffo rt a n d e v ery f e w w eek s a new b atc h o f t h e i n dustr y ’s W ho’s W ho s ig ns u p.

36 Q uestio ns r e m ain a b out h ow s e rio usly t h ese ban ks a re t a k in g t h e i n itia tiv e. A fte r a ll, t h e b arrie r t o j o in in g t h e g ro up i s a c o m mitm en t o f o nly $250,0 00, y et R 3’s f o rm atio n m ark s a c le ar l e ap f o rw ard f o r t h e i n dustr y . S ettin g s ta n dard s i s critic al t o a ccele ra te a d optio n a n d u sa g e o f a n ew t e ch nolo gy a n d s o w e a re o ptim is tic a b out t h e in itia tiv e. R 3 h as p oach ed s o m e o f t h e l e ad in g v is io narie s a n d t e ch nic al p ra ctitio ners i n t h e s e cto r to m ove t h e b all f o rw ard . M ik e H earn j o in ed i n N ovem ber, a d din g t o a t e am t h at i n clu des Ric h ard G en dal B ro w n, f o rm erly t h e e x ecu tiv e a rc h ite ct f o r b an kin g i n novatio n a t I B M , a n d Ja m es C arly le , n ow c h ie f e n gin eer o f R 3 a n d e x –ch ie f e n gin eer a t B arc la y s.

37 In D ecem ber 2 015, t h e L in ux F oundatio n, i n c o lla b ora tio n w ith a h uge g ro up o f y et m ore blu e-c h ip c o rp ora te p artn ers , l a u nch ed a n oth er b lo ck ch ain i n itia tiv e, d ubbed t h e H yperle d ger Pro je ct. T his i s n ot a c o m petito r t o R 3; i n deed , H yperle d ger P ro je ct c o unts R 3 a s a f o undin g mem ber, a lo ng w ith A ccen tu re , C is c o , C LS, D eu ts c h e B örs e , D ig ita l A sse t H old in gs, D TC C, Fujits u L im ite d , I C 3, I B M , I n te l, J P M org an , t h e L ondon S to ck E xch an ge G ro up, M its u bis h i U FJ Fin an cia l G ro up ( M UFG ), S ta te S tr e et, S W IF T , V M ware , a n d W ells F arg o.

38 S till, i t dem onstr a te s h ow s e rio usly t h e i n dustr y i s t a k in g t h is t e ch nolo gy a n d a ls o h ow r e lu cta n t i t i s t o em bra ce f u lly o pen , d ecen tr a liz ed b lo ck ch ain s l ik e b itc o in . U nlik e R 3, H yperle d ger P ro je ct i s a n open s o urc e p ro je ct t h at h as t a sk ed a c o m munity t o d ev elo p a “ b lo ck ch ain f o r b usin ess.” T his i s certa in ly l a u dab le a n d m ay v ery w ell w ork . B ut d on’t b e m is ta k en : T his i s a n o pen s o urc e p ro je ct desig ned t o b uild gate d t e ch nolo gie s b y, f o r e x am ple , l im itin g t h e n um ber o f n odes i n a n etw ork or re q uir in g c re d en tia ls . A s w ith R 3, o ne o f H yperle d ger’s p rio ritie s i s s ta n dard s e ttin g. D av id Tre at o f A ccen tu re , a f o undin g m em ber o f t h e g ro up, s a id , “ K ey t o t h is j o urn ey i s t o h av e sta n dard s a n d s h are d p la tf o rm s t h at a re u tiliz ed a cro ss i n dustr y p artic ip an ts .” Blo ck ch ain h as a ls o o pen ed u p a b ro ad er d is c u ssio n a b out t h e r o le o f g overn m en ts i n overs e ein g t h e f in an cia l s e rv ic es i n dustr y . A “ u tility ” c o nju re s i m ag es o f n atu ra l m onopolie s, hig hly r e g ula te d b y t h e s ta te . H ow ev er, b ecau se b lo ck ch ain t e ch nolo gy p ro m is e s t o r e d uce r is k s an d i n cre ase t r a n sp are n cy a n d r e sp onsiv en ess, s o m e i n dustr y p la y ers s u ggest t h at t h e t e ch nolo gy its e lf fu nctio ns l ik e a r e g ula tio n.

39 I f r e g ula to rs c an p eer i n to t h e i n ner w ork in gs o f b an ks a n d mark ets , t h en s u re ly w e c an s im plif y s o m e l a w s a n d r e p eal o th ers , r ig ht? T his i s a t r ic k y q uestio n to a n sw er. O n t h e o ne h an d, r e g ula to rs w ill h av e t o r e th in k t h eir o vers ig ht r o le , g iv en t h e bre ak neck p ace o f i n novatio n. O n t h e o th er h an d, b an ks h av e a t r a ck r e co rd o f a ctin g w ith out in te g rity w hen g overn m en t s te p s a w ay .

Will t h e b ig b an ks r e ig n s u pre m e b y d ep lo yin g t h e b lo ck ch ain w ith out b itc o in , c h erry - pic k in g e le m en ts o f d is tr ib ute d l e d ger t e ch nolo gy a n d w eld in g t h em t o e x is tin g b usin ess m odels ?

R3 i s o nly o ne o f m an y s ig ns b an ks a re m ovin g i n t h is d ir e ctio n. O n N ovem ber 1 9, 2 015, Gold m an S ach s f ile d a p ate n t f o r “ m eth ods f o r s e ttlin g s e cu ritie s i n f in an cia l m ark ets u sin g dis tr ib ute d , p eer-to -p eer a n d c ry pto gra p hic t e ch niq ues,” u sin g a p ro prie ta ry c o in c alle d SE TLco in .

40 T he i r o ny o f a b an k pate n tin g a t e ch nolo gy o rig in ally i n te n ded a s a n o pen s o urc e gif t t o t h e w orld i s n ot l o st o n u s, n or s h ould i t b e o n y ou. P erh ap s t h is i s w hat A ndre as Anto nopolo us f e are d w hen h e w arn ed a n a u die n ce t h at b an ks w ould t u rn b itc o in f ro m “ p unk ro ck t o s m ooth j a zz”?

41 O r p erh ap s b an ks w ill h av e t o c o m pete w ith b est- in -c la ss p ro ducts a n d se rv ic es a m id r a d ic ally d if fe re n t t y pes o f o rg an iz atio ns w hose l e ad ers o ppose e v ery th in g t h ese co m pan ie s r e p re se n t.

The f in an cia l u tility o f t h e f u tu re c o uld b e a w alle d a n d w ell- g ro om ed g ard en , h arv este d b y a cab al o f i n flu en tia l s ta k eh old ers , o r i t c o uld b e a n o rg an ic a n d s p acio us e co sy ste m , w here peo ple ’s e co nom ic f o rtu nes g ro w w here v er t h ere i s l ig ht. T he d eb ate r a g es o n, b ut i f t h e ex perie n ce o f t h e f ir s t g en era tio n o f t h e I n te rn et h as t a u ght u s a n yth in g, i t’ s t h at o pen s y ste m s sc ale m ore e asily t h an c lo se d o nes.

TH E B A NK A PP: W HO W IL L W IN I N R ETA IL B A NK IN G The G oogle o f C ap ita l— th at’ s w hat J e re m y A lla ir e i s b uild in g, “ a c o nsu m er f in an ce c o m pan y pro vid in g p ro ducts t o c o nsu m ers t o h old m oney , s e n d m oney , s e n d a n d r e ceiv e p ay m en ts ; t h e fu ndam en ta l u tilitie s t h at p eo ple e x pect o ut o f r e ta il b an kin g.” 42 H e s e es i t a s a p ow erfu l, i n sta n t, an d f re e u tility f o r a n yone w ith a ccess t o a n I n te rn et- e n ab le d d ev ic e. H is c o m pan y, C ir c le In te rn et F in an cia l, i s o ne o f t h e l a rg est a n d b est- fu nded v en tu re s i n t h e s p ace.

Call C ir c le w hat y ou l ik e, j u st d on’t c all i t a b itc o in c o m pan y. “ A m azo n w as n ot a n H TTP co m pan y a n d G oogle w as n ot a n S M TP c o m pan y. C ir c le i s n ot a b itc o in c o m pan y,” s a id A lla ir e .

“W e l o ok a t b itc o in a s a n ex t g en era tio n o f f u ndam en ta l I n te rn et p ro to co ls t h at a re u se d i n so cie ty a n d t h e e co nom y.” 43 Alla ir e s e es f in an cia l s e rv ic es a s t h e l a st h old outs , a n d p erh ap s t h e l a rg est p riz e, t o b e fu ndam en ta lly t r a n sfo rm ed b y t e ch nolo gy. “ If y ou l o ok a t r e ta il b an kin g, t h ere a re t h re e o r f o ur th in gs t h at r e ta il b an ks d o. O ne i s t h at t h ey p ro vid e a p la ce t o s to re v alu e. A s e co nd i s t h at t h ey pro vid e s o m e k in d o f p ay m en t u tility . B ey ond t h at, t h ey e x te n d c re d it a n d p ro vid e a p la ce f o r you t o s to re w ealth a n d g en era te p ote n tia l i n co m e.” 44 H is v is io n: “ W ith in t h re e t o f iv e y ears , a pers o n s h ould b e a b le t o d ow nlo ad a n a p p, s to re v alu e d ig ita lly i n w hate v er c u rre n cy t h ey w an t —dolla rs , e u ro , y en , r e n m in bi, a s w ell a s d ig ita l c u rre n cy — an d b e a b le t o m ak e p ay m en ts in sta n tly o r n early i n sta n tly w ith g lo bal i n te ro pera b ility , w ith a v ery h ig h l e v el o f s e cu rity a n d with out p riv acy l e ak ag e. M ost i m porta n tly , i t w ill b e f re e.” 45 A s t h e I n te rn et t r a n sfo rm ed in fo rm atio n s e rv ic es, t h e b lo ck ch ain w ill t r a n sfo rm f in an cia l s e rv ic es, i n stig atin g u nim ag in ed new c ate g orie s o f c ap ab ility .

Acco rd in g t o A lla ir e , t h e b en efits o f b lo ck ch ain t e ch nolo gy— in sta n t s e ttle m en t, g lo bal in te ro pera b ility , h ig h l e v els o f s e cu rity , a n d n early n o-c o st t r a n sa ctio ns— ben efit e v ery one wheth er y ou’re a p ers o n o r a b usin ess. A nd w hat o f h is p la n t o m ak e i t a ll f re e? H ere sy ! s a y t h e world ’s b an kers . S ure ly , G old m an S ach s a n d t h e C hin ese v en tu re f ir m I D G d id n ot c o m mit $ 50 millio n t o c re ate a n onpro fit o r p ublic b en efit c o m pan y!

46 “ If w e’re s u ccessfu l i n b uild in g o ut a glo bal f ra n ch is e w ith t e n s o f m illio ns o f u se rs a n d w e’re s ittin g a t t h e c en te r o f t r a n sa ctio n beh av io r o f u se rs , t h en w e a re s ittin g o n s o m e p ow erfu l a sse ts .” A lla ir e e x pects C ir c le t o h av e “th e underly in g c ap ab ilitie s t o d eliv er o th er f in an cia l p ro ducts .” T hough h e w ould n’t s p eak t o i t sp ecif ic ally , t h e f in an cia l d ata o f m illio ns o f c u sto m ers c o uld b eco m e m ore v alu ab le t o t h e co m pan y t h an t h eir f in an cia l a sse ts . “ W e w an t t o r e in ven t t h e c o nsu m ers ’ e x perie n ce a n d t h eir re la tio nsh ip t o m oney a n d g iv e t h em t h e c h oic e o f h ow t h eir m oney i s u se d a n d a p plie d a n d h ow th ey c an g en era te m oney f ro m t h eir m oney .” 47 L ead ers o f t h e o ld p ara d ig m , t a k e n otic e.

Com pan ie s l ik e C ir c le a re u nburd en ed b y l e g acy a n d c u ltu re . T heir f re sh a p pro ach c an b e a big a d van ta g e. M an y o f t h e g re at i n novato rs o f t h e p ast w ere c o nsu m mate o uts id ers . N etf lix wasn ’t i n ven te d b y B lo ck buste r. i T unes w asn ’t i n ven te d b y T ow er R eco rd s. A m azo n w asn ’t in ven te d b y B arn es & N oble — you g et t h e i d ea.

Ste p hen P air , C EO o f B itP ay , a n e arly m over i n t h e i n dustr y , b elie v es n ew co m ers h av e a dis tin ct a d van ta g e. “ Is su in g f u ngib le a sse ts l ik e e q uitie s, b onds, a n d c u rre n cie s o n t h e b lo ck ch ain an d b uild in g t h e n ecessa ry i n fra str u ctu re t o s c ale i t a n d m ak e i t c o m merc ia l d on’t r e q uir e a ban ker’s C V ,” h e s a id . F or o ne, “ Y ou d on’t r e q uir e a ll t h e l e g acy i n fra str u ctu re o r i n stitu tio ns th at m ak e u p W all S tr e et t o day . . . . N ot o nly c an y ou i s su e t h ese a sse ts o n t h e b lo ck ch ain , b ut you c an c re ate s y ste m s w here I c an h av e a n i n sta n ta n eo us a to m ic t r a n sa ctio n w here I m ig ht h av e Apple s to ck i n m y w alle t a n d I w an t t o b uy s o m eth in g f ro m y ou. B ut y ou w an t d olla rs . W ith t h is pla tf o rm I c an e n te r a s in gle a to m ic t r a n sa ctio n ( i.e ., a ll o r n one) a n d u se m y A pple s to ck t o s e n d you d olla rs .” 48 Is i t r e ally t h at e asy ? T he b attle t o r e in ven t t h e f in an cia l s e rv ic es i n dustr y d if fe rs f ro m t h e battle f o r e -c o m merc e i n t h e e arly d ay s o f t h e W eb . F or b usin esse s l ik e A lla ir e ’s t o s c ale , t h ey must f a cilita te o ne o f t h e l a rg est v alu e t r a n sfe rs i n h um an h is to ry , m ovin g t r illio ns o f d olla rs fro m m illio ns o f t r a d itio nal b an k a cco unts t o m illio ns o f C ir c le w alle ts . N ot s o e asy . B an ks, desp ite t h eir e n th usia sm f o r b lo ck ch ain , h av e b een w ary o f t h ese c o m pan ie s, a rg uin g b lo ck ch ain busin esse s a re “ h ig h-ris k ” m erc h an ts . P erh ap s t h eir r e lu cta n ce s te m s f ro m t h e f e ar o f h aste n in g th eir o w n d em is e . I n te rm ed ia rie s h av e s p ru ng u p b etw een t h e o ld a n d n ew w orld s. V ogogo, a Can ad ia n c o m pan y, i s a lr e ad y w ork in g w ith C oin base , K ra k en , B itP ay , B its ta m p, a n d o th ers t o open b an k a cco unts , m eet c o m plia n ce s ta n dard s, a n d e n ab le c u sto m ers t o m ove m oney in to bitc o in w alle ts t h ro ugh t r a d itio nal p ay m en t m eth ods.

49 O h, t h e i r o ny. W here as A m azo n c o uld le ap fro g in cu m ben t r e ta ile rs w ith e ase , t h e l e ad ers o f t h is n ew p ara d ig m m ust p la y n ic e w ith t h e le ad ers o f t h e o ld .

Perh ap s w e n eed a b an ker w ith S ilic o n V alle y ’s w illin gness t o e x perim en t. S ure sh Ram am urth i f its t h at b ill. T he I n dia n -b orn f o rm er G oogle e x ecu tiv e a n d s o ftw are e n gin eer su rp ris e d m an y w hen h e d ecid ed t o b uy C BW B an k i n W ie r, K an sa s, p opula tio n 6 50. F or h im , th is s m all l o cal b an k w as a l a b ora to ry f o r u sin g t h e b lo ck ch ain p ro to co l a n d b itc o in -b ase d pay m en t r a ils f o r f re e c ro ss-b ord er r e m itta n ce p ay m en ts . I n h is v ie w , w ould -b e b lo ck ch ain en tr e p re n eu rs w ho d on’t u nders ta n d t h e n uan ces o f f in an cia l s e rv ic es a re d oom ed t o f a il. H e s a id , “T hey a re d ra w in g a w in dow o n t h e b uild in g. M ak in g i t l o ok n ic e a n d c o lo rfu l. B ut y ou c an ’t asse ss t h e p ro ble m f ro m t h e o uts id e. Y ou n eed t o t a lk t o s o m eo ne f ro m i n sid e t h e b uild in g, w ho know s t h e p lu m bin g.” 50 I n t h e p ast f iv e y ears , S ure sh h as s e rv ed a s t h e b an k’s C EO , C IO , c h ie f co m plia n ce o ffic er, t e lle r, j a n ito r, a n d, y es, p lu m ber. S ure sh n ow k now s t h e p lu m bin g o f ban kin g.

Man y W all S tr e et v ete ra n s d on’t s e e a b attle b etw een o ld a n d n ew . B ly th e M aste rs b elie v es th ere a re “ at l e ast a s m an y w ay s f o r b an ks t o i m pro ve t h e e ffic ie n cy a n d o pera tio ns o f W all Str e et a s t h ere a re o pportu nitie s f o r d is ru ptio n f ro m n ew e n tr a n ts .” 51 W e c an ’t h elp f e elin g t h e tid es t u rn in g t o w ard t h e r a d ic ally n ew . T hat’ s w hy t h e B ig T hre e T V n etw ork s d id n’t c o m e u p with Y ouT ube, w hy t h e B ig T hre e a u to m ak ers d id n’t c o m e u p w ith U ber, w hy t h e B ig T hre e hote l c h ain s d id n’t c o m e u p w ith A ir b nb. B y t h e t im e t h e C -s u ite s o f t h e F ortu ne 1 000 d ecid e t o purs u e a n ew a v en ue o f g ro w th , a n ew e n tr a n t h as b ro ad sid ed t h em w ith s p eed , a g ility , a n d a su perio r o ffe rin g. R eg ard le ss o f w ho l a n ds o n t o p, t h e c o llis io n b etw een t h e u nsto ppab le f o rc e o f te ch nolo gic al c h an ge a n d t h e i m movab le o bje ct o f f in an cia l s e rv ic es, t h e m ost e n tr e n ch ed in dustr y i n t h e w orld , p ro m is e s t o b e a n i n te n se o ne.

GOOGLE T R ANSL A TE F O R B U SIN ESS: N EW F R AM EW ORK S F O R A CCO UNTIN G AND C O RPO RATE G OVER NANCE “A cco unta n ts a re l ik e m ush ro om s— th ey ’re k ep t i n t h e d ark a n d f e d s h it,” 52 s a id T om M orn in i, CEO o f S uble d ger, a s ta rt- u p t a rg etin g t h e a cco untin g i n dustr y . A cco untin g h as b eco m e k now n as t h e l a n guag e o f f in an ce, unin te llig ib le t o a ll b ut a f e w d is c ip le s. I f e v ery t r a n sa ctio n i s av aila b le o n a s h are d , g lo bally d is tr ib ute d l e d ger, t h en w hy w ould w e n eed p ublic a cco unta n cie s to t r a n sla te f o r u s?

Modern a cco untin g s p ra n g f ro m t h e c u rio us m in d o f L uca P acio li i n I ta ly d urin g t h e f if te en th cen tu ry . H is d ecep tiv ely s im ple i n ven tio n w as a f o rm ula k now n a s d ouble -e n tr y a cco untin g, where e v ery t r a n sa ctio n h as t w o e ffe cts o n e ach p artic ip an t, t h at i s , e ach m ust e n te r b oth a d eb it an d a c re d it o nto t h e b ala n ce s h eet, t h e l e d ger o f c o rp ora te a sse ts a n d l ia b ilitie s. B y c o dif y in g th ese r u le s, P acio li p ro vid ed o rd er t o a n o th erw is e a d h oc p ra ctic e t h at p re v en te d e n te rp ris e s fro m s c alin g.

Ronald C oase t h ought a cco untin g w as c u ltlik e. W hile a s tu den t a t t h e L ondon S ch ool o f Eco nom ic s, C oase s a w “ asp ects o f a r e lig io n” i n t h e p ra ctic e. “ T he b ooks e n tr u ste d t o t h e acco unta n ts ’ k eep in g w ere a p pare n tly s a cre d b ooks.” A cco untin g s tu den ts d eem ed h is c h alle n ges “sa crile g io us.” 53 H ow d are h e q uestio n t h eir “ m an y m eth ods o f c alc u la tin g d ep re cia tio n, v alu in g in ven to rie s, a llo catin g o n-c o sts , a n d s o o n, a ll o f w hic h g av e d if fe re n t r e su lts b ut a ll o f w hic h were p erfe ctly a ccep ta b le a cco untin g p ra ctic es,” a n d o th er nea rly id en tic al p ra ctic es t h at w ere noneth ele ss d eem ed e n tir e ly “ u nre sp ecta b le .” S o T om M orn in i i s b y n o m ean s t h e f ir s t t o critic iz e t h e p ro fe ssio n.

We s e e f o ur p ro ble m s w ith m odern a cco untin g. F ir s t, t h e c u rre n t r e g im e r e lie s u pon man ag ers t o s w ear t h at t h eir b ooks a re i n o rd er. D ozen s o f h ig h-p ro file c ase s— Enro n, A IG , Leh m an B ro th ers , W orld C om , T yco , a n d T osh ib a— sh ow t h at m an ag em en t d oesn ’t a lw ay s a ct with i n te g rity . G re ed t o o o fte n g ets t h e b est o f p eo ple . C ro nyis m , c o rru ptio n, a n d f a ls e r e p ortin g pre cip ita te b an kru ptc ie s, j o b l o sse s, a n d m ark et c ra sh es, b ut a ls o h ig h c o sts o f c ap ita l a n d t ig hte r re in s o n e q uity .

54 Seco nd, h um an e rro r i s a l e ad in g c au se o f a cco untin g m is ta k es, a cco rd in g t o Acco untin gW EB . O fte n t h e p ro ble m s b eg in w hen R an dy i n f in an ce f a t- fin gers a n um ber i n to a sp re ad sh eet a n d, l ik e a b utte rfly f la p pin g i ts w in gs, t h e s m all m is ta k e b eco m es a b ig p ro ble m a s it f a cto rs i n to c alc u la tio ns a cro ss f in an cia l s ta te m en ts .

55 N early 2 8 p erc en t o f p ro fe ssio nals re p orte d t h at p eo ple p lu gged i n co rre ct d ata i n to t h eir f ir m ’s e n te rp ris e s y ste m .

56 Thir d , n ew r u le s s u ch a s S arb an es-O xle y h av e d one l ittle t o c u rb a cco untin g f ra u d. I f an yth in g, t h e g ro w in g c o m ple x ity o f c o m pan ie s, m ore m ultif a cete d t r a n sa ctio ns, a n d t h e s p eed of m odern c o m merc e c re ate n ew w ay s t o h id e w ro ngdoin g.

Fourth , t r a d itio nal a cco untin g m eth ods c an not r e co ncile n ew b usin ess m odels . T ak e mic ro tr a n sa ctio ns. M ost a u dit s o ftw are a llo w s f o r t w o d ecim al p la ces ( i.e ., o ne p en ny), u se le ss fo r m ic ro tr a n sa ctio ns o f a n y k in d.

Acco untin g— th e m easu re m en t, p ro cessin g, a n d c o m munic atio n o f f in an cia l i n fo rm atio n— is not t h e p ro ble m . I t p erfo rm s a c ritic al f u nctio n i n t o day ’s e co nom y. H ow ev er, t h e im ple m en ta tio n o f a cco untin g m eth ods m ust c atc h u p w ith t h e m odern e ra . C onsid er t h at i n Pacio li’ s d ay , a u dits w ere d one d aily . T oday t h ey h ap pen w ith t h e c y cle s o f t h e m oon a n d t h e se aso ns. N am e a n oth er i n dustr y w here f iv e h undre d y ears o f t e ch nolo gic al a d van cem en t h av e in cre a se d t h e t im e i t t a k es t o c o m ple te a t a sk b y 9 ,0 00 p erc en t.

The W orld W id e L ed ger Today , c o m pan ie s r e co rd a d eb it a n d c re d it w ith e ach t r a n sa ctio n— tw o e n tr ie s, h en ce d ouble - en tr y a cco untin g. T hey c o uld e asily a d d a t h ir d e n tr y t o t h e W orld W id e L ed ger, i n sta n tly accessib le t o t h ose w ho n eed t o s e e i t— th e c o m pan y’s s h are h old ers , a u dito rs , o r r e g ula to rs .

Im ag in e t h at w hen a m assiv e c o m pan y l ik e A pple s e lls p ro ducts , b uys r a w m ate ria ls , p ay s i ts em plo yees, o r a cco unts f o r a sse ts a n d l ia b ilitie s o n i ts b ala n ce s h eet, t h e W orld W id e L ed ger re co rd ed t h e t r a n sa ctio n a n d p ublis h ed a t im e-s ta m ped r e ceip t t o a b lo ck ch ain . T he f in an cia l re p orts f o r a c o m pan y w ould b eco m e a l iv in g l e d ger— au dita b le , s e arc h ab le , a n d v erif ia b le .

Gen era tin g a n y u p-to -th e-m in ute f in an cia l s ta te m en t s h ould b e a s s im ple a s a s p re ad sh eet fu nctio n, w here t h e c lic k o f a b utto n g iv es y ou a n i m muta b le , c o m ple te , a n d s e arc h ab le f in an cia l sta te m en t, f re e o f e rro r. C om pan ie s m ig ht n ot w an t e v ery one s e ein g t h ese n um bers , a n d s o ex ecu tiv es m ig ht g iv e o nly r e g ula to rs , m an ag ers , a n d o th er k ey s ta k eh old ers p erm is sio ned access.

Man y i n t h e i n dustr y s e e t h e i n here n t i m plic atio ns o f t h is W orld W id e L ed ger f o r acco untin g. A cco rd in g t o S im on T ay lo r o f B arc la y s, s u ch a l e d ger c o uld s tr e am lin e b an k co m plia n ce w ith r e g ula to rs a n d r e d uce r is k . “ W e d o a l o t o f r e g ula to ry r e p ortin g w here w e’re basic ally s a y in g, h ere ’s e v ery th in g w e’v e d one, b ecau se w hat w e’v e d one s its i n sid e a s y ste m th at n obody e ls e c an s e e.” 57 A W orld W id e L ed ger a n d a t r a n sp are n t r e co rd o f e v ery th in g “m ean s t h at a r e g ula to r w ould h av e a ccess t o t h e s a m e b ase l a y er o f d ata . T hat w ould m ean l e ss work , l e ss c o st, a n d w e c o uld b e h eld t o a cco unt i n n ear r e al t im e. T hat’ s r e ally p ow erfu l.” 58 F or Je re m y A lla ir e of C ir c le , r e g ula to rs b en efit t h e m ost. “ B an k e x am in ers h av e h ad t o r e ly u pon opaq ue, p riv ate ly c o ntr o lle d , p ro prie ta ry l e d gers a n d f in an cia l a cco untin g s y ste m s t o d o t h eir work — th e ‘ b ooks a n d r e co rd s,’ ” s a id A lla ir e . “ W ith a s h are d p ublic l e d ger, a u dito rs a n d b an k ex am in ers c o uld h av e a u to m ate d f o rm s o f e x am in atio n t o l o ok a t t h e u nderly in g h ealth o f a bala n ce s h eet a n d t h e s tr e n gth o f a c o rp ora tio n— a p ow erfu l i n novatio n t h at c o uld a u to m ate mean in gfu l p arts o f r e g ula tio n a s w ell a s a u dit a n d a cco untin g.” 59 It b ak es i n te g rity i n to t h e s y ste m . “ A ll f ra u d w ould b e m uch h ard er. Y ou h av e t o d o f ra u d o n an o ngoin g b asis a n d a t n o p oin t c an y ou g o b ack a n d c h an ge y our r e co rd s,” s a id C hris tia n Lundkvis t, o f B ala n c3 , a n E th ere u m -b ase d t r ip le -e n tr y a cco untin g s ta rt- u p.

60 A ustin H ill a rg ued , “A p ublic l e d ger t h at i s c o nsta n tly a u dite d a n d v erif ie d m ean s y ou d on’t h av e t o t r u st t h e b ooks of y our p artn er; t h ere i s i n te g rity i n t h e s ta te m en ts o r t h e t r a n sa ctio n l o gs, b ecau se t h e n etw ork its e lf i s v erif y in g i t. I t’ s l ik e a c o ntin uous a p rio ri a u dit t h at i s d one c ry pto gra p hic ally . Y ou’re n ot re ly in g o n P ric ew ate rh ouse C oopers o r D elo itte . T here i s n o c o unte rp arty r is k . I f t h e l e d ger s a y s th is i s t r u e, t h en i t’ s t r u e.” 61 Delo itte , o ne o f t h e w orld ’s B ig F our a cco untin g f ir m s, h as b een t r y in g t o u nders ta n d t h e im pact o f b lo ck ch ain . E ric P is c in i, w ho h ead s u p t h e D elo itte c ry pto cu rre n cy c en te r, t e lls c lie n ts th at t h e b lo ck ch ain i s “ a b ig r is k f o r y our o w n b usin ess m odel b ecau se n ow t h e b usin ess o f ban kin g i s t o m an ag e r is k . I f t o m orro w t h at r is k d is a p pears , w hat a re y ou g oin g t o d o?” 62 Overrip e f o r d is ru ptio n i s t h e a u dit b usin ess, a n d a u dit i s a t h ir d o f D elo itte ’s r e v en ue.

63 P is c in i sa id , “ T hat’ s a d is ru ptio n t o o ur o w n b usin ess m odel, r ig ht? T oday w e s p en d a l o t o f t im e au ditin g c o m pan ie s, a n d w e c h arg e f e es a cco rd in gly . T om orro w , i f t h at p ro cess i s c o m ple te ly str e am lin ed b ecau se t h ere i s a t im e s ta m p i n t h e b lo ck ch ain , t h at c h an ges t h e w ay w e a u dit co m pan ie s.” 64 O r p erh ap s e lim in ate s t h e a u dit f ir m a lto geth er?

Delo itte h as d ev elo ped a s o lu tio n c alle d P erm aR ec ( fo r P erm an en t R eco rd ) w here b y “D elo itte w ould r e co rd t h ose t r a n sa ctio ns i n to t h e b lo ck ch ain a n d w ould t h en b e a b le t o a u dit one o f t h e t w o p artn ers , o r b oth o f t h em , v ery q uic k ly , b ecau se t h at t r a n sa ctio n i s r e co rd ed .” 65 But i f t h e t h ir d e n tr y o n t h e b lo ck ch ain — tim e-s ta m ped a n d r e ad y f o r a ll t o s e e— hap pen s au to m atic ally , a n yone, a n yw here , c o uld d ete rm in e w heth er t h e b ooks b ala n ced . C onvers e ly , t h e fa ste st a re a o f g ro w th f o r D elo itte a n d t h e o th er big t h re e a u dit f ir m s i s c o nsu ltin g s e rv ic es.

Man y c lie n ts a re a lr e ad y s c ra tc h in g t h eir h ead s o ver t h e b lo ck ch ain . T his b ew ild erm en t p ro vid es opportu nitie s f o r m ig ra tio n u p t h e a d vis o ry v alu e c h ain .

Morn in i, a p lu ck y e n tr e p re n eu r a n d s e lf -d esc rib ed “ ete rn al o ptim is t,” l ik en ed p erio dic acco untin g t o “ w atc h in g a p ers o n s ta n d u p a n d d an ce i n f ro nt o f a s tr o be l ig ht. Y ou k now t h ey ’re dan cin g, b ut y ou c an ’t q uite f ig ure o ut w hat’ s g oin g o n. A nd i t l o oks i n te re stin g, b ut i t’ s h ard t o fig ure o ut a ll t h e s te p s i n b etw een .” 66 P erio dic a cco untin g g iv es a s n ap sh ot. A udit i s , b y defin itio n, a b ack w ard -lo okin g p ro cess. C re atin g a c o m ple te p ic tu re o f a c o m pan y’s f in an cia l health b y l o okin g a t p erio dic f in an cia l s ta te m en ts i s l ik e t u rn in g a h am burg er i n to a c o w .

Acco rd in g t o M orn in i, m ost l a rg e c o rp ora tio ns w ould n ev er w an t a c o m ple te ly t r a n sp are n t acco untin g r e co rd i n t h e p ublic d om ain o r e v en r e ad ily a ccessib le b y p eo ple w ith s p ecia l priv ile g es, s u ch a s a u dito rs o r r e g ula to rs . A c o m pan y’s f in an cia ls a re o ne o f i ts m ost g uard ed se cre ts . F urth erm ore , m an y c o m pan ie s w an t t o e n su re t h at m an ag em en t h as a c erta in d eg re e o f fle x ib ility i n h ow i t a cco unts f o r c erta in i te m s, s u ch a s h ow t o r e co gniz e r e v en ue, d ep re cia te a n asse t, o r a cco unt f o r a g oodw ill c h arg e.

But M orn in i b elie v es t h at c o m pan ie s w ould b en efit f ro m g re ate r t r a n sp are n cy — not o nly i n te rm s o f s tr e am lin in g t h eir f in an ce d ep artm en t o r l o w erin g t h e c o st o f a u dit, b ut i n h ow t h e mark et v alu es t h eir c o m pan y. H e s a id , “ T he f ir s t p ublic c o m pan y w ith t h is s y ste m i n p la ce w ill se e a s ig nif ic an t p ric e p er s h are a d van ta g e, o r p ric e t o e arn in gs r a tio a d van ta g e, o ver o th er co m pan ie s w here i n vesto rs h av e t o a n xio usly a w ait t h e d rib ble o f f in an cia l i n fo rm atio n t h at t h ey are p ro vid ed q uarte rly .” A fte r a ll, h e a rg ues, “ W ho i s g oin g t o i n vest i n a c o m pan y t h at s h ow s you w hat’ s g oin g o n q uarte rly , c o m pare d t o o ne t h at s h ow s y ou w hat’ s g oin g o n a ll t h e t im e?” 67 Will i n vesto rs d em an d t r ip le -e n tr y a cco untin g t o m eet c o rp ora te g overn an ce s ta n dard s? I t’ s not a f a r-fe tc h ed q uestio n. M an y i n stitu tio nal i n vesto rs , s u ch a s t h e C alif o rn ia P ublic E m plo yees’ Retir e m en t S yste m , h av e d ev elo ped s tr ic t c o rp ora te g overn an ce s ta n dard s, a n d w ill n ot i n vest i n a c o m pan y u nle ss t h ose s ta n dard s a re m et.

68 T rip le -e n tr y a cco untin g c o uld b e n ex t.

Trip le -E ntr y A cco u ntin g: P riv acy I s f o r I n div id uals , N ot C orp ora tio n s Trip le -e n tr y a cco untin g i s n ot w ith out s k ep tic s. I z ab ella K am in sk a, a Fin ancia l T im es r e p orte r, belie v es m an datin g t r ip le -e n tr y a cco untin g w ill l e ad t o a n i n cre asin g n um ber o f t r a n sa ctio ns movin g o ff b ala n ce s h eets . “ T here w ill a lw ay s b e t h ose w ho r e fu se t o f o llo w t h e p ro to co l, w ho ab sc o nd a n d h id e s e cre t v alu e i n p ara lle l o ff-g rid n etw ork s, w hat w e c all t h e b la ck m ark et, o ff bala n ce s h eet, s h ad ow b an kin g.” 69 How d oes o ne r e co ncile n on-tr a n sa ctio n-b ase d a cco untin g m easu re s, p artic u la rly t h e re co gnitio n o f i n ta n gib le a sse ts ? H ow a re w e g oin g t o t r a ck i n te lle ctu al p ro perty r ig hts , b ra n d valu e, o r e v en c ele b rity s ta tu s— th in k T om H an ks? H ow m an y b ad f ilm s m ust t h is O sc ar w in ner mak e b efo re t h e b lo ck ch ain i m pair s t h e H an ks b ra n d v alu e?

The a rg um en t f o r t r ip le -e n tr y a cco untin g i s n ot a g ain st t r a d itio nal a cco untin g. T here w ill alw ay s b e a re as w here w e w ill n eed c o m pete n t a u dito rs . B ut i f t r ip le -e n tr y a cco untin g c an v astly in cre ase t r a n sp are n cy a n d r e sp onsiv en ess t h ro ugh r e al- tim e a ccru als , v erif ia b le t r a n sa ctio n re co rd s, a n d i n sta n t a u dit, t h en t h e b lo ck ch ain c o uld s o lv e m an y o f a cco untin g’s b ig gest pro ble m s. D elo itte w ill n eed s o m eo ne t o a sse ss i n r e al t im e t h e v alu e o f i n ta n gib le s a n d p erfo rm th e o th er a cco untin g f u nctio ns t h at t h e b lo ck ch ain c an not, r a th er t h an a l a rg e t a sk f o rc e o f au dito rs .

Fin ally , i s a n i m muta b le r e co rd o f e v ery th in g t r u ly d esir a b le ? I n E uro pe, c o urts a re uphold in g t h e “ rig ht t o b e f o rg otte n ,” e n fo rc in g p eo ple ’s p etitio ns t o r e m ove t h eir h is to ry f ro m th e I n te rn et. S hould n’t t h e s a m e p rin cip le a p ply t o c o rp ora tio ns? N o. W hy d o U ber d riv ers g et ra te d o n c u sto m er s a tis fa ctio n b ut c o rp ora te e x ecu tiv es g et a p ass? I m ag in e a m ech an is m — le t’ s call i t a t r u st a p p— to r e co rd f e ed back i n a p ublic l e d ger a n d m ain ta in a n i n dep en den t, s e arc h ab le sc o re f o r c o rp ora te i n te g rity . I n sid e t h e b la ck b ox o f c o rp ora tio ns, s u nsh in e i s t h e b est dis in fe cta n t.

Trip le -e n tr y a cco untin g i s t h e f ir s t o f m an y b lo ck ch ain i n novatio ns i n c o rp ora te g overn an ce.

Lik e m an y i n stitu tio ns i n s o cie ty , o ur c o rp ora tio ns a re s u ffe rin g f ro m a c ris is o f l e g itim acy .

Share h old er a ctiv is t R obert M onks w ro te , “ C ap ita lis m h as b eco m e a k le p to cra cy , r u n b y a n d f o r th e e n ric h m en t o f C EO s, o r w hat I t e rm m an ag er-k in gs.” 70 The b lo ck ch ain r e tu rn s p ow er t o s h are h old ers . I m ag in e t h at a t o ken re p re se n tin g a c la im o n an a sse t, a “ b its h are ,” c o uld c o m e w ith a v ote o r m an y v ote s, e ach c o lo re d t o a p artic u la r co rp ora te d ecis io n. P eo ple c o uld v ote t h eir p ro xie s i n sta n tly f ro m a n yw here , t h ere b y m ak in g t h e votin g p ro cess f o r m ajo r c o rp ora te a ctio ns m ore r e sp onsiv e, m ore i n clu siv e, a n d l e ss s u bje ct t o man ip ula tio n. D ecis io ns w ith in c o m pan ie s w ould r e q uir e r e al c o nse n su s, m ultip le s ig natu re s o n an i n dustr ia l s c ale , w here e ach s h are h old er h eld a k ey t o t h e c o m pan y’s f u tu re . O nce t h e v ote s are i n , t h e d ecis io n a s w ell a s t h e b oard m eetin g m in ute s w ould b e t im e-s ta m ped a n d r e co rd ed i n an i m muta b le l e d ger.

Should n’t c o rp ora tio ns h av e a r ig ht t o c h an ge t h eir h is to ry , t o b e f o rg otte n ?

71 N o. A s artif a cts o f s o cie ty , c o m pan ie s h av e r e sp onsib ilitie s t h at a cco m pan y t h eir l ic en se t o o pera te .

In deed , c o rp ora tio ns h av e a n o blig atio n t o s o cie ty t o p ublis h a n y a n d a ll i n fo rm atio n a b out t h eir dealin gs. S ure , c o rp ora tio ns h av e a r ig ht a n d o blig atio n t o p ro te ct t r a d e s e cre ts a n d t h e p riv acy o f th eir e m plo yees, s ta ff, a n d o th er s ta k eh old ers . B ut t h at’ s d if fe re n t f ro m p riv acy . I n cre asin g tr a n sp are n cy i s a h uge o pportu nity f o r m an ag ers e v ery w here : u phold t h e h ig hest s ta n dard s o f co rp ora te g overn an ce, s e iz e t h e m an tle o f t r u st a s c o rp ora te l e ad ers , a n d d o i t b y e m bra cin g t h e blo ck ch ain .

REPU TA TIO N: Y O U A RE Y O UR C RED IT S C O RE Wheth er y ou’re a p ply in g f o r y our f ir s t c re d it c ard o r s e ek in g a l o an , t h e b an k w ill v alu e o ne num ber a b ove a ll e ls e : y our c re d it s c o re . T his n um ber i s m ean t t o r e fle ct y our c re d itw orth in ess an d t h ere fo re y our r is k o f d efa u lt. I t i s t h e a m alg am atio n o f a n um ber o f i n puts , f ro m h ow l o ng you’v e b orro w ed t o y our p ay m en t t r a ck r e co rd . M ost r e ta il c re d it d ep en ds o n i t. B ut t h e calc u la tio n i s d eep ly f la w ed . F ir s t, i t i s i n cre d ib ly n arro w . A y oung p ers o n w ith n o c re d it h is to ry mig ht h av e a s te rlin g r e p uta tio n, a t r a ck r e co rd o f f u lf illin g c o m mitm en ts , o r a r ic h a u nt. N one fa cto rs i n to a c re d it s c o re . S eco nd, t h e s c o re c re ate s p erv ers e i n cen tiv es f o r i n div id uals .

In cre asin gly , p eo ple u se d eb it c ard s, t h at i s , t h e c ash i n t h eir a cco unt. B ecau se t h ey h av e n o cre d it s c o re , t h ey g et p en aliz ed . Y et c re d it c ard f ir m s e n co ura g e i n div id uals w ith out r e so urc es t o ap ply f o r c re d it c ard s a n yw ay . T hir d , s c o re s a re v ery l a g gy: d ata i n puts c an b e o utd ate d a n d h av e little r e le v an ce. A l a te p ay m en t a t t h e a g e o f t w en ty h as l ittle b earin g o n o ne’s c re d it r is k a t f if ty .

FIC O , a n A m eric an c o m pan y o rig in ally c alle d F air , I s a ac a n d C om pan y, d om in ate s t h e U .S .

mark et f o r c re d it s c o re s, y et i t d oesn ’t f a cto r m ost r e le v an t i n fo rm atio n i n to i ts a n aly sis . M arc Andre esse n s a id , “ P ay P al c an d o a r e al- tim e c re d it s c o re i n m illis e co nds, b ase d o n y our e B ay purc h ase h is to ry — an d i t t u rn s o ut t h at’ s a b ette r s o urc e o f i n fo rm atio n t h an t h e s tu ff u se d t o gen era te y our F IC O s c o re .” 72 T hese f a cto rs , c o m bin ed w ith t r a n sa ctio n a n d b usin ess d ata a n d oth er a ttr ib ute s g en era te d b y b lo ck ch ain t e ch nolo gy, c an e n ab le a f a r m ore r o bust a lg orith m f o r is su in g c re d it a n d m an ag in g r is k .

What’ s y our r e p uta tio n? W e a ll h av e a t l e ast o ne. R ep uta tio n i s c ritic al t o t r u st i n b usin ess an d i n e v ery day l if e . T o d ate , f in an cia l i n te rm ed ia rie s h av e n ot u se d r e p uta tio n a s t h e b asis f o r esta b lis h in g t r u st b etw een i n div id uals a n d b an ks. C onsid er a s m all b usin ess o w ner w ho w an ts t o get a l o an . M ore o fte n t h an n ot, t h e l o an o ffic er w ill b ase t h e d ecis io n o n t h e p ers o n’s docu m en ta tio n, a o ne-p oin t p ers p ectiv e o f i d en tity , a n d t h eir c re d it s c o re . O f c o urs e , a h um an bein g i s m ore t h an t h e s u m o f a S ocia l S ecu rity n um ber, p la ce o f b ir th , p rim ary r e sid en ce, a n d cre d it h is to ry . H ow ev er, t h e b an k d oes n ot k now , a n d d oes n ot c are , w heth er y ou’re a r e lia b le em plo yee, a n a ctiv e v olu nte er, a n e n gag ed c itiz en , o r t h e c o ach o f y our k id ’s s o ccer t e am . T he lo an o ffic er m ig ht a p pre cia te y our a ctin g w ith i n te g rity , b ut t h e b an k’s s c o rin g s y ste m d oes n ot.

These c o m ponen ts o f r e p uta tio n a re s im ply d if fic u lt t o f o rm ula te , d ocu m en t, a n d u se a s s o cia l an d e co nom ic s y ste m s a re c u rre n tly c o nstr u cte d . M ost o f t h ese a re e th ere al a n d e p hem era l.

So w hat d o t h e b illio ns o f p eo ple d o w ho h av e n o r e p uta tio n b ey ond t h eir i m med ia te s o cia l cir c le ? W here f in an cia l s e rv ic es a re a v aila b le t o t h e g lo bal p oor, m an y c an ’t m eet t h e r e q uis ite id en tity t h re sh old s, s u ch a s I D c ard s, p ro of o f r e sid en ce, o r f in an cia l h is to ry . T his i s a p ro ble m i n th e d ev elo ped w orld t o o. I n D ecem ber 2 015, m an y l a rg e U .S . b an ks r e je cte d t h e n ew ly f o rm ed New Y ork I D c ard s a s a v alid c re d en tia l t o o pen a b an k a cco unt, d esp ite t h e f a ct t h at m ore t h an 670,0 00 p eo ple s ig ned u p f o r t h em a n d t h e b an ks’ f e d era l r e g ula to rs h ad a p pro ved t h eir u se .

73 Blo ck ch ain c o uld s o lv e t h is p ro ble m b y e m pow erin g p eo ple t o f o rm u niq ue i d en titie s w ith a varie ty o f a ttr ib ute s, p re v io us t r a n sa ctio n h is to ry a m ong t h em , a n d g iv e t h em n ew a lte rn ativ es bey ond t h e t r a d itio nal b an kin g s y ste m .

There a re s till m an y u se c ase s— partic u la rly i n c re d it— where t h e blo ck ch ain e sta b lis h es t r u st betw een p artie s w hen t r u st i s n eed ed . B lo ck ch ain t e ch nolo gy n ot o nly w ork s t o e n su re t h at l o an fu nds m ove t o t h e b orro w er, b ut a ls o a ssu re s t h at t h e b orro w er r e p ay s w ith i n te re st. I t e m pow ers both p artie s w ith t h eir o w n d ata , s tr e n gth en s t h eir p riv acy , a n d g en era te s a n ew k in d o f p ers is te n t eco nom ic i d en tity b ase d o n f a cto rs s u ch a s o ne’s p ast e co nom ic h is to ry o n t h e b lo ck ch ain a n d one’s s o cia l c ap ita l. P atr ic k D eeg an , C TO a t i d en tity s ta rt- u p P ers o nal B la ck B ox, s a id t h at in div id uals w ill s o m ed ay “ d ep lo y a n d m an ag e t h eir o w n i d en tity , a n d f o rm t r u ste d c o nnectio ns with o th er p eers a n d n odes,” t h an ks t o b lo ck ch ain t e ch nolo gy.

74 B ecau se t h e b lo ck ch ain r e co rd s an d s to re s a ll t r a n sa ctio ns i n a n i m muta b le r e co rd , e v ery t r a n sa ctio n c an c o unt i n cre m en ta lly to w ard r e p uta tio n a n d c re d itw orth in ess. F urth er, i n div id uals c an d ecid e w hic h p ers o na i n te ra cts with w hic h i n stitu tio n. D eeg an s a id , “ I c an c re ate d if fe re n t p ers o nas t h at r e p re se n t d if fe re n t s id es of m yse lf , a n d I c h oose t h e p ers o na t h at i n te ra cts w ith t h e c o m pan y.” 75 B an ks a n d o th er co m pan ie s o n t h e b lo ck ch ain o ught n ot a sk f o r a n d a g gre g ate m ore i n fo rm atio n t h an t h ey n eed t o pro vid e s e rv ic e.

This m odel h as p ro ven t o w ork . B TC ja m i s a p eer-to -p eer l e n din g p la tf o rm t h at u se s re p uta tio n a s t h e b asis f o r e x te n din g c re d it. U se rs c an l in k t h eir p ro file o n B TC ja m t o F aceb ook, Lin ked In , e B ay , o r C oin base t o a d d m ore d ep th a n d t e x tu re . F rie n ds c an v olu nte er re co m men datio ns f ro m F aceb ook. Y ou c an e v en s u bm it y our a ctu al c re d it s c o re a s o ne o f m an y attr ib ute s. N one o f t h is p riv ate i n fo rm atio n i s r e le ase d . U se rs s ta rt o n t h e p la tf o rm w ith a l o w cre d it s c o re . B ut y ou c an q uic k ly b uild a r e p uta tio n b y s h ow in g y ou a re a r e lia b le b orro w er. T he best s tr a te g y i s t o s ta rt w ith a “ re p uta tio n l o an ” t o p ro ve y ou’re r e lia b le . A s a u se r, y ou w ill h av e to r e sp ond t o i n vesto r q uestio ns d urin g t h e f u ndin g p ro cess. I g norin g t h ese q uestio ns i s a r e d fla g ; t h e c o m munity w ill h esita te t o f u nd y ou. W ith y our f ir s t l o an , s ta rt w ith a m an ag eab le am ount, a n d p ay i t b ack o n t im e. O nce y ou h av e, y our q uan tita tiv e s c o re w ill i m pro ve, a n d o th er mem bers i n t h e c o m munity m ig ht g iv e y ou a p ositiv e r e v ie w . A s o f S ep te m ber 2 015, B TC ja m had f u nded e ig hte en t h ousa n d l o an s i n e x cess o f $ 14 m illio n.

76 Entr e p re n eu r E rik V oorh ees c alle d f o r c o m mon s e n se : “ W ith a r e p uta tio n-b ase d s y ste m , peo ple w ho a re m ore l ik ely t o b e a b le t o a ffo rd a h ouse s h ould b e a b le t o p urc h ase o ne m ore easily . T hose w ho a re l e ss l ik ely s h ould h av e a h ard er t im e g ettin g a l o an .” T o h im , t h is m eth od “w ill d riv e dow n c o sts f o r g ood a cto rs a n d d riv e u p c o sts f o r o ur b ad a cto rs , w hic h i s t h e p ro per in cen tiv e.” 77 I n r e p uta tio n s y ste m s, y our c re d itw orth in ess i s d eriv ed n ot f ro m a F IC O s c o re , b ut fro m a n a m alg am atio n o f a ttr ib ute s t h at f o rm y our i d en tity a n d i n fo rm y our a b ility t o r e p ay a lo an . C re d it r a tin gs f o r c o m pan ie s w ill a ls o c h an ge t o r e fle ct n ew i n fo rm atio n a n d i n sig ht m ad e possib le b y b lo ck ch ain . I m ag in e t o ols t h at c an a g gre g ate r e p uta tio n a n d t r a ck d if fe re n t re p uta tio nal a sp ects , s u ch a s f in an cia l t r u stw orth in ess, v ocatio nal c o m pete n ce, a n d s o cia l co nsc io usn ess. I m ag in e g ettin g c re d it b ase d o n s h are d v alu es, w here t h e p eo ple l o an in g y ou money a p pre cia te y our r o le i n t h e c o m munity a n d y our g oals .

TH E B LO CK CH AIN I P O The w eek o f A ugust 1 7, 2 015, w as a n u gly o ne: T he C hin ese s to ck m ark et c ra sh ed , t h e S & P 5 00 had i ts w ors t p erfo rm an ce i n f o ur y ears , a n d f in an cia l p undits e v ery w here w ere t a lk in g a b out an oth er g lo bal e co nom ic s lo w dow n a n d p ossib le c ris is . T ra d itio nal I P O s w ere p ulle d f ro m t h e mark et, m erg ers w ere s ta lle d , a n d S ilic o n V alle y w as g ettin g a n ts y a b out t h e o verin fla te d valu atio n o f i ts c h eris h ed u nic o rn s, p riv ate c o m pan ie s v alu ed a t m ore t h an $ 1 b illio n.

Am id t h e c arn ag e, a n e n te rp ris e c alle d A ugur l a u nch ed o ne o f t h e m ost s u ccessfu l cro w dfu ndin g c am paig ns i n h is to ry . I n t h e f ir s t w eek , m ore t h an 3 ,5 00 p eo ple f ro m t h e U nite d Sta te s, C hin a, J a p an , F ra n ce, G erm an y, S pain , t h e U nite d K in gdom , K ore a, B ra zil, S outh A fric a, Ken ya, a n d U gan da c o ntr ib ute d a t o ta l o f $ 4 m illio n. T here w as n o b ro kera g e, n o i n vestm en t ban k, n o s to ck e x ch an ge, n o m an dato ry f ilin gs, n o r e g ula to r, a n d n o l a w yers . T here w asn ’t e v en a K ic k sta rte r o r I n die g ogo. L ad ie s a n d g en tle m en , w elc o m e t o t h e b lo ck ch ain I P O .

Matc h in g i n vesto rs w ith e n tr e p re n eu rs i s o ne o f t h e e ig ht f u nctio ns o f t h e f in an cia l s e rv ic es in dustr y m ost l ik ely t o b e d is ru pte d . T he p ro cess o f r a is in g e q uity c ap ita l— th ro ugh p riv ate pla cem en ts , i n itia l p ublic o ffe rin gs, s e co ndary o ffe rin gs, a n d p riv ate i n vestm en ts i n p ublic eq uitie s ( P IP E s)— has n ot c h an ged s ig nif ic an tly s in ce t h e 1 930s.

78 Than ks t o n ew c ro w dfu ndin g p la tf o rm s, s m all c o m pan ie s c an a ccess c ap ita l u sin g t h e In te rn et. T he O cu lu s R if t a n d t h e P eb ble W atc h w ere e arly s u ccesse s o f t h is m odel. S till, partic ip an ts c o uld n’t b uy e q uity d ir e ctly . T oday , t h e U .S . J u m psta rt O ur B usin ess S ta rtu ps A ct allo w s s m all in vesto rs t o m ak e d ir e ct i n vestm en ts i n c ro w dfu ndin g c am paig ns, b ut i n vesto rs a n d en tr e p re n eu rs s till n eed i n te rm ed ia rie s s u ch a s K ic k sta rte r o r I n die g ogo, a n d a c o nven tio nal pay m en t m eth od, t y pic ally c re d it c ard s a n d P ay P al, t o p artic ip ate . T he i n te rm ed ia ry i s t h e ultim ate a rb ite r o f e v ery th in g, i n clu din g w ho o w ns w hat.

The b lo ck ch ain I P O t a k es t h e c o ncep t f u rth er. N ow , c o m pan ie s c an r a is e f u nds “ o n t h e blo ck ch ain ” b y i s su in g t o ken s, o r c ry pto se cu ritie s, o f s o m e v alu e i n t h e c o m pan y. T hey c an re p re se n t e q uity , b onds, o r, i n t h e c ase o f A ugur, m ark et- m ak er s e ats o n t h e p la tf o rm , g ra n tin g ow ners t h e r ig ht t o d ecid e w hic h p re d ic tio n m ark ets t h e c o m pan y w ill o pen . E th ere u m w as a n ev en g re ate r s u ccess t h an A ugur, f u ndin g t h e d ev elo pm en t o f a w hole n ew b lo ck ch ain t h ro ugh a cro w d s a le o f i ts n ativ e t o ken , e th er. T oday E th ere u m i s t h e s e co nd-lo ngest a n d f a ste st- g ro w in g public b lo ck ch ain . T he a v era g e i n vestm en t i n t h e A ugur c ro w dfu ndin g w as $ 750, b ut o ne c an easily i m ag in e m in im um s u bsc rip tio ns o f a d olla r o r e v en t e n c en ts . A nyone i n t h e w orld — ev en th e p oore st a n d m ost r e m ote p eo ple — co uld b eco m e s to ck m ark et i n vesto rs .

Overs to ck , t h e e -re ta ile r, i s l a u nch in g p erh ap s t h e m ost a m bitio us c ry pto se cu rity i n itia tiv e yet. O vers to ck ’s f o rw ard -th in kin g f o under, P atr ic k B yrn e, b elie v es b lo ck ch ain “ can d o f o r t h e cap ita l m ark ets w hat t h e I n te rn et h as d one f o r c o nsu m ers .” T he p ro je ct, d ubbed M ed ic i, e n ab le s co m pan ie s t o i s su e s e cu ritie s o n t h e b lo ck ch ain a n d r e cen tly r e ceiv ed t h e s u pport o f t h e Secu ritie s a n d E xch an ge C om mis sio n.

79 T he c o m pan y b eg an i s su in g i ts f ir s t b lo ck ch ain -b ase d se cu ritie s, s u ch a s t h e $ 5 m illio n c ry pto bond f o r a n a ffilia te o f F N Y C ap ita l, i n 2 015.

80 Overs to ck c la im s m an y f in an cia l s e rv ic es f ir m s a n d o th er c o m pan ie s a re l in in g u p t o u se t h e pla tf o rm . S ure ly , t h e t a cit a p pro val o f t h e S E C w ill g iv e O vers to ck a h ead s ta rt o n w hat i s s u re t o be a l o ng j o urn ey .

Should b lo ck ch ain I P O s c o ntin ue t o g ain t r a ctio n, t h ey w ill u ltim ate ly d is ru pt m an y o f t h e ro le s i n t h e g lo bal f in an cia l s y ste m — bro kers , i n vestm en t b an kers , a n d s e cu ritie s l a w yers — an d ch an ge t h e n atu re o f i n vestm en t. B y i n te g ra tin g b lo ck ch ain I P O s w ith n ew p la tf o rm s f o r v alu e ex ch an ge s u ch a s C ir c le , C oin base ( th e m ost w ell- fu nded b itc o in e x ch an ge s ta rt- u p), S m artw alle t (a g lo bal a sse t e x ch an ge f o r a ll f o rm s o f v alu e), a n d o th er e m erg in g c o m pan ie s, w e e x pect a dis tr ib ute d v ir tu al e x ch an ge t o e m erg e. T he o ld g uard i s t a k in g n otic e. T he N YSE i n veste d i n Coin base a n d N ASD AQ i s i n te g ra tin g b lo ck ch ain t e ch nolo gy i n to i ts p riv ate mark et. B ob Gre if e ld , C EO o f N ASD AQ, i s s ta rtin g s m all, u sin g b lo ck ch ain t o “ str e am lin e f in an cia l r e co rd keep in g w hile m ak in g i t c h eap er a n d m ore a ccu ra te ,” 81 b ut e v id en tly N ASD AQ a n d o th er in cu m ben ts h av e b ig ger p la n s.

TH E M ARK ET F O R P R ED IC TIO N M ARK ETS Augur i s b uild in g a d ecen tr a liz ed p re d ic tio n m ark et p la tf o rm t h at r e w ard s u se rs f o r c o rre ctly pre d ic tin g f u tu re e v en ts — sp ortin g e v en ts , e le ctio n r e su lts , n ew p ro duct l a u nch es, t h e g en ders o f cele b rity b ab ie s. H ow d oes i t w ork ? A ugur u se rs c an p urc h ase o r s e ll s h are s i n t h e o utc o m e o f a fu tu re e v en t, t h e v alu e o f w hic h i s a n e stim ate o f t h e p ro bab ility o f a n e v en t h ap pen in g. S o i f th ere a re e v en o dds ( i.e ., 5 0/5 0), t h e c o st o f b uyin g a s h are w ould b e f if ty c en ts .

Augur r e lie s o n “ th e w is d om o f t h e c ro w d,” t h e s c ie n tif ic p rin cip le t h at a l a rg e g ro up o f peo ple c an o fte n p re d ic t t h e o utc o m e o f a f u tu re e v en t w ith f a r g re ate r a ccu ra cy t h an o ne o r m ore ex perts .

82 I n o th er w ord s, A ugur b rin gs t h e s p ir it o f t h e m ark et t o b ear o n t h e a ccu ra cy o f pre d ic tio ns. T here h av e b een a f e w a tte m pts a t c en tr a liz ed p re d ic tio n m ark ets , s u ch a s t h e Holly w ood S to ck E xch an ge, I n tr a d e, a n d H ed geS tr e et ( n ow N ad ex ), b ut m ost h av e b een s h ut dow n o r f a ile d t o l a u nch o ver r e g ula to ry a n d l e g al c o ncern s. T hin k a ssa ssin atio n c o ntr a cts a n d te rro ris m f u tu re s.

Usin g b lo ck ch ain t e ch nolo gy m ak es t h e s y ste m m ore r e silie n t t o f a ilu re , m ore a ccu ra te , a n d more r e sis ta n t t o c ra ck dow ns, e rro r, c o erc io n, l iq uid ity c o ncern s, a n d w hat t h e A ugur t e am c alls eu phem is tic ally “ d ate d j u ris d ic tio nal r e g ula tio n.” T he a rb ite rs o n t h e A ugur p la tf o rm a re k now n as r e fe re es a n d t h eir l e g itim acy d eriv es f ro m t h eir r e p uta tio n p oin ts . F or d oin g t h e r ig ht t h in g— th at i s , c o rre ctly s ta tin g t h at a n e v en t h ap pen ed , w ho w on a s p ortin g m atc h , o r w ho w on a n ele ctio n— th ey r e ceiv e m ore r e p uta tio n p oin ts . M ain ta in in g t h e i n te g rity o f t h e s y ste m h as o th er moneta ry b en efits : t h e m ore r e p uta tio n p oin ts y ou h av e, t h e m ore m ark ets y ou c an m ak e, a n d th us t h e m ore f e es y ou c an c h arg e. I n A ugur’s w ord s, “ o ur p re d ic tio n m ark ets e lim in ate co unte rp arty r is k s, c en tr a liz ed s e rv ers , a n d c re ate a g lo bal m ark et b y e m plo yin g c ry pto cu rre n cie s in clu din g b itc o in , e th er, a n d s ta b le c ry pto cu rre n cie s. A ll f u nds a re s to re d i n s m art c o ntr a cts , an d no o ne c an s te al t h e m oney .” 83 A ugur r e so lv es t h e i s su e o f u neth ic al c o ntr a cts b y h av in g a z ero - to le ra n ce p olic y f o r c rim e.

To A ugur’s l e ad ers h ip t e am , h um an i m ag in atio n i s t h e o nly p ra ctic al l im it t o t h e u tility o f pre d ic tio n m ark ets . O n A ugur, a n yone c an p ost a c le arly d efin ed p re d ic tio n a b out a n yth in g w ith a c le ar e n d d ate — fro m t h e t r iv ia l, “ W ill B ra d P itt a n d A ngelin a J o lie d iv orc e?” t o t h e v ita l, “ W ill th e E uro pean U nio n d is so lv e b y J u ne 1 , 2 017?” T he i m plic atio ns f o r t h e f in an cia l s e rv ic es in dustr y , f o r i n vesto rs , e co nom ic a cto rs , a n d e n tir e m ark ets , a re h uge. C onsid er t h e f a rm er i n Nic ara g ua o r K en ya w ho h as n o r o bust t o ols t o h ed ge a g ain st c u rre n cy r is k , p olitic al r is k , o r ch an ges t o t h e w eath er a n d c lim ate . A ccessin g p re d ic tio n m ark ets w ould a llo w t h at p ers o n t o mitig ate t h e r is k o f d ro ught o r d is a ste r. F or e x am ple , h e c o uld b uy a p re d ic tio n c o ntr a ct t h at p ay s out i f a c ro p y ie ld i s b elo w a c erta in l e v el, o r i f t h e c o untr y g ets l e ss t h an a p re d ete rm in ed am ount o f r a in .

Pre d ic tio n m ark ets a re u se fu l f o r i n vesto rs w ho w an t t o p la ce b ets o n t h e o utc o m e o f s p ecif ic ev en ts s u ch a s “ W ill I B M b eat i ts e arn in gs b y a t l e ast t e n c en ts t h is q uarte r? ” T oday t h e r e p orte d “estim ate ” f o r c o rp ora te e arn in gs i s n oth in g m ore t h an t h e m ean o r m ed ia n o f a f e w s o -c alle d ex pert a n aly sts . B y h arn essin g t h e w is d om o f t h e c ro w ds, w e c an f o rm m ore r e alis tic p re d ic tio ns of t h e f u tu re , l e ad in g t o m ore e ffic ie n t m ark ets . P re d ic tio n m ark ets c an s e rv e a s a h ed ge a g ain st glo bal u ncerta in ty a n d “ b la ck s w an ” e v en ts : “ W ill G re ece’s e co nom y s h rin k b y m ore t h an 1 5 perc en t t h is y ear? ” 84 T oday , w e r e ly o n a f e w t a lk in g h ead s t o s o und t h e a la rm s; a p re d ic tio n mark et w ould a ct m ore i m partia lly a s a n e arly w arn in g s y ste m f o r i n vesto rs g lo bally .

Pre d ic tio n m ark ets c o uld c o m ple m en t a n d u ltim ate ly t r a n sfo rm m an y a sp ects o f t h e f in an cia l sy ste m . C onsid er p re d ic tio n m ark ets o n t h e o utc o m es o f c o rp ora te a ctio ns— earn in gs r e p orts , merg ers , a cq uis itio ns, a n d c h an ges i n m an ag em en t. P re d ic tio n m ark ets w ould i n fo rm t h e in su ra n ce o f v alu e a n d t h e h ed gin g o f r is k , p ote n tia lly e v en d is p la cin g e so te ric f in an cia l in str u m en ts l ik e o ptio ns, i n te re st r a te s w ap s a n d c re d it d efa u lt s w ap s.

Of c o urs e , n ot e v ery th in g n eed s a p re d ic tio n m ark et. E nough p eo ple n eed t o c are t o m ak e i t liq uid e n ough t o a ttr a ct a tte n tio n. S till, t h e p ote n tia l i s v ast, t h e o pportu nity s ig nif ic an t, a n d access a v aila b le t o a ll.

RO AD M AP F O R T H E G OLD EN E IG HT Blo ck ch ain t e ch nolo gie s w ill i m pact e v ery f o rm a n d f u nctio n o f t h e f in an cia l s e rv ic es i n dustr y — fro m r e ta il b an kin g a n d c ap ita l m ark ets t o a cco untin g a n d r e g ula tio n. T hey w ill a ls o f o rc e u s t o re th in k t h e r o le o f b an ks a n d f in an cia l i n stitu tio ns i n s o cie ty . “ B itc o in c an not h av e b ail- in s, b an k holid ay s, c u rre n cy c o ntr o ls , b ala n ce f re ezes, w ith dra w al l im its , b an kin g h ours ,” 85 s a id A ndre as Anto nopoulo s.

Where as t h e o ld w orld w as h ie ra rc h ic al, s lo w -m ovin g, r e lu cta n t t o c h an ge, c lo se d a n d opaq ue, a n d c o ntr o lle d b y p ow erfu l i n te rm ed ia rie s, t h e n ew o rd er w ill b e f la tte r, o ffe rin g a p eer- to -p eer s o lu tio n; m ore p riv ate a n d s e cu re ; t r a n sp are n t, i n clu siv e, a n d i n novativ e. T o b e s u re , th ere w ill b e d is lo catio n a n d d is ru ptio n, b ut t h ere i s a ls o a r e m ark ab le o pportu nity f o r t h e in dustr y ’s l e ad ers t o d o s o m eth in g a b out i t t o day . T he f in an cia l s e rv ic es i n dustr y w ill b oth s h rin k an d g ro w o ver t h e c o m in g y ears ; f e w er i n te rm ed ia rie s w ill b e a b le t o o ffe r m ore p ro ducts a n d se rv ic es a t a m uch l o w er c o st t o a m uch l a rg er p opula tio n. T hat’ s a g ood t h in g. W heth er perm is sio ned a n d c lo se d b lo ck ch ain s w ill f in d a p la ce i n a d ecen tr a liz ed w orld i s u p f o r d eb ate .

Barry S ilb ert, w ho f o unded S eco ndM ark et a n d i s n ow C EO o f t h e D ig ita l C urre n cy G ro up, s a id , “I h av e a v ery c y nic al v ie w o f t h e o bje ctiv itie s p ut f o rw ard b y l a rg e f in an cia l i n cu m ben ts . W hen all y ou h av e i s a h am mer, e v ery th in g l o oks l ik e a n ail.” 86 W e b elie v e t h at t h e u nsto ppab le f o rc e of b lo ck ch ain t e ch nolo gy i s b arre lin g d ow n o n t h e e n tr e n ch ed , r e g ula te d , a n d o ssif ie d in fra str u ctu re o f m odern f in an ce.

87 T heir c o llis io n w ill r e sh ap e t h e l a n dsc ap e o f f in an ce f o r decad es t o c o m e. W e w ould l ik e i t t o f in ally t r a n sfo rm f ro m a n i n dustr ia l a g e m oney m ach in e in to a p ro sp erity p la tf o rm .

J CH APT ER 4 RE-A RCH IT EC TIN G T H E F IR M :

TH E C O RE A ND T H E E D GES B U IL D IN G C O NSE N SY S uly 3 0, 2 015, w as a b ig d ay f o r a g lo bal g ro up o f c o ders , i n vesto rs , e n tr e p re n eu rs , a n d co rp ora te s tr a te g is ts w ho t h in k t h at E th ere u m i s t h e n ex t b ig t h in g— not j u st f o r b usin ess, b ut p ossib ly f o r c iv iliz atio n. E th ere u m , t h e b lo ck ch ain p la tf o rm e ig hte en m onth s i n t h e m ak in g, w en t l iv e.

We w itn esse d t h e l a u nch f ir s th an d i n t h e B ro okly n o ffic e o f C onse n su s S yste m s ( C onse n S ys), o ne o f t h e f ir s t E th ere u m s o ftw are d ev elo pm en t c o m pan ie s. A ro und 1 1:4 5 a .m ., t h ere w ere h ig h f iv es a ll a ro und a s t h e E th ere u m n etw ork c re ate d i ts “ g en esis b lo ck ,” a fte r w hic h a f re n zy o f m in ers r a ced t o w in t h e f ir s t b lo ck o f e th er, E th ere u m ’s c u rre n cy . T he d ay w as e erily s u sp en se fu l. A m assiv e t h unders to rm b ro ke o ver t h e E ast R iv er, t r ig gerin g l o ud a n d r a n dom e m erg en cy f lo od w arn in gs o n e v ery one’s s m art p hones.

Acco rd in g t o i ts W eb s ite , E th ere u m i s a p la tf o rm t h at r u ns d ecen tr a liz ed a p plic atio ns, n am ely s m art c o ntr a cts , “ ex actly a s p ro gra m med w ith out a n y p ossib ility o f d ow ntim e, c en so rs h ip , f ra u d, o r t h ir d p arty i n te rfe re n ce.” E th ere u m i s l ik e b itc o in i n t h at i ts e th er m otiv ate s a n etw ork o f p eers t o v alid ate t r a n sa ctio ns, s e cu re t h e n etw ork , a n d a ch ie v e c o nse n su s a b out w hat e x is ts a n d w hat h as o ccu rre d . B ut u nlik e b itc o in i t c o nta in s s o m e p ow erfu l t o ols t o h elp d ev elo pers a n d o th ers c re ate s o ftw are s e rv ic es r a n gin g f ro m d ecen tr a liz ed g am es t o s to ck e x ch an ges.

Eth ere u m w as c o nceiv ed i n 2 013 b y t h en -n in ete en -y ear-o ld V ita lik B ute rin , a C an ad ia n o f R ussia n d esc en t. H e h ad a rg ued t o t h e b itc o in c o re d ev elo pers t h at t h e p la tf o rm n eed ed a m ore r o bust s c rip tin g l a n guag e f o r dev elo pin g a p plic atio ns. W hen t h ey r e je cte d h im , h e d ecid ed t o c ra ft h is o w n p la tf o rm . C onse n S ys w as f ir s t o ff t h e b lo ck , s o t o s p eak , l a u nch ed t o c re ate E th ere u m -b ase d a p ps. F la sh -fo rw ard a c o uple o f y ears a n d t h e a n alo gy i s c le ar: L in us T orv ald s i s t o L in ux w hat V ita lik B ute rin i s t o E th ere u m .

When d is c u ssin g t h e r is e o f b lo ck ch ain a n d E th ere u m t e ch nolo gy, J o se p h L ubin , C onse n S ys’s c o fo under, s a id , “ It b ecam e c le ar t o m e t h at i n ste ad o f p eo ple w astin g t h eir t im e w alk in g d ow n t h e s tr e et w ith p oste rs o n s tic k s, w e c o uld a ll w ork t o geth er t o j u st b uild t h e n ew s o lu tio ns t o t h is b ro ken e co nom y a n d s o cie ty .” 1 D on’t o ccu py W all S tr e et. I n ven t o ur o w n s tr e et.

Lik e m an y e n tr e p re n eu rs , L ubin h as a b old m is sio n, n ot j u st t o b uild a g re at c o m pan y b ut t o s o lv e i m porta n t p ro ble m s i n t h e w orld . H e d ead pan s t h at t h e c o m pan y i s a “ b lo ck ch ain v en tu re p ro ductio n s tu dio , b uild in g d ecen tr a liz ed a p plic atio ns, m ostly o n E th ere u m .” P re tty l o w -k ey .

B ut, i f i m ple m en te d , t h e a p plic atio ns t h at C onse n S ys i s b uild in g w ould s h ak e t h e w in dow s a n d ra ttle t h e w alls o f a d ozen i n dustr ie s. P ro je cts i n clu de a d is tr ib ute d t r ip le -e n tr y a cco untin g sy ste m ; a d ecen tr a liz ed v ers io n o f t h e m assiv ely p opula r R ed dit d is c u ssio n f o ru m , p la g ued o f la te b y c o ntr o vers y o ver i ts c en tr a liz ed c o ntr o l; a d ocu m en t f o rm atio n a n d m an ag em en t s y ste m fo r s e lf -e n fo rc in g c o ntr a cts ( a k a s m art c o ntr a cts ); p re d ic tio n m ark ets f o r b usin ess, s p orts , a n d en te rta in m en t; a n o pen e n erg y m ark et; a d is tr ib ute d m usic m odel t o c o m pete w ith A pple a n d Spotif y , t h ough t h ose t w o f ir m s c o uld u se i t t o o; 2 a n d a s u ite o f b usin ess t o ols f o r m ass co lla b ora tio n, m ass c re atio n, a n d m ass m an ag em en t o f a m an ag em en t- le ss c o m pan y.

Our s to ry o f C onse n S ys i s n ot s o m uch a b out i ts a m bitio us b lo ck ch ain -b ase d p ro ducts o r se rv ic es. I t’ s a b out i ts e ffo rts t o c u ltiv ate a c o m pan y o f i ts o w n, p io neerin g i m porta n t n ew gro und i n m an ag em en t s c ie n ce a lo ng t h e l in es o f h ola cra cy , a c o lla b ora tiv e r a th er t h an hie ra rc h ic al p ro cess f o r d efin in g a n d a lig nin g t h e w ork t o b e d one. “ W hile I d on’t w an t u s t o im ple m en t h ola cra cy a s i s — it f e els w ay t o o r ig id a n d s tr u ctu re d t o m e— we a re w ork in g t o in co rp ora te m an y o f i ts p hilo so phie s i n o ur s tr u ctu re a n d p ro cesse s,” s a id L ubin . A m ong t h ose hola cra tic t e n ets a re “ d ynam ic r o le s r a th er t h an t r a d itio nal j o b d esc rip tio ns; d is tr ib ute d , n ot dele g ate d a u th ority ; t r a n sp are n t r u le s r a th er t h an o ffic e p olitic s; a n d r a p id r e ite ra tio ns r a th er t h an big r e o rg an iz atio ns,” a ll o f w hic h d esc rib e h ow b lo ck ch ain te ch nolo gie s w ork . H ow C onse n S ys is s tr u ctu re d , h ow i t c re ate s v alu e, a n d h ow i t m an ag es i ts e lf d if fe rs n ot o nly f ro m t h e i n dustr ia l co rp ora tio n b ut a ls o f ro m t h e t y pic al d ot- c o m .

Jo e L ubin i s n ot a n i d eo lo gue, a n d c erta in ly n ot a n a n arc h is t o r l ib erta ria n a s s o m e i n t h e cry pto cu rre n cy m ovem en t a re . B ut h e d oes t h in k t h at w e n eed t o c h an ge c ap ita lis m i f w e w an t i t to s u rv iv e, s p ecif ic ally t o m ove a w ay f ro m t h e c o m man d-a n d-c o ntr o l h ie ra rc h ie s i n ap pro pria te fo r a n etw ork ed w orld . H e n ote s t h at t o day , e v en t h ough v ast n etw ork s e n m esh t h e w orld a n d en ab le u s a ll t o c o m munic ate i n ex pen siv ely , r ic h ly , a n d i m med ia te ly , h ie ra rc h ie s p re v ail.

Blo ck ch ain t e ch nolo gy i s t h e c o unte rv ale n ce: “ G lo bal h um an s o cie ty c an n ow a g re e o n t h e t r u th an d m ak e d ecis io ns i n t e n m in ute s, o r t e n s e co nds. T his s u re ly c re ate s a n o pportu nity t o h av e a more e n fra n ch is e d s o cie ty ,” h e s a id . T he g re ate r t h e e n gag em en t, t h e g re ate r t h e p ro sp erity .

The E nd o f M an agers. L on g L iv e M an agem en t Conse n S ys o pera te s a cco rd in g t o a p la n t h at a ll e m plo yees ( “ m em bers ” ) d ev elo ped , m odif ie d , vote d o n, a n d a d opte d . J o e L ubin d esc rib es i ts s tr u ctu re a s a “ h ub” r a th er t h an a h ie ra rc h y, a n d each o f i ts p ro je cts i s a “ sp oke” i n w hic h m ajo r c o ntr ib uto rs h old e q uity .

For t h e m ost p art, m em bers o f C onse n S ys c h oose w hat t h ey w ork o n. N o t o p-d ow n assig nm en ts . L ubin s a id , “ W e s h are a s m uch a s p ossib le , i n clu din g s h are d s o ftw are c o m ponen ts .

We b uild s m all a g ile t e am s b ut t h ere i s c o lla b ora tio n a m ong t h em . W e h av e t o ns o f i m med ia te , open , r ic h c o m munic atio n.” M em bers c h oose t o w ork o n t w o t o f iv e p ro je cts . W hen s o m eo ne se es a p ie ce o f w ork t h at n eed s t o g et d one, h e o r s h e j u m ps i n a n d p ush es i t a l ittle o r a l o t fa rth er i n a v alu ab le d ir e ctio n, a s a p pro pria te f o r h er r o le . “ W e t a lk a b out t h in gs q uite a b it s o peo ple a re a w are o f t h e m an y t h in gs t h at c o uld b e p ush ed f o rw ard ,” h e s a id . B ut t h ese m an y th in gs c an a n d d o c h an ge c o nsta n tly . “ P art o f b ein g a g ile m ean s t h at p rio ritie s a re d ynam ic .” Lubin i s n ot t h e b oss. H is m ain o pera tio nal r o le i s a d vis o ry : “ In m an y c ase s, i n div id uals a sk me o r o th ers w hat w ould b e g ood t o w ork o n,” h e s a id . T hro ugh S la ck 3 a n d G itH ub, 4 h e s u ggests dir e ctio ns t h ey m ig ht p urs u e “ to b uild a ll t h e s e rv ic es a n d p la tf o rm s t h at w e w an t t o b uild , a n d man y t h at w e w an t t o b uild b ut d on’t k now i t y et.” Mem ber o w ners h ip e x plic itly i n cen tiv iz es t h is b eh av io r. E very one o w ns a p ie ce o f e v ery pro je ct d ir e ctly o r i n dir e ctly : t h e E th ere u m p la tf o rm i s su es t o ken s t h at m em bers c an e x ch an ge fo r e th er a n d t h en c o nvert i n to a n y o th er c u rre n cy . “ O ur g oal i s t o a ch ie v e a n ic e b ala n ce betw een i n dep en den ce a n d i n te rd ep en den ce,” L ubin s a id . “ W e v ie w o urs e lv es a s a c o lle ctiv e o f clo se ly c o lla b ora tin g e n tr e p re n eu rlik e a g en ts . A t s o m e p oin t, i t m ay p ro ve n ecessa ry t o s u ggest th at a c erta in t h in g r e ally n eed s t o g et d one a n d i f n obody s te p s u p, t o h ir e s o m eo ne i n itia lly f o r th at r o le o r i n cen tiv iz e i n te rn al p eo ple t o d o i t,” s a id L ubin . B ut, o vera ll, “ ev ery one i s a s e lf - man ag ed a d ult. D id I m en tio n w e c o m munic ate a l o t? T hen w e a ll m ak e o ur o w n d ecis io ns.” The w atc h w ord s a re agility , open ness , a n d co nse n su s : i d en tif y t h e w ork t o b e d one, dis tr ib ute t h e l o ad a m ong t h e p eo ple e ag er a n d a b le t o d o i t, a g re e o n t h eir r o le s, r e sp onsib ilitie s, an d c o m pen sa tio n, a n d t h en c o dif y t h ese r ig hts i n “ ex plic it, d eta ile d , u nam big uous, s e lf - en fo rc in g a g re em en ts t h at c an s e rv e a s t h e g lu e t o h old a ll o f t h e b usin ess a sp ects o f o ur re la tio nsh ip s t o geth er,” h e s a id . S om e a g re em en ts p ay f o r p erfo rm an ce, o th ers m ete o ut a n nual sa la ry i n e th er, a n d s till o th ers a re m ore l ik e “ re q uests f o r p artic ip atio n” w ith b ountie s a tta ch ed t o ta sk c o m ple tio n s u ch a s w ritin g a l in e o f c o de. I f t h e c o de p asse s t h e t e st, t h en t h e b ounty i s au to m atic ally r e le ase d . “ E very th in g c an b e s u rfa ced a n d a p pro pria te ly t r a n sp are n t. I n cen tiv es a re ex plic it a n d g ra n ula r,” h e s a id . “ T his l e av es u s f re e t o c o m munic ate , b e c re ativ e, a n d a d ap t b ase d on t h ese e x pecta tio ns.” Dare w e c o in t h e n eo lo gis m blo ckco m , a c o m pan y f o rm ed a n d f u nctio nin g o n b lo ck ch ain te ch nolo gie s? T hat’ s t h e g oal, t o r u n a s m uch o f C onse n S ys a s p ossib le o n E th ere u m , f ro m govern an ce a n d d ay -to -d ay o pera tio ns t o p ro je ct m an ag em en t, s o ftw are d ev elo pm en t a n d t e stin g, hir in g a n d o uts o urc in g, c o m pen sa tio n, a n d f u ndin g. T he b lo ck ch ain a ls o e n ab le s r e p uta tio n sy ste m s w here m em bers c an r a te o ne a n oth er’s p erfo rm an ce a s c o lla b ora to rs , t h ere b y sy ndic atin g t r u st i n t h e c o m munity . L ubin s a id , “ P ers is te n t d ig ita l i d en tity o r p ers o na a n d re p uta tio n s y ste m s w ill k eep u s m ore h onest a n d w ell b eh av ed t o w ard o ne a n oth er.” These c ap ab ilitie s b lu r t h e b oundarie s o f a c o m pan y. T here a re n o d efa u lt s e ttin gs f o r in co rp ora tio n. M em bers o f t h e C onse n S ys e co sy ste m c an f o rm s p okes b y r e ach in g c o nse n su s o n str a te g y, a rc h ite ctu re , c ap ita l, p erfo rm an ce, a n d g overn an ce. T hey m ay d ecid e t o l a u nch a co m pan y t h at co m pete s w ith in a n e x is tin g m ark et o r p ro vid es a n i n fra str u ctu re f o r a n ew m ark et.

Once i t i s l a u nch ed , t h ey c an a d ju st t h ose s e ttin gs.

Decen tr a liz in g t h e E nte rp ris e The b lo ck ch ain w ill r e d uce f ric tio n f o r c o m pan ie s e v ery w here . “ L ow er f ric tio n m ean s l o w er co sts a s t h e p ric e o f v alu ab le i n te rm ed ia tio n i s d ete rm in ed v ia t h e m ost e ffic ie n t p ric e d is c o very mech an is m : d ecen tr a liz ed f re e m ark ets . N o l o nger w ill i n cu m ben ts b e a b le t o l e v era g e l e g al, re g ula to ry , i n fo rm atio nal, a n d p ow er a sy m metr ie s t o e x tr a ct f a r m ore v alu e f ro m a t r a n sa ctio n i n th eir r o le a s i n te rm ed ia ry t h an t h ey a d d t o i t,” L ubin s a id .

Could C onse n S ys b uild s o m e k in d o f t r u ly d ecen tr a liz ed a u to nom ous o rg an iz atio n o w ned an d c o ntr o lle d b y i ts n onhum an v alu e c re ato rs , g overn ed t h ro ugh s m art c o ntr a cts r a th er t h an hum an a g en cy ? “ A ll t h e w ay !” s a id L ubin . “ M assiv e i n te llig en ce o n a d ecen tr a liz ed g lo bal co m puta tio nal s u bstr a te , a n u nderly in g l a y er, s h ould c h an ge t h e a rc h ite ctu re o f t h e f ir m f ro m a la rg e c o lle ctio n o f s p ecia liz ed d ep artm en ts r u n b y h um an s t o s o ftw are a g en ts t h at c an c o opera te an d c o m pete i n f re e m ark ets .” S om e a g en ts w ill o rg an iz e f o r l o nger p erio ds o f t im e t o s e rv e ongoin g c u sto m er n eed s, s u ch a s u tility a n d m ain te n an ce. O th ers w ill s w arm a ro und a s h ort- te rm pro ble m , s o lv e i t, a n d d is so lv e j u st a s q uic k ly , h av in g s e rv ed t h eir p urp ose .

Is t h ere a r is k t h at r a d ic al d ecen tr a liz atio n a n d a u to m atio n r e m oves h um an a g en cy i n decis io n m ak in g ( e .g ., t h e r is k o f r o gue a lg orith m s)? “ I a m n ot c o ncern ed a b out m ach in e in te llig en ce. W e w ill e v olv e w ith i t a n d f o r a l o ng t im e i t w ill b e i n t h e s e rv ic e o f, o r a n a sp ect of, Hom o s a pie n s c yb ern etic a . I t m ay e v olv e b ey ond u s b ut t h at i s f in e,” L ubin s a id . “ If s o , i t will o ccu py a d if fe re n t e co lo gic al n ic h e. I t w ill o pera te a t d if fe re n t s p eed s a n d d if fe re n t r e le v an t tim e s c ale s. I n t h at c o nte x t, a rtif ic ia l i n te llig en ce w ill n ot d is tin guis h b etw een h um an s, a r o ck , o r a g eo lo gic al p ro cess. W e e v olv ed p ast l o ts o f s p ecie s, m an y o f w hic h a re d oin g f in e ( in t h eir pre se n t f o rm s).” Conse n S ys i s s till a t in y c o m pan y. I ts g ra n d e x perim en t m ay o r m ay n ot s u cceed . B ut i ts sto ry p ro vid es a g lim pse i n to r a d ic al c h an ges i n c o rp ora te a rc h ite ctu re t h at m ay h elp u nle ash in novatio n a n d h arn ess t h e p ow er o f h um an c ap ita l f o r n ot j u st w ealth c re atio n b ut p ro sp erity .

Blo ck ch ain t e ch nolo gy i s e n ab lin g n ew f o rm s o f e co nom ic o rg an iz atio n a n d n ew p ortf o lio s o f valu e. T here a re d is tr ib ute d m odels o f t h e f ir m e m erg in g— ow ners h ip , str u ctu re , o pera tio ns, re w ard s, a n d g overn an ce— th at g o f a r b ey ond e n han cin g i n novatio n, e m plo yee m otiv atio n, a n d co lle ctiv e a ctio n. T hey m ay b e t h e l o ng-a w aite d p re co nditio n f o r a m ore p ro sp ero us a n d in clu siv e e co nom y.

Busin ess l e ad ers h av e a n oth er o pportu nity t o r e th in k h ow t h ey o rg an iz e v alu e c re atio n. T hey co uld n eg otia te , c o ntr a ct, a n d e n fo rc e t h eir a g re em en ts o n t h e b lo ck ch ain ; d eal s e am le ssly w ith su pplie rs , c u sto m ers , e m plo yees, c o ntr a cto rs , a n d a u to nom ous a g en ts ; a n d m ain ta in a f le et o f th ese a g en ts f o r o th ers t o u se , a n d t h ese a g en ts c o uld r e n t o ut o r l ic en se a n y e x cess c ap acity i n th eir v alu e c h ain .

CH ANG IN G T H E B O UNDARIE S O F T H E F IR M Thro ughout t h e f ir s t e ra o f t h e I n te rn et, m an ag em en t t h in kers ( D on i n clu ded ) t a lk ed u p t h e netw ork ed e n te rp ris e , t h e f la t c o rp ora tio n, o pen i n novatio n, a n d b usin ess e co sy ste m s a s su ccesso rs t o t h e h ie ra rc h ie s o f i n dustr ia l p ow er. H ow ev er, t h e a rc h ite ctu re o f t h e e arly - tw en tie th -c en tu ry c o rp ora tio n r e m ain s p re tty m uch i n ta ct. E ven t h e b ig d ot- c o m s a d opte d a t o p- dow n s tr u ctu re w ith s u ch d ecis io n m ak ers a s J e ff B ezo s, M aris sa M ay er, a n d M ark Z uck erb erg .

So w hy w ould a n y e sta b lis h ed f ir m — partic u la rly o nes t h at m ak e t h eir m oney o ff o th er p eo ple ’s data , o pera te l a rg ely b eh in d c lo se d d oors , a n d s u ffe r s u rp ris in gly l ittle i n d ata b re ach a fte r d ata bre ach — wan t t o l e v era g e b lo ck ch ain t e ch nolo gie s t o d is tr ib ute p ow er, i n cre ase t r a n sp are n cy , re sp ect u se r p riv acy a n d a n onym ity , a n d i n clu de f a r m ore p eo ple w ho c an a ffo rd f a r l e ss t h an th ose a lr e ad y s e rv ed ?

Tra n sa ctio n C osts a n d t h e S tr u ctu re o f t h e F ir m Let’ s s ta rt w ith a l ittle e co nom ic s. I n 1 995, D on u se d N obel P riz e– w in nin g e co nom is t R onald Coase ’s t h eo ry o f t h e f ir m t o e x pla in h ow t h e I n te rn et w ould a ffe ct t h e a rc h ite ctu re o f t h e co rp ora tio n. I n h is 1 937 p ap er “ T he N atu re o f t h e F ir m ,” C oase i d en tif ie d t h re e t y pes o f c o sts i n th e e co nom y: t h e c o sts o f s e arc h ( fin din g a ll t h e r ig ht i n fo rm atio n, p eo ple , r e so urc es t o c re ate so m eth in g); c o ord in atio n ( g ettin g a ll t h ese p eo ple t o w ork t o geth er e ffic ie n tly ); a n d c o ntr a ctin g (n eg otia tin g t h e c o sts f o r l a b or a n d m ate ria ls f o r e v ery a ctiv ity i n p ro ductio n, k eep in g t r a d e se cre ts , a n d p olic in g a n d en fo rc in g t h ese a g re em en ts ). H e p osite d t h at a f ir m w ould e x pan d u ntil th e c o st o f p erfo rm in g a t r a n sa ctio n i n sid e t h e f ir m e x ceed ed t h e c o st o f p erfo rm in g t h e tr a n sa ctio n o uts id e t h e f ir m .

5 Don a rg ued t h at t h e I n te rn et w ould r e d uce a f ir m ’s i n te rn al t r a n sa ctio n c o sts s o m ew hat; b ut we t h ought, b ecau se o f i ts g lo bal a ccessib ility , i t w ould r e d uce c o sts i n t h e o vera ll e co nom y e v en more , i n t u rn l o w erin g b arrie rs t o e n tr y f o r m ore p eo ple . Y es, i t d id d ro p s e arc h c o sts , t h ro ugh bro w se rs a n d t h e W orld W id e W eb . I t a ls o d ro pped c o ord in atio n c o sts t h ro ugh e -m ail, d ata pro cessin g a p plic atio ns l ik e E R P, s o cia l n etw ork s, a n d c lo ud c o m putin g. M an y c o m pan ie s ben efite d f ro m o uts o urc in g s u ch u nits a s c u sto m er s e rv ic e a n d a cco untin g. M ark ete rs e n gag ed cu sto m ers d ir e ctly , e v en t u rn in g c o nsu m ers i n to p ro ducers ( p ro su m ers ). P ro duct p la n ners cro w dso urc ed i n novatio ns. M an ufa ctu re rs l e v era g ed v ast s u pply n etw ork s.

How ev er, t h e s u rp ris in g r e ality i s t h at t h e I n te rn et h as h ad p erip hera l i m pact o n c o rp ora te arc h ite ctu re . T he i n dustr ia l- a g e h ie ra rc h y i s p re tty m uch i n ta ct a s t h e r e co gniz ab le f o undatio n o f cap ita lis m . S ure , t h e n etw ork s h av e e n ab le d c o m pan ie s t o o uts o urc e t o l o w -c o st g eo gra p hie s.

But t h e I n te rn et d ro pped t r a n sa ctio n c o sts i n sid e t h e f ir m a s w ell.

Fro m H ie ra rch y t o M on op oly So c o m pan ie s t o day r e m ain h ie ra rc h ie s, a n d m ost a ctiv itie s o ccu r w ith in c o rp ora te b oundarie s.

Man ag ers s till v ie w t h em a s a b ette r m odel f o r o rg an iz in g t a le n t a n d i n ta n gib le a sse ts s u ch a s bra n ds, i n te lle ctu al p ro perty , k now le d ge, a n d c u ltu re , a s w ell a s f o r m otiv atin g p eo ple . C orp ora te board s s till c o m pen sa te e x ecu tiv es a n d C EO s f a r b ey ond a n y r e aso nab le m easu re o f t h e v alu e th ey c re ate . N ot i n cid en ta lly , t h e i n dustr ia l c o m ple x c o ntin ues t o g en era te w ealth , b ut n ot pro sp erity . I n f a ct, a s w e h av e p oin te d o ut, t h ere i s s tr o ng e v id en ce o f a g ro w in g c o ncen tr a tio n o f pow er a n d w ealth i n c o nglo m era te s a n d e v en m onopolie s.

Anoth er N obel l a u re ate , O liv er W illia m so n, p re d ic te d a s m uch , 6 a n d p oin te d o ut t h e n eg ativ e effe cts o n p ro ductiv ity : “ S uffic e i t t o o bse rv e h ere t h at t h e m ove f ro m a u to nom ous s u pply ( b y th e c o lle ctio n o f s m all f ir m s) t o u nif ie d o w ners h ip ( in o ne l a rg e f ir m ) i s u nav oid ab ly a tte n ded b y ch an ges i n b oth i n cen tiv e i n te n sity ( in cen tiv es a re w eak er i n t h e i n te g ra te d f ir m ) a n d ad m in is tr a tiv e c o ntr o ls ( c o ntr o ls a re m ore e x te n siv e).” 7 P ete r T hie l, co fo under o f P ay P al, w ro te in p ra is e o f m onopolie s i n h is e n orm ously r e ad ab le a n d e q ually c o ntr o vers ia l b ook, Zero t o O ne .

A R an d P au l s u pporte r, T hie l s a id , “ C om petitio n i s f o r l o se rs . . . . C re ativ e m onopolie s a re n ’t ju st g ood f o r t h e r e st o f s o cie ty ; t h ey ’re p ow erfu l e n gin es f o r m ak in g i t b ette r.” 8 While T hie l m ig ht b e r ig ht a b out s tr iv in g t o d om in ate o ne’s i n dustr y o r m ark et, h e p ro vid ed no r e al e v id en ce t h at m onopolie s a re g ood f o r c o nsu m ers o r s o cie ty a s a w hole . T o t h e c o ntr a ry , th e e n tir e b ody o f c o m petitio n l a w i n m ost d em ocra tic c ap ita lis t c o untr ie s d eriv es f ro m a co ntr a ry n otio n. T he i d ea o f f a ir c o m petitio n d ate s b ack t o R om an t im es, w ith t h e d eath p en alty fo r s o m e v io la tio ns.

9 W hen f ir m s h av e n o r e al c o m petitio n, t h ey c an g ro w a s i n effic ie n t a s t h ey wan t, r a is in g p ric es i n a n d o uts id e t h e f ir m . L ook a t g overn m en ts . E ven i n t h e t e ch nolo gy in dustr y , m an y a rg ue t h at m onopolie s m ay h elp w ith i n novatio n i n t h e s h ort t e rm b ut m ay h arm so cie ty i n t h e l o ng t e rm . C om pan ie s m ay a m ass m onopoly p ow er t h ro ugh c o ol p ro ducts a n d se rv ic es t h at c u sto m ers l o ve, b ut t h e h oney m oon e v en tu ally e n ds. I t’ s n ot s o m uch t h at t h eir in novatio ns n o l o nger d elig ht; i t’ s t h at t h e c o m pan ie s t h em se lv es b eg in t o o ssif y . Most t h in kers u nders ta n d t h at i n novatio n t y pic ally c o m es f ro m t h e e d ge o f t h e f ir m , n ot f ro m its c o re . H arv ard U niv ers ity l a w p ro fe sso r Y och ai B en kle r a g re es: “ M onopolie s m ay h av e l o ts o f money t o i n vest i n R & D b ut t y pic ally n ot t h e i n te rn al c u ltu re o f p ure a n d o pen e x plo ra tio n t h at i s re q uir e d f o r i n novatio n. T he W eb d id n’t c o m e f ro m m onopolie s; i t c am e f ro m t h e e d ge. G oogle did n ot c o m e f ro m M ic ro so ft. T w itte r d id n ot c o m e f ro m A T& T, o r f o r t h at m atte r e v en f ro m Faceb ook.” 10 I n m onopolie s, l a y ers o f b ure au cra cy d is ta n ce t h e e x ecu tiv es a t t h e t o p f ro m mark et s ig nals a n d e m erg en t t e ch nolo gy a t t h e e d ges, w here c o m pan ie s b um p u p a g ain st o ne an oth er a n d o th er m ark ets , o th er i n dustr ie s, o th er g eo gra p hie s, o th er i n te lle ctu al d is c ip lin es, oth er g en era tio ns. A cco rd in g t o J o hn H ag el a n d J o hn S eely B ro w n, “ T he p erip hery o f t o day ’s glo bal b usin ess e n vir o nm en t i s w here i n novatio n p ote n tia l i s t h e h ig hest. I g nore i t a t y our peril.” 11 Execu tiv es s h ould b e e x cite d a b out b lo ck ch ain t e ch nolo gy, b ecau se t h e w av e o f i n novatio n co m in g f ro m t h e e d ge m ay w ell b e u npre ced en te d . F ro m t h e m ajo r c ry pto cu rre n cie s— Bitc o in , Bla ck C oin , D ash , N xt, a n d R ip ple — to t h e m ajo r b lo ck ch ain p la tf o rm s— Lig hth ouse f o r p eer-to - peer c ro w dfu ndin g, F acto m a s a d is tr ib ute d r e g is tr y , G em s f o r d ecen tr a liz ed messa g in g, Maid S afe f o r d ecen tr a liz ed a p plic atio ns, S to rj f o r a d is tr ib ute d c lo ud, a n d T ezo s f o r decen tr a liz ed v otin g t o n am e a f e w — th e n ex t e ra o f t h e I n te rn et h as r e al v alu e a tta ch ed t o i t a n d re al i n cen tiv es t o p artic ip ate . T hese p la tf o rm s h old p ro m is e f o r p ro te ctin g u se r i d en tity , re sp ectin g u se r p riv acy a n d o th er r ig hts , e n su rin g n etw ork s e cu rity , a n d d ro ppin g t r a n sa ctio n co sts s o t h at e v en t h e u nban ked c an t a k e p art.

Unlik e i n cu m ben t f ir m s, t h ey d on’t n eed a b ra n d t o c o nvey t h e t r u stw orth in ess o f t h eir tr a n sa ctio ns. B y g iv in g a w ay t h eir s o urc e c o de f o r f re e, s h arin g p ow er w ith e v ery one o n t h e netw ork , u sin g c o nse n su s m ech an is m s t o e n su re i n te g rity , a n d c o nductin g t h eir b usin ess o pen ly on t h e b lo ck ch ain , t h ey a re m ag nets o f h ope f o r t h e m an y d is illu sio ned a n d d is e n fra n ch is e d . A s su ch , b lo ck ch ain t e ch nolo gy o ffe rs a c re d ib le a n d e ffe ctiv e m ean s n ot o nly o f c u ttin g o ut in te rm ed ia rie s, b ut a ls o o f r a d ic ally l o w erin g t r a n sa ctio n c o sts , t u rn in g f ir m s i n to n etw ork s, dis tr ib utin g e co nom ic p ow er, a n d e n ab lin g b oth w ealth c re atio n a n d a m ore p ro sp ero us f u tu re .

1.

S earc h C osts — How D o W e F in d N ew T ale n t a n d N ew C usto m ers ?

How d o w e f in d t h e p eo ple a n d i n fo rm atio n w e n eed ? H ow d o w e d ete rm in e i f t h eir s e rv ic es, goods, a n d c ap ab ilitie s a re b est f o r u s a s w e s e ek t o b rin g t h e t o nic o f t h e m ark et t o b ear o n o ur in te rn al o pera tio ns?

Alth ough t h e a rc h ite ctu re o f t h e f ir m i s b asic ally i n ta ct, t h e f ir s t e ra o f t h e I n te rn et d ro pped su ch c o sts s ig nif ic an tly a n d e n ab le d i m porta n t c h an ges. O uts o urc in g w as r e ally j u st t h e beg in nin g. T ap pin g i n to i d eag ora s ( o pen m ark ets f o r b ra in pow er), c o m pan ie s l ik e P ro cte r & Gam ble a re f in din g u niq uely q ualif ie d m in ds t o i n novate a n ew p ro duct o r p ro cess. I n f a ct, 6 0 perc en t o f P & G’s i n novatio ns c o m e f ro m o uts id e t h e c o m pan y, b y b uild in g o r h arn essin g id eag ora s l ik e I n noC en tiv e o r i n no360. O th er f ir m s l ik e G old co rp h av e c re ate d g lo bal c h alle n ges to s e arc h f o r t h e b est m in ds t o s o lv e t h eir t o ughest p ro ble m s. G old co rp , w hic h p ublis h ed i ts geo lo gic al d ata a n d t a le n t o uts id e i ts b oundarie s, d is c o vere d $ 3.4 b illio n w orth o f g old , r e su ltin g in a h undre d fo ld i n cre ase i n t h e c o m pan y’s m ark et v alu e.

Now i m ag in e t h e o pportu nitie s t h at a ris e f ro m t h e a b ility t o s e arc h t h e W orld W id e L ed ger, a decen tr a liz ed d ata b ase o f m uch o f t h e w orld ’s s tr u ctu re d i n fo rm atio n. W ho s o ld w hic h d is c o very to w hom ? A t w hat p ric e? W ho o w ns t h is i n te lle ctu al p ro perty ? W ho i s q ualif ie d t o h an dle t h is pro je ct? W hat m ed ic al s k ills d oes o ur h osp ita l h av e o n s ta ff? W ho p erfo rm ed w hat t y pe o f su rg ery w ith w hat o utc o m es? H ow m an y c arb on c re d its h as t h is c o m pan y s a v ed ? W hic h su pplie rs h av e e x perie n ce i n C hin a? W hat s u bco ntr a cto rs d eliv ere d o n t im e a n d o n b udget acco rd in g t o t h eir s m art c o ntr a cts ? T he r e su lts o f t h ese q uerie s w on’t b e r é su m és, a d vertis in g lin ks, o r o th er p ush ed c o nte n t; t h ey ’ll b e t r a n sa ctio n h is to rie s, p ro ven t r a ck r e co rd s o f i n div id uals an d e n te rp ris e s, r a n ked p erh ap s b y r e p uta tio n s c o re . G et t h e p ic tu re ? S aid V ita lik B ute rin , fo under o f t h e E th ere u m b lo ck ch ain , “ B lo ck ch ain s w ill d ro p s e arc h c o sts , c au sin g a k in d o f deco m positio n t h at a llo w s y ou t o h av e m ark ets o f e n titie s t h at a re h oriz o nta lly s e g re g ate d a n d vertic ally s e g re g ate d . T hat n ev er r e ally e x is te d b efo re . I n ste ad y ou h ad k in d o f m onolith s t h at d o ev ery th in g.” 12 Sev era l c o m pan ie s a re w ork in g o n s e arc h e n gin es f o r b lo ck ch ain s, g iv en t h e p ote n tia l bonan za. G oogle ’s m is sio n i s t o o rg an iz e t h e w orld ’s i n fo rm atio n, s o i t w ould m ak e s e n se f o r i t to a ssig n c o nsid era b le m an pow er t o i n vestig ate t h is .

There a re t h re e k ey d is tin ctio ns b etw een I n te rn et s e arc h a n d b lo ck ch ain s e arc h . F ir s t i s u se r priv acy . W hile t r a n sa ctio ns a re t r a n sp are n t, p eo ple o w n t h eir p ers o nal d ata a n d c an d ecid e w hat to d o w ith i t. T hey c an p artic ip ate a n onym ously o r a t l e ast p se u donym ously ( a n onym ity t h ro ugh a f a ls e n am e) o r q uasin ym ously ( p artia l a n onym ity ). I n te re ste d p artie s w ill b e a b le t o s e arc h f o r in fo rm atio n t h at u se rs h av e m ad e o pen . A ndre as A nto nopoulo s s a id , “ T ra n sa ctio ns a re an onym ous i f y ou w an t t h em t o b e a n onym ous. . . . b ut t h e b lo ck ch ain e n ab le s r a d ic al tr a n sp are n cy a l o t e asie r t h an i t e n ab le s r a d ic al a n onym ity .” 13 Man y f ir m s w ill n eed t o r e th in k a n d r e d esig n t h e r e cru itin g p ro cess. F or e x am ple , h um an re so urc es o r p ers o nnel s ta ff w ill n eed t o l e arn h ow t o q uery t h e b lo ck ch ain w ith y es/n o questio ns: A re y ou a h um an b ein g? H av e y ou e arn ed a P hD i n a p plie d m ath em atic s? C an y ou co de i n S cry pt, P yth on, J a v a, C ++? A re y ou a v aila b le t o w ork f u ll t im e f ro m J a n uary t h ro ugh Ju ne n ex t y ear? A nd o th er q ualif ic atio ns. T hese q uerie s w ill s c u rry a b out t h e b la ck b oxes o f peo ple o n t h e j o b m ark et a n d y ie ld a l is t o f p eo ple w ho m eet t h ese q ualif ic atio ns. T hey c o uld als o p ay p ro sp ectiv e t a le n t t o p la ce p ertin en t p ro fe ssio nal i n fo rm atio n o n a b lo ck ch ain p la tf o rm where t h ey c an s o rt t h ro ugh i t. H R s ta ff m ust m aste r t h e u se o f r e p uta tio n s y ste m s, m ovin g fo rw ard w ith c an did ate s w ith out k now in g a n yth in g i r re le v an t t o th e j o b, s u ch a s a g e, g en der, ra ce, c o untr y o f o rig in . T hey a ls o n eed s e arc h e n gin es t h at c an n av ig ate v ario us d eg re es o f open ness, f ro m f u lly p riv ate t o f u lly p ublic i n fo rm atio n. T he u psid e i s a n e n d t o s u bco nsc io us o r ev en i n stitu tio nal b ia s a n d h ead hunte r o r e x ecu tiv e r e cru itin g f e es. T he d ow nsid e i s t h at p re cis e querie s l e ad t o p re cis e r e su lts . T here i s l e ss p ossib ility o f s e re n dip ity , t h e d is c o very o f a can did ate w ho l a ck s t h e q ualif ic atio ns b ut h as g re at c ap acity t o l e arn a n d t o m ak e t h e r a n dom cre ativ e c o nnectio ns t h at a f ir m d esp era te ly n eed s.

Ditto f o r m ark etin g. F ir m s m ay h av e t o p ay j u st t o q uery a p ro sp ectiv e c u sto m er’s b la ck b ox, to s e e w heth er t h at c u sto m er m eets a f ir m ’s t a rg et a u die n ce. T hat c u sto m er m ay d ecid e g lo bally to w ith hold c erta in d ata s u ch a s g en der, b ecau se a n o a n sw er i s s till v alu ab le . B ut i n s o d oin g, t h e fir m w ill l e arn n oth in g m ore a b out t h e p ro sp ect b ey ond t h e y es/n o r e su lts o f t h e q uery . C hie f mark etin g o ffic ers a n d m ark etin g a g en cie s w ill n eed t o r e th in k a n y s tr a te g y b ase d o n e -m ail, so cia l m ed ia , a n d m obile m ark etin g: w here t h e i n fra str u ctu re m ay l o w er c o m munic atio ns c o sts t o zero , c u sto m ers w ill r a is e c o sts t o a f ig ure t h at m ak es r e ad in g a f ir m ’s m essa g e w orth t h eir while . I n o th er w ord s, y ou’ll b e p ay in g c u sto m ers t o l is te n t o y our e le v ato r p itc h , b ut y ou w ill hav e t a ilo re d y our q uery t o p itc h o nly t o a s h arp ly d efin ed a u die n ce s o t h at y ou w ill b e r e ach in g ex actly t h e p eo ple y ou w an t t o r e ach w ith out i n vad in g t h eir p riv acy . Y ou c an t e st d if fe re n t querie s t o l e arn a b out d if fe re n t m ic ro nic h es a t e v ery s ta g e o f n ew p ro duct d ev elo pm en t. L et’ s call i t bla ck b ox m ark etin g .

The s e co nd d is tin ctio n i s t h at s e arc h c an b e m ultid im en sio nal. W hen y ou s e arc h t h e W orld Wid e W eb t o day , y ou s e arc h a s n ap sh ot i n t im e, a s i n dex ed o ver t h e l a st s e v era l w eek s.

14 Com pute r t h eo ris t A nto nopoulo s c alle d t h is t w o-d im en sio nal s e arc h :

horiz o nta l , a w id e s e arc h acro ss t h e W eb , a n d vertic a l , a d eep s e arc h o f a p artic u la r W eb s ite . T he t h ir d d im en sio n i s se q uen ce , t o s e e t h ese i n t h e o rd er o f u plo ad in g o ver t im e. “ T he b lo ck ch ain c an a d d t h e ad ditio nal d im en sio n o f t im e,” h e s a id . T he o pportu nity t o s e arc h a c o m ple te r e co rd o f ev ery th in g t h at e v er h ap pen ed i n t h re e d im en sio ns i s p ro fo und. T o m ak e h is p oin t, A nto nopoulo s se arc h ed t h e b itc o in b lo ck ch ain t o f in d i ts f a m ous f ir s t c o m merc ia l t r a n sa ctio n, t h e p urc h ase o f tw o p iz zas d one b y s o m eo ne n am ed “ L aslo ” f o r 1 0,0 00 b itc o in s. “ T he b lo ck ch ain p ro vid es a n alm ost a rc h aeo lo gic al r e co rd , a d eep f in d, p re se rv in g i n fo rm atio n f o re v er.” ( T o s a v e y ou f ro m doin g th e m ath , i f t h e p iz za c o sts $ 5 w hen $ 1 w as e q ual t o 2 ,5 00 b itc o in s, t h at w ould b e w orth $3.5 m illio n a s o f t h e w ritin g o f t h is b ook . . . b ut w e d ig re ss.) For f ir m s, t h is m ean s a n eed f o r b ette r j u dgm en t: m an ag ers n eed t o h ir e p eo ple w ho h av e dem onstr a te d g ood j u dgm en t, b ecau se t h ere ’s n o w alk in g b ack p oor d ecis io ns, n o s p in nin g t h e ord er o f e v en ts , n o d en yin g a n e x ecu tiv e’s d is re p uta b le b eh av io r. F or r e ally i m porta n t d ecis io ns, fir m s c o uld i m ple m en t i n te rn al c o nse n su s m ech an is m s w here b y a ll s ta k eh old ers v ote o n mis sio n-c ritic al d ecis io ns t o e n d t h e c h oru s o f i g nora n ce a n d d en ia l o f p rio r k now le d ge. O r u se pre d ic tio n m ark ets t o t e st s c en ario s. I f y ou’re a n e x ecu tiv e o f a f u tu re E nro n, n o s c ap eg oatin g.

As f o r N ew J e rs e y g overn or C hris C hris tie , g ood l u ck t e llin g a p ro se cu to r t h at y ou k new n oth in g of p la n s t o c lo se t h e G eo rg e W ash in gto n B rid ge.

The t h ir d d is tin ctio n i s v alu e: w here i n fo rm atio n o n t h e I n te rn et i s a b undan t, u nre lia b le , a n d peris h ab le , i t i s s c arc e, t a m perp ro of, a n d p erm an en t o n t h e b lo ck ch ain . T o t h is l a st c h ara cte ris tic , Anto nopoulo s n ote s: “ If t h ere i s e n ough f in an cia l i n cen tiv e t o p re se rv e t h is b lo ck ch ain i n to t h e fu tu re , t h e p ossib ility o f i t e x is tin g f o r t e n s, h undre d s, o r e v en t h ousa n ds o f y ears c an not b e dis c o unte d .” What a n a m azin g c o ncep t. T he b lo ck ch ain a s p art o f t h e a rc h aeo lo gic al r e co rd , l ik e t h e orig in al s to ne t a b le ts o f M eso pota m ia . P ap er r e co rd s a re e p hem era l a n d t e m pora ry , w here as (ir o nic ally ) t h e o ld est f o rm o f r e co rd in g i n fo rm atio n, t a b le ts , i s t h e m ost p erm an en t. T he im plic atio ns f o r c o rp ora te a rc h ite ctu re a re c o nsid era b le . I m ag in e a p erm an en t, s e arc h ab le r e co rd of i m porta n t h is to ric al i n fo rm atio n, l ik e t h e h is to ry o f f in an ce. C orp ora te s ta ff r e sp onsib le f o r dev elo pin g f in an cia l s ta te m en ts , a n nual r e p orts , r e p orts t o g overn m en ts o r d onors , m ark etin g mate ria ls f o r p ro sp ectiv e e m plo yees, c lie n ts , a n d c o nsu m ers — will s ta rt w ith t h is p ublic , in dis p uta b le v ie w o f t h eir f ir m , m ay be e v en c re atin g a f ilte r t h at e n ab le s s ta k eh old ers t o s e e w hat th ey s e e a t t h e p re ss o f a b utto n. C om pan ie s c o uld h av e t r a n sa ctio n t ic k er t a p es a n d d ash board s, so m e f o r i n te rn al m an ag eria l u se a n d s o m e p ublic . R est a ssu re d : A ll y our c o m petito rs w ill co nstr u ct s u ch f e ed s a n d d ash board s o f y our f ir m a s p art o f t h eir c o m petitiv e i n te llig en ce pro gra m s. S o w hy n ot p ut t h ose o n y our W eb s ite a n d d ra w e v ery one t o y ou?

This p ro vid es e n orm ous i n cen tiv e f o r f ir m s t o l o ok f o r r e so urc es outs id e t h eir b oundarie s, a s th ey h av e a lm ost i n fin ite ly b ette r i n fo rm atio n a b out t h e q ualitie s a n d r e co rd o f c an did ate s, b e th ey i n div id uals o r c o m pan ie s. Com pan ie s l ik e C onse n S ys a re d ev elo pin g i d en tity s y ste m s w here j o b p ro sp ects o r pro sp ectiv e c o ntr a cto rs w ill p ro gra m t h eir o w n p ers o nal a v ata rs t o d is c lo se p ertin en t i n fo rm atio n to e m plo yers . T hey c an ’t b e h ack ed l ik e a c en tr a liz ed d ata b ase c an . U se rs a re m otiv ate d t o co ntr ib ute i n fo rm atio n t o t h eir o w n a v ata rs b ecau se t h ey o w n a n d c o ntr o l t h em , t h eir p riv acy i s co m ple te ly c o nfig ura b le , a n d t h ey c an m onetiz e t h eir o w n d ata . T his i s v ery d if fe re n t f ro m , s a y , Lin ked In , a c en tr a l d ata b ase o w ned , m onetiz ed , a n d y et n ot e n tir e ly s e cu re d b y a p ow erfu l co rp ora tio n.

Could C oase a n d W illia m so n h av e i m ag in ed a p la tf o rm t h at c o uld d ro p s e arc h c o sts s o t h at fir m s c o uld f in d c ap ab ility o uts id e t h eir b oundarie s t h at c o st l e ss a n d c o uld p erfo rm b ette r?

2.

C ontr a ctin g C osts — What D o W e A gre e t o D o, A nyw ay ?

How d o w e c o m e t o t e rm s w ith o th er p artie s o r e n te r i n to a n a g re em en t? I t’ s o ne t h in g t o l o w er th e c o sts o f f in din g p eo ple a n d r e so urc es t h at c an d o t h e j o b. B ut t h at’ s n ot e n ough t o s h rin k a fir m s ig nif ic an tly . A ll p artie s m ust a g re e t o w ork t o geth er. T he s e co nd r e aso n w hy w e h av e f ir m s is c o ntr a ctu al c o sts , s u ch a s n eg otia tin g t h e p ric e, e sta b lis h in g c ap acity , a n d s p ellin g o ut t h e co nditio ns o f a s u pplie r’s g oods o r s e rv ic es; p olic in g t h em a n d e n fo rc in g t h e t e rm s; a n d h an dlin g re m ed ie s i f p artie s d on’t d eliv er a s p ro m is e d .

We’v e a lw ay s h ad s o cia l c o ntr a cts , u nders ta n din gs o f r e la tio nsh ip s i n t h e s p ecia liz atio n o f ro le s w here s o m e p eo ple i n t h e t r ib e h unte d a n d p ro te cte d t h e t r ib e, a n d o th ers g ath ere d a n d sh elte re d t h e t r ib e. P eo ple h av e t r a d ed p hysic al o bje cts i n r e al t im e s in ce t h e d aw n o f m odern man . C ontr a cts a re a m ore r e cen t p hen om en on, a s w e b eg an t r a d in g p ro m is e s, n ot p ro perty . O ra l ag re em en ts p ro ved e asily m an ip ula te d o r m is re m em bere d , a n d e y ew itn esse s w ere u nre lia b le .

Doubt a n d d is tr u st t e m pere d c o lla b ora tio n w ith s tr a n gers . C ontr a cts h ad t o b e f u lf ille d im med ia te ly , a n d t h ere w ere n o f o rm al m ech an is m s f o r e n fo rc em en t o f t h e t e rm s b ey ond w hat you c o uld t a k e b y f o rc e. T he w ritte n c o ntr a ct w as a w ay o f c o dif y in g a n o blig atio n, o f esta b lis h in g t r u st a n d s e ttin g e x pecta tio ns. W ritte n c o ntr a cts p ro vid ed g uid an ce w hen s o m eo ne did n ot h old u p h is e n d o f t h e b arg ain , o r s o m eth in g u nex pecte d h ap pen ed . B ut t h ey c o uld n’t ex is t i n a vacu um ; t h ere h ad t o b e s o m e l e g al f ra m ew ork t h at r e co gniz ed c o ntr a cts a n d e n fo rc ed each p arty ’s r ig hts .

Today c o ntr a cts a re s till m ad e o f a to m s ( p ap er), n ot b its ( s o ftw are ). A s s u ch t h ey h av e h uge lim ita tio ns, s e rv in g t o s im ply d ocu m en t a n a g re em en t. A s w e s h all s e e, i f c o ntr a cts w ere so ftw are — sm art a n d d is tr ib ute d o n t h e b lo ck ch ain — th ey c o uld o pen a w orld o f p ossib ilitie s, n ot th e l e ast o f w hic h i s t o m ak e i t e asie r f o r c o m pan ie s t o c o lla b ora te w ith e x te rn al r e so urc es. A nd ju st i m ag in e h ow t h e U nif o rm C om merc ia l C ode m ig ht l o ok o n t h e b lo ck ch ain .

Coase a n d h is s u ccesso rs a rg ued t h at c o ntr a ctin g c o sts a re l o w er i n sid e t h e b oundarie s o f fir m s r a th er t h an o uts id e i n t h e m ark et— th at a f ir m i s e sse n tia lly a v eh ic le f o r c re atin g l o ng-te rm co ntr a cts w hen s h ort- te rm c o ntr a cts a re t o o m uch e ffo rt.

Willia m so n a d van ced t h is i d ea b y a rg uin g t h at f ir m s e x is t t o r e so lv e c o nflic ts , l a rg ely th ro ugh m ak in g c o ntr a cts w ith v ario us p artie s i n sid e t h e f ir m . I n t h e o pen m ark et, t h e o nly dis p ute m ech an is m i s t h e c o urt— co stly , t im ely , a n d o fte n u nsa tis fa cto ry . F urth er, h e a rg ued t h at in s o m e c ase s l ik e f ra u d, o th er i lle g al a cts , o r c o nflic t o f i n te re st, t h ere i s n o m ark et d is p ute mech an is m a t a ll. “ In e ffe ct, t h e c o ntr a ct l a w o f i n te rn al o rg an iz atio n i s t h at o f f o rb eara n ce, acco rd in g t o w hic h a f ir m b eco m es i ts o w n c o urt o f u ltim ate a p peal. F ir m s, f o r t h is r e aso n, a re ab le t o e x erc is e f ia t t h at t h e m ark ets c an not.” 15 W illia m so n c o nceiv ed o f t h e f ir m a s “ a govern an ce s tr u ctu re ” f o r c o ntr a ctu al a rra n gem en ts . H e s a id t h at o rg an iz atio nal s tr u ctu re m atte rs in r e d ucin g t h e c o sts o f m an ag in g t r a n sa ctio ns a n d t h at “ re co urs e t o t h e l e n s o f c o ntr a ct, a s ag ain st t h e l e n s o f c h oic e, f re q uen tly d eep en s o ur u nders ta n din g o f c o m ple x e co nom ic org an iz atio n.” 16 T his i s a r e cu rrin g t h em e i n m an ag em en t t h eo ry , p erh ap s m ost p ow erfu lly ex pla in ed b y e co nom is ts M ic h ael J e n se n a n d W illia m M eck lin g. T hey a rg ued t h at e n titie s a re noth in g m ore t h an a c o lle ctio n o f c o ntr a cts a n d r e la tio nsh ip s.

17 Today , s o m e e ru dite b lo ck ch ain t h in kers h av e p ic k ed u p o n t h is v ie w . E th ere u m i n ven to r Vita lik B ute rin a rg ues t h at c o rp ora te a g en ts ( i.e ., e x ecu tiv es) c o uld u se c o rp ora te a sse ts o nly f o r certa in p urp ose s a p pro ved b y, s a y , a b oard o f d ir e cto rs , w ho i n t u rn a re s u bje ct t o s h are h old er ap pro val. “ If a c o rp ora tio n d oes s o m eth in g, i t’ s b ecau se i ts b oard o f d ir e cto rs h as a g re ed t h at i t sh ould b e d one. I f a c o rp ora tio n h ir e s e m plo yees, i t mean s t h at t h e e m plo yees a re a g re ein g t o pro vid e s e rv ic es t o t h e c o rp ora tio n’s c u sto m ers u nder a p artic u la r s e t o f r u le s, p artic u la rly in volv in g p ay m en t,” B ute rin w ro te . “ W hen a c o rp ora tio n h as l im ite d l ia b ility , i t m ean s t h at sp ecif ic p eo ple h av e b een g ra n te d e x tr a p riv ile g es t o a ct w ith r e d uced f e ar o f l e g al p ro se cu tio n by t h e g overn m en t— a g ro up o f p eo ple w ith m ore r ig hts t h an o rd in ary p eo ple a ctin g a lo ne, b ut ultim ate ly p eo ple n oneth ele ss. I n a n y c ase , i t’ s n oth in g m ore t h an p eo ple a n d c o ntr a cts a ll t h e way d ow n.” 18 That’ s w hy t h e b lo ck ch ain , b y r e d ucin g c o ntr a ctin g c o sts , e n ab le s f ir m s t o o pen u p a n d dev elo p n ew r e la tio nsh ip s o uts id e t h eir b oundarie s. C onse n S ys, f o r e x am ple , c an a rc h ite ct co m ple x r e la tio nsh ip s w ith a d iv ers e s e t o f m em bers , s o m e i n sid e i ts b oundarie s, s o m e o uts id e, an d s o m e s tr a d dlin g w alls , b ecau se s m art c o ntr a cts g overn t h ese r e la tio nsh ip s r a th er t h an tr a d itio nal m an ag ers . M em bers s e lf -a ssig n t o p ro je cts , d efin e a g re ed -u pon d eliv era b le s, a n d g et paid w hen t h ey d eliv er— all o n t h e b lo ck ch ain .

Sm art C on tr a cts The r a te o f c h an ge i s i n cre asin gly s e ttin g t h e s ta g e f o r s m art c o ntr a cts . M ore p eo ple a re dev elo pin g n ot o nly c o m pute r l ite ra cy , b ut a ls o f lu en cy . A s f a r a s e v id en cin g t r a n sa ctio ns g oes, th is n ew d ig ita l m ed iu m h as s ig nif ic an tly d if fe re n t p ro pertie s f ro m i ts p ap er p re d ecesso rs . A s cry pto gra p her N ic k S zab o h ig hlig hte d , n ot o nly c an t h ey c ap tu re a g re ate r a rra y o f i n fo rm atio n (s u ch a s n onlin guis tic s e n so ry d ata ) b ut t h ey a re d ynam ic : t h ey c an t r a n sm it i n fo rm atio n a n d ex ecu te c erta in k in ds o f d ecis io ns. I n S zab o’s w ord s, “ D ig ita l m ed ia c an p erfo rm c alc u la tio ns, dir e ctly o pera te m ach in ery , a n d w ork t h ro ugh s o m e k in ds o f r e aso nin g m uch m ore e ffic ie n tly th an h um an s.” 19 For t h e p urp ose s o f t h is d is c u ssio n, s m art c o ntr a cts a re c o m pute r p ro gra m s t h at s e cu re , en fo rc e, a n d e x ecu te s e ttle m en t o f r e co rd ed a g re em en ts b etw een p eo ple a n d o rg an iz atio ns. A s su ch , t h ey a ssis t i n n eg otia tin g a n d d efin in g t h ese a g re em en ts . S zab o c o in ed t h e p hra se i n 1 994, th e s a m e y ear t h at N ets c ap e, t h e f ir s t W eb b ro w se r, h it t h e m ark et:

A s m art c o ntr a ct i s a c o m pute riz ed t r a n sa ctio n p ro to co l t h at e x ecu te s t h e t e rm s o f a co ntr a ct. T he g en era l o bje ctiv es o f s m art c o ntr a ct desig n a re t o s a tis fy c o m mon co ntr a ctu al c o nditio ns ( s u ch a s p ay m en t t e rm s, l ie n s, c o nfid en tia lity , a n d e v en en fo rc em en t) , m in im iz e e x cep tio ns b oth m alic io us a n d a ccid en ta l, a n d m in im iz e t h e need f o r t r u ste d i n te rm ed ia rie s. R ela te d e co nom ic g oals i n clu de l o w erin g f ra u d l o ss, arb itr a tio n a n d e n fo rc em en t c o sts , a n d o th er t r a n sa ctio n c o sts .

20 Back t h en , s m art c o ntr a cts w ere a n i d ea a ll d re sse d u p w ith n ow here t o g o, a s n o a v aila b le te ch nolo gy c o uld d ep lo y t h em a s S zab o d esc rib ed . T here w ere c o m pute r s y ste m s s u ch a s ele ctr o nic d ata i n te rc h an ge ( E D I) t h at p ro vid ed s ta n dard s f o r t h e c o m munic atio n o f s tr u ctu re d data b etw een t h e c o m pute rs o f b uyers a n d s e lle rs , b ut n o t e ch nolo gy t h at c o uld a ctu ally t r ig ger pay m en ts a n d c au se m oney t o b e e x ch an ged .

Bitc o in a n d t h e b lo ck ch ain c h an ged a ll t h at. N ow p artie s c an m ak e a g re em en ts a n d au to m atic ally e x ch an ge b itc o in w hen t h ey m eet t h e t e rm s o f t h e a g re em en t. M ost s im ply , y our bro th er-in -la w c an ’t w ease l o ut o f a h ock ey b et. L ess s im ply , w hen y ou p urc h ase a s to ck , t h e tr a d e s e ttle s i n sta n tly a n d t h e s h are s a re i m med ia te ly t r a n sfe rre d t o y ou. E ven l e ss s im ple , w hen co ntr a cto rs d eliv er t h e s o ftw are c o de t h at m eets t h e n ecessa ry s p ecif ic atio ns, t h ey g et p aid .

The t e ch nolo gic al m ean s o f e x ecu tin g l im ite d s m art c o ntr a cts h as e x is te d f o r s o m e t im e. A co ntr a ct i s a b arg ain ed -fo r e x ch an ge e n fo rc eab le b efo re t h e e x ch an ge. A ndre as A nto nopoulo s ex pla in ed w ith a s im ple e x am ple : “ S o i f y ou a n d I w ere t o a g re e r ig ht n ow t h at I w ould p ay y ou fif ty d olla rs f o r t h e p en o n y our d esk , t h at’ s a p erfe ctly e n fo rc eab le c o ntr a ct. W e c an j u st s a y , ‘ I pro m is e t o p ay y ou f if ty d olla rs f o r t h e p en o n y our d esk ,’ a n d y ou w ould r e sp ond, ‘ Y es, I w ould lik e t h at.’ T hat t u rn s o ut t o b e ‘ o ffe r a ccep ta n ce a n d c o nsid era tio n.’ W e’v e g ot a d eal, a n d i t c an be e n fo rc ed i n a c o urt. T hat h as n oth in g t o d o w ith t h e t e ch nolo gic al m ean s o f i m ple m en ta tio n o f th e p ro m is e s t h at w e h av e m ad e.” What i n te re sts A ndre as a b out t h e b lo ck ch ain i s t h at w e c an e x ecu te t h is f in an cia l o blig atio n in a d ecen tr a liz ed t e ch nolo gic al e n vir o nm en t w ith a b uilt- in s e ttle m en t s y ste m . “ T hat’ s r e ally co ol,” h e s a id , “ b ecau se I c o uld a ctu ally p ay y ou f o r t h e p en r ig ht n ow , y ou w ould s e e t h e m oney in sta n tly , y ou w ould p ut t h e p en i n t h e m ail, a n d I c o uld g et a v erif ic atio n o f t h at. I t’ s m uch m ore lik ely t h at w e c an d o b usin ess.” The l a w p ro fe ssio n i s s lo w ly p lu ggin g i n to t h is o pportu nity . L ik e ev ery one i n t h e m id dle , la w yers m ay b eco m e s u bje ct t o d is in te rm ed ia tio n a n d w ill e v en tu ally n eed t o a d ap t. E xpertis e i n sm art c o ntr a cts c o uld b e a b ig o pportu nity f o r l a w f ir m s t h at w an t t o l e ad i n novatio n i n c o ntr a ct la w . H ow ev er, t h e p ro fe ssio n i s n ’t k now n f o r b re ak in g n ew g ro und. L eg al e x pert A aro n W rig ht, co au th or o f a n ew b ook a b out t h e b lo ck ch ain , t o ld u s, “ L aw yers a re l a g gard s.” 21 Mult is ig n atu re: S m art C om ple x C on tr a cts But, y ou s a y , w ould n’t t h e c o sts o f c o m ple x a n d t im e-c o nsu m in g n eg otia tio ns o f s m art c o ntr a cts outw eig h t h e b en efits o f o pen b oundarie s? T he a n sw er a t t h is p oin t a p pears t o b e n o. I f p artn ers sp en d m ore t im e u p f ro nt d ete rm in in g t h e t e rm s o f a n a g re em en t, t h e m onito rin g, e n fo rc em en t, an d s e ttle m en t c o sts d ro p s ig nif ic an tly , p erh ap s t o z ero . F urth er, s e ttle m en t c an o ccu r i n r e al tim e, p ossib ly i n m ic ro se co nds t h ro ughout t h e d ay d ep en din g o n t h e d eal. M ost i m porta n t, b y partn erin g w ith s u perio r t a le n t, c o m pan ie s c an a ch ie v e b ette r i n novatio n a n d b eco m e m ore co m petitiv e.

Let’ s c o nsid er t h e u se o f i n dep en den t c o ntr a cto rs . I n t h e e arly d ay s o f d ig ita l t r a d e, t h e blo ck ch ain a cco m modate d o nly t h e s im ple st t w o-p arty t r a n sa ctio ns. F or i n sta n ce, i f A lic e n eed ed so m eo ne t o c o m ple te a p ie ce o f c o de q uic k ly , s h e w ould p ost a n a n onym ous “ co der n eed ed ” re q uest o n a n a p pro pria te d is c u ssio n b oard . B ob w ould s e e i t.

22 I f t h e p ric e a n d t im in g w ere rig ht, h e w ould s e n d w ork s a m ple s. I f h is s a m ple s m et A lic e’s n eed s, t h en s h e m ad e B ob a n offe r. T hey a g re ed o n t e rm s: A lic e w ould s e n d h alf t h e f e e i m med ia te ly a n d h alf u pon r e ceip t o f co m ple tio n a n d s u ccessfu l t e st o f t h e c o de.

Their c o ntr a ct w as s tr a ig htf o rw ard — an o ffe r t o h ir e a n d a n a ccep ta n ce t o d o t h e j o b, a n d i t need n’t h av e b een i n w ritin g, t h ough t h eir i n te ra ctio ns o n t h e b lo ck ch ain m ad e i t s o . T heir ow ners h ip o f b itc o in s w as a sso cia te d w ith d ig ita l a d dre sse s ( lo ng s tr in gs o f n um bers ) t h at h ad tw o c o m ponen ts : a p ublic k ey t h at s e rv ed a s a n a d dre ss, a n d a p riv ate k ey t h at g av e i ts o w ner ex clu siv e a ccess t o a n y c o in s a sso cia te d w ith t h at a d dre ss. B ob s e n t A lic e h is p ublic k ey , a n d s h e dir e cte d t h e f ir s t p ay m en t t h ere . T he n etw ork r e co rd ed t h e t r a n sfe r a n d a sso cia te d t h ose b itc o in s to B ob’s p ublic k ey w alle t.

What i f , a t t h is p oin t, B ob d ecid ed t h at h e d id n’t w an t t o d o t h e pro je ct? I n t h is t w o-p arty tr a n sa ctio n, A lic e w ould h av e l ittle r e co urs e . S he c o uld n’t g o t o h er c re d it c ard c o m pan y t o re v ers e t h e t r a n sa ctio n. S he c o uld n’t ( y et) g o t o c iv il c o urt a n d s u e B ob f o r b re ach o f c o ntr a ct.

Bey ond a r a n dom ly g en era te d a lp han um eric c o de a n d a n o nlin e a d vertis e m en t, s h e w ould h av e no w ay o f i d en tif y in g B ob u nle ss h e’d p oste d h is a d o n a c en tr a liz ed p la tf o rm t h at c o uld t r a ck Bob d ow n, o r t h ey ’d e x ch an ged e -m ails t h ro ugh a c en tr a liz ed s e rv ic e. S he c o uld , h ow ev er, in dic ate t h at h is p ublic k ey w as n ot t o b e t r u ste d , t h us l o w erin g h is r e p uta tio n s c o re a s a c o der.

With out a ssu ra n ces o f t h e o th er p arty ’s t r u stw orth in ess i n f u lf illin g o ff-c h ain a ctio ns, t h e deal w as a p ris o ner’s d ile m ma o f s o rts : i t s till r e q uir e d s o m e t r u st. R ep uta tio n s y ste m s c o uld mitig ate t h is u ncerta in ty t o s o m e e x te n t. B ut w e n eed ed t o i n tr o duce t r u st a n d s e cu rity i n to t h is an onym ous a n d o pen s y ste m .

In 2 012, “ co re d ev elo per” G av in A ndre se n i n tr o duced a n ew t y pe o f b itc o in a d dre ss t o t h e bitc o in p ro to co ls c alle d “ p ay t o s c rip t h ash ” ( P 2S H ). I ts p urp ose w as t o a llo w o ne p arty “ to f u nd an y a rb itr a ry t r a n sa ctio n, n o m atte r h ow c o m plic ate d .” 23 P artie s u se m ultip le a u th en tic atin g sig natu re s o r k ey s r a th er t h an a s in gle p riv ate k ey t o c o m ple te a t r a n sa ctio n. T he c o m munity usu ally r e fe rs t o t h is m ultip le -s ig natu re f e atu re a s s im ply “ m ultis ig .” In a m ultis ig t r a n sa ctio n, p artie s a g re e o n t h e t o ta l n um ber o f k ey s g en era te d ( N ) a n d h ow man y w ill b e r e q uir e d t o c o m ple te a t r a n sa ctio n ( M ). T his i s c alle d a n M -o f-N s ig natu re s c h em e or s e cu rity p ro to co l. T hin k o f a l o ck box r e q uir in g m ultip le p hysic al k ey s t o o pen . W ith t h is fe atu re , B ob a n d A lic e w ould a g re e i n a d van ce t o e m plo y a n eu tr a l, d is in te re ste d t h ir d -p arty arb itr a to r t o h elp t h em c o m ple te t h eir t r a n sa ctio n. E ach o f t h e t h re e p artie s w ould h old o ne o f th re e p riv ate k ey s, t w o o f w hic h a re n eed ed t o a ccess t h e t r a n sfe rre d f u nds. A lic e w ould s e n d h er bitc o in t o a p ublic a d dre ss. A t t h is p oin t, t h ose f u nds c an b e v ie w ed b y a n yone, b ut a ccesse d b y no o ne. O nce B ob s e es t h e f u nds h av e b een p oste d , h e f u lf ills h is e n d o f t h e b arg ain . I f, u pon re ceip t o f B ob’s g ood o r s e rv ic e, A lic e i s u nsa tis fie d a n d f e els c h eate d , s h e c o uld r e fu se t o pro vid e B ob w ith t h e s e co nd k ey . T he t w o p artie s w ould t h en l o ok t o t h e a rb itr a to r, h old er o f t h e th ir d k ey , t o h elp t h em r e so lv e t h eir d is a g re em en t. T he i n te rv en tio n o f s u ch a rb itr a to rs i s c alle d fo r o nly i n c ase s o f d is p ute s l ik e t h ese , a n d a t n o p oin t d o t h ey t h em se lv es h av e a ccess t o t h e fu nds— a m ech an is m e n ab lin g t h e r is e o f “ sm art c o ntr a cts .” To c o ntr a ct r e m ote ly , l e t a lo ne a u to m atic ally , y ou n eed a c erta in d eg re e o f t r u st t h at t h e sy ste m w ill e n fo rc e y our r ig hts u nder t h e d eal. I f y ou c an ’t t r u st t h e o th er p arty , y ou h av e t o t r u st th e d is p ute r e so lu tio n m ech an is m s a n d/o r l e g al s y ste m b eh in d i t. M ultis ig t e ch nolo gy a llo w s th ese d elib era te ly d is in te re ste d t h ir d p artie s t o b rin g s e cu rity a n d t r u st t o a n onym ous tr a n sa ctio ns.

Multis ig a u th en tic atio n i s g ro w in g i n p opula rity . A s ta rt- u p c alle d H ed gy i s u sin g m ultis ig te ch nolo gy t o c re ate f u tu re s c o ntr a cts : p artie s a g re e o n a p ric e o f b itc o in t h at w ill b e t r a d ed i n t h e fu tu re , o nly e v er e x ch an gin g t h e p ric e d if fe re n ce. H ed gy n ev er h old s c o lla te ra l. T he p artie s p la ce it i n a m ultis ig w alle t u ntil t h e e x ecu tio n d ate . H ed gy’s g oal i s t o u se m ultis ig a s a f o undatio n f o r sm art c o ntr a cts t h at a re c o m ple te ly s e lf -e x ecu ta b le a n d f u lly e v id en ced o n t h e b lo ck ch ain .

24 Thin k o f t h e b lo ck ch ain a s a d ia le ctic b etw een a n onym ity a n d o pen ness, w here t h e m ultis ig fe atu re r e co ncile s t h e t w o w ith out l o ss o f e ith er.

Am ong o th er t h in gs, t h e s m art c o ntr a ct c h an ges t h e r o le o f t h ose w ith in f ir m s w ho a re i n t h e busin ess o f f in din g a n d c o ntr a ctin g f o r t a le n t. H R d ep artm en ts n eed t o u nders ta n d t h at t a le n t i s outs id e t h eir b oundarie s, n ot j u st i n sid e. T hey n eed t o s te p u p t o t h e c h alle n ges o f u sin g s m art co ntr a cts t o l o w er t h e c o sts o f b uild in g r e la tio nsh ip s w ith e x te rn al r e so urc es.

3.

C oord in atio n C osts — How S hould W e A ll W ork T ogeth er?

So w e’v e f o und t h e r ig ht p eo ple a n d y ou’v e c o ntr a cte d w ith t h em . H ow d o y ou m an ag e t h em ?

Thro ughout h is w ritin gs, C oase d is c u sse d c o sts o f c o ord in atin g, m esh in g, o r o th erw is e orc h estr a tin g t h e d if fe re n t p eo ple , p ro ducts , a n d p ro cesse s i n to a n e n te rp ris e t h at c an e ffe ctiv ely cre ate v alu e. A gain st t r a d itio nal e co nom is ts w ho a rg ued t h at t h ere w ere i n te rn al m ark ets w ith in fir m s, C oase s a id t h at w hen “ a w ork m an m oves f ro m d ep artm en t Y t o d ep artm en t X , h e d oes n ot go b ecau se o f a c h an ge i n r e la tiv e p ric es, b ut b ecau se h e i s o rd ere d t o d o s o .” 25 I n o th er w ord s, mark ets a llo cate r e so urc es v ia t h e p ric e m ech an is m , b ut f ir m s a llo cate r e so urc es v ia a u th orita tiv e dir e ctio n.

Willia m so n w en t o n t o e x pla in t h at t h ere a re t w o s ig nif ic an t c o ord in atin g s y ste m s. F ir s t i s th e p ric e s y ste m f o r d ecen tr a liz ed r e so urc e a llo catio n n eed s a n d o pportu nitie s ( th e m ark et) . B ut se co nd, ( tr a d itio nal) “ fir m s e m plo y a d if fe re n t o rg an iz in g p rin cip le — th at o f h ie ra rc h y— where u pon au th ority i s u se d t o a ffe ct r e so urc e a llo catio n.” O ver t h e l a st f e w d ecad es, h ie ra rc h ie s hav e c o m e u nder s c ru tin y a s s tr u ctu re s f o r k illin g c re ativ ity , u nderm in in g i n itia tiv e, dis e m pow erin g h um an c ap ita l, a n d s c ap eg oatin g r e sp onsib ility t h ro ugh o pacity . T o b e s u re , man y m an ag em en t h ie ra rc h ie s h av e b eco m e u npro ductiv e b ure au cra cie s. H ow ev er, h ie ra rc h y a s a c o ncep t h as g otte n a b ad r a p , a s h as i ts m ost e lo quen t d efe n der, C an ad ia n -b orn p sy ch olo gis t Ellio t J a q ues. I n a c la ssic 1 990 Harv a rd B usin ess R evie w a rtic le , J a q ues a rg ued , “ 3 5 y ears o f re se arc h h av e c o nvin ced m e t h at m an ag eria l h ie ra rc h y i s t h e m ost e ffic ie n t, t h e h ard ie st, a n d i n fa ct t h e m ost n atu ra l s tr u ctu re e v er d ev is e d f o r l a rg e o rg an iz atio ns. P ro perly s tr u ctu re d , h ie ra rc h y can r e le ase e n erg y a n d c re ativ ity , r a tio naliz e p ro ductiv ity , a n d a ctu ally i m pro ve m ora le .” 26 The t r o uble i s t h at, i n r e cen t b usin ess h is to ry , m an y h ie ra rc h ie s h av e n ot b een e ffe ctiv e, t o th e p oin t o f r id ic u le . E xhib it A i s The D ilb ert P rin cip le , m ost l ik ely o ne o f t h e b est- s e llin g man ag em en t b ooks o f a ll t im e, b y S co tt A dam s. H ere ’s D ilb ert o n b lo ck ch ain t e ch nolo gy f ro m a re cen t c arto on:

Man ag er: I t h in k w e s h ould b uild a b lo ck ch ain .

Dilb ert: U h-o h. D oes h e u nders ta n d w hat h e s a id o r i s i t s o m eth in g h e s a w i n a t r a d e mag azin e a d ?

Dilb ert: W hat c o lo r d o y ou w an t y our b lo ck ch ain ? Man ag er: I t h in k m au ve h as t h e m ost R A M .

In t h e c arto on, A dam s c ap tu re s o ne o f t h e m ark s o f h ie ra rc h ie s g one w ro ng— th at m an ag ers ofte n r is e t o a l e v el o f p ow er w here t h ey l a ck t h e k now le d ge r e q uir e d f o r e ffe ctiv e l e ad ers h ip .

Com bin ed w ith p ro gre ssiv e m an ag em en t t h in kin g a b out h ow t o b uild e ffe ctiv e, i n novativ e org an iz atio ns, t h e f ir s t g en era tio n o f t h e I n te rn et e n ab le d p ro gre ssiv e t h in kin g m an ag ers t o ch an ge t h e t o p-d ow n a ssig nm en t o f w ork a n d a p pro pria tio n o f c re d it, r e co gnitio n, a n d pro m otio n.

For b ette r o r f o r w ors e , c en tr a liz ed h ie ra rc h ie s a re t h e n orm . D ecen tr a liz atio n, n etw ork in g, an d e m pow erm en t h av e b een s e n sib le s in ce t h e e arly d ay s o f t h e I n te rn et. T eam s a n d p ro je cts hav e b eco m e t h e f o undatio n o f i n te rn al o rg an iz atio n. E -m ail e n ab le d p eo ple t o c o lla b ora te a cro ss org an iz atio nal s ilo s. S ocia l m ed ia d ro pped s o m e c o lla b ora tio n c o sts i n te rn ally a n d d ro pped tr a n sa ctio n c o sts a n d m ad e t h e b oundarie s o f c o rp ora tio ns more p oro us a s c o m pan ie s c o uld l in k up w ith s u pplie rs , c u sto m ers , a n d p artn ers m ore e asily .

How ev er, t o day ’s c o m merc ia l s o cia l m ed ia t o ols a re h elp in g m an y f ir m s a ch ie v e n ew l e v els of i n te rn al c o lla b ora tio n. E m pow erm en t, t h e r e al d ecen tr a liz atio n o f p ow er, i s a n i m porta n t f o cu s in b usin ess; a n d c o m pan ie s h av e e x perim en te d o r i m ple m en te d n ew c o ncep ts r a n gin g f ro m matr ix m an ag em en t t o h ola cra cy — with v ary in g d eg re es o f s u ccess.

In f a ct, t h ere i s w id esp re ad a g re em en t t h at w hen f ir m s d is tr ib ute r e sp onsib ility , a u th ority , an d p ow er, t h e r e su lt w ill t y pic ally b e p ositiv e: b ette r b usin ess f u nctio n, c u sto m er s e rv ic e, a n d in novatio n. B ut t h is p ra ctic e i s e asie r s a id t h an d one.

The I n te rn et a ls o h asn ’t d ro pped w hat e co nom is ts c all “ ag en cy c o sts ” — th e c o st o f m ak in g su re t h at e v ery body i n sid e t h e f ir m i s a ctin g i n t h e o w ner’s i n te re st. I n f a ct, a n oth er N obel P riz e– win nin g e co nom is t ( y es, t h ere d o s e em t o b e a l o t o f t h em i n t h is s to ry ), J o se p h S tig litz , a rg ued th at t h e s h eer s iz e a n d s e em in g c o m ple x ity o f t h ese f ir m s h av e i n cre ase d a g en cy c o sts e v en a s a fir m ’s t r a n sa ctio n c o sts h av e p lu m mete d . H en ce, t h e h uge p ay g ap b etw een C EO a n d f ro nt l in e.

So w here d oes b lo ck ch ain t e ch nolo gy c o m e i n a n d h ow c an i t c h an ge h ow f ir m s a re man ag ed a n d c o ord in ate d i n te rn ally ? W ith s m art c o ntr a cts a n d u npre ced en te d t r a n sp are n cy , t h e blo ck ch ain s h ould n ot o nly r e d uce t r a n sa ctio n c o sts i n sid e a n d o uts id e o f t h e f ir m , b ut i t s h ould als o d ra m atic ally r e d uce a g en cy c o sts a t a ll l e v els o f m an ag em en t. T hese c h an ges w ill i n t u rn mak e i t h ard er t o g am e t h e s y ste m . S o f ir m s c o uld g o b ey ond t r a n sa ctio n c o st t o t a ck le t h e ele p han t i n t h e b oard ro om — ag en cy c o st. Y och ai B en kle r t o ld u s, “ W hat’ s e x citin g t o m e a b out blo ck ch ain t e ch nolo gy i s t h at i t c an e n ab le p eo ple t o f u nctio n t o geth er w ith t h e p ers is te n ce a n d sta b ility o f a n o rg an iz atio n, b ut w ith out t h e h ie ra rc h y.” 27 It a ls o s u ggests t h at m an ag ers s h ould b ra ce t h em se lv es f o r r a d ic al t r a n sp are n cy i n h ow t h ey do c o ord in ate a n d c o nduct t h em se lv es b ecau se s h are h old ers w ill n ow b e a b le t o s e e t h e in effic ie n cie s, t h e u nnecessa ry c o m ple x ity , a n d t h e h uge g ap b etw een e x ecu tiv e p ay a n d t h e valu e e x ecu tiv es a ctu ally c o ntr ib ute . R em em ber, m an ag ers a re n ’t a g en ts o f o w ners ; t h ey ’re in te rm ed ia rie s.

4.

C osts o f ( R e-)B uild in g T ru st— Why S hould W e T ru st O ne A noth er?

As w e h av e e x pla in ed , t r u st i n b usin ess a n d s o cie ty i s t h e e x pecta tio n th at a n oth er p arty w ill be h onest, c o nsid era te , a cco unta b le , a n d t r a n sp are n t— th at h e o r s h e w ill a ct w ith i n te g rity .

28 I t’ s a l o t o f w ork t o e sta b lis h t r u st, a n d m an y e co nom is ts a n d o th er a cad em ic s a rg ue t h at w e h av e vertic ally i n te g ra te d f ir m s b ecau se e sta b lis h in g t r u st i s e asie r w ith in c o rp ora te b oundarie s t h an i n an o pen m ark et. W ith t r u st a t a n a ll- tim e l o w , t h e c h alle n ge f o r f ir m s i s n ot s im ply f ig urin g o ut whom t o t r u st, b ut h ow t o g et o uts id e c ap ab ility t o t r u st t h em .

In deed , e co nom is t M ic h ael J e n se n a n d c o lle ag ues m ad e t h e c ase t h at in te g rity i s a f a cto r o f pro ductio n. N ot t h e f ir s t b ut a m ong t h e m ost e lo quen t o n t h e t o pic , t h ey e x pla in t h at t h e se em in gly n ev er-e n din g s c an dals i n t h e w orld o f f in an ce w ith t h eir d am ag in g e ffe cts o n v alu e an d h um an w elf a re a rg ue s tr o ngly f o r t h e a d ditio n o f i n te g rity t o f in an cia l o pera tio ns. T o t h em th is i s n ot a n i s su e o f v ir tu e, b ut a n o pportu nity i n f in an cia l e co nom ic s t o “ cre ate s ig nif ic an t in cre ase s i n e co nom ic e ffic ie n cy , p ro ductiv ity , a n d a g gre g ate h um an w elf a re .” T o t h em , “In te g rity . . . o n t h e p art o f i n div id uals o r o rg an iz atio ns h as e n orm ous e co nom ic i m plic atio ns (fo r v alu e, p ro ductiv ity , q uality o f l if e , e tc .) . I n deed , i n te g rity i s a f a cto r o f p ro ductio n a s im porta n t a s l a b or, c ap ita l, a n d t e ch nolo gy.” 29 Wall S tr e et l o st t r u st ( a n d n early k ille d c ap ita lis m ) b ecau se o f a s e t o f i n te g rity v io la tio ns.

But h as i t c h an ged ? A nd w ill i t c h an ge? I n t h e p ast, c o rp ora te s o cia l r e sp onsib ility a d vocate s arg ued t h at c o m pan ie s “ d o w ell b y d oin g g ood.” W e h av en ’t s e en t h e e v id en ce. M an y c o m pan ie s did w ell b y d oin g b ad —by h av in g b ad l a b or p ra ctic es i n t h e d ev elo pin g w orld , b y e x te rn aliz in g th eir c o sts o nto s o cie ty s u ch a s p ollu tio n, b y b ein g m onopolie s a n d g ougin g c u sto m ers . T he co lla p se o f 2 008 t a u ght u s f o r s u re t h at c o m pan ie s “ d o b ad ly b y b ein g b ad .” T he m ajo r b an ks fo und t h is o ut t h e h ard w ay . P rio r t o 2 008 m an y w ere m ak in g u pw ard s o f 2 0 p erc en t r e tu rn o n eq uity . F or m an y t o day i t i s w ell b elo w 5 p erc en t, w ith s o m e n ot e v en m ak in g t h eir c o st o f cap ita l. F ro m a s h are h old er p ers p ectiv e, t h ey s h ould n o l o nger e x is t.

30 What a re t h e c h an ces, r e alis tic ally , t h at W all S tr e et w ill w ak e u p t o J e n se n ’s e x horta tio ns an d a ct w ith i n te g rity ? S ure ly , e x ped ie n ce a n d s h ort- te rm g ain a re c o ded i n to t h e D NA o f t h e Weste rn f in an cia l s y ste m .

Ente r b lo ck ch ain t e ch nolo gy a n d d ig ita l c u rre n cie s. W hat i f p artie s d id n’t h av e t o t r u st o ne an oth er, b ut c o uld s till a ct w ith h onesty , a cco unta b ility , c o nsid era tio n, a n d t r a n sp are n cy b ecau se it w as t h e f o undatio n o f t h e t e ch nolo gic al p la tf o rm o f f in an ce?

Ste v e O m ohundro g av e u s a c o m pellin g e x am ple . “ If s o m eb ody f ro m N ig eria w an ts t o b uy so m eth in g t h at I ’m s e llin g, I ’m g oin g t o b e v ery s k ep tic al, I ’m n ot g oin g t o a ccep t a c re d it c ard or a c h eck f ro m N ig eria . W ith t h e n ew p la tf o rm , I k now I c an t r u st i t a n d I d on’t h av e t o i n cu r th e c o sts o f e sta b lis h in g t r u st. S o i t e n ab le s t r a n sa ctio ns w hic h s im ply c o uld n’t h ap pen oth erw is e .” 31 So W all S tr e et b an ks d on’t h av e t o s p lic e i n te g rity i n to t h eir D NA a n d b eh av io r; t h e fo unders o f b lo ck ch ain s h av e c o ded i t i n to t h eir s o ftw are p ro to co ls a n d d ep lo yed i t a cro ss t h e netw ork — en ab lin g a n ew u tility f o r t h e f in an cia l s e rv ic es i n dustr y . T he g ood n ew s i s t h at t h e in dustr y c an r e esta b lis h t r u st a n d m ain ta in i t i n a n o ngoin g w ay .

With b lo ck ch ain t e ch nolo gy c au sin g t h e c o sts o f s e arc h in g, c o ntr a ctin g, c o ord in atin g, a n d cre atin g t r u st t o p lu m met, i t s h ould b e e asie r f o r f ir m s n ot j u st t o o pen u p, b ut a ls o t o f o rg e tr u stin g r e la tio nsh ip s w ith e x te rn al p artie s. A ctin g i n o ne’s s e lf -in te re st s e rv es e v ery body’s in te re sts . C heatin g t h e s y ste m c o sts m ore t h an u sin g i t a s d esig ned .

This i s n ot t o s a y t h at c o rp ora te b ra n ds o r f o r t h at m atte r a ctin g e th ic ally i s u nim porta n t o r n o lo nger r e q uir e d . B lo ck ch ain h elp s e n su re i n te g rity a n d t h ere fo re t r u st i n t r a n sa ctio ns b etw een peers . I t a ls o h elp s a ch ie v e t r a n sp are n cy — a c ritic al f a cto r i n t r u st. H ow ev er, a s a u th or a n d te ch nolo gy t h eo ris t D av id T ic o ll s a y s: “ T ru st a n d b ra n d a re a b out m ore t h an v ouch sa fin g a tr a n sa ctio n. T hey a re a ls o a b out q uality , e n jo ym en t, s a fe ty o f a d ev ic e o r s e rv ic e, c ach et a n d co oln ess. I n t o day ’s C O P21 w orld , t h e b est b ra n ds t r a n sp are n tly a n d v erif ia b ly s ig nif y o utc o m es th at a re e n vir o nm en ta lly , s o cia lly , a n d e co nom ic ally r e sp onsib le .” 32 Still, t h ro ugh s m art c o ntr a cts , e x ecu tiv es c an b e h eld a cco unta b le — th ey m ust a b id e b y t h eir co m mitm en ts a s e n fo rc ed a n d s e ttle d b y s o ftw are . C om pan ie s c an p ro gra m r e la tio nsh ip s w ith ra d ic al t r a n sp are n cy s o e v ery one h as a b ette r u nders ta n din g a b out w hat e ach p arty h as s ig ned u p to d o. A nd o vera ll, l ik e i t o r n ot, t h ey m ust c o nduct b usin ess i n a w ay t h at i s c o nsid era te o f t h e in te re sts o f o th er p artie s. T he p la tf o rm d em an ds i t.

DETER M IN IN G C O RPO RATE B O UNDARIE S Overa ll, t h e b oundarie s t h at s e p ara te a c o m pan y f ro m i ts v en dors , c o nsu lta n ts , c u sto m ers , ex te rn al p eer c o m munitie s, a n d o th ers w ill b eco m e h ard er t o d efin e. P erh ap s a s i m porta n t, t h ey will c o nsta n tly c h an ge.

Fir m s w ill s till e x is t, b lo ck ch ain n otw ith sta n din g, b ecau se t h e m ech an is m s f o r s e arc h in g, co ntr a ctin g, c o ord in atin g, a n d e sta b lis h in g t r u st w ith in c o rp ora te b oundarie s w ill b e m ore c o st- effe ctiv e t h an t h ose i n t h e o pen m ark et, a t l e ast f o r m an y a ctiv itie s. T he i d ea o f t h e s o -c alle d f re e ag en t n atio n, w here i n div id uals e x ecu te w ork o uts id e t h e b oundarie s o f c o rp ora tio ns, i s i llu so ry .

Mela n ie S w an , w ho f o unded t h e I n stitu te f o r B lo ck ch ain S tu die s, s a id , “ W hat’ s t h e r ig ht s iz e o f th e c o rp ora tio n f o r o ptim al t r a n sa ctib ility ? W ell, i t’ s n ot a u nita ry t h in g, o f p eo ple w ork in g o nly as i n div id uals o r e -la n cers .” T o h er, t h ere w ill b e n ew k in ds o f “ fle x ib le b usin ess e n titie s o f in div id uals a n d g ro ups p artn erin g a ro und p ro je cts .” S he v ie w s t h e n ew m odel o f t h e f ir m m ore lik e t h e g uild , t h e p re in dustr ia l a sso cia tio ns o f m erc h an ts o r t r a d esm en w ho w ork ed t o geth er i n a partic u la r t o w n. “ W e s till n eed o rg an iz atio ns a ctin g a s c o ord in atin g m ech an is m s. B ut t h e n ew models o f t e am c o lla b ora tio n a re n ot y et f u lly c le ar.” 33 Today w e o fte n h ear t h at f ir m s s h ould f o cu s o n t h eir c o re . B ut w hen c o nsid erin g h ow blo ck ch ain t e ch nolo gy d ro ps t r a n sa ctio n c o sts , w hat i s c o re ? A nd h ow d o y ou d efin e t h at w hen a co m pan y’s c o re i s c o nsta n tly c h an gin g?

It s e em s t h at e v ery one h as a d if fe re n t d efin itio n o f w hat t h e o ptim al f ir m s iz e s h ould b e t o max im iz e p ro ductiv ity a n d c o m petitiv e a d van ta g e. M an y f ir m s w e e x am in ed d id n’t h av e a c le ar vie w , s e em in g t o c h oose t h e B ob D yla n a p pro ach t o d ete rm in in g w hat’ s i n a n d w hat s h ould b e out ( “ Y ou d on’t n eed a w eath erm an t o k now w hic h w ay t h e w in d b lo w s” ). B ack -o ffic e pro cessin g, f o r e x am ple , w as d esc rib ed a s a n o-b ra in er, w ith out a n y c le ar c rite ria a s t o w hy.

Som e a re m ore r ig oro us. F ro m t h e c o re c o m pete n cie s v ie w d ev elo ped b y G ary H am el a n d C .

K. P ra h ala d , f ir m s g ain c o m petitiv e a d van ta g e t h ro ugh c o m pete n ce m aste ry . T hose c o m pete n cie s maste re d a re c en tr a l t o t h e f ir m , w hile o th ers c an b e a cq uir e d f ro m o uts id e.

34 H ow ev er, a f ir m may h av e m aste ry o ver s o m e a ctiv itie s t h at a re n ot m is sio n c ritic al. S hould t h ey s till b e k ep t in sid e?

Str a te g is t M ic h ael P orte r h as a n i m plic it v ie w t h at c o m petitiv e a d van ta g e s te m s f ro m activ itie s, i n p artic u la r f ro m n etw ork s o f r e in fo rc in g a ctiv itie s t h at a re h ard t o r e p lic ate i n t h eir to ta lity . I t’ s n ot t h e i n div id ual p arts o f t h e b usin ess t h at m atte r, b ut h ow t h ey a re s tr u ng t o geth er an d b uilt t o r e in fo rc e o ne a n oth er i n a u niq ue a ctiv ity s y ste m . C om petitiv e ad van ta g e c o m es fro m t h e e n tir e s y ste m o f a ctiv itie s; w hile a n y i n div id ual a ctiv ity w ith in t h e s y ste m m ay b e co pie d , c o m petito rs c an not p ro duce t h e s a m e b en efit u nle ss t h ey m an ag e t o d uplic ate t h e e n tir e sy ste m .

35 Oth ers a rg ue t h at c o m pan ie s s h ould a lw ay s r e ta in f u nctio ns o r c ap ab ilitie s t h at a re m is sio n critic al— th ose t h at f ir m s m ust a b so lu te ly g et r ig ht f o r s u rv iv al a n d s u ccess. B ut m ak in g co m pute rs i s m is sio n c ritic al f o r c o m pute r c o m pan ie s; y et D ell, H P, a n d I B M o uts o urc e m uch o f th is a ctiv ity t o e le ctr o nic s m an ufa ctu rin g s e rv ic es c o m pan ie s l ik e C ele stic a, F le x tr o nic s, o r J a b il.

Fin al a sse m bly o f v eh ic le s i s m is sio n c ritic al f o r a n a u to m an ufa ctu re r; y et B M W a n d M erc ed es co ntr a ct w ith M ag na t o d o t h is a ctiv ity .

Sta n fo rd G ra d uate S ch ool o f B usin ess p ro fe sso r S usa n A th ey a rg ues p ers u asiv ely : “ T here may b e s o m e m is sio n-c ritic al f u nctio ns, l ik e t h e c o lle ctio n a n d a n aly sis o f b ig d ata , t h at a re j u st to o r is k y t o m ove o uts id e c o rp ora te b oundarie s, e v en i f y ou d on’t h av e u niq ue a b ilitie s i n t h at are a.” 36 T ru e, t h ere m ay b e s o m e f u nctio ns l ik e d ata a n aly tic s w here s u rv iv al d ep en ds o n b ein g uniq uely g ood, a n d t h ere m ay b e e x is te n tia l r is k s o f p artn erin g. S till, e x te rn al r e so urc es c an b e dep lo yed s tr a te g ic ally t o b uild i n te rn al c ap ab ility .

Our v ie w i s t h at t h e s ta rtin g p oin t f o r c o rp ora te b oundary d ecis io ns i s t o u nders ta n d y our in dustr y , c o m petito rs , a n d o pportu nitie s f o r p ro fita b le g ro w th — an d u se t h is k now le d ge a s t h e basis f o r d ev elo pin g a b usin ess s tr a te g y. F ro m t h ere , t h e b lo ck ch ain o pen s u p n ew o pportu nitie s fo r n etw ork in g t h at e v ery m an ag er a n d k now le d ge w ork er n eed s t o c o nsid er a t a ll t im es.

Boundary c h oic es a re n ot s im ply f o r s e n io r e x ecu tiv es, t h ey a re f o r a n yone w ho c are s a b out mars h alin g t h e b est c ap ab ility f o r i n novatio n a n d h ig h p erfo rm an ce. W e s h ould a d d— an d t h is i s no s m all p oin t— th at y ou c an ’t o uts o urc e y our c o rp ora te c u ltu re .

Ente r t h e M atr ix Tak in g i n to a cco unt h ow b lo ck ch ain t e ch nolo gy c an e n ab le a ccess t o u niq ue c ap ab ilitie s o uts id e co rp ora te b oundarie s, f ir m s c an n ow d efin e t h ose b usin ess a ctiv itie s o r f u nctio ns t h at a re fu ndam en ta l t o c o m petitiv en ess— th at a re b oth m is sio n c ritic al a n d a ls o u niq ue e n ough t o e n su re dif fe re n tia te d v alu e. How ev er, t h is I n -O ut M atr ix i s j u st a s ta rtin g p oin t f o r d efin in g c o rp ora te b oundarie s a t a n y giv en p oin t. W hat o th er f a cto rs s h ould f ir m s c o nsid er i n d ete rm in in g w hat i s f u ndam en ta l? W hat ex te n uatin g c ir c u m sta n ces a re t h ere t h at m ig ht a ffe ct c h oic es t o o uts o urc e o r n urtu re i n te rn ally ?

Hack in g Y ou r F utu re: B ou ndary D ecis io n s When m ak in g b oundary c h oic es, f ir m s s h ould s ta rt u sin g t h e b lo ck ch ain t o m ars h al a 3 60-d eg re e vie w a n d r e ach c o nse n su s o n w hat i s u niq ue a n d w hat i s m is sio n c ritic al i n t h eir b usin ess. L et’ s re tu rn t o J o e L ubin a n d C onse n S ys, a s t h ey f o re sh ad ow t h e m odus o pera n di o f t h e b lo ck ch ain - base d e n te rp ris e . R em em ber t h at C onse n S ys i s i n i ts i n fa n cy , a n d m uch c an g o w ro ng t o underm in e i ts b usin ess. W e c an s till l e arn f ro m t h is c o m pan y’s e x am ple .

1.

A re t h ere p ossib le p artn ers w ho c o uld d o t h e w ork b ette r? I n p artic u la r, c o uld w e ben efit f ro m h arn essin g n ew p eer p ro ductio n c o m munitie s, i d eag ora s, o pen p la tf o rm s, an d o th er b lo ck ch ain b usin ess m odels ? T he c o m pan y C onse n S ys i s a b le t o o rc h estr a te ex tr a o rd in ary e x pertis e t o d o i ts w ork , e v en t h ough m an y a re o uts id e i ts b oundarie s. 2.

G iv en b lo ck ch ain t e ch nolo gy, w hat a re t h e n ew e co nom ic s o f c o rp ora te b oundarie s— th e t r a n sa ctio n c o sts o f p artn erin g, v ers u s k eep in g/d ev elo pin g i n -h ouse ? C an y ou dev elo p a s u ite o f s m art c o ntr a cts w hose c o re e le m en ts a re m odula r a n d r e u sa b le ?

Conse n S ys u se s s m art c o ntr a cts t o r e d uce c o ord in atio n c o sts .

3.

W hat i s t h e e x te n t o f t e ch nolo gic al i n te rd ep en den ce v ers u s m odula rity ? I f y ou c an defin e b usin ess c o m ponen ts t h at a re m odula r, t h en y ou c an e asily r e co nfig ure t h em outs id e c o rp ora te b oundarie s. C onse n S ys s e ts s ta n dard s f o r s o ftw are d ev elo pm en t a n d pro vid es a ccess t o v ario us s o ftw are m odule s t h at i ts p artn ers c an b uild u pon.

4.

W hat a re y our f ir m ’s c o m pete n cie s w ith r e g ard t o t h e m an ag in g o f o uts o urc ed w ork ?

Can s m art c o ntr a cts e n han ce t h ose c o m pete n cie s a n d l o w er c o sts ? F ro m t h e g et- g o, Conse n S ys w as a b lo ck ch ain b usin ess. C EO J o e L ubin e m bra ces t h e t e ch nolo gy a n d a modif ie d h ola cra cy , a n d w e c an s e e t h e s e v en d esig n p rin cip le s a t w ork .

5.

W hat a re t h e r is k s o f o pportu nis m w here a p artn er m ig ht e n cro ach o n f u ndam en ta l parts o f y our b usin ess, a s s o m e h av e s u ggeste d F oxco nn m ay d o t o s m art p hone co m pan ie s? C onse n S ys t r ie s t o m itig ate t h is c h alle n ge b y b uild in g l o yalty t h ro ugh in cen tiv e s tr u ctu re s w here b y i ts t a le n t s h are s i n t h e w ealth t h ey c re ate .

6.

A re t h ere l e g al, r e g ula to ry , o r p olitic al o bsta cle s t o d eep er n etw ork in g ( a n d s h rin kin g) of t h e o rg an iz atio n? N ot a p ro ble m f o r C onse n S ys y et.

7.

S peed a n d p ace o f i n novatio n a re i m porta n t t o b oundary d ecis io ns. S om etim es f ir m s hav e n o c h oic e b ut t o p artn er f o r a s tr a te g ic f u nctio n b ecau se t h ey c an not d ev elo p i t i n - house f a st e n ough. A p artn er a rra n gem en t c an b e a p la ceh old er. W ill p artn erin g h elp u s build a n e co sy ste m t h at w ill i m pro ve o ur c o m petitiv e a d van ta g e? T his i s C onse n S ys’s str a te g y: b uild a n etw ork o f c o lla b ora to rs a ro und t h e E th ere u m p la tf o rm , g ro w t h e pla tf o rm a n d e co sy ste m , a n d i n cre ase t h e p ro bab ility o f s u ccess f o r a ll c o m ponen ts .

8.

I s t h ere a d an ger o f l o sin g c o ntr o l o f s o m eth in g f u ndam en ta l— fo r e x am ple , a p ro duct or n etw ork a rc h ite ctu re ? F ir m s m ust h av e a s e n se o f w hic h p arts o f t h e v alu e c h ain w ill be k ey t o c re atin g a n d c ap tu rin g v alu e i n t h e f u tu re . I f t h ese a re f a rm ed o ut, t h e f ir m w ill lo se . T he E th ere u m p la tf o rm p ro vid es a b asic a rc h ite ctu re f o r C onse n S ys.

9.

I s t h ere a c ap ab ility , l ik e t h e e x plo ita tio n o f d ata a sse ts , t h at m ust b e p art o f t h e fa b ric o f y our e n te rp ris e a n d a ll i ts o pera tio ns? E ven t h ough y ou l a ck a u niq ue cap ab ility , y ou s h ould v ie w p artn erin g a s a t r a n sitio nal t a ctic t o d ev elo p e x tr a o rd in ary in te rn al e x pertis e a n d c ap acity . B lo ck ch ain t e ch nolo gie s w ill i n tr o duce a n ew s e t o f cap acitie s t h at n eed t o r e sid e i n t h e c ra n iu m o f e v ery e m plo yee. Y ou c an ’t m ove cu ltu re o uts id e y our b oundarie s.

F CH APT ER 5 NEW B U SIN ESS M ODELS:

MAKIN G I T R A IN O N T H E B LO CK CH AIN ounded a m onth b efo re t h e m ark et c ra sh ed i n 2 008, A ir b nb h as b eco m e a $ 25 b illio n pla tf o rm , n ow t h e w orld ’s l a rg est s u pplie r o f r o om s a s m easu re d b y m ark et v alu e a n d r o om s o ccu pie d . B ut t h e p ro vid ers o f r o om s r e ceiv e o nly p art o f t h e v alu e t h ey c re ate . I n te rn atio nal p ay m en ts g o t h ro ugh W este rn U nio n, w hic h t a k es $ 10 o f e v ery t r a n sa ctio n a n d b ig f o re ig n e x ch an ge o ff t h e t o p. S ettle m en ts t a k e a l o ng t im e. A ir b nb s to re s a n d m onetiz es a ll t h e d ata .

B oth r e n te rs a n d c u sto m ers a lik e h av e c o ncern s a b out p riv acy .

We b ra in sto rm ed w ith b lo ck ch ain e x pert D in o M ark A ngaritis t o d esig n a n A ir b nb c o m petito r o n t h e b lo ck ch ain . W e d ecid ed t o c all o ur n ew b usin ess b A ir b nb. I t w ould l o ok m ore l ik e a m em ber-o w ned c o opera tiv e. A ll r e v en ues, e x cep t f o r o verh ead , w ould g o t o i ts m em bers , w ho w ould c o ntr o l t h e p la tf o rm a n d m ak e d ecis io ns.

B A IR BN B V ER SU S A IR BN B b A ir b nb i s a dis tr ib ute d a pplic a tio n ( D App), a s e t o f s m art c o ntr a cts t h at s to re s d ata o n a h om e- l is tin gs b lo ck ch ain . T he b A ir b nb a p p h as a n e le g an t i n te rfa ce: o w ners c an u plo ad i n fo rm atio n a n d p ic tu re s o f t h eir p ro perty .

1 T he p la tf o rm m ain ta in s r e p uta tio n s c o re s o f b oth p ro vid ers a n d r e n te rs t o i m pro ve e v ery one’s b usin ess d ecis io ns.

When y ou w an t t o r e n t, t h e b A ir b nb s o ftw are s c an s a n d f ilte rs t h e b lo ck ch ain f o r a ll t h e l is tin gs t h at m eet y our c rite ria ( e .g ., t e n m ile s f ro m th e E if fe l T ow er, t w o b ed ro om s, f o ur-p lu s s ta r r a tin gs o nly ). Y our u se r e x perie n ce i s i d en tic al t o t h at i n A ir b nb, e x cep t t h at y ou c o m munic ate p eer t o p eer o n t h e n etw ork , t h ro ugh e n cry pte d a n d c ry pto gra p hic ally s ig ned m essa g es n ot s to re d i n A ir b nb’s d ata b ase .

2 Y ou a n d t h e r o om o w ner a re t h e o nly t w o p eo ple w ho c an r e ad t h ese m essa g es. Y ou c an s w ap p hone n um bers , a n e x ch an ge t h at A ir b nb b lo ck s t o p re se rv e f u tu re r e v en ues. O n b A ir b nb y ou a n d t h e o w ner c o uld c o m munic ate o ff-c h ain a n d c o m ple te t h e t r a n sa ctio n e n tir e ly o ff-c h ain , b ut y ou a re b ette r o ff c o m ple tin g t h e t r a n sa ctio n o n- c h ain f o r a f e w r e aso ns.

Rep uta tio n :

B ecau se t h e n etw ork r e co rd s t h e t r a n sa ctio n o n t h e b lo ck ch ain , a p ositiv e r e v ie w f ro m e ach u se r i m pro ves y our r e sp ectiv e r e p uta tio ns. T he r is k o f a n eg ativ e r e v ie w m otiv ate s e ach p arty t o r e m ain h onest. R em em ber, p eo ple w ith g ood r e p uta tio ns c an u se t h e s a m e p ers o na a cro ss m ultip le D Apps a n d b en efit f ro m c o ntin uity a s a g ood p ers o n. Id en tit y V erif ic a tio n :

B ecau se w e a re n ot d ealin g w ith a c en tr a liz ed s y ste m t h at c h eck s I D on o ur b eh alf , e ach p arty n eed s t o c o nfir m t h e o th er p arty ’s i d en tity . T he b lo ck ch ain c alls u p a co ntr a ct f ro m a “ V erif y ID ” a p plic atio n, o ne o f m an y c o ntr a cts t h at b A ir b nb, S U ber ( b lo ck ch ain Uber), a n d o th er D Apps u se t o v erif y r e al- w orld i d en tity .

Priv acy P ro te ctio n :

V erif y ID d oesn ’t t r a ck a n d s to re a ll t r a n sa ctio ns i n a d ata b ase . I t s im ply re tu rn s a T R U E o r F A LSE w hen i t r e ceiv es a r e q uest f o r v erif ic atio n o f a p ublic k ey ( p ers o na).

Dif fe re n t k in ds o f D Apps c an c all V erif y ID , b ut V erif y ID n ev er k now s d eta ils o f t r a n sa ctio ns.

This s e p ara tio n o f i d en tity f ro m a ctiv ity g re atly i m pro ves y our p riv acy .

Ris k R ed uctio n :

H om e o w ners c u rre n tly s to re c u sto m er i d en titie s a n d f in an cia l d ata o n t h eir ow n s e rv ers , w hic h c an b e h ack ed a n d l e ak ed , e x posin g o w ners t o l itig atio n a n d l a rg e l ia b ilitie s.

On t h e b lo ck ch ain , y ou n eed n’t t r u st a v en dor w ith y our d ata ; t h ere i s n o c en tr a l d ata b ase t o h ack an d l e ak . T here a re o nly i n div id ual p eer-to -p eer p se u donym ous t r a n sa ctio ns.

In su ra n ce:

T oday A ir b nb o ffe rs $ 1 m illio n i n su ra n ce f o r o w ners a n d c o m pen sa te s t h em f o r th eft a n d d am ag e. O n b A ir b nb, o w ners c an g et t h e b A ir b nb i n su ra n ce D App. R en te rs w ith g ood re p uta tio ns l ik e y ou h av e l o w er i n su ra n ce r a te s a n d n eed n’t s u bsid iz e r e n te rs w ho l a ck c au tio n, sc ru tin y o f p ro sp ects , o r p oor t r e atm en t o f p ro perty . W hen y ou s u bm it a b ookin g r e q uest, bA ir b nb s e n ds y our p ublic k ey ( p ers o na) t o t h e i n su ra n ce co ntr a ct f o r a q uote . T he i n su ra n ce DApp c o nta cts a l is t o f t r u ste d p ro vid ers ; f a k e i n su re rs n eed n ot a p ply . I n su re rs p erfo rm t h eir ow n c alc u la tio ns i n r e al t im e t h ro ugh a u to nom ous a g en t s o ftw are b ase d o n t h e i n puts t o t h e co ntr a ct— su ch a s t h e m ark et v alu e o f t h e o w ner’s h ouse , h ow m uch t h e o w ner w an ts i n su re d , ow ner r e p uta tio n, y our r e p uta tio n a s a r e n te r, a n d r e n ta l p ric e. b A ir b nb t a k es t h e b est b id a n d ad ds i t t o t h e n ig htly f e e t h e o w ner w an ts t o c h arg e. T he b lo ck ch ain p ro cesse s t h is c alc u la tio n i n th e b ack gro und; o w ners a n d r e n te rs h av e a c o m para b le u se r e x perie n ce t o t h at o f A ir b nb b ut a su perio r a n d m ore e q uita b le v alu e e x ch an ge.

Paym en t S ettle m en t:

O f c o urs e , o n t h e b lo ck ch ain , y ou t r a n sfe r f u nds t o t h e o w ner i n se co nds, n ot d ay s a s w ith A ir b nb. O wners c an m an ag e s e cu rity d ep osits m ore e asily w ith s m art co ntr a cts . S om e p artie s u se e sc ro w a cco unts t o r e le ase p ay m en ts p artia lly ( n ig htly , w eek ly , hourly , e tc .) o r i n f u ll a s t h e p artie s a g re e. I n d is p ute s i n volv in g s m art c o ntr a cts , p artie s c an c all fo r a rb itr a tio n.

Pro p erty A ccess U sin g S m art L ock s ( I o T d ev ic e):

A s m art l o ck c o nnecte d t o t h e blo ck ch ain k now s w hen y ou h av e p aid . W hen y ou a rriv e, y our n ear-fie ld c o m munic atio n- en ab le d s m art p hone c an s ig n a m essa g e w ith y our p ublic k ey a s p ro of o f p ay m en t, a n d t h e s m art lo ck w ill o pen f o r y ou. O wners n eed n ot d ro p k ey s o ff t o y ou o r v is it t h e p ro perty u nle ss t h ey wan t t o s a y h ello o r a d dre ss s o m e e m erg en cy .

You a n d t h e o w ner h av e n ow s a v ed m ost o f t h e 1 5 p erc en t A ir b nb f e e. S ettle m en ts a re assu re d a n d i n sta n t. T here a re n o f o re ig n e x ch an ge f e es f o r i n te rn atio nal c o ntr a cts . Y ou n eed n ot worry a b out s to le n i d en tity . L ocal g overn m en ts i n o ppre ssiv e r e g im es c an not s u bpoen a b A ir b nb fo r a ll i ts r e n ta l h is to ry d ata . T his i s t h e r e al s h arin g-o f-v alu e e co nom y; b oth c u sto m ers a n d se rv ic e p ro vid ers a re t h e w in ners .

GLO BA L C O M PU TIN G : T H E R IS E O F D IS T R IB U TED A PPL IC ATIO NS Befo re w e e x am in e t h e o th er p ossib le d is tr ib ute d b usin ess e n titie s l ik e b A ir b nb, a w ord o n h ow th e u nderly in g t e ch nolo gy e n ab le s d ecen tr a liz atio n. U ntil t h e b lo ck ch ain , c en tr a liz ed org an iz atio ns h av e h eld c o ncen tr a te d c o m putin g p ow er.

In t h e f ir s t d ecad es o f e n te rp ris e c o m putin g, a ll s o ftw are a p plic atio ns (a p ps) r a n o n t h e co m pute rs o f t h eir o w ners . G M , C itib an k, U .S . S te el, U nile v er, a n d t h e U .S . f e d era l g overn m en t ow ned h uge d ata c en te rs t h at r a n p ro prie ta ry s o ftw are . C om pan ie s r e n te d o r “ tim e s h are d ” co m pute r p ow er f ro m p ro vid ers l ik e t h e 1 980s g ia n t C om puS erv e t o r u n t h eir o w n a p plic atio ns.

As t h e p ers o nal c o m pute r m atu re d , t h e s o ftw are m ark et s p ecia liz ed : s o m e d ev elo ped c lie n t ap ps ( th e P C ) a n d s o m e, s e rv er a p ps ( a h ost c o m pute r). W ith w id esp re ad a d optio n o f t h e In te rn et, s p ecif ic ally t h e W orld W id e W eb , i n div id uals a n d c o m pan ie s c o uld u se t h eir c o m pute rs to s h are i n fo rm atio n— in itia lly a s t e x t d ocu m en ts a n d l a te r a s i m ag es, v id eo s, o th er m ultim ed ia co nte n t, a n d e v en tu ally s o ftw are a p ps.

3 S harin g b eg an t o d em ocra tiz e t h e i n fo rm atio n l a n dsc ap e.

But i t w as s h ort- liv ed .

In t h e 1 990s, a n ew v aria n t o f t im e-s h arin g a p peare d , i n itia lly c alle d vir tu al p riv a te n etw ork s (V PN s) a n d t h en clo ud c o m putin g . C lo ud c o m putin g e n ab le d u se rs a n d c o m pan ie s t o s to re a n d pro cess t h eir s o ftw are a n d d ata i n t h ir d -p arty d ata c en te rs . N ew t e ch nolo gy c o m pan ie s l ik e Sale sfo rc e.c o m b uilt f o rtu nes b y h arn essin g t h e c lo ud m odel t o s a v e c u sto m ers t h e b ig c o sts o f dev elo pin g a n d r u nnin g t h eir o w n s o ftw are . C lo ud s e rv ic e p ro vid ers l ik e A m azo n a n d I B M b uilt gin orm ous m ultib illio n-d olla r b usin esse s. D urin g t h e 2 000s, s o cia l m ed ia c o m pan ie s l ik e Faceb ook a n d G oogle c re ate d s e rv ic es t h at r a n o n t h eir o w n v ast d ata c en te rs . A nd t o c o ntin ue th is t r e n d o f c en tr a liz ed c o m putin g, c o m pan ie s l ik e A pple m oved a w ay f ro m t h e W eb ’s dem ocra tiz in g a rc h ite ctu re t o p ro prie ta ry p la tf o rm s l ik e t h e A pple S to re w here c u sto m ers acq uir e d p ro prie ta ry a p ps, n ot o n t h e o pen W eb b ut i n e x clu siv e w alle d g ard en s.

Again a n d a g ain i n t h e d ig ita l a g e, l a rg e c o m pan ie s h av e c o nso lid ate d — cre ate d , p ro cesse d , an d o w ned o r a cq uir e d — ap plic atio ns o n t h eir o w n l a rg e s y ste m s. C en tr a liz ed c o m pan ie s h av e beg otte n c en tr a liz ed c o m putin g a rc h ite ctu re s t h at h av e, i n t u rn , c en tr a liz ed t e ch nolo gic al a n d eco nom ic p ow er.

Som e r e d f la g s: W ith s in gle p oin ts o f c o ntr o l, c o m pan ie s t h em se lv es a re v uln era b le t o cata str o phic c ra sh es, f ra u d, a n d s e cu rity b re ach es. I f y ou w ere a c u sto m er o f T arg et, e B ay , JP M org an C hase , H om e D ep ot, o r A nth em , o r f o r t h at m atte r A sh le y M ad is o n, t h e U .S . O ffic e of P ers o nnel M an ag em en t ( s e co nd b re ach !), a n d e v en U ber, y ou f e lt t h e p ain o f h ack in g i n 2015.

4 S yste m s o f d if fe re n t p arts o f a c o m pan y s till h av e b ig c h alle n ges co m munic atin g w ith o ne an oth er, l e t a lo ne w ith s y ste m s o uts id e t h e f ir m . F or u s u se rs , i t m ean s t h at w e’v e n ev er r e ally had c o ntr o l. O th ers d efin e o ur s e rv ic es w ith t h eir i m plic it v alu es a n d g oals t h at m ay c o nflic t w ith ours . A s w e g en era te r e am s o f v alu ab le d ata , o th ers o w n i t a n d a re b uild in g v ast f o rtu nes— perh ap s t h e g re ate st i n h is to ry — while m ost o f u s r e ceiv e l ittle b en efit o r c o m pen sa tio n. W ors t o f all, c en tr a l p ow ers a re u sin g o ur d ata t o c re ate m ir ro r i m ag es o f e ach o f u s a n d m ay u se t h ese t o se ll u s s tu ff o r t o s p y o n u s.

Alo ng c o m es b lo ck ch ain t e ch nolo gy. A nyone c an u plo ad a p ro gra m o nto t h is p la tf o rm a n d le av e i t t o s e lf -e x ecu te w ith a s tr o ng c ry pto eco nom ic al 5 g uara n te e t h at t h e p ro gra m w ill c o ntin ue to p erfo rm s e cu re ly a s i t w as i n te n ded . T his p la tf o rm i s p ublic , n ot i n sid e a n o rg an iz atio n, a n d i t co nta in s a g ro w in g s e t o f r e so urc es s u ch a s d ig ita l m oney t o i n cen t a n d r e w ard c erta in b eh av io r.

We’re m ovin g i n to a n ew e ra i n t h e d ig ita l r e v olu tio n w here w e c an p ro gra m a n d s h are so ftw are t h at’ s d is tr ib ute d . J u st a s t h e b lo ck ch ain p ro to co l i s d is tr ib ute d , a d is tr ib ute d a p plic atio n or D App r u ns a cro ss m an y c o m putin g d ev ic es r a th er t h an o n a s in gle s e rv er. T his i s b ecau se a ll th e c o m putin g r e so urc es t h at a re r u nnin g a b lo ck ch ain c o nstitu te a c o m pute r. B lo ck ch ain dev elo per G av in W ood m ak es t h is p oin t d esc rib in g t h e E th ere u m b lo ck ch ain a s a p la tf o rm f o r pro cessin g. “ T here i s o nly o ne E th ere u m c o m pute r i n t h e w orld ,” h e s a id . “ It’ s a ls o m ultiu se r— an yone w ho e v er u se s i t i s a u to m atic ally s ig ned i n .” B ecau se E th ere u m i s d is tr ib ute d a n d b uilt t o th e h ig hest s ta n dard s o f c ry pto se cu rity , “ all c o de, p ro cessin g, a n d s to ra g e e x is ts w ith in i ts o w n en cap su la te d s p ace a n d n o o ne c an e v er m ess w ith t h at d ata .” H e a rg ued t h at c ritic al r u le s a re built i n to t h e c o m pute r, c o m parin g i t t o “ v ir tu al s ilic o n.” 6 As f o r D Apps, t h ere h av e b een w arm -u p a cts p rio r t o b lo ck ch ain s. B itT orre n t, t h e p eer-to - peer f ile -s h arin g a p p, d em onstr a te s t h e p ow er o f D Apps a s i t c u rre n tly c o nsu m es o ver 5 p erc en t of a ll I n te rn et t r a ffic .

7 L overs o f m usic , f ilm , a n d o th er m ed ia s h are t h eir f ile s f o r f re e, w ith n o cen tr a l s e rv er f o r a u th oritie s t o s h ut d ow n. I c o nocla stic p ro gra m mer B ra m C ohen , w ho in cid en ta lly i s l e ss t h an e n th usia stic a b out b itc o in b ecau se o f a ll t h e c o m merc ia l a ctiv ity a ro und it, d ev elo ped B itT orre n t. “ T he r e v olu tio n w ill n ot b e m onetiz ed ,” h e s a id .

8 Most o f u s t h in k t h at g en era tin g r e v en ue a n d e co nom ic v alu e t h ro ugh te ch nolo gic al in novatio n i s p ositiv e, a s l o ng a s t h e r e v olu tio n i s n ot m onetiz ed b y t h e f e w . W ith b lo ck ch ain te ch nolo gy t h e p ossib ilitie s f o r D Apps a re a lm ost u nlim ite d , b ecau se i t t a k es D Apps t o a n ew le v el. I f, a s t h e s o ng s a y s, “ L ove a n d m arria g e, l o ve a n d m arria g e, g o t o geth er l ik e a h ors e a n d carria g e,” t h en s o d o D Apps a n d b lo ck ch ain s. T he c o m pan y S to rj i s a d is tr ib ute d c lo ud s to ra g e pla tf o rm a n d a s u ite o f D Apps t h at a llo w u se rs t o s to re d ata s e cu re ly , i n ex pen siv ely , a n d priv ate ly . N o c en tr a liz ed a u th ority h as a ccess t o a u se r’s e n cry pte d p assw ord . T he s e rv ic e elim in ate s t h e h ig h c o sts o f c en tr a liz ed s to ra g e f a cilitie s; i t’ s s u perfa st; a n d i t p ay s u se rs f o r re n tin g t h eir e x tr a d is k s p ace. I t’ s l ik e A ir b nb f o r y our c o m pute r’s s p are m em ory s p ace.

TH E D APP K IN G S: D IS T R IB U TED B U SIN ESS E N TIT IE S How d o D Apps i n fu se g re ate r e ffic ie n cy , i n novatio n, a n d r e sp onsiv en ess i n to t h e s tr u ctu re o f t h e fir m ? W hat n ew b usin ess m odels c an w e m ak e w ith D Apps t o g en era te v alu e? A nd i f p ow erfu l in stitu tio ns a re c ap tu rin g t h e b en efits o f t h e I n te rn et t o day , h ow c an w e m ove b ey ond “o uts o urc in g” a n d “ b usin ess w eb s” t o t r u ly d is tr ib ute d m odels o f i n novatio n a n d v alu e c re atio n th at c an d is tr ib ute p ro sp erity a n d t h e o w ners h ip o f d ata a n d w ealth ? W e m ap ped w hat w e b elie v e to b e t h e f o ur m ost i m porta n t i n novatio ns o nto a t w o-b y-tw o m atr ix . The Y -a x is i d en tif ie s t h e d eg re e t o w hic h h um an s p artic ip ate i n t h e m odel. A t t h e l e ft, t h e model r e q uir e s s o m e h um an i n volv em en t. A t t h e r ig ht, t h e m odel r e q uir e s n o p eo ple .

The X -a x is d esc rib es t h e f u nctio nal c o m ple x ity o f t h e m odel, n ot i ts t e ch nic al c o m ple x ity . A t th e l o w er e n d a re m odels t h at p erfo rm a s in gle f u nctio n. A t t h e t o p a re m odels t h at p erfo rm div ers e f u nctio ns.

These a re a ll c o m ponen ts o f t h e b lo ck ch ain e co nom y b ecau se t h ey u se b lo ck ch ain te ch nolo gy a n d o fte n c ry pto cu rre n cie s a s t h eir f o undatio n. S m art c o ntr a cts ( d is c u sse d i n t h e l a st ch ap te r) a re t h e m ost b asic f o rm : t h ey i n volv e s o m e c o m ple x ity t h at r e q uir e s h um an in volv em en t, i n cre asin gly i n t h e f o rm o f m ultis ig natu re a g re em en ts . A s s m art c o ntr a cts g ro w i n co m ple x ity a n d i n te ro pera te w ith o th er c o ntr a cts , t h ey c an c o ntr ib ute t o w hat w e c all open netw ork ed e n te rp ris e s ( O NEs). I f w e c o m bin e O NEs w ith auto nom ous a gen ts —so ftw are t h at mak es d ecis io ns a n d a cts o n t h em w ith out h um an i n te rv en tio n— we g et w hat w e’re c allin g a dis tr ib ute d a uto nom ous e n te rp ris e th at r e q uir e s l ittle o r n o t r a d itio nal m an ag em en t o r h ie ra rc h y to g en era te c u sto m er v alu e a n d o w ner w ealth . A nd w e t h in k t h at v ery l a rg e n um bers o f p eo ple , th ousa n ds o r m illio ns, m ig ht b e a b le t o c o lla b ora te i n c re atin g a v en tu re a n d s h arin g i n t h e wealth i t c re ate s— dis tr ib utin g, r a th er t h an r e d is tr ib utin g, w ealth .

Open N etw ork ed E nte rp ris e s At v ery l o w c o st, s m art c o ntr a cts e n ab le c o m pan ie s t o c ra ft c le v er, s e lf -e n fo rc in g a g re em en ts with p re v io usly i m pro bab le c la sse s o f n ew s u pplie rs a n d p artn ers . W hen a g gre g ate d , s m art co ntr a cts c an m ak e f ir m s r e se m ble n etw ork s, r e n derin g c o rp ora te b oundarie s m ore p oro us a n d flu id .

Blo ck ch ain t e ch nolo gy a ls o d ro ps C oase ’s s e arc h c o sts a n d c o ord in atio n c o sts s o t h at co m pan ie s c an d is a g gre g ate i n to m ore e ffe ctiv e n etw ork s. A n a u to c o m pan y c o uld c h eck a su pplie r’s t r u stw orth in ess b y j u st s c an nin g t h e a n aly tic s e rv ic es o nlin e. S oon, j u st t y pe “ ax le ” o r “w in dow g la ss” i n to a n y n um ber o f i n dustr y e x ch an ges o n t h e b lo ck ch ain a n d n eg otia te t h e p ric e onlin e.

We c an e x te n d t h at s im ple s c en ario t o f in din g a r e p la cem en t p art, a s u pply c h ain p artn er, a co lla b ora to r, o r a p ie ce o f s o ftw are f o r m an ag in g a d is tr ib ute d r e so urc e. N eed s te el f ro m C hin a, ru bber f ro m M ala y sia , o r gla ss f ro m W ic h ita , K an sa s? N o p ro ble m . D ecen tr a liz ed o nlin e cle arin ghouse s o pera tin g a s D Apps f o r e ach c o m modity w ill e n ab le p urc h ase rs t o c o ntr a ct f o r pric e, q uality , a n d d eliv ery d ate s w ith a f e w c lic k s o f a m ouse . Y ou’ll h av e a d eta ile d s e arc h ab le re co rd o f p re v io us t r a n sa ctio ns— not j u st h ow v ario us c o m pan ie s w ere r a te d b ut p re cis e ly h ow th ey h onore d t h eir c o m mitm en ts . Y ou c an t r a ck e ach s h ip m en t o n a v ir tu al m ap t h at s h ow s i ts pre cis e l o catio n i n t h e j o urn ey . Y ou c an m ic ro sc h ed ule g oods t o s h ow u p j u st i n t im e. N o ware h ouse r e q uir e d .

AUTO NO M OUS A G EN TS Im ag in e a p ie ce o f s o ftw are t h at c o uld r o am t h e I n te rn et w ith i ts o w n w alle t a n d i ts o w n c ap acity to l e arn a n d a d ap t, i n p urs u it o f i ts g oals d ete rm in ed b y a c re ato r, p urc h asin g t h e r e so urc es i t re q uir e s t o s u rv iv e l ik e c o m pute r p ow er, a ll w hile s e llin g s e rv ic es t o o th er e n titie s.

The t e rm auto nom ous a gen t has m an y d efin itio ns.

9 F or o ur d is c u ssio n, i t i s a d ev ic e o r so ftw are s y ste m t h at o n b eh alf o f s o m e c re ato r t a k es i n fo rm atio n f ro m i ts e n vir o nm en t a n d i s cap ab le o f m ak in g i n dep en den t c h oic es. W e c o uld d esc rib e s o m e a u to nom ous a g en ts a s “in te llig en t” a lth ough t h ey l a ck g en era l i n te llig en ce. H ow ev er, t h ey a re n ot “ ju st c o m pute r pro gra m s” b ecau se t h ey c an m odif y h ow t h ey a ch ie v e t h eir o bje ctiv es. T hey c an s e n se a n d re sp ond t o t h eir e n vir o nm en t o ver t im e.

10 The c o m pute r v ir u s i s t h e m ost c ite d e x am ple o f a n a u to nom ous a g en t; t h e v ir u s s u rv iv es b y re p lic atin g i ts e lf f ro m m ach in e t o m ach in e w ith out d elib era te h um an a ctio n. U nle ash in g a v ir u s on t h e b lo ck ch ain c o uld b e m ore d if fic u lt a n d c erta in ly c o stly b ecau se i t w ould l ik ely h av e t o p ay th e o th er p arty t o i n te ra ct w ith i t, a n d t h e n etw ork w ould q uic k ly i d en tif y i ts p ublic k ey , c ra sh i ts re p uta tio n s c o re , o r n ot v alid ate i ts t r a n sa ctio ns.

For p ositiv e b lo ck ch ain e x am ple s, c o nsid er t h e f o llo w in g. A c lo ud c o m putin g s e rv ic e r e n ts pro cessin g p ow er f ro m v ario us s o urc es, g ro w in g t o A m azo n’s s iz e b y m ak in g r e n ta l d eals w ith oth er c o m pute rs t h at h av e e x cess c ap acity .

11 A d riv erle ss c ar o w ned b y a c o m munity , c o m pan y, in div id ual, o r p erh ap s i ts e lf m oves a ro und t h e c ity p ic k in g u p a n d d ro ppin g o ff p asse n gers a n d ch arg in g t h em a p pro pria te f e es. W e’re i n te re ste d i n a g en ts t h at c an d o t r a n sa ctio ns, a cq uir e re so urc es, m ak e p ay m en ts , o r o th erw is e p ro duce v alu e o n b eh alf o f t h eir c re ato r.

Vita lik B ute rin , w ho c re ate d t h e E th ere u m b lo ck ch ain , h as t h eo riz ed a b out t h ese a g en ts a n d dev elo ped a t a x onom y t o d esc rib e t h eir e v olu tio n. A t o ne e n d a re s in gle -fu nctio n a g en ts l ik e vir u se s t h at g o a b out w ork in g t o a ch ie v e t h eir l im ite d g oals . N ex t u p a re m ore i n te llig en t a n d vers a tile a g en ts , s a y , a s e rv ic e t h at w ould r e n t s e rv ers f ro m a s p ecif ic s e t o f p ro vid ers l ik e Am azo n. A m ore s o phis tic ate d a g en t m ig ht b e a b le t o f ig ure o ut h ow t o r e n t a s e rv er f ro m a n y pro vid er a n d t h en u se a n y s e arc h e n gin e t o l o cate n ew W eb s ite s. A n e v en m ore c ap ab le a g en t co uld u pgra d e i ts o w n s o ftw are a n d a d ap t t o n ew m odels o f s e rv er r e n ta l s u ch a s o ffe rin g t o p ay en d u se rs f o r r e n ta l o f t h eir u nuse d c o m pute rs o r d is k s. T he p en ultim ate s te p c o nsis ts o f b ein g ab le t o d is c o ver a n d e n te r n ew i n dustr ie s, l e ad in g i n to t h e n ex t e v olu tio n o f t h e s p ecie s— fu ll artif ic ia l i n te llig en ce.

12 Wea th ern et Could a n a u to nom ous a g en t u se b lo ck ch ain t e ch nolo gy t o m ak e m oney f o re castin g t h e w eath er?

Fla sh -fo rw ard t o 2 020. T he b est w eath er f o re casts g lo bally a re c o m in g f ro m a n etw ork o f s m art dev ic es t h at a re m easu rin g a n d p re d ic tin g t h e w eath er a ll a ro und t h e w orld . T hat y ear, a n au to nom ous a g en t n am ed B O B i s r e le ase d o nto t h is n etw ork t o c o lla b ora te w ith t h ese d ev ic es t o cre ate a b usin ess. H ere ’s h ow B O B w ork s.

Dis tr ib ute d e n vir o nm en ta l s e n so rs ( w eath erN odes) o n u tility p ole s, i n p eo ple ’s c lo th es, o n ro ofs o f b uild in gs, t r a v elin g i n c ars , a n d l in ked t o s a te llite s a re a ll c o nnecte d i n a g lo bal m esh netw ork . N o n eed f o r a n I n te rn et s e rv ic e p ro vid er f o r c o nnectiv ity . R ath er t h an c o m munic atin g with a c en tr a l d ata b ase , t h ey s to re t h eir d ata o n a b lo ck ch ain .

13 M an y a re s o la r p ow ere d a n d s o th ey d on’t n eed t h e e le ctr ic al g rid ; t h ey c an e ffe ctiv ely o pera te i n defin ite ly .

The b lo ck ch ain h an dle s a f e w f u nctio ns. F ir s t, i t s e ttle s p ay m en ts . A s a n i n cen tiv e, e ach weath erN ode r e ceiv es a m ic ro pay m en t e v ery t h ir ty s e co nds f o r p ro vid in g a ccu ra te w eath er te le m etr y ( te m pera tu re , h um id ity , w in d, e tc .) a t a p artic u la r l o catio n i n t h e w orld .

The b lo ck ch ain a ls o s to re s a ll w eath erN ode t r a n sa ctio ns. E ach w eath erN ode s ig ns a ll o f i ts data w ith i ts p ublic k ey s to re d o n t h e b lo ck ch ain . A p ublic k ey i d en tif ie s t h e w eath erN ode a n d allo w s o th er e n titie s t o d ete rm in e i ts r e p uta tio n. W hen t h e n ode p ro duces a ccu ra te w eath er d ata , its re p uta tio n i s e n han ced . I f a n ode i s b ro ken o r c o m pro m is e d a n d p ro duces i n accu ra te d ata , i t lo se s s ta tu s. N odes w ith l o w r e p uta tio n r e ceiv e l e ss b itc o in t h an n odes w ith h ig h r e p uta tio n— th e ben efic ia ry b ein g t h e c re ato r o f t h e a p p— wheth er a n i n div id ual, c o m pan y, o r c o opera tiv e.

The b lo ck ch ain a ls o a llo w s d ata p ro vid ers a n d d ata c o nsu m ers t o p artic ip ate p eer t o p eer o n a s in gle , o pen s y ste m , r a th er t h an s u bsc rib e t o d ozen s o f c en tr a liz ed w eath er s e rv ic es a ro und t h e world , a n d p ro gra m t h eir s o ftw are t o c o m munic ate w ith e ach o f t h eir a p plic atio n p ro gra m min g in te rfa ces ( A PIs ). W ith s m art c o ntr a cts w e c an h av e a g lo bal “ W eath erD ata M ark etp la ce D App” where c o nsu m ers b id f o r d ata i n r e al t im e a n d r e ceiv e t h e d ata i n a u niv ers a lly a g re ed -u pon fo rm at. C en tr a liz ed d ata p ro vid ers c an d itc h t h eir p ro prie ta ry s y ste m s a n d i n div id ualiz ed s a le s effo rts , a n d i n ste ad b eco m e d ata p ro vid ers f o r t h e g lo bally a ccessib le W eath erD ata M ark etp la ce DApp.

Wea th erD App: S en so rs L P In t h e f ir s t e ra o f t h e I n te rn et, t e ch nic al i n novatio n o ccu rre d o nly i n t h e c en te r; c en tr a liz ed utilitie s l ik e e n erg y c o m pan ie s, c ab le c o rp ora tio ns, a n d c en tr a l b an ks d ecid ed w hen t o u pgra d e th e n etw ork , w hen t o s u pport n ew f e atu re s, a n d w hom t o g iv e a ccess. I n novatio n c o uld n’t o ccu r at t h e “ ed ges” ( i.e ., i n div id uals u sin g t h e n etw ork ) b ecau se t h e r u le s a n d p ro to co ls o f c lo se d sy ste m s m ean t t h at a n y n ew t e ch nolo gie s d esig ned t o i n te ra ct w ith t h e n etw ork w ould n eed t h e cen tr a l p ow er’s p erm is sio n t o o pera te o n i t.

But c en tr a l p ow ers a re i n effic ie n t b ecau se t h ey d on’t k now e x actly w hat t h e m ark et w an ts i n re al t im e. T hey h av e t o m ak e e d ucate d g uesse s t h at a re a lw ay s l e ss a ccu ra te t h an w hat r e al- tim e mark ets d em an d. W e e n d u p w ith W eath erC orp , a c en tr a liz ed s e rv ic e t h at i n sta lls s e n so rs a n d puts u p s a te llite s s o t h at i t c an s e ll s u bsc rip tio ns t o d ata t h at f e w p eo ple m ay w an t.

The b lo ck ch ain a llo w s a n y e n tity t o b eco m e a w eath er p ro vid er o r w eath er d ata c o nsu m er, with v ery l o w b arrie rs t o e n tr y . J u st b uy a w eath erN ode, p ut i t o n y our r o of, a n d c o nnect i t t o t h e Glo balW eath erD ata M ark etp la ce D App L P ( fo r l in ked p eers ) a n d y ou’ll s ta rt e arn in g i n co m e rig ht a w ay . A nd i f y ou c an r ig y our o w n r o ofto p w eath erN ode t h at h ap pen s t o p ro vid e m ore accu ra te d ata , w ell, g ood f o r y ou! Y ou i n novate d o n t h e e d ge, an d t h e m ark et r e w ard s y ou f o r i t.

The i n cen tiv es f o r i n novatio n o n o pen n etw ork s a re a lig ned t o i n cre ase e ffic ie n cy b ette r t h an clo se d n etw ork s.

Duelin g B ots What a b out c o nflic ts o f i n te re st? I f t h e w eath erN ode s ta rte d e x pan din g i ts c ap ab ility a n d e n te re d th e c ro p i n su ra n ce m ark etp la ce, w ould n’t i t h av e c o gnitiv e d is so nan ce? F arm er w eath erN odes wan t t o e m phasiz e t h e i m pact o f d ro ughts , a n d i n su re r w eath erN odes c la im d ro ughts a re min im al. T he o w ners a n d d esig ners o f a g en ts n eed t r a n sp are n cy o f o pera tio ns. I f b oth a re filte rin g s e n so r d ata t h ro ugh a b ia se d s c re en , t h en t h eir r e sp ectiv e r e p uta tio ns w ill d ro p.

Vita lik B ute rin p oin ts o ut t h at a u to nom ous a g en ts a re c h alle n gin g t o c re ate , b ecau se t o su rv iv e a n d s u cceed t h ey n eed t o b e a b le t o n av ig ate i n a c o m plic ate d , r a p id ly c h an gin g, o r e v en hostile e n vir o nm en t. “ If a W eb h ostin g p ro vid er w an ts t o b e u nsc ru pulo us, t h ey m ig ht sp ecif ic ally l o cate a ll i n sta n ces o f t h e s e rv ic e, a n d t h en r e p la ce t h em w ith n odes t h at c h eat i n so m e f a sh io n; a n a u to nom ous a g en t m ust b e a b le t o d ete ct s u ch c h eatin g a n d r e m ove o r a t l e ast neu tr a liz e c h eatin g n odes f ro m t h e s y ste m .” 14 Note t h at a u to nom ous a g en ts a ls o s e p ara te p ers o nhood f ro m a sse t o w ners h ip a n d c o ntr o l.

Befo re b lo ck ch ain t e ch nolo gy, a ll a sse ts — la n d, i n te lle ctu al p ro perty , m oney — re q uir e d a p ers o n or l e g al o rg an iz atio n o f p eo ple t o o w n i t. A cco rd in g t o A ndre as A nto nopoulo s, c ry pto cu rre n cie s co m ple te ly i g nore p ers o nhood. “ A w alle t c o uld b e c o ntr o lle d b y a p ie ce o f s o ftw are t h at h as n o ow ners h ip a n d s o y ou h av e t h e p ossib ility o f c o m ple te ly a u to nom ous s o ftw are a g en ts t h at co ntr o l t h eir o w n m oney .” 15 An a u to nom ous a g en t c o uld p ay f o r i ts o w n W eb h ostin g a n d u se e v olu tio nary a lg orith m s t o sp re ad c o pie s o f i ts e lf b y m ak in g s m all c h an ges a n d t h en a llo w in g t h ose c o pie s t o s u rv iv e. E ach co py c o uld c o nta in n ew c o nte n t t h at i t d is c o vers o r e v en c ro w dso urc es s o m ew here o n t h e In te rn et. A s s o m e o f t h ese c o pie s b eco m e v ery s u ccessfu l, t h e a g en t c o uld s e ll a d s b ack t o u se rs , ad r e v en ue c o uld g o i n to a b an k a cco unt o r p oste d o n a s e cu re p la ce o n t h e b lo ck ch ain , a n d t h e ag en t c o uld u se t h is g ro w in g r e v en ue t o c ro w dso urc e m ore a d c o nte n t a n d p ro lif e ra te i ts e lf . T he ag en t w ould r e p eat t h e c y cle s o t h at a p pealin g c o nte n t p ro pag ate s a n d h osts i ts e lf s u ccessfu lly , an d u nsu ccessfu l c o nte n t b asic ally d ie s b ecau se i t r u ns o ut o f m oney t o h ost i ts e lf .

DIS T R IB U TED A UTO NO M OUS E N TER PR IS E S We n ow s u ggest y ou b uck le u p i n y our Sta r T re k c ap ta in ’s s e at f o r a m om en t. I m ag in e B O B 9000— a s e t o f a u to nom ous a g en ts t h at c o opera te i n a c o m ple x b lo ck ch ain -b ase d e co sy ste m acco rd in g t o a m is sio n s ta te m en t a n d r u le s. T ogeth er t h ey c re ate a s u ite o f s e rv ic es t h at t h ey s e ll to h um an s o r o rg an iz atio ns. H um an s a n im ate t h e a g en ts , e n dow in g t h em w ith c o m putin g p ow er an d c ap ita l t o g o a b out t h eir w ork . T hey b uy t h e s e rv ic es t h ey n eed , h ir e p eo ple o r r o bots , acq uir e p artn er r e so urc es s u ch a s m an ufa ctu rin g c ap ab ility a n d b ra n din g a n d m ark etin g ex pertis e , a n d a d ap t i n r e al t im e.

This o rg an iz atio n c o uld h av e s h are h old ers , p ossib ly m illio ns o f t h em w ho p artic ip ate d i n a cro w dfu ndin g c am paig n. T he s h are h old ers p ro vid e a m is sio n s ta te m en t, s a y , t o m ax im iz e p ro fit la w fu lly , w hile t r e atin g a ll s ta k eh old ers w ith i n te g rity . S hare h old ers c o uld a ls o v ote a s r e q uir e d to g overn t h e e n tity . A s o ppose d t o t r a d itio nal o rg an iz atio ns, w here h um an s m ak e a ll d ecis io ns, in t h e u ltim ate d is tr ib ute d o rg an iz atio n m uch o f t h e d ay -to -d ay d ecis io n m ak in g c an b e pro gra m med i n to c le v er c o de. I n t h eo ry , a t l e ast, t h ese e n titie s c an r u n w ith m in im al o r n o tr a d itio nal m an ag em en t s tr u ctu re , a s e v ery th in g a n d e v ery one w ork s a cco rd in g t o s p ecif ic r u le s an d p ro ced ure s c o ded i n s m art c o ntr a cts . T here w ould b e n o o verc o m pen sa te d C EO , man ag em en t, o r c o rp ora te b ure au cra cy , u nle ss t h e e n tity d ecid ed t o h ir e a n d b uild o ne. T here would b e n o o ffic e p olitic s, n o r e d t a p e, n o P ete r P rin cip le o f t h e D ilb ertia n e n te rp ris e a t w ork , becau se t e ch nolo gy p ro vid ers , o pen s o urc e c o m munitie s, o r e n te rp ris e f o unders w ould s e t t h e so ftw are ’s a g en da t o e x ecu te s p ecif ic f u nctio ns.

Any h um an e m plo yees o r p artn er o rg an iz atio ns w ould p erfo rm u nder s m art c o ntr a cts . W hen th ey d o t h e j o b a s s p ecif ie d , t h ey a re i n sta n tly p aid — perh ap s n ot b iw eek ly b ut d aily , h ourly , o r in m ic ro se co nds. A s t h e e n tity w ould n’t n ecessa rily h av e a n a n th ro pom orp hic b ody, e m plo yees mig ht n ot e v en k now t h at a lg orith m s a re m an ag in g t h em . B ut t h ey w ould k now t h e r u le s a n d norm s f o r g ood b eh av io r. G iv en t h at t h e s m art c o ntr a ct c o uld e n co de t h e c o lle ctiv e k now le d ge o f man ag em en t s c ie n ce a n d t h at t h eir a ssig nm en ts a n d p erfo rm an ce m etr ic s w ould b e t r a n sp are n t, peo ple c o uld l o ve t o w ork .

Custo m ers w ould p ro vid e f e ed back t h at t h e e n te rp ris e w ould a p ply dis p assio nate ly a n d in sta n tly t o c o rre ct c o urs e . S hare h old ers w ould r e ceiv e d iv id en ds, p erh ap s f re q uen tly , a s r e al- tim e a cco untin g w ould o bvia te t h e n eed f o r y ear-e n d r e p orts . T he o rg an iz atio n w ould p erfo rm a ll th ese a ctiv itie s u nder t h e g uid an ce a n d i n co rru ptib le b usin ess r u le s t h at a re a s t r a n sp are n t a s t h e open s o urc e s o ftw are t h at i ts f o unders u se d t o s e t i t i n m otio n.

Welc o m e t o t o m orro w ’s d is tr ib ute d a u to nom ous e n te rp ris e ( D AE), p ow ere d b y b lo ck ch ain te ch nolo gy a n d c ry pto cu rre n cie s, w here a u to nom ous a g en ts c an s e lf -a g gre g ate i n to r a d ic ally n ew models o f t h e e n te rp ris e .

Befo re y ou s a y t h at t h is a ll s o unds i m pra ctic al, p oin tle ss, o r s o m eth in g f ro m s c i- fi, c o nsid er th e f o llo w in g. U sin g t o ken s, c o m pan ie s s u ch a s C onse n S ys h av e a lr e ad y i s su ed s h are s i n t h eir fir m s, s ta g in g p ublic o ffe rin gs w ith out r e g ula to ry o vers ig ht. Y ou c o uld l e g ally r e co rd t h e ow ners h ip o f p riv ate ly h eld c o rp ora tio ns a n d t r a n sfe r t h ose s h are s t o o th er p ers o ns o n t h e blo ck ch ain . Y our s h are c ertif ic ate s c an p ay d iv id en ds a n d c o nfe r v otin g p ow er. T hat s a id , y our new “ b lo ck co m ” i s d is tr ib ute d ; i t d oesn ’t e x is t w ith out j u ris d ic tio n, b ut y our s h are h old ers c an liv e a n yw here . I m ag in e a s im ila r m ech an is m t o i s su e d eb t i n t h e f o rm o f b onds, e ith er p riv ate co rp ora te b onds o r s o vere ig n b onds, e sse n tia lly c re atin g a b ond m ark et. T he s a m e l o gic a p plie s to c o m moditie s— not t h e c o m modity i ts e lf b ut a n ote t h at c o rre sp onds t o t h e c o m modity , s im ila r to h ow t h e C hic ag o M erc an tile E xch an ge o r t h e g lo bal g old m ark et w ork .

But d on’t t h in k o f s e cu ritie s a s y ou c u rre n tly k now t h em . I m ag in e a g lo bal I P O w ith 1 00 millio n s h are h old ers e ach c o ntr ib utin g a f e w p en nie s. I t’ s n ot u nth in kab le t h at m an ag em en t a n d govern an ce c o uld o ccu r o n a m assiv e s c ale , w ith m illio ns o f p eo ple h av in g v otin g s h are s. A t l a st, in vesto rs a t t h e b otto m o f t h e p yra m id c o uld p artic ip ate a n d o w n s h are s o f a w ealth -c re atin g ven tu re a n yw here i n t h e w orld . I n t h eo ry a t l e ast, w e c o uld d esig n a c o rp ora tio n w ith out ex ecu tiv es, o nly s h are h old ers , m oney , a n d s o ftw are . C ode a n d a lg orith m s c o uld r e p la ce a l a y er of r e p re se n ta tiv es ( i.e ., t h e e x ecu tiv e b oard ), w ith s h are h old ers e x ertin g c o ntr o l o ver t h at c o de.

The o pportu nity f o r p ro sp erity i s s ig nif ic an t, n oth in g l e ss t h an t h e d em ocra tiz atio n o f o w ners h ip of w ealth -c re atin g i n str u m en ts .

Not p ra ctic al? P erh ap s. B ut c o nsid er t h at e n tr e p re n eu rs a re a lr e ad y u sin g s c rip tin g l a n guag es su ch a s E th ere u m t o d esig n s u ch f u nctio ns f o r e v en tu ally a u to nom ous m odels . A lr e ad y in novato rs a re i m ple m en tin g c o de th at p erm its m ultis ig natu re c o ntr o l o ver f u nds. T hro ugh cro w dfu ndin g c am paig ns, m asse s o f p eo ple a re p urc h asin g e q uity i n c o m pan ie s. D Apps a re alr e ad y g iv in g w ay t o a u to nom ous a g en ts .

This c o m ple te ly d is tr ib ute d e n te rp ris e c o uld h av e a w alle t t h at r e q uir e s t h ousa n ds o f sig nato rie s t o a ch ie v e c o nse n su s i n o rd er t o s p en d m oney o n a n i m porta n t t r a n sa ctio n. A ny sh are h old er c o uld s u ggest a r e cip ie n t f o r t h at m oney , m ars h alin g c o nse n su s a ro und t h at tr a n sa ctio n. A s tr u ctu re l ik e t h is w ould h av e o bvio us c h alle n ges. F or e x am ple , m ech an is m s would n eed t o b e i n p la ce t o q uic k ly a ch ie v e c o nse n su s. O r w ho i s r e sp onsib le f o r t h e o utc o m e of t h at t r a n sa ctio n? I f y ou’v e c o ntr ib ute d o ne t e n -th ousa n dth o f a v ote , w hat i s y our l e g al re sp onsib ility a n d l ia b ility ? C ould t h ere b e s e lf -p ro pag atin g c rim in al o r t e rro ris t o rg an iz atio ns?

Andre as A nto nopoulo s i s n ot c o ncern ed . H e b elie v es t h at t h e n etw ork w ill m an ag e s u ch d an gers .

“M ak e t h is t e ch nolo gy a v aila b le t o s e v en a n d a h alf b illio n p eo ple , 7 .4 99 b illio n o f t h ose w ill u se it f o r g ood a n d t h at g ood c an d eliv er e n orm ous b en efit t o s o cie ty .” 16 TH E B IG S E V EN : O PE N N ETW ORK ED E N TER PR IS E B U SIN ESS M ODELS There a re c o untle ss o pportu nitie s t o c o nstr u ct o pen n etw ork ed e n te rp ris e s t h at d is ru pt o r d is p la ce tr a d itio nal c en tr a liz ed m odels , p ote n tia lly e v olv in g i n to n asc en t d is tr ib ute d a u to nom ous en te rp ris e s. C onsid er h ow t h e d is tr ib ute d m odel w ill d is ru pt o r r e p la ce t h e e ig ht f u nctio ns o f fin an cia l s e rv ic es— ev ery th in g f ro m r e ta il b an kin g a n d s to ck m ark ets t o i n su ra n ce c o m pan ie s an d a cco unta n cie s. I n cu m ben t a n d n ew e n tr ie s a lik e c an c o nstr u ct n ew b usin ess a rc h ite ctu re s t h at can i n novate b ette r, c re ate b ette r v alu e a t l o w er c o st, a n d s h if t a n d e n ab le p ro ducers t o s h are i n th e w ealth t h ey c re ate .

Blo ck ch ain t e ch nolo gy t a k es s o m e o f t h e n ew b usin ess m odels d esc rib ed i n Wik in om ic s t o a new l e v el.

17 L et’ s l o ok a t h ow w e c an e x pan d p eer p ro ductio n, i d eag ora s, p ro su m ers , o pen pla tf o rm s, t h e n ew p ow er o f t h e c o m mons, t h e g lo bal p la n t f lo or, a n d t h e w ik i ( s o cia l) w ork pla ce by a d din g i n n ativ e p ay m en t s y ste m s, r e p uta tio n s y ste m s, u ncen so ra b le c o nte n t, t r u stle ss tr a n sa ctio ns, s m art c o ntr a cts , a n d a u to nom ous a g en ts — th e k ey i n novatio ns o f t h e b lo ck ch ain re v olu tio n.

1.

T he P eer P ro ducers Peer p ro ducers a re t h e t h ousa n ds o f d is p ers e d v olu nte ers w ho b ro ught y ou o pen s o urc e s o ftw are an d W ik ip ed ia , i n novativ e p ro je cts t h at o utp erfo rm t h ose o f t h e l a rg est a n d b est- fin an ced en te rp ris e s. C om munity m em bers p artic ip ate f o r t h e f u n o f i t, a s a h obby, t o n etw ork , o r b ecau se of t h eir v alu es. N ow , b y e n ab lin g r e p uta tio n s y ste m s a n d o th er i n cen tiv es, b lo ck ch ain t e ch nolo gy can i m pro ve t h eir e ffic ie n cy a n d r e w ard t h em f o r t h e v alu e t h ey c re ate .

Peer p ro ductio n c o m munitie s c an b e “ co m mons-b ase d p eer p ro ductio n,” a p hra se c o in ed b y Harv ard L aw p ro fe sso r Y och ai B en kle r.

18 S om etim es c alle d so cia l p ro ductio n , a ls o B en kle r’s te rm , t h is s y ste m m ean s t h at g oods a n d s e rv ic es a re p ro duced o uts id e t h e b ounds o f t h e p riv ate se cto r a n d a re n ot “ o w ned ” b y a c o rp ora tio n o r i n div id ual. A m ong t h e c o untle ss e x am ple s a re t h e Lin ux o pera tin g s y ste m ( o w ned b y n o o ne b ut n ow t h e m ost i m porta n t o pera tin g s y ste m i n t h e world ), W ik ip ed ia ( o w ned b y t h e W ik im ed ia F oundatio n), a n d t h e F ir e fo x W eb b ro w se r ( o w ned by t h e M ozilla F oundatio n). P eer p ro ductio n c an a ls o r e fe r t o a ctiv itie s i n t h e p riv ate s e cto r where p eers c o lla b ora te s o cia lly t o p ro duce s o m eth in g b ut t h e g ood i s n ot s o cia lly o w ned .

Peer p ro ductio n a s a b usin ess m odel m atte rs f o r t w o r e aso ns. F ir s t, s o m etim es p eers co lla b ora te v olu nta rily t o p ro duce g oods a n d s e rv ic es w here a c o rp ora tio n a cts a s c u ra to r a n d ach ie v es c o m merc ia l b en efit. R ead ers c re ate t h e c o nte n t o n t h e R ed dit d is c u ssio n p la tf o rm , b ut th ey d on’t o w n i t. R ed dit i s t h e t e n th -b ig gest s ite i n t h e U nite d S ta te s i n t e rm s o f t r a ffic . S eco nd, co m pan ie s c an t a p i n to v ast p ools o f e x te rn al l a b or. I B M e m bra ced L in ux a n d d onate d h undre d s of m illio ns o f d olla rs ’ w orth o f s o ftw are t o t h e L in ux c o m munity . I n d oin g s o , I B M s a v ed $ 900 millio n a y ear d ev elo pin g i ts o w n p ro prie ta ry s y ste m s a n d c re ate d a p la tf o rm o n w hic h i t b uilt a multib illio n-d olla r s o ftw are a n d s e rv ic es b usin ess.

Experie n ce s h ow s t h at l o ng-te rm s u sta in ab ility o f v olu nte er c o m munitie s c an b e c h alle n gin g.

In f a ct, s o m e o f t h e m ore s u ccessfu l c o m munitie s h av e f o und w ay s t o c o m pen sa te m em bers f o r th eir h ard w ork . A s S te v e W ozn ia k s a id t o S te w art B ra n d, “ In fo rm atio n s h ould b e f re e, b ut y our tim e s h ould n ot.” 19 In t h e c ase o f L in ux, m ost o f t h e p artic ip an ts g et p aid b y c o m pan ie s l ik e I B M o r G oogle t o en su re t h at L in ux m eets t h eir s tr a te g ic n eed s. L in ux is s till a n e x am ple o f s o cia l p ro ductio n.

Ben kle r t o ld u s, “ T he f a ct t h at s o m e d ev elo pers a re p aid b y t h ir d p artie s t o p artic ip ate d oes n ot ch an ge t h e g overn an ce m odel o f L in ux, o r t h e f a ct t h at i t i s s o cia lly d ev elo ped .” T his i s m ore th an s o -c alle d o pen i n novatio n t h at i n volv es c o opera tio n b etw een f ir m s a n d s h arin g c erta in in te lle ctu al p ro perty , h e s a id . “ T here i s s till s u bsta n tia l s o cia l m otiv atio n f o r m an y c o ntr ib uto rs an d a s s u ch i t’ s a h ybrid m odel.” 20 Furth er, m an y o f t h ese c o m munitie s a re p la g ued w ith b ad b eh av io r, i n co m pete n ce, sa b ote u rs , a n d t r o lls — peo ple w ho s o w d is c o rd b y p ostin g i n fla m mato ry , i n co rre ct, o r o ff-to pic messa g es t o d is ru pt t h e c o m munity . R ep uta tio n i n t h ese c o m munitie s i s t y pic ally v ery i n fo rm al, an d t h ere i s n o e co nom ic i n cen tiv e f o r g ood b eh av io r.

With b lo ck ch ain t e ch nolo gy p eers c an d ev elo p m ore f o rm al r e p uta tio ns f o r e ffe ctiv e co ntr ib utio ns t o t h e c o m munity . T o d is c o ura g e b ad b eh av io r, m em bers c o uld a n te u p a s m all am ount o f m oney t h at e ith er i n cre ase s o r d ecre ase s b ase d o n c o ntr ib utio n. I n c o rp ora te -o w ned co m munitie s, p eers c o uld s h are i n t h e v alu e t h ey c re ate a n d r e ceiv e p ay m en t f o r t h eir co ntr ib utio ns a s s m art c o ntr a cts d ro p t r a n sa ctio n c o sts a n d o pen u p t h e w alls o f t h e f ir m .

Consid er R ed dit. T he c o m munity h as r e v olte d o ver c en tr a liz ed c o ntr o l b ut s till s u ffe rs f ro m flip pan t, a b ra siv e m em bers . R ed dit c o uld b en efit f ro m m ovin g t o a m ore d is tr ib ute d m odel t h at re w ard s g re at c o ntr ib uto rs . C onse n S ys i s a lr e ad y w ork in g o n a b lo ck ch ain a lte rn ativ e t o R ed dit th at d oes j u st t h at. B y o ffe rin g f in an cia l i n cen tiv es, t h e C onse n S ys t e am t h in ks i t c an i m pro ve th e q uality o f R ed ditlik e c o nvers a tio ns, w ith out c en tr a liz ed c o ntr o l a n d c en so rs h ip . T he Eth ere u m p la tf o rm p ro vid es i n cen tiv es, p erh ap s i n r e al t im e, t o p ro duce h ig h-q uality c o nte n t a n d beh av e c iv illy w hile c o ntr ib utin g t o c o lle ctiv e u nders ta n din g.

Red dit h as a s y ste m i n p la ce, c alle d R ed dit “ G old ”— a t o ken t h at u se rs c an b uy a n d t h en u se to r e w ard p eo ple w hose c o ntr ib utio ns t h ey v alu e. T he m oney f ro m t o ken s g oes t o s ite main te n an ce. T he g old h as n o i n tr in sic v alu e t o u se rs . S o w ith a r e al, t r a n sfe ra b le , b lo ck ch ain - base d c o in i n cen tiv e, R ed dit m em bers c o uld a ctu ally b eg in t o g et p aid f o r m ak in g t h e s ite m ore ro bust.

Wik ip ed ia , t h e f la g sh ip o f s o cia l p ro ductio n, c o uld b en efit a s w ell. R ig ht n ow a ll p ers o ns who e d it a rtic le s d ev elo p a n i n fo rm al r e p uta tio n base d o n h ow m an y p ie ces t h ey h av e e d ite d a n d how e ffe ctiv e t h ey a re , a s m easu re d b y h ig hly s u bje ctiv e t e rm s. T he W ik ip ed ia c o m munity deb ate s c o nsta n tly o ver i n cen tiv e s y ste m s, b ut a d m in is te rin g s o m e k in d o f f in an cia l co m pen sa tio n t o s e v en ty t h ousa n d v olu nte ers h asn ’t b een f e asib le .

What i f W ik ip ed ia w en t o n t h e b lo ck ch ain — call i t B lo ck ap ed ia . I n a d ditio n t o t h e b en efits o f en tr ie s t im e-s ta m ped i n to a n i m muta b le l e d ger, t h ere c o uld b e m ore f o rm al m easu re s o f o ne’s re p uta tio n t h at c o uld h elp i n cen t g ood b eh av io r a n d a ccu ra te c o ntr ib utio ns. S ponso rs c o uld f u nd, or a ll e d ito rs c o uld c o ntr ib ute m oney t o , a n e sc ro w a cco unt. E ach e d ito r c o uld h av e a r e p uta tio n lin ked t o t h e v alu e o f h er a cco unt. I f s h e t r ie d t o c o rru pt a n a rtic le , s ta tin g f o r e x am ple t h at t h e Holo cau st n ev er h ap pen ed , t h e v alu e o f h er d ep osit w ould d eclin e, a n d i n c ase s o f d efa m atio n o r in vasio n o f p riv acy , s h e w ould l o se i t a n d e v en f a ce c iv il o r c rim in al a ctio n. T he t r u e e v en ts o f th e S eco nd W orld W ar c o uld b e e sta b lis h ed i n m an y w ay s, f o r e x am ple , b y a ccessin g unch an geab le f a cts o n t h e b lo ck ch ain o r t h ro ugh a lg orith m s t h at s h ow c o nse n su s r e g ard in g t h e tr u th .

The s iz e o f y our B lo ck ap ed ia s e cu rity d ep osit c o uld b e p ro portio nal t o y our p re v io us re p uta tio n o n W ik ip ed ia o r s im ila r p la tf o rm s. I f y ou’re a b ra n d-n ew u se r a n d h av e n o r e p uta tio n, you’ll p ut u p a l a rg er s e cu rity d ep osit t o p artic ip ate . I f y ou’v e e d ite d , s a y , t w o h undre d a rtic le s on W ik ip ed ia s u ccessfu lly , y our d ep osit m ig ht b e s m all.

This i s n ot n ecessa rily a b out m ovin g W ik ip ed ia t o a f o r-h ir e c o m pen sa tio n m odel. “ It’ s sim ply a c ase o f p ro vid in g r e al- w orld e co nom ic g ain o r l o ss d ep en din g o n t h e a ccu ra cy a n d vera city o f t h e i n fo rm atio n y ou’re p ro vid in g,” 21 s a id D in o M ark A ngaritis , C EO o f t h e blo ck ch ain -b ase d S m artw alle t. D efa cin g B lo ck ap ed ia h urts y our f o rm al r e p uta tio n b ut y ou a ls o lo se m oney .

But W ik ip ed ia w ork s p re tty w ell r ig ht n ow , r ig ht? N ot q uite . A ndre w L ih , w ritin g i n The New Y ork T im es , p oin te d o ut t h at, i n 2 005, t h ere w ere m onth s w hen m ore t h an s ix ty e d ito rs w ere mad e a d m in is tr a to r, a p ositio n w ith s p ecia l p riv ile g es i n e d itin g t h e E nglis h -la n guag e e d itio n. I n 2015, t h e s ite h as s tr u ggle d t o p ro m ote e v en o ne e d ito r p er m onth . B ein g a v olu nta ry g lo bal org an iz atio n, t h ere a re i n te rn al t e n sio ns. W ors e , e d itin g c o nte n t o n a m obile d ev ic e i s d if fic u lt.

“T he p ool o f p ote n tia l W ik ip ed ia e d ito rs c o uld d ry u p a s t h e n um ber o f m obile u se rs k eep s gro w in g.” L ih c o nclu des t h at t h e d em is e o f W ik ip ed ia w ould b e u nfo rtu nate . “ N o e ffo rt i n his to ry h as gotte n s o m uch i n fo rm atio n a t s o l ittle c o st i n to t h e h an ds o f s o m an y— a f e at m ad e all t h e m ore r e m ark ab le b y t h e a b se n ce o f p ro fit a n d o w ners . I n a n a g e o f I n te rn et g ia n ts , t h is most s e lf le ss o f w eb site s i s w orth s a v in g.” 22 Overa ll, p eer p ro ductio n c o m munitie s a re a t t h e h eart o f n ew , n etw ork ed m odels o f v alu e cre atio n. I n m ost i n dustr ie s, i n novatio n i n cre asin gly d ep en ds o n d en se n etw ork s o f p ublic a n d priv ate p artic ip an ts a n d l a rg e p ools o f t a le n t a n d i n te lle ctu al p ro perty t h at r o utin ely c o m bin e t o cre ate e n d p ro ducts . A s I B M e m bra ced L in ux, f ir m s c an e v en t ie i n to s e lf -o rg an iz in g n etw ork s of v alu e c re ato rs l ik e t h e o pen s o urc e m ovem en t t o c o cre ate o r p eer-p ro duce v alu e.

2.

T he R ig hts C re ato rs Durin g t h e f ir s t g en era tio n o f t h e I n te rn et, m an y c re ato rs o f i n te lle ctu al p ro perty d id n ot r e ceiv e pro per c o m pen sa tio n f o r i t. M usic ia n s, p la y w rig hts , j o urn alis ts , p hoto gra p hers , a rtis ts , f a sh io n desig ners , s c ie n tis ts , a rc h ite cts , a n d e n gin eers a ll w ere b eh old en t o r e co rd l a b els , p ublis h ers , galle rie s, f ilm s tu dio s, u niv ers itie s, a n d l a rg e c o rp ora tio ns t h at i n sis te d t h ese i n ven to rs a ssig n th eir i n te lle ctu al p ro perty r ig hts t o w hat e sse n tia lly a re l a rg e r ig hts m an ag em en t o pera tio ns i n ex ch an ge f o r l e ss a n d l e ss o f t h eir I P ’s v alu e.

Blo ck ch ain t e ch nolo gy p ro vid es a n ew p la tf o rm f o r c re ato rs o f i n te lle ctu al p ro perty t o g et valu e f o r i t. C onsid er t h e d ig ita l r e g is tr y o f a rtw ork , i n clu din g t h e c ertif ic ate s o f a u th en tic ity , co nditio n, a n d o w ners h ip . A n ew s ta rt- u p, A sc rib e, e n ab le s a rtis ts t h em se lv es t o u plo ad d ig ita l art, w ate rm ark i t a s t h e d efin itiv e v ers io n, a n d t r a n sfe r i t s o t h at, l ik e b itc o in , i t m oves f ro m o ne pers o n’s c o lle ctio n t o a n oth er’s . T hat’ s h uge. T he t e ch nolo gy s o lv es t h e i n te lle ctu al p ro perty world ’s e q uiv ale n t o f t h e d ouble -s p en d p ro ble m b ette r t h an e x is tin g d ig ita l r ig hts m an ag em en t sy ste m s, a n d a rtis ts c o uld d ecid e w heth er, w hen , a n d w here t h ey w an te d t o d ep lo y i t.

Mem e a rtis t R onen V s a id , “ A rt i s a c u rre n cy . T he e v olu tio n o f a rt i n to d ig ita l c u rre n cy i s — no q uestio n— th e f u tu re . A nd t h is i s a g ood s te p .” 23 M usic ia n s, p hoto gra p hers , d esig ners , illu str a to rs , o r o th er a rtis ts w hose w ork c o uld b e d ig itiz ed a n d w ate rm ark ed a s a d efin itiv e c o py co uld u se t h is t e ch nolo gy t o t r a n sfo rm t h eir i n te lle ctu al p ro perty i n to a t r a d ab le a sse t, a l im ite d ed itio n p erh ap s c u sto m iz ed f o r a p artic u la r f a n . A rtis ts a n d m use u m s c an u se A sc rib e’s te ch nolo gy t o l o an p ie ces t o o th er i n div id uals o r in stitu tio ns.

24 M oneg ra p h o ffe rs a s im ila r se rv ic e: i t u se s d ig ita l w ate rm ark s a n d t h e c ry pto gra p hy i n tr in sic t o t h e b lo ck ch ain f o r au th en tic atin g p ie ces. A rtis ts s im ply u plo ad t h e a rt t o a p ag e o n t h e I n te rn et a n d s u bm it t h e U RL to M oneg ra p h. T he f ir m i s su es a s e t o f p ublic a n d p riv ate k ey s, e x cep t t h at t h e v alu e a sso cia te d with t h e p ublic k ey i s a d ig ita l d eed t o t h e a rt r a th er t h an b itc o in p er s e . M oneg ra p h a ls o t w eets a public a n nouncem en t o f t h e d eed , n ote w orth y b ecau se t h e U .S . L ib ra ry o f C ongre ss a rc h iv es public T w itte r f e ed s.

25 S om eo ne e ls e m ig ht t r y t o c la im t h e U RL a s h is o w n, b ut t h ere w ould alr e ad y b e a t l e ast t w o p ro ofs i n t h e p ublic r e co rd t o v erif y o w ners h ip .

26 Veris a rt, a L os A ngele s– base d s ta rt- u p w ith b itc o in c o re d ev elo per P ete r T odd a s a n a d vis e r, has e v en g re ate r a m bitio ns. C ertif y in g t h e a u th en tic ity a n d t h e c o nditio n o f a p ie ce o f f in e a rt i s big b usin ess, a n d o ne t h at i s l a rg ely p ap er b ase d a n d c o ntr o lle d b y e lite e x perts w ith a ccess t o re str ic te d d ata b ase s. F in din g w ho o w ns t h e a rt, w here i t’ s s to re d , a n d i n w hat c o nditio n i s a r e al ch alle n ge, e v en f o r t h ose w ho a ctu ally k now w hat t h ey ’re l o okin g f o r. V eris a rt i s c o m bin in g blo ck ch ain t e ch nolo gy a n d s ta n dard m use u m m eta d ata t o c re ate a p ublic d ata b ase o f a rt a n d co lle ctib le s. T his w orld w id e l e d ger w ill s e rv e a rtis ts , c o lle cto rs , c u ra to rs , h is to ria n s, a rt ap pra is e rs , a n d i n su re rs a n yw here i n t h e w orld .

27 B y u sin g t h e b itc o in b lo ck ch ain , V eris a rt c an co nfe r d ig ita l p ro ven an ce t o a n y p hysic al w ork , n ot j u st d ig ita l a rt, a n d u se rs w ill b e a b le t o ch eck a w ork ’s a u th en tic ity , c o nditio n, a n d c h ain o f t itle f ro m t h eir m obile d ev ic e b efo re t h ey partic ip ate i n a n o nlin e a u ctio n o r a g re e t o a s a le . “ W e b elie v e t e ch nolo gy c an a id t r u st a n d liq uid ity , e sp ecia lly a s m ore o f t h e $ 67 b illio n a n nual a rt m ark et s h if ts t o p riv ate s a le s ( p eer-to - peer) a n d o nlin e t r a n sa ctio ns,” f o under R obert N orto n t o ld Tech C ru nch . “ T he a rt w orld i s n ot bro ken . I t j u st r e lie s t o o m uch o n m id dle m en t o e n su re t r u st a n d l iq uid ity . W e b elie v e t h e a d ven t of a d ecen tr a liz ed w orld -w id e l e d ger c o uple d w ith p ow erfu l e n cry ptio n t o m ask t h e i d en titie s o f buyer a n d s e lle r w ill b e a ttr a ctiv e t o t h e a rt w orld .” 28 T he a rtis t b eco m es w hat c o uld b e c alle d a “rig hts m onetiz er” w ith t h e t e ch nolo gy m ak in g d eals a n d c o lle ctin g r e v en ue i n r e al t im e.

You c o uld a p ply t h is s a m e m odel t o o th er f ie ld s a s w ell. I n s c ie n ce, a r e se arc h er c o uld publis h a p ap er t o a l im ite d a u die n ce o f p eers , a s S ato sh i N ak am oto d id , a n d r e ceiv e r e v ie w s a n d th e c re d ib ility t o p ublis h t o a l a rg er au die n ce, r a th er t h an a ssig nin g a ll r ig hts t o a s c ie n tif ic jo urn al. T he p ap er m ig ht e v en b e a v aila b le f o r f re e b ut o th er s c ie n tis ts c o uld s u bsc rib e t o a deep er a n aly sis o r t h re ad ed d is c u ssio ns w ith t h e a u th or a b out i t. S he c o uld m ak e h er r a w d ata av aila b le o r p erh ap s s h are d ata w ith o th er s c ie n tis ts a s p art o f a s m art c o ntr a ct. I f t h ere i s a co m merc ia l o pportu nity f lo w in g f ro m t h e p ap er, t h e r ig hts c o uld a ll b e p ro te cte d i n a d van ce.

More o n t h is i n c h ap te r 9 .

3.

B lo ck ch ain C oopera tiv es The t r u st p ro to co l s u perc h arg es c o opera tiv es— au to nom ous a sso cia tio ns f o rm ed a n d c o ntr o lle d by p eo ple w ho c o m e t o geth er t o m eet c o m mon n eed s.

“It’ s n onse n se t o c all U ber a s h arin g e co nom y c o m pan y,” s a id H arv ard p ro fe sso r B en kle r.

“U ber h as u se d t h e a v aila b ility o f m obile t e ch nolo gy t o c re ate a b usin ess t h at l o w ers t h e c o st o f tr a n sp orta tio n f o r c o nsu m ers . T hat’ s a ll i t h as d one.” 29 D av id T ic o ll s a id , “ In c o m mon E nglis h usa g e, s h arin g d en ote s f re e e x ch an ge— not f in an cia l t r a n sa ctio ns. A s i n k id s’ s h arin g t o ys. I t’ s a sh am e t h at t h is t e rm h as s o m ew hat l o st t h at m ean in g.” T o h im , “ sh arin g i s t h e m ain w ay t h at hum an s a n d m em bers o f o th er s p ecie s h av e c o nducte d e x ch an ges w ith o ne a n oth er f o r m illio ns of y ears , b eg in nin g w ith t h e a ct o f c o ncep tio n i ts e lf . W hile s o m e I n te rn et c o m pan ie s h av e fa cilita te d g en uin e s h arin g, o th ers h av e a p pro pria te d a n d c o m moditiz ed t h e s o cia l r e la tio nsh ip s an d v ocab ula ry o f s h arin g.” 30 Most s o -c alle d s h arin g e co nom y c o m pan ie s a re r e ally s e rv ic e a g gre g ato rs . T hey a g gre g ate th e w illin gness o f s u pplie rs t o s e ll t h eir e x cess c ap acity ( c ars , e q uip m en t, v acan t r o om s, han dym an s k ills ) t h ro ugh a c en tr a liz ed p la tf o rm a n d t h en r e se ll t h em , a ll w hile c o lle ctin g valu ab le d ata f o r f u rth er c o m merc ia l e x plo ita tio n.

Com pan ie s l ik e U ber h av e c ra ck ed t h e c o de f o r l a rg e-s c ale s e rv ic e a g gre g atio n a n d dis tr ib utio n. A ir b nb c o m pete s w ith h ote ls o n t r a v el a cco m modatio ns; L yft a n d U ber c h alle n ge ta x i a n d l im ousin e c o m pan ie s; Z ip car, b efo re i t w as p urc h ase d b y A vis , c h alle n ged t r a d itio nal car r e n ta l c o m pan ie s w ith i ts h ip c o nven ie n ce a n d c o nven ie n t h ourly r e n ta ls .

Man y o f t h ese c o m pan ie s h av e g lo baliz ed t h e m erc h an dis in g o f t r a d itio nal l o cal, s m all- s c ale se rv ic es— lik e b ed -a n d-b re ak fa sts , t a x is , a n d h an dypers o ns. T hey u se d ig ita l t e ch nolo gie s t o t a p in to s o -c alle d u nderu tiliz ed , t im e-b ase d r e so urc es l ik e r e al e sta te ( a p artm en t b ed ro om s), veh ic le s (b etw een -c all t a x is ), a n d p eo ple ( re tir e es a n d c ap ab le p eo ple w ho c an ’t g et f u ll- tim e j o bs).

Blo ck ch ain t e ch nolo gy p ro vid es s u pplie rs o f t h ese s e rv ic es a m ean s t o c o lla b ora te t h at deliv ers a g re ate r s h are o f t h e v alu e t o t h em . F or B en kle r, “ B lo ck ch ain e n ab le s p eo ple t o tr a n sla te t h eir w illin gness t o w ork t o geth er i n to a s e t o f r e lia b le a cco untin g— of r ig hts , a sse ts , deed s, c o ntr ib utio ns, u se s— th at d is p la ces s o m e o f w hat a c o m pan y l ik e U ber d oes. S o t h at i f driv ers w an t t o s e t u p t h eir o w n U ber a n d r e p la ce U ber w ith a p ure c o opera tiv e, b lo ck ch ain en ab le s t h at.” H e e m phasiz ed t h e w ord en able . T o h im , “ T here ’s a d if fe re n ce b etw een e n ab lin g an d m ovin g t h e w orld i n a n ew d ir e ctio n.” H e s a id , “ P eo ple s till h av e t o w an t t o d o i t, t o t a k e t h e ris k o f d oin g i t.” 31 So g et r e ad y f o r b lo ck ch ain A ir b nb, b lo ck ch ain U ber, b lo ck ch ain L yft, b lo ck ch ain T ask Rab bit, a n d b lo ck ch ain e v ery th in g w here v er t h ere i s a n o pportu nity f o r r e al s h arin g a n d f o r v alu e cre atio n t o w ork t o geth er i n a c o opera tiv e w ay a n d r e ceiv e m ost o f t h e v alu e t h ey c re ate .

4.

T he M ete rin g E co nom y Perh ap s b lo ck ch ain t e ch nolo gy c an t a k e u s b ey ond t h e s h arin g e co nom y i n to a mete rin g eco nom y w here w e c an r e n t o ut a n d m ete r t h e u se o f o ur e x cess c ap acity . O ne p ro ble m w ith t h e actu al s h arin g e co nom y, w here , f o r e x am ple , h om e o w ners a g re e t o s h are p ow er t o ols o r s m all fa rm in g e q uip m en t, f is h in g g ear, a w oodw ork in g s h op, g ara g e o r p ark in g, a n d m ore , w as t h at i t was j u st t o o m uch o f a h assle . “ T here a re 8 0 m illio n p ow er d rills i n A m eric a t h at a re u se d a n av era g e o f 1 3 m in ute s,” A ir b nb C EO B ria n C hesk y w ro te i n The New Y ork T im es . “ D oes ev ery one r e ally n eed t h eir o w n d rill? ” 32 The t r o uble i s , m ost p eo ple f o und i t e asie r a n d m ore c o st- e ffe ctiv e t o m ak e o ne t r ip t o H om e Dep ot a n d b uy a d rill f o r $ 14.9 5 t h an r e n t i t f o r $ 10 f ro m s o m eo ne a m ile a w ay , m ak in g t w o tr ip s. W ro te S ara h K essle r i n Fast C om pany m ag azin e: “ T he S harin g E co nom y i s d ead a n d w e kille d i t.” 33 But w ith b lo ck ch ain s w e c an r e n t o ur e x cess c ap acity f o r c erta in c o m moditie s t h at a re p re tty much z ero h assle — Wi- F i h ot s p ots , c o m putin g p ow er o r s to ra g e c ap acity , t h e h eat g en era te d b y our c o m pute rs , o ur e x tr a m obile m in ute s, e v en o ur e x pertis e — with out l if tin g a f in ger, l e t a lo ne sc h le p pin g t o a n d f ro m s o m e s tr a n ger’s h ouse a cro ss t h e c ity . W hen y ou tr a v el, y our W i- F i c an re n t o ut i ts e lf i n y our a b se n ce, c h arg in g f ra ctio ns o f p en nie s f o r e v ery s e co nd o f u sa g e. Y our im ag in atio n ( a n d p ossib ly n ew r e g ula tio n) i s y our o nly l im it. Y our s u bsc rip tio ns, p hysic al s p ace, an d e n erg y s o urc es c an n ow b eco m e s o urc es o f i n co m e, m ete rin g t h eir u se d ir e ctly t o a co unte rp arty a n d c h arg in g t h em f o r i t t h ro ugh m ic ro pay m en ts . A ll y ou n eed i s a d ecen tr a liz ed valu e t r a n sfe r p ro to co l t o a llo w t h em t o s a fe ly a n d s e cu re ly t r a n sa ct w ith o ne a n oth er. T hese pla tf o rm s i n still s u bsid ia ry r ig hts i n a ll o ur a sse ts . Y ou n eed t o d ecid e t h e e x te n t t o w hic h y ou wan t t o a ssig n o th ers u sa g e a n d a ccess r ig hts — ev en t h e r ig ht t o e x clu de o th ers f ro m u sin g y our asse ts — an d w hat t o c h arg e f o r t h ose r ig hts .

This c an w ork f o r p hysic al a sse ts t o o. F or e x am ple , w e’v e h eard a l o t a b out a u to nom ous veh ic le s. W e c an b uild a n o pen t r a n sp orta tio n n etw ork o n t h e b lo ck ch ain w here o w ners e ach hav e a p riv ate e n cry pte d k ey ( n um ber) t h at l e ts t h em r e se rv e a c ar. U sin g t h e p ublic k ey in fra str u ctu re a n d e x is tin g b lo ck ch ain t e ch nolo gie s l ik e E th erL ock a n d A ir lo ck , t h ey c an u nlo ck an d u se t h e c ar f o r a c erta in a m ount o f t im e, a s s p ecif ie d b y t h e r u le s o f t h e s m art c o ntr a ct— all th e w hile p ay in g t h e v eh ic le ( o r i ts o w ners ) i n r e al t im e f o r t h e t im e a n d e n erg y t h at t h ey u se — as mete re d o n a b lo ck ch ain . B ecau se b lo ck ch ain t e ch nolo gy i s t r a n sp are n t, t h e g ro up o f o w ners c an tr a ck w ho i s a b id in g b y t h eir c o m mitm en ts . T hose w ho a re n ’t t a k e a r e p uta tio nal h it a n d ev en tu ally l o se a ccess a lto geth er.

5.

T he P la tf o rm B uild ers Ente rp ris e s c re ate p la tf o rm s w hen t h ey o pen u p t h eir p ro ducts a n d t e ch nolo gy i n fra str u ctu re s t o outs id e i n div id uals o r c o m munitie s t h at c an c o cre ate v alu e o r n ew b usin esse s. O ne t y pe i s pro su m ers, c u sto m ers w ho p ro duce.

34 I n a d ynam ic w orld o f c u sto m er i n novatio n, a n ew gen era tio n o f p ro ducer-c o nsu m ers c o nsid ers t h e “ rig ht t o h ack ” i ts b ir th rig ht. B lo ck ch ain te ch nolo gy s u perc h arg es p ro su m ptio n. N ik e r u nnin g s h oes c o uld g en era te a n d s to re d ata o n a dis tr ib ute d l e d ger t h at, i n t u rn , N ik e a n d t h e s h oe w eare r c o uld m onetiz e a s a g re ed i n t h eir s m art co ntr a ct. N ik e c o uld o ffe r a t in y p ie ce o f i ts s h are s w ith e v ery p air i t s e lls , i f t h e c u sto m er a g re es to a ctiv ate t h e s m arts i n t h e s h oes, o r e v en s y nc h er s h oes t o o th er w eara b le s, s u ch a s a h eart monito r o r g lu co se l e v el c alc u la to r o r o th er v alu ab le d ata f o r N ik e.

Som e p la tf o rm s d if fe r f ro m p ro su m er c o m munitie s w here a c o m pan y decid es t o c o cre ate pro ducts w ith i ts c u sto m ers . W ith o pen p la tf o rm s, a c o m pan y o ffe rs p artn ers a b ro ad er v en ue f o r sta g in g n ew b usin esse s o r s im ply a d din g v alu e t o t h e p la tf o rm .

Now w ith b lo ck ch ain t e ch nolo gy c o m pan ie s c an q uic k ly c re ate p la tf o rm s a n d p artn er w ith oth ers t o c re ate p la tf o rm s o r u tilitie s f o r a n e n tir e i n dustr y . R obin C hase f o unded Z ip car ( a se rv ic e a g gre g ato r) a s w ell a s B uzzcar ( u se rs c an s h are t h eir c ars w ith o th ers ), a n d i s n ow t h e au th or o f Peers I n c ., a l u cid b ook o n t h e p ow er o f p eers w ork in g t o geth er. S he t o ld u s, “L ev era g in g t h e v alu e f o und i n e x cess c ap acity d ep en ds o n h ig h-q uality p la tf o rm s f o r partic ip atio n. T hese p la tf o rm s d on’t c o m e c h eap . T he b lo ck ch ain e x cels i n p ro vid in g a s ta n dard co m mon d ata b ase ( o pen A PIs ) a n d s ta n dard c o m mon c o ntr a cts . T he b lo ck ch ain c an m ak e pla tf o rm b uild in g c h eap er a n d m an ag eab le .” T hat’ s j u st t h e b eg in nin g. “ B est o f a ll, i ts c o m mon data b ase m ak es f o r d ata t r a n sp are n cy a n d p orta b ility : c o nsu m ers a n d s u pplie rs c an p urs u e t h e best t e rm s. T hey c an a ls o c o opera te a s p eers o n t h e b lo ck ch ain t o c re ate t h eir o w n p la tf o rm s, ra th er t h an u sin g t h e c ap ab ilitie s o f t r a d itio nal c o m pan ie s.” 35 Thin k o f t h e c ar o f t h e f u tu re i ts e lf . I t w ould e x is t a s p art o f a b lo ck ch ain -b ase d n etw ork where e v ery one c an s h are i n fo rm atio n, a n d v ario us p arts o f t h e v eh ic le c an d o t r a n sa ctio ns a n d ex ch an ge m oney . G iv en s u ch a n o pen p la tf o rm , t h ousa n ds o f p ro gra m mers a n d n ic h e b usin esse s co uld c u sto m iz e a p plic atio ns f o r y our c ar. S oon s u ch p la tf o rm s c o uld t r a n sfo rm e n tir e i n dustr ie s su ch a s f in an cia l s e rv ic es b y s e ttlin g a ll k in ds o f f in an cia l t r a n sa ctio ns a n d e x ch an ges o f v alu e. A co nso rtiu m o f t h e l a rg est b an ks i s a lr e ad y w ork in g o n t h e i d ea. P la tf o rm s a re t h e r is in g t id e t h at lif ts a ll b oats .

Wik in om ic s i n tr o duced t h e c o ncep t o f i d eag ora s— em erg in g m ark etp la ces f o r i d eas, in ven tio ns, a n d u niq uely q ualif ie d m in ds, w hic h e n ab le d c o m pan ie s l ik e P & G t o t a p g lo bal p ools of h ig hly s k ille d t a le n t m ore t h an t e n t im es t h e s iz e o f i ts o w n w ork fo rc e. F ir m s u se s e rv ic es l ik e In noC en tiv e a n d I n no360 t o f a cilita te h old in g “ C halle n ges,” “ D ig ita l B ra in sto rm s,” a n d o th er te ch niq ues t o f in d t h e r ig ht t e m pora ry t a le n t o uts id e t h eir b oundarie s t o a d dre ss c ritic al b usin ess ch alle n ges. I t’ s a b out u sin g d ata t o f in d t h e r ig ht t a le n t t o h ack y our b usin ess f o r t h e b ette r.

Tale n t— th e u niq uely q ualif ie d m in ds t o s o lv e p ro ble m s— can p ost t h eir a v aila b ility t o t h e le d ger s o t h at f ir m s c an f in d t h em . R ath er t h an In noC en tiv e, t h in k b In noC en tiv e. I n div id uals c an cu ltiv ate n ot o nly a p orta b le i d en tity , b ut a ls o a p orta b le r é su m é ( a n e x te n ded v ers io n o f t h eir id en tity ) t h at c an p ro vid e a p pro pria te i n fo rm atio n a b out t h em t o p ote n tia l c o ntr a cto rs . T hin k a dis tr ib ute d s k ills i n ven to ry o w ned b y n o o ne o r e v ery one.

As e v ery b usin ess b eco m es a d ig ita l b usin ess, t h e h ack ath on i s a n i m porta n t f o rm o f id eag ora . N ow w ith b lo ck ch ain t e ch nolo gy a n d o pen s o urc e c o de r e p osito rie s, e v ery c o m pan y co uld p ro vid e v en ues t o g eek s a n d o th er b usin ess b uild ers f o r p ro ble m s o lv in g, i n novatin g, a n d cre atio n o f n ew b usin ess v alu e.

Blo ck ch ain s a n d b lo ck ch ain -b ase d s o ftw are r e p osito rie s w ill f u el s u ch a ctiv ity . C om pan ie s can n ow u se p ow erfu l n ew p ro gra m min g l a n guag es l ik e t h e E th ere u m b lo ck ch ain w ith b uilt- in pay m en t s y ste m s. A n e x cerp t f ro m a c o nvers a tio n o n Hacker N ew s : “ Im ag in e h ow c o ol i t w ould be i f I c o uld s h are a g uid f o r m y r e p o— an d t h en y our b it c lie n t ( le t’ s c all i t g itc o in , o r m ay be j u st bit) c an f e tc h n ew c o m mits f ro m a d is tr ib ute d b lo ck c h ain ( e sse n tia lly t h e g it l o g). G ith ub i s n o lo nger a n i n te rm ed ia ry o r a s in gle p oin t o f f a ilu re . P riv ate r e p o? D on’t s h are t h e g uid .” 36 How c o ol i n deed ! ( W ell, m ay be y ou d id n’t u nders ta n d o ne i o ta o f t h at l ittle p ie ce o f co oln ess, b ut y ou p ro bab ly g et t h e i d ea.) 6.

B lo ck ch ain M ak ers Man ufa ctu rin g-in te n siv e i n dustr ie s c an g iv e r is e t o p la n eta ry e co sy ste m s f o r s o urc in g, d esig nin g, an d b uild in g p hysic al g oods, m ark in g a n ew p hase o f p eer p ro ductio n. I t’ s a b out m ak in g i t o n t h e blo ck ch ain . J u st a s a m odern a ir c ra ft h as b een d esc rib ed a s “ a b unch o f p arts f ly in g i n fo rm atio n,” c o m pan ie s i n m ost i n dustr ie s a re t e n din g t o d is a g gre g ate i n to n etw ork s o f s u pplie rs an d p artn ers . T hre e-d im en sio nal p rin tin g w ill m ove m an ufa ctu rin g c lo se r t o t h e u se r, b rin gin g new l if e t o m ass c u sto m iz atio n. S oon, d ata a n d r ig hts h old ers c an s to re m eta d ata a b out a n y su bsta n ce f ro m h um an c ells t o p ow ere d a lu m in um o n t h e b lo ck ch ain , i n t u rn o pen in g u p t h e lim its o f c o rp ora te m an ufa ctu rin g.

This t e ch nolo gy i s a ls o a p ow erfu l m onito r o f t h e p ro ven an ce o f g oods a n d t h eir m ovem en t th ro ughout a s u pply n etw ork . C onsid er a n i n dustr y c lo se t o a ll o ur h earts ( a n d o th er b ody p arts ) —th e f o od i n dustr y . T oday y our l o cal g ro cery s to re m ay c la im — an d t r u ly b elie v e— th at i ts b eef is s a fe , ra is e d h um an ely , f e d q uality i n gre d ie n ts , a n d g iv en n o u nnecessa ry d ru gs. B ut i t c an ’t guara n te e i t. N o o ne k eep s h is to rie s o f s in gle c o w s; b ad t h in gs h ap pen t o g ood b ovin es. W e t r u st our h am burg er w ith n o m ean s t o v erif y . U su ally i t m ak es n o d if fe re n ce; b illio ns a n d b illio ns keep g ettin g s e rv ed . B ut o nce i n a w hile , w e g et a g lim pse o f m ad c o w d is e ase .

The f o od i n dustr y c o uld s to re o n t h e b lo ck ch ain n ot j u st t h e n um ber o f e v ery s te er, b ut o f ev ery c u t o f m eat, p ote n tia lly l in ked t o i ts D NA. T hre e-d im en sio nal s e arc h a b ilitie s c o uld e n ab le co m pre h en siv e t r a ck in g o f l iv esto ck a n d p oultr y s o t h at u se rs c o uld l in k a n a n im al’ s i d en tity t o its h is to ry . U sin g s o phis tic ate d ( b ut r e la tiv ely s im ple t o u se ) D NA-b ase d t e ch nolo gie s a n d s m art data b ase m an ag em en t, e v en t h e l a rg est m eat p ro ducers c o uld g uara n te e q uality a n d s a fe ty .

Im ag in e h ow t h ese d ata m ig ht e x ped ite l a b t e sts a n d a c o m munity h ealth r e sp onse t o a c ris is .

Know in g h ow o ur f o od w as r a is e d o r g ro w n i s n ot a r a d ic al i d ea. O ur a n cesto rs b ought su pplie s a t l o cal m ark ets o r f ro m r e ta ile rs w ho s o urc ed p ro ducts l o cally . I f t h ey d id n’t l ik e h ow a lo cal r a n ch er t r e ate d h is c attle , t h ey d id n’t b uy h is b eef. B ut t r a n sp orta tio n a n d r e frig era tio n h av e estr a n ged u s f ro m o ur f o odstu ffs . W e’v e l o st t h e v alu es o f t h e o ld f o od c h ain .

We c o uld r e sto re t h ese v alu es. W e c o uld l e ad t h e w orld i n d ev elo pin g a m odern , in dustr ia liz ed , o pen f o od s y ste m w ith d ow n-to -e arth f a m ily f a rm v alu es. T ra n sp are n cy l e ts co m pan ie s w ith s u perio r p ra ctic es d if fe re n tia te t h em se lv es. T he b ra n d c o uld e v olv e f ro m t h e mark etin g n otio n o f a t r u stm ark — so m eth in g t h at c u sto m ers b elie v e i n b ecau se i t’ s f a m ilia r— in to a r e la tio nsh ip b ase d o n t r a n sp are n cy . S ure ly f o od p ro ducers h av e a n a p petite f o r t h at.

37 7.

T he E nte rp ris e C olla b ora to rs Yoch ai B en kle r s p oke a b out h ow b lo ck ch ain t e ch nolo gy c o uld f a cilita te p eer-to -p eer co lla b ora tio n w ith in f ir m s, a n d b etw een f ir m s a n d p eers o f a ll s o rts . “ I’m e x cite d a b out t h e i d ea th at y ou h av e a f u lly d is tr ib ute d m ech an is m f o r a cco untin g, f o r a ctio ns, a n d f o r d ig ita l r e so urc es acro ss a n yth in g; w heth er i t’ s c u rre n cy , w heth er i t’ s s o cia l r e la tio ns a n d e x ch an ge, o r w heth er i ts an o rg an iz atio n.” 38 Today , c o m merc ia l c o lla b ora tio n t o ols a re b eg in nin g t o c h an ge t h e n atu re o f k now le d ge work a n d m an ag em en t i n sid e o rg an iz atio ns.

39 P ro ducts l ik e J iv e, I B M C onnectio ns, S ale sfo rc e Chatte r, C is c o Q uad , M ic ro so ft Yam mer, G oogle A pps f o r W ork , a n d F aceb ook a t W ork a re bein g u se d t o i m pro ve p erfo rm an ce a n d f o ste r i n novatio n. S ocia l s o ftw are w ill b eco m e a v ita l to ol f o r t r a n sfo rm in g v ir tu ally e v ery p art o f b usin ess o pera tio ns, f ro m p ro duct d ev elo pm en t t o hum an r e so urc es, m ark etin g, c u sto m er s e rv ic e, a n d s a le s— in a s e n se t h e n ew o pera tin g s y ste m fo r t h e t w en ty -fir s t- c en tu ry o rg an iz atio n.

But t h ere a re c le ar l im ita tio ns t o t o day ’s s u ite s o f t o ols , a n d t h e b lo ck ch ain t a k es t h ese te ch nolo gie s t o t h e n ex t l e v el. E xis tin g v en dors w ill e ith er f a ce d is ru ptio n o r e m bra ce b lo ck ch ain te ch nolo gie s t o d eliv er m uch d eep er c ap ab ility t o t h eir c u sto m ers .

What w ould a b lo ck ch ain s o cia l n etw ork f o r t h e f ir m l o ok l ik e? T hin k F aceb ook f o r t h e co rp ora tio n ( o r s im ply a n a lte rn ativ e t o F aceb ook f o r y ou). B ecau se s e v era l c o m pan ie s a re work in g o n t h is , w e c an f la sh -fo rw ard a y ear o r t w o a n d h ere ’s w hat w e g et:

Every u se r h as a m ultif a cete d w alle t, a s o rt o f p orta l i n to t h e d ecen tr a liz ed o nlin e w orld .

Thin k a p orta b le p ers o nal p ro file , a p ers o na o r i d en tity t h at y ou o w n. U nlik e y our F aceb ook pro file , t h e w alle t h as d iv ers e f u nctio ns a n d s to re s m an y k in ds o f p ers o nal a n d p ro fe ssio nal d ata an d v alu ab le s i n clu din g m oney . I t i s a ls o p riv ate t o y ou a n d y ou s h are o nly w hat y ou w an t. Y ou hav e p air s o f p ublic -p riv ate k ey s t h at s e rv e t o a n ch or y our p ers is te n t d ig ita l I D . W hile m ultip le pers o nas c an b e h ouse d i n t h e w alle t f o r e ach p ers o n o r c o m pan y, l e t’ s a ssu m e t h at a w alle t h old s a s in gle c an onic al p ers o na a n ch ore d i n a s in gle k ey p air . A p ublis h in g s y ste m d eliv ers a s tr e am of i n fo rm atio n t h at y ou o r y our f ir m w ill h ap pily p ay f o r— a c o lle ag ue’s p atc h o f n ew c o de, a su m mary o f a c o nvers a tio n w ith a n ew c lie n t, o r— with t h e c lie n t’ s p erm is sio n— a t a p e r e co rd in g of a c all, a T w itte r f e ed f ro m a c o nfe re n ce t h at y ou c o uld n’t a tte n d, l iv e s tr e am o f a c lie n t’ s u se of y our n ew p ro duct, p hoto gra p hs o f y our c o m petito rs ’ b ooth s a t a n i n dustr y e x po, a P re zi pre se n ta tio n t h at s e em s t o b e c lo sin g n ew b usin ess, a v id eo h ow -to o f s o m eth in g a c o lle ag ue j u st in ven te d , a ssis ta n ce i n c o m ple tin g a p ate n t a p plic atio n, o r a n yth in g e ls e t h at y ou v alu e.

There i s a d vertis in g, p erh ap s f ro m t h ir d p artie s o r m ay be f ro m t h e H R d ep artm en t a b out open e n ro llm en t o r c h an ges i n i n su ra n ce p la n s, b ut y ou, n ot F aceb ook, g et r e v en ue o r s o m e re w ard f o r p ay in g a tte n tio n. T his i s c alle d a n “ atte n tio n m ark et.” Y ou c o uld r e ceiv e mic ro co m pen sa tio n f o r a g re ein g t o v ie w o r i n te ra ct w ith a n a d vertis e m en t, o r f o r f e ed in g b ack i n deta il a b out a n ew p ro duct p itc h , o r j u st a b out a n yth in g e ls e , s u ch a s t r a n sc rib in g C A PT C H As 40 or s c an ned d ocu m en ts .

The n ew s s tr e am , p ublis h in g s y ste m , a n d t h e a tte n tio n m ark et a ll l o ok s im ila r, b ut p ay m en ts flo w d if fe re n tly f o r e ach . S aid C onse n S ys’s J o e L ubin , “ Y ou p ay f o r p ublis h in g. C om pan ie s p ay fo r y our a tte n tio n. T he n ew s s tr e am h as n o p ay m en t f lo w . I a m h ap py t o r e ad y our s tr e am , becau se I v alu e t h at s o cia l c o nnectio n, b ut I a m n ot g oin g t o p ay t o s e e a p ic tu re o f y ou a n d y our buddie s d rin kin g a t a b ar, o r t o r e ad y our o pin io n o n t h e B lu e J a y s p itc h in g s ta ff.” 41 You a ls o p artic ip ate i n o r c re ate t o pic al d is c u ssio n c h an nels , w here y ou c o nfig ure y our priv acy . P riv acy i s e n han ced i n o th er m an ners t o o. F or e x am ple , s p y a g en cie s c an ’t c o nduct tr a ffic a n aly sis b ecau se t h ey a re u nab le t o d is c ern t h e s o urc e o r d estin atio n o f m essa g es.

There w ould a ls o b e a n if ty m ech an is m f o r f in din g p eo ple a n d f e ed s t h at y ou m ig ht c are ab out. I n a d ditio n, d is tr ib ute d t o ols a g gre g ate a n d p re se n t i n te re stin g n ew p eo ple o r i n fo rm atio n fo r y ou t o f o llo w o r f rie n d, p ossib ly u sin g F aceb ook’s s o cia l g ra p h t o h elp o ut. L ubin c alls t h is “b oots tr a p pin g t h e d ecen tr a liz ed W eb u sin g t h e p illa rs o f t h e c en tr a liz ed W eb .” 42 Experie n ce s h ow s t h at v alu e u ltim ate ly w in s o ut i n t h e d ig ita l a g e. T he b en efits o f t h is dis tr ib ute d m odel a re h uge— at l e ast t o t h e u se rs a n d c o m pan ie s. T he h uge r e so urc es o f s o cia l med ia c o m pan ie s n otw ith sta n din g, t h ere i s n o e n d t o t h e r ic h ness a n d f u nctio nality t h at w e c an dev elo p i n s u ch a n o pen s o urc e e n vir o nm en t. C om pare t h e p ow er a n d s u ccess o f L in ux v ers u s pro prie ta ry o pera tin g s y ste m s. B lo ck ch ain t e ch nolo gie s e n su re s e cu rity . Y our p riv acy i s co m ple te ly c o nfig ura b le . N o s o cia l m ed ia c o m pan y c an s e ll o r l e ak y our p ers o nal i n fo rm atio n t o govern m en t a g en cie s w ith out y our p erm is sio n. I f y ou’re a d is sid en t i n a t o ta lita ria n c o untr y , n o one c an t r a ck w hat y ou h av e r e ad o r s a id o nlin e. B ecau se y ou o w n y our d ata , y ou c an m onetiz e i t alo ng w ith y our a tte n tio n a n d e ffo rts . Y ou s h are i n t h e w ealth o f b ig d ata .

Com pan ie s t o o s h ould b e e n th usia stic a b out t h eir e m plo yees’ u sin g s u ch p la tf o rm s f o r busin ess. T o a ttr a ct t a le n t, f ir m s n eed t o s h ow i n te g rity a n d r e sp ect t h eir e m plo yees’ s e cu rity a n d priv acy . M ore i m porta n t, a s a n y f ir m w ork s t o b eco m e n etw ork ed , a p pro ach in g t a le n t o uts id e i ts boundarie s, t h ey c an o ffe r u p s u ch i n te re n te rp ris e c o lla b ora tiv e p la tf o rm s t h at t h eir p artn ers c an tr u st. T im e w ill t e ll.

In s u m mary , t h ese a re s e v en o f t h e e m erg in g b usin ess m odels w here b y b oth c o m pan ie s l a rg e an d s m all c an m ak e i t “ ra in o n t h e b lo ck ch ain .” O vera ll, t h e o pen n etw ork ed e n te rp ris e s h ow s pro fo und, e v en r a d ic al p ote n tia l t o s u perc h arg e i n novatio n a n d h arn ess e x tr a o rd in ary c ap ab ility to c re ate g ood v alu e f o r s h are h old ers , c u sto m ers , a n d s o cie tie s a s a w hole .

HACK IN G Y O UR F U TU RE: B U SIN ESS M ODEL I N NO VATIO N As f o r a c o m pan y m an ag ed b y s o ftw are a g en ts , R onald C oase m ust b e h ig h-fiv in g u p t h ere so m ew here i n E co nom is ts ’ H eav en ( a lth ough s o m e m ig ht d is p ute t h at s u ch a p la ce e x is ts ).

Rem em ber t h e r e v ers e o f C oase ’s l a w ? A c o rp ora tio n s h ould s h rin k u ntil t h e c o sts o f tr a n sa ctio ns i n sid e a re l e ss t h an t h e c o sts o f t r a n sa ctio ns o uts id e i ts b oundarie s. A s t e ch nolo gy co ntin ues t o d ro p c o sts i n t h e m ark et, i t’ s c o nceiv ab le t h at c o rp ora tio ns c o uld a n d s h ould h av e very l ittle i n sid e— ex cep t s o ftw are a n d c ap ita l.

Thin k a b out i t.

To b eg in , t h e c o st o f “ se arc h ” c o ntin ues t o d ro p a s n ew a g en ts h av e t h e a b ility t o c o nduct th re e-d im en sio nal s e arc h es o f t h e W orld W id e L ed ger o f e v ery th in g c o m merc ia l t h at e x is ts o r has e x is te d . S o n o n eed f o r a c o rp ora te l ib ra ry , i n fo rm atio n s p ecia lis ts , H R s e arc h s p ecia lis ts , o r th e m yria d o th er p ro fe ssio nals i n volv ed i n a cq uir in g p ertin en t i n fo rm atio n t o r u n a b usin ess.

Seco nd, s m art c o ntr a cts w ould r a d ic ally r e d uce t h e c o sts o f c o ntr a ctin g, p olic in g c o ntr a cts , an d m ak in g p ay m en ts . N o l o nger p ap er, t h ese p ro gra m s c o uld f o rm ula te t h eir t e rm s t h ro ugh a se rie s o f t e m pla te s; b arg ain , a ccep tin g o r r e je ctin g t e rm s a n d c o nditio ns b ase d o n r u le s a n d ex te n siv e i n fo rm atio n c o lle cte d f ro m e x te rn al s o urc es; f o rm ula te s e lf -e n fo rc in g p olic ie s; dete rm in e w hen p erfo rm an ce c o nditio ns h av e b een m et; a n d e x ecu te t r a n sa ctio ns.

Thir d , t h e c o st o f c o ord in atio n o f a ll t h ese r e so urc es o uts id e t h e o rg an iz atio n c o uld b e t r iv ia l —measu re d i n t h e e n erg y t o p ow er t h e s e rv ers h ostin g t h e e n te rp ris e s o ftw are . A s f o r m an ag in g hum an s, o rg an iz atio ns, a n d f a cto rie s h ir e d b y t h e e n te rp ris e , t h e e n te rp ris e h as n o n eed f o r bure au cra cy . W ith t h e n ew p la tf o rm w e c an i m ag in e a n ew o rg an iz atio n t h at r e q uir e s l ittle o r n o tr a d itio nal m an ag em en t o r h ie ra rc h y t o g en era te c u sto m er v alu e a n d o w ner w ealth .

Fin ally , t h e c o sts o f e sta b lis h in g t r u st w ould a p pro xim ate z ero . T ru st d oes n ot r e st w ith t h e org an iz atio n, b ut r a th er w ith in t h e f u nctio nality , s e cu rity , a n d a u dita b ility o f t h e u nderly in g c o de an d t h e m ass c o lla b ora tio n o f t h e c o untle ss p eo ple s e cu rin g t h e b lo ck ch ain .

How w ould y ou g o a b out d esig nin g a d is tr ib ute d a u to nom ous e n te rp ris e ? S uch a n e n tity co uld h av e r ic h f u nctio nality — ag en ts e x ecu tin g r a n ges o f t a sk s o r m ore b ro ad ly b usin ess fu nctio ns a ll b ase d o n a p re ap pro ved c h arte r. I n div id uals , o rg an iz atio ns, o r c o lle ctiv es o f pote n tia l s h are h old ers o r u se rs w ill d esig n t h em b y d efin in g t h e f o llo w in g:

1.

C onvic tio n: a b elie f a b out t h e w orld a n d w hat n eed s t o b e d one t o c re ate v alu e o r ch an ge t h in gs.

2.

P urp ose : i ts r e aso n f o r e x is te n ce. W hy a re w e c re atin g t h is e n te rp ris e i n t h e f ir s t pla ce?

3.

C onstitu tio n: o utlin es t h e o vera ll o bje ctiv es o f t h e e n te rp ris e a n d t h e r u le s b y w hic h i t will c re ate v alu e.

4.

M odus o pera n di: f o r e x am ple , h ow i t w ill g o a b out c re atin g t h is v alu e. H ow i t w ill fu nd i ts e lf — th ro ugh c ro w dfu ndin g, t r a d itio nal e arly -s ta g e i n vestm en t, o r u sin g r e v en ue.

How i t w ill a cq uir e r e so urc es.

5.

D iv is io n o f l a b or b etw een h um an s a n d t e ch nolo gy: f o r t h e f o re se eab le f u tu re , p erh ap s hum an s s h ould b e i n c h arg e.

6.

A pplic atio n f u nctio ns: h ow t h e e n te rp ris e w ill s e n se a n d r e sp ond t o c h an gin g co nditio ns.

7.

M ora l g uid elin es: G oogle ’s p ro m is e t o “ D o N o E vil” i s n ot g oin g t o b e g ood en ough. T he D AE n eed s s o m e c le ar g uid elin es a b out w hat i s a n d i s n ’t a ccep ta b le beh av io r.

There m ay n ot b e a d is tr ib ute d a u to nom ous e n te rp ris e i n y our n ear f u tu re , b ut t h e t h in kin g beh in d t h ese n ew e n titie s c an i n fo rm y our b usin ess s tr a te g iz in g t o day . W ith t h e r is e o f a g lo bal peer-to -p eer p la tf o rm f o r i d en tity , t r u st, r e p uta tio n, a n d t r a n sa ctio ns, w e c an f in ally r e -a rc h ite ct th e d eep s tr u ctu re s o f t h e f ir m f o r i n novatio n, s h are d v alu e c re atio n, a n d perh ap s e v en p ro sp erity fo r t h e m an y, r a th er t h an j u st w ealth f o r t h e f e w . N ow y ou h av e a t l e ast s e v en e m erg in g b usin ess models t h at c o uld h elp y ou s h ak e s o m e w in dow s a n d r a ttle s o m e d oors i n y our i n dustr y w hile dis tr ib utin g w ealth m ore d em ocra tic ally .

Overa ll, s m art c o m pan ie s w ill w ork h ard t o p artic ip ate f u lly i n t h e b lo ck ch ain e co nom y ra th er t h an p la y i ts v ic tim s. I n t h e d ev elo pin g w orld , t h e d is tr ib utio n o f v alu e c re atio n ( th ro ugh en tr e p re n eu rs h ip ) a n d v alu e p artic ip atio n ( th ro ugh d is tr ib ute d o w ners h ip o f t h e f ir m ) m ay h old a key t o r e co ncilin g t h e p ro sp erity p ara d ox. O ur s to ry b eco m es e v en m ore i n te re stin g w hen y ou co nsid er t h at b illio ns o f a g en ts w ill b e e m bed ded i n t h e p hysic al w orld . W hic h t a k es u s t o t h e nex t c h ap te r.

A CH APT ER 6 TH E L ED GER O F T H IN GS:

ANIM ATIN G T H E P H YSIC A L W ORLD pow er p ole c o lla p se s a t e ig ht o ’c lo ck o n a h ot n ig ht i n t h e r e m ote o utb ack o f A ustr a lia . T his i s a p ro ble m f o r W illia m a n d O liv ia M unro e, w ho r a is e s h eep a n d c attle o ne h undre d m ile s o uts id e t h e o ld g old m in in g t o w n o f L av erto n, o n t h e e d ge o f t h e G re at V ic to ria D ese rt.

1 I n t h e s u m mer, t h e t e m pera tu re f re q uen tly s o ars c lo se t o 1 20 d eg re es F ah re n heit ( 4 8.9 °C ). T heir c h ild re n , P ete r a n d L ois , a tte n d s c h ool v ia s a te llite l in k, t h e f a m ily ’s o nly m ean s o f a ccessin g h ealth s e rv ic es i n c ase o f i lln ess o r e m erg en cy . A lth ough t h e M unro es h av e a b ack up g en era to r, i t c an ’t p ow er t h e w ate r p um ps, c o m munic atio ns, a n d a ir -c o nditio nin g f o r l o ng. I n s h ort, t h e l iv es o f t h e M unro e f a m ily d ep en d e n tir e ly u pon r e lia b le e n erg y.

At d ay bre ak , n in e h ours l a te r, t h e p ow er u tility s e n ds o ut a t e am t o f in d a n d f ix t h e d ow ned p ole . C usto m er c o m pla in ts g iv e t h e c o m pan y a n i d ea o f w here t h e b re ak o ccu rre d , b ut t h e t e am t a k es m ore t h an a d ay t o i d en tif y , r e ach , a n d f ix t h e p ole . M ean w hile , t h e M unro es a n d n earb y r e sid en ts , b usin esse s, a n d i n stitu tio ns g o w ith out p ow er a n d c o nnectiv ity a t c o nsid era b le i n co nven ie n ce, e co nom ic i m pact, a n d p hysic al r is k . I n t h e o utb ack , b la ck outs a re n ot j u st p ara ly zin g; t h ey ’re d an gero us. T o m in im iz e t h ese h azard s, a t g re at e x pen se t h e c o m pan y d ep lo ys t e am s o f i n sp ecto rs t o c h eck t h e e x te n siv e n etw ork r e g ula rly f o r d ow ned o r d ete rio ra tin g p ole s.

Im ag in e h ow m uch s a fe r, e asie r, a n d c h eap er i t w ould b e i f e ach p ow er p ole w ere a s m art t h in g. I t c o uld r e p ort i ts o w n s ta tu s a n d t r ig ger a ctio ns f o r r e p la cem en t o r r e p air . I f a p ole c au ght f ir e o r b eg an t o t ip o r f a ll f o r a n y re aso n, i t w ould g en era te a n i n cid en t r e p ort i n r e al t im e a n d n otif y a r e p air c re w t o c o m e w ith t h e a p pro pria te e q uip m en t t o t h e p re cis e l o catio n. M ean w hile , t h e p ole c o uld p ote n tia lly r e assig n i ts r e sp onsib ilitie s t o t h e n eare st w ork in g p ole . A fte r a ll, t h ey ’re a ll o n t h e g rid . T he u tility c o uld r e sto re p ow er t o t h e c o m munity m ore q uic k ly w ith out t h e h uge o ngoin g c o sts o f f ie ld i n sp ectio n.

P O W ER T O T H E P E O PL E T hat’ s j u st t h e b eg in nin g. U sin g e m erg in g s o ftw are a n d t e ch nolo gie s a sso cia te d w ith t h e I n te rn et o f T hin gs, w e c an i n still i n te llig en ce i n to e x is tin g i n fra str u ctu re s u ch a s a p ow er g rid b y a d din g s m art d ev ic es t h at c an c o m munic ate w ith o ne a n oth er. I m ag in e c re atin g a n ew f le x ib le a n d s e cu re n etw ork q uic k ly a n d r e la tiv ely i n ex pen siv ely t h at e n ab le s m ore o pportu nitie s f o r n ew s e rv ic es, m ore p artic ip an ts , a n d g re ate r e co nom ic v alu e. This c o nfig ura tio n i s k now n a s a mesh n etw ork , t h at i s , a n etw ork t h at c o nnects c o m pute rs an d o th er d ev ic es d ir e ctly t o o ne a n oth er. T hey c an a u to m atic ally r e co nfig ure t h em se lv es dep en din g u pon a v aila b ility o f b an dw id th , s to ra g e, o r o th er c ap acity a n d t h ere fo re r e sis t bre ak ag e o r o th er i n te rru ptio n. C om munitie s c an u se m esh n etw ork s f o r b asic c o nnectiv ity w here th ey l a ck a ccess o r a ffo rd ab le s e rv ic e. M esh n etw ork s a re a lte rn ativ es t o t r a d itio nal t o p-d ow n models o f o rg an iz atio n, r e g ula tio n, a n d c o ntr o l; t h ey c an p ro vid e g re ate r p riv acy a n d s e cu rity becau se t r a ffic d oesn ’t r o ute t h ro ugh a c en tr a l o rg an iz atio n.

2 Org an iz atio ns a re a lr e ad y c o m bin in g m esh n etw ork s w ith b lo ck ch ain t e ch nolo gy t o s o lv e co m ple x i n fra str u ctu re p ro ble m s. F ila m en t, a n A m eric an c o m pan y, i s e x perim en tin g w ith w hat i t calls “ ta p s” o n p ow er p ole s i n t h e A ustr a lia n o utb ack . T hese d ev ic es c an t a lk d ir e ctly t o e ach oth er a t d is ta n ces o f u p t o 1 0 m ile s. B ecau se t h e p ow er p ole s a re a p pro xim ate ly 2 00 f e et a p art, a motio n d ete cto r o n a p ole t h at’ s f a llin g w ill n otif y t h e n ex t p ole 2 00 f e et a w ay t h at i t’ s i n t r o uble .

If f o r a n y r e aso n t h e t a p o n t h at p ole i s n ’t a v aila b le , i t w ill c o m munic ate w ith t h e n ex t p ole , o r th e n ex t p ole ( u p t o 1 0 m ile s) t h at w ill c o m munic ate t o t h e c o m pan y t h ro ugh t h e c lo se st I n te rn et back hau l l o catio n ( w ith in 1 20 m ile s).

With t h e t a p ’s t w en ty -y ear b atte ry a n d B lu eto oth l o w e n erg y ( B LE) t e ch nolo gy, c u sto m ers can c o nnect t o t h e d ev ic es d ir e ctly w ith t h eir o w n phone, t a b le t, o r c o m pute r. T he t a p c an c o nta in num ero us s e n so rs t o d ete ct t e m pera tu re , h um id ity , l ig ht, a n d s o und, a ll o f w hic h c u sto m ers c o uld use t o m onito r a n d a n aly ze c o nditio ns o ver t im e, m ay be t o d ev elo p p re d ic tiv e a lg orith m s o n t h e lif e c y cle o r i m pen din g f a ilu re o f a p ow er p ole . C usto m ers c o uld b eco m e w eath erN odes o r m ete r th ese d ata a s a n i n fo rm atio n s e rv ic e o r l ic en se t h e d ata s e t t h ro ugh t h e b lo ck ch ain t o a n oth er use r, s u ch a s a g overn m en t, b ro ad caste r, p ole m an ufa ctu re r, o r e n vir o nm en ta l a g en cy .

Fila m en t’ s b usin ess m odel i s a s e rv ic e m odel i n volv in g t h re e p artie s: F ila m en t, i ts in te g ra tio n c u sto m er, a n d t h e u tility c o m pan y. F ila m en t o w ns t h e h ard w are ; i ts d ev ic es co ntin ually m onito r t h e c o nditio n o f t h e p ow er p ole s a n d r e p ort c h an ges, w heth er t h ey ’re f a lle n , on f ir e , o r c o m pro m is e d b y d ust a ccu m ula tio n o r b ru sh f ir e s m oke. F ila m en t s e lls t h e s e n so r d ata str e am t o t h e i n te g ra to r, a n d t h is i n te g ra to r s e lls t o t h e u tility .

The u tility p ay s m onth ly f o r a m onito rin g s e rv ic e. T he s e rv ic e e n ab le s t h e p ow er c o m pan y t o elim in ate t h e v ery e x pen siv e f ie ld i n sp ectio n o f i ts o pera tio ns. B ecau se p ow er p ole s r a re ly f a ll, th e p ow er c o m pan y r a re ly u se s t h e a ctu al c o m munic atio n c ap ab ility o f t h e m esh n etw ork , a n d s o Fila m en t c o uld d ep lo y t h e e x cess c ap acity o f t h e t a p s f o r o th er u se s.

“S in ce F ila m en t o w ns t h e d ev ic es, w e c an s e ll e x tr a n etw ork c ap acity o n t o p o f t h is n etw ork th at s p an s m ost o f t h e c o ntin en t,” s a id E ric J e n nin gs, F ila m en t’ s c o fo under a n d C EO . “ F ila m en t co uld s tr ik e a d eal w ith F ed E x t o g iv e t h eir s e m itr u ck s t h e a b ility t o s e n d t e le m etr y d ata t o H Q i n re al t im e, o ver o ur n etw ork i n r u ra l A ustr a lia . W e a d d F ed E x t o t h e s m art c o ntr a ct l is t, a n d n ow th ey c an p ay e ach d ev ic e t o s e n d d ata o n t h eir b eh alf .” 3 F ed E x d riv ers c o uld u se t h e m esh netw ork f o r c o m munic atio ns a n d v eh ic le t r a ck in g a cro ss r e m ote a re as t o i n dic ate e stim ate d arriv al t im es a n d b re ak dow ns. T he n etw ork c o uld a le rt t h e n eare st r e p air f a cility t o d is p atc h t h e necessa ry p arts a n d e q uip m en t.

Blo ck ch ain t e ch nolo gy i s c ritic al. T his I n te rn et o f T hin gs ( Io T ) a p plic atio n d ep en ds o n a Led ger o f T hin gs. W ith t e n s o f t h ousa n ds o f s m art p ole s c o lle ctin g d ata t h ro ugh n um ero us se n so rs a n d c o m munic atin g t h at d ata t o a n oth er d ev ic e, c o m pute r, o r p ers o n, t h e s y ste m n eed s t o co ntin ually t r a ck e v ery th in g— in clu din g t h e a b ility t o i d en tif y e ach u niq ue p ole — to e n su re i ts re lia b ility . “N oth in g e ls e w ork s w ith out i d en tity ,” s a id J e n nin gs. “ T he b lo ck ch ain f o r i d en tity i s t h e c o re fo r t h e I n te rn et o f T hin gs. W e c re ate a u niq ue p ath fo r e ach d ev ic e. T hat p ath , t h at i d en tity , i s th en s to re d i n t h e b itc o in b lo ck ch ain a ssig ned t o F ila m en t. J u st l ik e a b itc o in , i t c an b e s e n t t o an y a d dre ss.” 4 T he b lo ck ch ain ( a lo ng w ith s m art c o ntr a cts ) a ls o e n su re s t h at t h e d ev ic es a re p aid fo r s o t h ey c o ntin ue t o w ork . T he I n te rn et o f T hin gs c an not f u nctio n w ith out b lo ck ch ain p ay m en t netw ork s, w here b itc o in i s t h e u niv ers a l t r a n sa ctio nal l a n guag e.

Socia l E nerg y: P ow erin g a N eig h borh ood Now , i n ste ad o f p ole s, i m ag in e d ig itiz in g e v ery n ode i n a p ow er s y ste m t o c re ate e n tir e n ew peer-to -p eer m odels o f p ow er p ro ductio n a n d d is tr ib utio n. E very one g ets t o p artic ip ate i n a blo ck ch ain -e n ab le d p ow er g rid . U nder a N ew Y ork S ta te – sp onso re d p ro gra m t o i n cre ase e n erg y re silie n cy e v en i n e x tr e m e w eath er c o nditio ns, w ork i s u nder w ay t o c re ate a c o m munity mic ro grid i n t h e P ark S lo pe a re a o f B ro okly n. O nce b uilt, t h is m ic ro grid a n d i ts l o cally g en era te d pow er w ill p ro vid e r e silie n cy i n e m erg en cie s a n d r e d uce c o sts t o c u sto m ers w hile p ro m otin g cle an , r e n ew ab le e le ctr ic ity , e n erg y e ffic ie n cy , a n d s to ra g e o ptio ns i n t h e c o m munity .

While c am pus m ic ro grid s h av e b een a ro und f o r a w hile , t h ey a re n ’t c o m mon i n r e sid en tia l are as. M ost h om e o w ners , b usin esse s, g overn m en ts , a n d o th er o rg an iz atio ns i n u rb an N orth Am eric a g et t h eir p ow er f ro m r e g ula te d u tilitie s a t r e g ula te d p ric es. C urre n tly , w e h av e m ore varie ty i n l o cally g en era te d r e n ew ab le e n erg y f ro m , s a y , s o la r p an els o n r o ofto ps. T he l o cal utility c ap tu re s e x cess p ow er i n i ts s u pply f o r r e d is tr ib utio n a t w hole sa le r a te s, o fte n w ith co nsid era b le l e ak ag e. T he c o nsu m er, w ho m ay b e l o cate d a cro ss t h e s tr e et f ro m a l o cal p ow er so urc e, s till m ust g o t h ro ugh t h e u tility a n d p ay f u ll r e ta il f o r r e n ew ab le e n erg y g en era te d b y th eir n eig hbor. I t’ s r id ic u lo us.

“In ste ad o f t h e c o m man d-a n d-c o ntr o l s y ste m t h e u tilitie s h av e n ow w here a h an dfu l o f peo ple a re a ctu ally r u nnin g a u tility g rid , y ou c an d esig n t h e g rid s o t h at i t r u ns i ts e lf ,” s a id Law re n ce O rs in i, c o fo under a n d p rin cip al o f L O 3 E nerg y. “ T he n etw ork b eco m es f a r m ore re silie n t b ecau se a ll o f t h e a sse ts i n t h e g rid a re h elp in g t o m ain ta in a n d r u n t h e u tility g rid .” 5 I t’ s a d is tr ib ute d p eer-to -p eer I o T n etw ork m odel w ith s m art c o ntr a cts a n d o th er c o ntr o ls d esig ned in to t h e a sse ts t h em se lv es ( i.e ., t h e b lo ck ch ain m odel) .

6 W hen a h urric an e d estr o ys t r a n sm is sio n to w ers o r fir e c rip ple s a t r a n sfo rm er s u bsta tio n, t h e g rid c an q uic k ly a n d a u to m atic ally r e ro ute pow er t o p re v en t a m assiv e b la ck out.

Resilie n cy i s n ’t t h e o nly b en efit. L ocally g en era te d p ow er, u se d l o cally , i s s ig nif ic an tly m ore effic ie n t t h an t h e u tility -s c ale m odel, w hic h r e lie s o n t r a n sm ittin g e n erg y a cro ss v ast d is ta n ces, where e n erg y i s l o st. L O 3 E nerg y i s w ork in g w ith l o cal u tilitie s, c o m munity l e ad ers , a n d te ch nolo gy p artn ers t o c re ate a m ark et w here n eig hbors c an b uy a n d s e ll t h e l o cal e n vir o nm en ta l valu e o f t h eir e n erg y. “ S o, i n ste ad o f p ay in g a n e n erg y s e rv ic es c o m pan y t h at’ s b uyin g re n ew ab le e n erg y c re d its , y ou g et t o p ay t h e p eo ple w ho a re a ctu ally g en era tin g t h e e le ctr ic ity th at i s s e rv in g y our h ouse , t h at i s l o cal a n d g re en , a n d t h at a ctu ally h as a n e n vir o nm en ta l i m pact in y our n eig hborh ood. I t s e em s a l o t f a ir e r, r ig ht? ” s a id O rs in i.

7 R ig ht!

If y ou c an l o cate e ach o f t h e a sse ts a n d a ssig n l o catio nal v alu e f o r g en era tio n a n d co nsu m ptio n, t h en y ou c an c re ate a r e al- tim e m ark et. A cco rd in g t o O rs in i, y ou c an a u ctio n y our ex cess e n erg y t o y our n eig hbors w ho m ig ht n ot b e a b le t o g en era te r e n ew ab le e n erg y. I n d oin g so , y our c o m munity c an c re ate e n erg y r e silie n cy t h ro ugh p eer-to -p eer t r a d in g. C om munity mem bers c an r e ach c o nse n su s o n t h e r u le s o f t h e r e al- tim e m ic ro grid m ark et s u ch a s t im e-o f-d ay pric in g, f lo or o r c eilin g p ric es, p rio rity g iv en t o y our n eare st n eig hbor, o r o th er p ara m ete rs s o a s to o ptim iz e p ric e a n d m in im iz e l e ak ag e. Y ou w ill n ot b e s ittin g a t y our c o m pute r a ll d ay l o ng se ttin g p ric es, o ffe rin g t o b uy o r s e ll.

Futu re m ic ro grid s w ill h arv est h eat f ro m t h e c o m puta tio nal p ow er n eed ed t o c re ate a n d se cu re t h is t r a n sa ctiv e g rid p la tf o rm . D is tr ib utin g t h e c o m putin g p ow er t o b uild in gs i n t h e co m munity a n d u sin g t h e h ig her t e m pera tu re s g en era te d t o p ow er h eatin g, h ot w ate r, a n d a ir - co nditio nin g s y ste m s i n cre ase s t h e p ro ductiv ity o f t h e s a m e e n erg y. “ O ur f o cu s i s o n i n cre asin g Exerg y,” s a y s O rs in i.

With i n cre asin g g en era tio n o f r e n ew ab le p ow er a t t h e l o cal l e v el, t h e I n te rn et o f T hin gs i s ch alle n gin g t h e r e g ula te d u tility m odel, a n d n ot a m om en t t o o s o on. W e n eed t o r e sp ond t o clim ate c h an ge a n d b ra ce o urs e lv es f o r i n cre asin gly e x tr e m e w eath er c o nditio ns, p artic u la rly meltin g i c e c ap s t h at d ro w n i s la n ds i n o cean s, a n d d ro ughts t h at t u rn d ry l a n d i n to d ese rt.

Curre n tly , w e’re l o sin g a b out f if te en m illio n a cre s p er y ear t o d ese rtif ic atio n, t h e w ors t l o sse s i n su b-S ah ara n A fric a w here , u nlik e t h e M unro es o f t h e o utb ack , p eo ple c an ’t a ffo rd w ate r p um ps, air -c o nditio nin g, o r m ig ra tio n.

8 W e n eed o ur u tility g rid s a n d o ur e n gin es n ot t o l e ach e n erg y a n d carb on i n to o ur a tm osp here . W hile t h e u tilitie s a re l o okin g a t I o T b en efits t o t h eir e x is tin g in fra str u ctu re ( “ sm art g rid ”), c o nnectin g m ic ro grid s c o uld l e ad t o e n tir e ly n ew e n erg y m odels .

Utility c o m pan ie s, t h eir u nio ns, r e g ula to rs , a n d p olic y m ak ers , a s w ell a s i n novativ e n ew e n tr a n ts su ch a s L O 3, a re e x plo rin g t h ese n ew m odels f o r g en era tin g, d is tr ib utin g, a n d u sin g e le ctr ic ity fir s t a t t h e n eig hborh ood l e v el a n d t h en a ro und t h e w orld .

TH E E V O LU TIO N O F C O M PU TIN G : F R O M M AIN FR AM ES T O S M ART P IL LS Unlik e o ur e n erg y g rid , c o m putin g p ow er h as e v olv ed t h ro ugh s e v era l p ara d ig m s. I n t h e 1 950s an d 1 960s, m ain fra m es r u le d — In te rn atio nal B usin ess M ach in es a n d t h e W ild “ B U NCH ” (B urro ughs, U niv ac, N atio nal C ash R eg is te r C orp . , C ontr o l D ata , a n d H oney w ell) . I n t h e 1 970s an d 1 980s, m in ic o m pute rs e x plo ded o nto t h e s c en e. T ra cy K id der c ap tu re d t h e r is e o f D ata Gen era l i n h is 1 981 b est s e lle r The S oul o f a N ew M ach in e . L ik e m ain fra m e c o m pan ie s, m ost o f th ese f ir m s e x ite d t h e b usin ess o r d is a p peare d . W ho r e m em bers D ig ita l E quip m en t C orp ora tio n, Prim e C om pute r, W an g, D ata p oin t, o r t h e m in ic o m pute rs o f H ew le tt- P ack ard o r I B M ? I n 1 982, IB M h ard w are a n d M ic ro so ft s o ftw are b ro ught u s t h e d ecad e o f t h e P C , w ith A pple ’s M acin to sh bare ly n ip pin g a t t h eir h eels . H ow t h in gs c h an ge.

Driv en b y t h e s a m e t e ch nolo gic al a d van ces, c o m munic atio ns n etw ork s e v olv ed , t o o. F ro m th e e arly 1 970s, t h e I n te rn et ( o rig in atin g i n t h e U .S . A dvan ced R ese arc h P ro je cts A gen cy Netw ork ) w as e v olv in g i n to i ts p re se n t- d ay , w orld w id e, d is tr ib ute d n etw ork t h at c o nnects m ore th an 3 .2 9 b illio n p eo ple , b usin esse s, g overn m en ts , a n d o th er i n stitu tio ns. T he c o m putin g a n d netw ork in g t e ch nolo gie s t h en c o nverg ed i n m obile t a b le ts a n d h an dheld s. B la ck B erry co m merc ia liz ed t h e s m art p hone i n t h e e arly a u ghts , a n d A pple p opula riz ed i t i n t h e i P hone i n 2007.

What i s r e la tiv ely n ew a n d v ery e x citin g i s t h e a b ility o f t h ese d ev ic es t o g o b ey ond re la tiv ely p assiv e m onito rin g, m easu rin g, a n d c o m munic atin g ( w eath er p atte rn s, t r a ffic p atte rn s) to s e n sin g a n d r e sp ondin g; t h at i s , e x ecu tin g a t r a n sa ctio n o r a ctin g a cco rd in g t o p re d efin ed r u le s of e n gag em en t. T hey c an s e n se ( fa llin g t e m pera tu re s, t r a ffic j a m s) a n d r e sp ond ( tu rn o n t h e fu rn ace, l e n gth en t h e g re en l ig ht) ; m easu re ( m otio n, h eat) a n d co m munic ate ( e m erg en cy se rv ic es); l o cate ( b urs t w ate r m ain ) a n d n otif y ( re p air c re w s); m onito r ( lo catio n, p ro xim ity ) a n d ch an ge ( d ir e ctio n); i d en tif y ( y our p re se n ce) a n d t a rg et ( m ark et t o y ou), a m ong m an y o th er possib ilitie s.

The d ev ic es c an b e s ta tic ( p ole s, t r e es, p ip elin es) o r m obile ( c lo th in g, h elm ets , v eh ic le s, p ets , en dan gere d a n im als , p ills ). C are g iv ers a re u sin g s m art— or e d ib le — ele ctr o nic p ills , f o r e x am ple , to i d en tif y a n d r e co rd w heth er a n d w hen a p atie n t t a k es h is m ed ic atio n. A s k in p atc h o r t a tto o cap tu re s t h e d ata a n d c an m easu re h eart r a te , f o od c o nsu m ptio n, o r o th er f a cto rs a n d co m munic ate t h is i n fo rm atio n t o a p hysic ia n , c are g iv er, o r t h e p atie n t h im se lf t h ro ugh a n a p p t o id en tif y p atte rn s a n d g iv e f e ed back . T he m ed ic al p ro fe ssio n w ill s o on b e u sin g s im ila r te ch nolo gy f o r t a rg ete d d ru g d eliv ery t o c erta in t y pes o f c an cer, m easu rin g c o re t e m pera tu re a n d oth er b io m ark ers .

10 The d ev ic es c an c o m munic ate w ith o ne a n oth er, w ith c o m pute rs a n d d ata b ase s d ir e ctly o r th ro ugh t h e c lo ud, a n d w ith p eo ple ( s e n d y ou a t e x t m essa g e o r c all y our m obile ). T hese d ev ic es, th ro ugh t h eir e v olv in g m ach in e i n te llig en ce a n d t h e d ata t h ey c o lle ct, a re p uttin g a n aly sis o f d ata , patte rn r e co gnitio n, a n d t r e n d s p ottin g i n to i n div id ual h an ds.

11 T he i n dustr y t e rm big d ata h ard ly desc rib es t h e m yria d d ata t h at t h e p hysic al w orld w ill g en era te . B y t h e m ost c o nse rv ativ e estim ate , t h e 1 0 b illio n o r s o d ev ic es c o nnecte d v ia t h e I n te rn et t o day w ill g ro w t o m ore t h an 2 5 billio n b y 2 020.

12 C all i t “ in fin ite d ata ” f ro m i n fin ite d ev ic es.

So w hy d on’t w e l iv e i n s m art h om es a n d d riv e s m art c ars a n d p ra ctic e s m art m ed ic in e? W e se e s ix b ig o bsta cle s. O ne i s t h e R ube G old berg r o llo ut o f a p plic atio ns a n d s e rv ic es. S im ply p ut, fe w o f t h e e arly c o nsu m er I o T d ev ic es h av e d eliv ere d p ra ctic al v alu e, u nle ss y ou w an t y our sm oke d ete cto r t o a sk y our n ig ht l ig ht t o c all y our s m art p hone a n d w arn y ou o f a f ir e .

13 Anoth er i s o rg an iz atio nal i n ertia a n d t h e u nw illin gness o r i n ab ility o f e x ecu tiv es, i n dustr y asso cia tio ns, a n d u nio ns t o e n vis io n n ew s tr a te g ie s, b usin ess m odels , a n d r o le s f o r p eo ple . W hile so m e c re ativ e e n tr e p re n eu rs h av e d ev elo ped n ew b usin esse s o n s o m e o f t h ese p rin cip le s ( i.e ., en ab lin g p hysic al a sse ts t o b e i d en tif ie d , s e arc h ed , u se d , a n d p aid f o r) a n d t h ere b y d is ru pte d ex is tin g m ark ets ( e .g ., U ber, A ir b nb), t h e i m pact i s s till c o m para tiv ely m in or a n d r e lia n t u pon a co m pan y a n d i ts a p p a s i n te rm ed ia ry .

A t h ir d i s f e ar o f m alic io us h ack ers o r o th er s e cu rity b re ach es t h at co uld m odif y t h e in fo rm atio n a n d r u le s o f e n gag em en t, o verrid in g d ev ic es w ith p ote n tia lly d is a str o us co nse q uen ces. A f o urth i s t h e c h alle n ge o f “ fu tu re -p ro ofin g,” c ritic al f o r c ap ita l t h in gs w ith v ery lo ng l if e s p an s, l o nger t h an t h e l if e s p an o f a t y pic al a p plic atio n o r e v en a c o m pan y. S ta rt- u ps g o ban kru pt o r s e ll t h em se lv es t o l a rg er f ir m s a ll t h e t im e.

A f if th i s s c ala b ility ; t o r e aliz e t h e f u ll v alu e o f t h e I o T , w e m ust b e a b le t o c o nnect m ultip le netw ork s t o geth er s o t h at t h ey i n te ro pera te . L ast i s t h e o vera rc h in g c h alle n ge o f c en tr a liz ed data b ase t e ch nolo gy— it c an ’t h an dle t r illio ns o f r e al- tim e t r a n sa ctio ns w ith out t r e m en dous c o sts .

To o verc o m e t h ese o bsta cle s, t h e I n te rn et o f E very th in g n eed s t h e L ed ger o f E very th in g— mach in es, p eo ple , a n im als , a n d p la n ts .

TH E I N TER NET O F T H IN G S N EED S A L ED G ER O F T H IN G S Welc o m e t o t h e I n te rn et o f E very th in g e n ab le d b y t h e L ed ger o f E very th in g— dis tr ib ute d , re lia b le , a n d s e cu re i n fo rm atio n s h arin g, s e n sin g, a n d a u to m atin g a ctio ns a n d t r a n sa ctio ns a cro ss th e I n te rn et, t h an ks t o b lo ck ch ain t e ch nolo gy. T ech nolo gis ts a n d s c ie n ce f ic tio n w rite rs h av e lo ng e n vis io ned a w orld w here a s e am le ss g lo bal n etw ork o f I n te rn et- c o nnecte d s e n so rs c o uld cap tu re e v ery e v en t, a ctio n, a n d c h an ge o n e arth . W ith u biq uito us n etw ork s, c o ntin ued ad van cem en ts o f p ro cessin g c ap ab ility , a n d a n i n cre asin g a rra y o f c h eap a n d t in y c o nnecte d dev ic es, t h at v is io n o f a n “ In te rn et o f T hin gs” i s e d gin g c lo se r t o r e ality .

Rem em ber, S ato sh i N ak am oto d esig ned t h e b itc o in b lo ck ch ain t o e n su re t h e i n te g rity o f e ach bitc o in t r a n sa ctio n o nlin e a n d t h e b itc o in c u rre n cy o vera ll. B y r e co rd in g e ach t r a n sa ctio n a t ev ery n ode a n d t h en s h arin g t h at r e co rd w ith e v ery o th er n ode o n t h e n etw ork ( i.e ., t h e blo ck ch ain ), t h e b lo ck ch ain e n su re s t h at w e c an v erif y t h e t r a n sa ctio n q uic k ly a n d s e am le ssly acro ss t h e p eer-to -p eer n etw ork . W e c an c o nduct t r a n sa ctio ns o f v alu e— in t h is c ase f in an cia l— au to m atic ally , s e cu re ly , a n d c o nfid en tly w ith out n eed in g t o k now o r t r u st e ach n ode o n t h e netw ork , a n d w ith out g oin g t h ro ugh a n i n te rm ed ia ry . T he L ed ger o f E very th in g r e q uir e s m in im al tr u st.

Blo ck ch ain t e ch nolo gy e n ab le s u s t o i d en tif y s m art d ev ic es w ith r e le v an t c o re i n fo rm atio n an d p ro gra m t h em t o a ct u nder d efin ed cir c u m sta n ces w ith out r is k o f e rro r, t a m perin g, o r sh uttin g d ow n i n t h e A ustr a lia n o utb ack . B ecau se t h e b lo ck ch ain i s a n i n co rru ptib le l e d ger o f a ll data e x ch an ges t h at o ccu r i n t h e n etw ork , b uilt u p o ver t im e a n d m ain ta in ed b y t h e c o lla b ora tio n of n odes i n t h at p artic u la r n etw ork , t h e u se r c an b e s u re t h e d ata a re a ccu ra te .

There i s g ro w in g a g re em en t a m ong t e ch nolo gy c o m pan ie s t h at t h e b lo ck ch ain i s e sse n tia l t o unlo ck in g t h e p ote n tia l o f t h e I n te rn et o f T hin gs. N one o th er t h an I B M , t h e p ro gen ito r o f l a rg e, cen tr a liz ed c o m pute r s y ste m s, h as c o m e o n b oard . I n a r e p ort, “ D ev ic e D em ocra cy : S av in g t h e Futu re o f t h e I n te rn et o f T hin gs,” I B M i d en tif ie d t h e v alu e o f t h e b lo ck ch ain :

In o ur v is io n o f a d ecen tr a liz ed I o T , t h e b lo ck ch ain i s t h e f ra m ew ork f a cilita tin g tr a n sa ctio n p ro cessin g a n d c o ord in atio n a m ong i n te ra ctin g d ev ic es. E ach m an ag es i ts ow n r o le s a n d b eh av io r, r e su ltin g i n a n “ In te rn et o f D ecen tr a liz ed , A uto nom ous Thin gs” — an d t h us t h e d em ocra tiz atio n o f t h e d ig ita l w orld . . . d ev ic es a re e m pow ere d to a u to nom ously e x ecu te d ig ita l c o ntr a cts s u ch a s a g re em en ts , p ay m en ts a n d b arte rs with p eer d ev ic es b y s e arc h in g f o r t h eir o w n s o ftw are u pdate s, v erif y in g t r u stw orth in ess with p eers , a n d p ay in g f o r a n d e x ch an gin g r e so urc es a n d s e rv ic es. T his a llo w s t h em t o fu nctio n a s s e lf -m ain ta in in g, s e lf -s e rv ic in g d ev ic es. . . .

14 There fo re , b y u sin g t h e b lo ck ch ain , w hole n ew b usin ess m odels o pen u p b ecau se e ach dev ic e o r n ode o n t h e n etw ork c o uld f u nctio n a s a s e lf -c o nta in ed m ic ro busin ess ( e .g ., s h arin g pow er o r c o m putin g c ap ab ility a t v ery l o w c o st) .

“O th er e x am ple s a re a m usic s e rv ic e, o r a n a u to nom ous v eh ic le ,” n ote d D in o M ark Angaritis , f o under o f S m artw alle t. “ E ach s e co nd t h at t h e m usic i s p la y in g o r t h e c ar i s d riv in g it’ s t a k in g a f ra ctio n o f a p en ny o ut o f m y b ala n ce. I d on’t h av e a l a rg e p ay m en t u p f ro nt a n d p ay only f o r w hat I u se . T he p ro vid er r u ns n o r is k o f n onpay m en t. Y ou c an ’t d o t h ese t h in gs w ith tr a d itio nal p ay m en t n etw ork s b ecau se t h e f e es a re t o o h ig h f o r s e n din g f ra ctio ns o f a p en ny o ff your c re d it c ard .” 15 Spare b ed ro om s, e m pty a p artm en ts , o r v acan t c o nfe re n ce r o om s c o uld r e n t t h em se lv es o ut.

Pate n ts c o uld l ic en se t h em se lv es. O ur e -m ail c o uld ch arg e s p am mers f o r e ach i te m r e ceiv ed . Y ou get t h e i d ea. W ith m ach in e l e arn in g, s e n so rs , a n d r o botic s, a u to nom ous a g en ts c o uld m an ag e o ur hom es a n d o ffic e b uild in gs, i n te ra ctiv e s a le s a n d m ark etin g, b us s to p s h elte rs , t r a ffic f lo w a n d ro ad u sa g e, w aste c o lle ctio n a n d d is p osa l ( i.e ., w here t h e b in s s p eak t o t h e t r u ck s), e n erg y sy ste m s, w ate r s y ste m s, h ealth c are d ev ic es e m bed ded o r w orn , i n ven to rie s, f a cto rie s, a n d s u pply ch ain s.

Carlo s M ore ir a , C EO o f W IS eK ey , s a id t h at t h e g re ate st o pportu nitie s l ie i n w hat h e c alle d th e in dustr ia l b lo ckch ain . 16 W IS eK ey , a S w is s-b ase d c o m pan y w ork in g i n t h e a re a o f i d en tity man ag em en t, c y bers e cu rity , a n d m obile c o m munic atio ns, p ro vid es s e cu re t r a n sa ctio nal cap ab ility t o w atc h es a n d o th er w eara b le d ev ic es a n d i s n ow o ffe rin g i ts t r u st m odel t o man ufa ctu re rs a n d c h ip m ak ers f o r o utf ittin g a v ery l a rg e n um ber o f o th er I o T d ev ic es t o b e au th en tic ate d a n d t o c o m munic ate a cro ss t h e I n te rn et o r o th er n etw ork . “ W e a re m ovin g i n to an oth er w orld w here t h e t r u st i s d ele g ate d a t t h e o bje ct l e v el. A n o bje ct t h at i s n ot t r u ste d w ill b e re je cte d b y t h e o th er o bje cts a u to m atic ally w ith out h av in g t o c h eck w ith a c en tr a l a u th ority ,” More ir a s a id . “ T his i s a h uge p ara d ig m s h if t t h at h as t r e m en dous c o nse q uen ces i n t h e w ay t h at pro cesse s w ill b e c o nducte d i n t h e y ears t o c o m e.” 17 In t h is e m erg in g w orld , u se rs c o nnect w ith s m art d ev ic es u sin g s e cu re i d en tif ic atio n a n d au th en tic atio n, p ote n tia lly p ublic /p riv ate k ey s, a n d t h ey d efin e t h e r u le s o f e n gag em en t, s u ch a s priv acy , w ith o th er d ev ic es, r a th er t h an g oin g a lo ng w ith t h e r u le s o f a c en tr a liz ed n ode o r in te rm ed ia ry . M an ufa ctu re rs c an t r a n sfe r m ain te n an ce, o w ners h ip , a ccess, a n d r e sp onsib ility t o a co m munity o f s e lf -m ain ta in in g d ev ic es, f u tu re -p ro ofin g t h e I o T a n d s a v in g i n fra str u ctu re c o sts , re p la cin g e ach d ev ic e e x actly w hen i t h its o bso le sc en ce.

Thus t h e b lo ck ch ain c an a d dre ss t h e s ix o bsta cle s t o a f u nctio nin g I n te rn et o f T hin gs. T o s u m up, t h e n ew L ed ger o f E very th in g h as n in e n if ty n etw ork f e atu re s:

Resilie n t S elf -c o rre cts ; n o s in gle p oin t o f f a ilu re Rob ust C an h an dle b illio ns o f d ata p oin ts a n d t r a n sa ctio ns Rea l- tim e S ta y s o n 2 4/7 /3 65 a n d d ata f lo w s i n sta n tly Resp on siv e R eacts t o c h an gin g c o nditio ns Rad ic a lly o pen C onsta n tly e v olv es a n d c h an ges w ith n ew i n put Ren ew ab le C an b e m ultip urp ose , r e u se d , a n d r e cy cle d Red uctiv e M in im iz es c o sts a n d f ric tio n, m ax im iz es p ro cess e ffic ie n cy Rev en ue-g en era tin g E nab le s n ew b usin ess m odels a n d o pportu nitie s Relia b le E nsu re s i n te g rity o f d ata , t r u stw orth in ess o f p artic ip an ts Why d o w e b elie v e t h e I o T e n ab le d b y t h e b lo ck ch ain h as s u ch h uge p ote n tia l? T he p rim ary driv er i s t h at i t a llo w s anim atio n o f t h e p hysic al w orld . O nce w e b rin g t h ese o bje cts t o l if e o n t h e le d ger, t h ey c an s e n se , r e sp ond, c o m munic ate , a n d t a k e a ctio n. A sse ts c an s e arc h , f in d, u se , a n d co m pen sa te o ne a n oth er a cco rd in g t o s m art c o ntr a cts , t h ere b y e n ab lin g h ig hly d is ru ptiv e n ew mark ets , j u st a s t h e I n te rn et h as p re v io usly d one f o r p eo ple a n d a ll m an ner o f d ig ita l c o nte n t.

The q uestio ns f o r m an ag ers , e n tr e p re n eu rs , a n d c iv ic l e ad ers : H ow w ill y ou t a k e a d van ta g e of t h ese n ew o pportu nitie s t o c h an ge a n d g ro w ? H ow w ill y our o rg an iz atio n r e sp ond t o t h e in ev ita b le d is ru ptio n t o y our e x is tin g o pera tio nal m odel? H ow w ill y ou c o m pete w ith t h e cre ativ e n ew m odels o f s ta rt- u ps a n d c o lla b ora tio ns? Opportu nitie s f o r g re ate r e ffic ie n cy , i m pro ved s e rv ic e, r e d uced c o sts , i n cre ase d s a fe ty , a n d bette r r e su lts a b ound i n o ur l iv es, a n d w e c an i m pro ve e ach b y a p ply in g b lo ck ch ain l o gic t o t h e In te rn et o f T hin gs. W e’re b eg in nin g t h e n ex t m ajo r p hase o f t h e d ig ita l r e v olu tio n. M ic h elle Tin sle y o f I n te l e x pla in ed w hy h er c o m pan y i s d eep ly i n vestig atin g t h e b lo ck ch ain r e v olu tio n:

“W hen P C s b ecam e p erv asiv e, t h e p ro ductiv ity r a te s w en t t h ro ugh t h e r o of. W e c o nnecte d t h ose PC s t o a s e rv er, a d ata c en te r, o r t h e c lo ud, m ak in g i t r e ally c h eap a n d e asy f o r l e an s ta rt- u ps t o get c o m pute r p ow er a t t h eir f in gertip s, a n d w e’re a g ain s e ein g r a p id i n novatio n, n ew b usin ess models .” 18 I n te l w an ts t o a ccele ra te t h e p ro cess o f u nders ta n din g w hat’ s w ork in g, w hat’ s n ot work in g, a n d w here t h e o pportu nitie s l ie . “ W e c o uld s e e t h is t e ch nolo gy b e a w hole o th er s te p fu nctio n o f i n novatio n, w here i t e n ab le s a ll s o rts o f n ew c o m pan ie s, n ew p la y ers . T o b e a l e ad er in t h e t e ch nolo gy i n dustr y , w e c an not b e a b se n t f ro m t h e c o nvers a tio n,” s h e s a id .

19 J u st i m ag in e th e p ote n tia l o f a p ply in g t h ese c ap ab ilitie s a cro ss m an y t y pes o f b usin esse s, m an y u nto uch ed b y th e I n te rn et r e v olu tio n.

TH E T W ELV E D IS R UPT IO NS: A NIM ATIN G T H IN G S What p ossib ilitie s a re t h ere f o r a n im atin g t h e p hysic al w orld ? U nlik e P in occh io , w e d on’t h av e a Blu e F air y . ( A nd u nlik e P in occh io , t h e b lo ck ch ain d oesn ’t l ie .) B ut t o day , r ig ht n ow , w e h av e dis tr ib ute d l e d ger t e ch nolo gy t h at w ill a ctu ally e n ab le n ot o nly G E t o “ b rin g g ood t h in gs t o l if e .” Even b ette r, P in occh io c an ’t g o l o ng-n ose o n t h e l e d ger.

We’re i n t h e e arly d ay s o f t h in kin g a b out t h e p ossib ilitie s o f t h e L ed ger o f E very th in g ( b uilt in to t h e I o T ). W hile c o nsu m er d ev ic es h av e r e ceiv ed t h e m ost a tte n tio n i n t h e p opula r m ed ia t o date , t h ere a re p ote n tia l a p plic atio ns a cro ss v ir tu ally e v ery s e cto r. T here a re m an y w ay s o f cla ssif y in g a n d g ro upin g p ote n tia l a p plic atio ns b ecau se s o m an y a p plic atio ns c ro ss b oundarie s an d c o uld f it i n to m ore t h an o ne c ate g ory . M cK in se y , f o r e x am ple , u se s t h e c o ncep t o f se ttin gs in its c la ssif ic atio n o f t h e I o T .

20 W e’v e i d en tif ie d o pportu nitie s f o r t h e L ed ger o f E very th in g i n tw elv e m ajo r f u nctio nal a re as. S pecif ic b en efits — an d t h e b usin ess c ase — will b e s p ecif ic t o e ach ap plic atio n. T he c ate g orie s b elo w i llu str a te t h e p ote n tia l a n d t h e p ote n tia l s ig nif ic an t d is ru ptio n to e x is tin g m ark ets , p la y ers , a n d b usin ess m odels .

1.

T ra n sp orta tio n In t h e f u tu re , y ou’ll c all u p a n a u to nom ous v eh ic le t o g et y ou s a fe ly w here y ou n eed t o g o. I t w ill in tu itiv ely t a k e t h e f a ste st r o ute , a v oid c o nstr u ctio n, h an dle t o lls , a n d p ark a ll o n i ts o w n. I n tim es o f t r a ffic c o ngestio n, y our v eh ic le w ill n eg otia te a passin g r a te so t h at y ou a rriv e a t y our destin atio n o n t im e, a n d f re ig ht m an ag ers w ill u se t h e b lo ck ch ain -e n ab le d I o T o n a ll c arg o t o cle ar c u sto m s o r o th er r e q uir e d i n sp ectio ns q uic k ly . N o r e d t a p e. A llia n z, a m an ufa ctu re r o f str e et s w eep ers , c o uld e q uip i ts m unic ip al m ach in es w ith m in ic am o r s e n so r t e ch nolo gy t h at id en tif ie d c ars w hose o w ners h ad n’t m oved t h em ( if t h ey c o uld n’t m ove t h em se lv es) o n alte rn ate -s id e-o f-th e-s tr e et- p ark in g d ay s i n N ew Y ork C ity , f e ed t h at s e n so r d ata t o t h e t r a ffic polic e, a n d s p are t h e p hysic al w ritin g o f p ark in g t ic k ets . O r, t h e s tr e et s w eep er i ts e lf c o uld ex tr a ct t h e p ark in g f in e i n b itc o in f ro m t h e c ar i ts e lf a s i t s w ep t b y— becau se t h e N ew Y ork S ta te Dep artm en t o f T ra n sp orta tio n w ould r e q uir e a ll c ars r e g is te re d i n t h e f iv e N ew Y ork C ity boro ughs t o m ain ta in b itc o in w alle ts c o nnecte d t o t h eir l ic en se p la te s. A uto nom ous v eh ic le s, o n th e o th er h an d, w ould s e n se t h e o nco m in g s w eep er a n d s im ply m ove t h em se lv es t o l e t i t p ass. 2.

I n fra str u ctu re M an ag em en t Man y p ro fe ssio nals w ill u se s m art d ev ic es t o m onito r l o catio n, i n te g rity , a g e, q uality , a n d a n y oth er r e le v an t f a cto rs o f p av em en t, r a il l in es, p ow er p ole s a n d l in es, p ip elin es, r u nw ay s, p orts , an d o th er p ublic a n d p riv ate i n fra str u ctu re i n o rd er t o m onito r c o nditio ns, d ete ct p ro ble m s ( e .g ., bre ak ag e o r t a m perin g), a n d i n itia te a r e sp onse b oth r a p id ly a n d c o st- e ffe ctiv ely . T hat’ s w here co m pan ie s s u ch a s F ila m en t w ill c o m e i n , w ith n ew a ffo rd ab le t e ch nolo gie s t o a n im ate e x is tin g in fra str u ctu re w ith out t h e h uge c ap ita l r e q uir e d t o r e p la ce i t. E ric J e n nin gs o f F ila m en t e stim ate s th at “ o ver 9 0 p erc en t o f i n fra str u ctu re i s c u rre n tly d is c o nnecte d , a n d i t’ s u nfe asib le t o r ip i t a ll out a n d r e p la ce i t w ith b ra n d-n ew , w ir e le ss, c o nnecte d a sse ts .” 21 3.

E nerg y, W aste , a n d W ate r M an ag em en t “S en d a t r u ck t o e m pty m e,” s a id t h e o verflo w in g w aste b in . “ F ix m e,” s a id t h e l e ak y p ip e. T he In te rn et o f T hin gs s h ould i n sp ir e a h undre d n ew c h ild re n ’s b ooks. T ra d itio nal u tilitie s i n b oth t h e dev elo ped a n d d ev elo pin g w orld c an u se t h e b lo ck ch ain -e n ab le d I o T f o r t r a ck in g p ro ductio n, dis tr ib utio n, c o nsu m ptio n, a n d c o lle ctio n. A s w e’v e a lr e ad y s e en , n ew e n tr a n ts w ith out sig nif ic an t e m bed ded i n fra str u ctu re a re p la n nin g t o u se t h ese t e ch nolo gie s t o c re ate e n tir e ly n ew mark ets a n d n ew m odels ( e .g ., c o m munity m ic ro grid ).

4.

R eso urc e E xtr a ctio n a n d F arm in g Cow s c an b eco m e b lo ck ch ain a p plia n ces, e n ab lin g f a rm ers t o t r a ck w hat t h e c o w s e at, w hic h med ic atio ns t h ey ’v e h ad , a n d t h eir c o m ple te h ealth h is to ry . T his t e ch nolo gy c an a ls o h elp t r a ck ex pen siv e a n d h ig hly s p ecia liz ed e q uip m en t a n d m ak e i t m ore w id ely a v aila b le f o r j u st- in -tim e usa g e a n d c o st r e co very ; i m pro ve m in er a n d f a rm work er s a fe ty t h ro ugh t a g gin g o f s a fe ty eq uip m en t a n d a u to m ate d c h eck lis ts ( to e n su re t h at e q uip m en t i s b ein g u se d p ro perly ); m onito r weath er, s o il, a n d c ro p c o nditio ns t o s ta rt i r rig atio n, a u to m ate d h arv estin g, o r o th er a ctio ns; a n d co m pile “ in fin ite data ” a n aly tic s t o i d en tif y n ew r e so urc es o r a d vis e o n a g ric u ltu ra l b est p ra ctic es base d o n p ast p atte rn s a n d r e su lts . S en so rs i n s o il a n d o n t r e es c o uld h elp e n vir o nm en ta l pro te ctio n a g en cie s t o m onito r f a rm ers a n d t h eir u sa g e o f t h e l a n d.

5.

E nvir o nm en ta l M onito rin g a n d E m erg en cy S erv ic es Rem em ber a u to nom ous w eath er a g en t B O B? B O B w ill l iv e i n a w orld o f w eath er s e n so rs a n d mak e m oney c o lle ctin g a n d s e llin g c ritic al w eath er d ata . E xam ple s h ere i n clu de m onito rin g a ir an d w ate r q uality a n d i s su in g a le rts t o r e d uce p ollu ta n ts o r s ta y i n doors ; f la g gin g d an gero us ch em ic als o r r a d io activ ity f o r e m erg en cy w ork ers ; m onito rin g l ig htn in g s tr ik es a n d f o re st f ir e s; in sta llin g e arth quak e a n d t s u nam i e arly w arn in g a n d a le rt s y ste m s; a n d, o f c o urs e , s to rm monito rin g a n d e arly w arn in g. I n a d ditio n t o i m pro vin g t h e r e sp onse t im e f o r e m erg en cy s e rv ic es an d r e d ucin g t h e r is k o f t h ese e v en ts t o h um an l if e , w e c o uld u se t h is l o ngitu din al d ata t o in cre ase o ur u nders ta n din g o f u nderly in g t r e n ds a n d p atte rn s, i d en tif y p re v en tiv e m easu re s i n so m e c ase s, a n d i m pro ve o ur p re d ic tiv e c ap ab ility t o p ro vid e e v en e arlie r w arn in g.

6.

H ealth C are In t h e h ealth c are s e cto r, p ro fe ssio nals u se d ig itiz atio n t o m an ag e a sse ts a n d m ed ic al r e co rd s, keep i n ven to ry , a n d h an dle o rd erin g a n d p ay m en ts f o r a ll e q uip m en t a n d p harm aceu tic als .

Today , h osp ita ls a re f u ll o f s m art d ev ic es t h at o vers e e t h ese s e rv ic es, b ut f e w c o m munic ate w ith one a n oth er o r t a k e i n to a cco unt t h e i m porta n ce o f p riv acy p ro te ctio n a n d s e cu rity i n d ir e ct patie n t c are . B lo ck ch ain -e n ab le d I o T c an u se e m erg in g a p plic atio ns t o l in k t h ese s e rv ic es.

Applic atio ns i n d ev elo pm en t i n clu de m onito rin g a n d d is e ase m an ag em en t ( e .g ., s m art p ills , weara b le d ev ic es t o t r a ck v ita l s ig ns a n d p ro vid e f e ed back ) a n d i m pro ved q uality c o ntr o l.

Im ag in e a n a rtif ic ia l h ip o r k nee t h at m onito rs i ts e lf , s e n ds a n onym iz ed p erfo rm an ce d ata t o t h e man ufa ctu re r f o r d esig n i m pro vem en ts , a n d c o m munic ate s w ith a p atie n t’ s p hysic ia n , “ T im e t o re p la ce m e.” T ech nic ia n s w ill b e u nab le t o u se s p ecia liz ed e q uip m en t i f t h ey h av en ’t t a k en pre re q uis ite s te p s t o e n su re t h eir r e lia b ility a n d a ccu ra cy . N ew s m art d ru gs c o uld t r a ck th em se lv es i n c lin ic al t r ia ls a n d p re se n t e v id en ce o f t h eir e ffe ctiv en ess a n d s id e e ffe cts w ith out ris k o f m odif ie d r e su lts .

7.

F in an cia l S erv ic es a n d I n su ra n ce Fin an cia l i n stitu tio ns c o uld u se s m art d ev ic es a n d t h e I o T t o t a g t h eir c la im s o n p hysic al a sse ts , mak in g t h em t r a ck ab le a n d t r a ceab le . B ecau se d ig ita l c u rre n cie s e n ab le t h e s to ra g e a n d t r a n sfe r of v alu e r a p id ly a n d s e cu re ly f o r a ll u se rs l a rg e a n d s m all, t h ey a ls o e n ab le r is k a sse ssm en t a n d man ag em en t. T hin kin g f u rth er, c o uld t h e p oor a n d d is a d van ta g ed e arn s m all a m ounts o f c ash , o r perh ap s e le ctr ic ity o r o th er “ cre d its ,” i f t h ey a llo w ed t h eir l im ite d a sse ts t o b e t a g ged a n d s h are d as i n t h e e arlie r m ic ro grid e x am ple ? O wners w ill b e a b le t o t a g p ric ele ss o bje cts , a n tiq uitie s, je w elr y , t h e s tu ff o f m use u m s, a n yth in g e v er h an dle d b y S oth eb y’s a n d i n su re d b y L lo yd’s .

In su re rs c o uld a d ju st p ay m en t a cco rd in g t o w here t h e o bje ct i s a n d i ts e n vir o nm en t— if i t’ s i n New Y ork ’s M etr o polita n M use u m o f A rt u nder c o ntr o lle d c lim ate , t h en a l o w er i n su ra n ce r a te ; if t r a v elin g t o G re ece, t h en c h arg e a h ig her r a te . T he o bje ct c o uld t e ll w heth er i t w as i n a v au lt o r aro und a c ele b rity ’s n eck . I n su ra n ce r a te s c o uld b e h ig her i f t h e d ev ic e w as h an gin g o n L in dsa y Lohan ’s n eck v ers u s, s a y , A nne H ath aw ay ’s . D riv erle ss c ars w ould s u re ly h av e l o w er i n su ra n ce ra te s, a n d d ev ic es t h em se lv es c o uld s e ttle i n su ra n ce c la im s o n t h e s p ot b ase d o n s e n so r d ata .

8.

D ocu m en t a n d O th er R eco rd K eep in g As w e h av e e x pla in ed , p hysic al a sse ts c an b eco m e d ig ita l a sse ts . A ll d ocu m en ta tio n r e la tin g t o a partic u la r “ th in g” c an b e d ig itiz ed a n d c arrie d o n t h e b lo ck ch ain i n clu din g p ate n ts , o w ners h ip , warra n tie s, i n sp ectio n c ertif ic atio n, p ro ven an ce, i n su ra n ce, r e p la cem en t d ate s, a p pro vals , e t cete ra , s ig nif ic an tly i n cre asin g d ata a v aila b ility a n d i n te g rity , r e d ucin g p ap erw ork h an dlin g, sto ra g e, a n d l o ss, a n d o th er p ro cess i m pro vem en ts r e la te d t o t h at d ocu m en ta tio n. F or e x am ple , a veh ic le w ill n ot s ta rt i f i t f a ile d a r e cen t s a fe ty i n sp ectio n, i f i ts l ia b ility i n su ra n ce h as e x pir e d , i f its o w ner h as f a ile d t o p ay p ark in g t ic k ets o r m ovin g v io la tio ns, o r i f t h e d riv er’s l ic en se o f t h e pers o n a tte m ptin g t o d riv e i t h as b een s u sp en ded . I te m s o n t h e s h elv es w ill n otif y s to re m an ag ers when t h ey ’v e p asse d t h eir “ se ll b y” d ate . S to re m an ag ers m ig ht e v en p ro gra m t h ese i te m s t o lo w er t h eir o w n p ric e a s t h e s e ll- b y d ate a p pro ach es.

9.

B uild in g a n d P ro perty M an ag em en t An e stim ate d 6 5 p erc en t o f t h e t w elv e b illio n s q uare f e et o f c o m merc ia l re al e sta te i n t h e U nite d Sta te s i s v acan t.

22 D ig ita l s e n so rs c an c re ate m ark etp la ces o f t h ese r e al e sta te a sse ts b y e n ab lin g re al- tim e d is c o very , u sa b ility , a n d p ay m en t. V en dors a re n ow e n te rin g t h is f ie ld a n d d ev elo pin g new s e rv ic e m odels t o r e n t t h e s p ace i n o ff h ours . I n t h e e v en in gs, y our c o nfe re n ce r o om c an moonlig ht a s a c la ssro om f o r n eig hborh ood y outh o r a n o ffic e f o r a l o cal s ta rt- u p. O th er ap plic atio ns w ill i n clu de s e cu rity a n d a ccess c o ntr o l, l ig htin g, h eatin g, c o olin g, a n d w aste a n d wate r m an ag em en t. T he g re en est o f b uild in gs w ill r u n o n t h e L ed ger o f T hin gs. I m ag in e t h e d ata on e le v ato r u sa g e a n d f lo w o f p eo ple t h ro ugh t h e b uild in g, h ow t h ese w ill i n fo rm a n a rc h ite ct’ s desig n o f p ublic a n d p riv ate s p aces. S pare r e sid en tia l s p ace c an l is t i ts e lf a n d n eg otia te t h ro ugh th e L ed ger o f E very th in g t o h elp t o uris ts , s tu den ts , m an ag ers o f h om ele ss s h elte r p ro gra m s, a n d oth ers f in d s p ace t h at m eets t h eir n eed s. T hese i d eas a p ply t o a ll t y pes o f r e sid en tia l, h ote l, offic e, f a cto ry , r e ta il/w hole sa le , a n d i n stitu tio nal r e al e sta te .

10.

I n dustr ia l O pera tio ns— The F acto ry o f T hin gs The g lo bal p la n t f lo or n eed s a g lo bal L ed ger o f T hin gs, a k a t h e i n dustr ia l b lo ck ch ain . F acto ry man ag ers w ill u se s m art d ev ic es t o m onito r p ro ductio n l in es, w are h ouse i n ven to ry , d is tr ib utio n, quality , a n d o th er i n sp ectio ns. E ntir e i n dustr ie s m ay a d opt t h e l e d ger a p pro ach t o s ig nif ic an tly in cre ase e ffic ie n cy f o r s u ch p ro cesse s a s s u pply c h ain m an ag em en t. L arg e a n d c o m ple x mach in es, l ik e a ir p la n es a n d l o co m otiv es, c o nsis t o f m illio ns o f p arts . E ach i n div id ual co m ponen t o f a j e t e n gin e o r r a ilc ar c o uld h av e s e n so rs t h at s e n d o ut a n a le rt w hen i t n eed s fix in g. I m ag in e a t r a in o n i ts w ay f ro m B altim ore t o L ong B each n otif y in g t h e m ain te n an ce c re w in L ong B each t h re e d ay s a h ead o f t im e t h at i t n eed ed a c ritic al n ew p art. T he s e n so r c o uld e v en is su e a n R FP a n d a ccep t t h e b est b id a n d d eliv ery f o r t h e p art, c u ttin g t im e a n d m assiv e c o st o ut of t h e o pera tin g e ffic ie n cie s o f l a rg e c o rp ora tio ns l ik e G en era l E le ctr ic , N orfo lk S outh ern , a n d oth ers . E ven m ore s ig nif ic an t, m an ufa ctu re rs i n r e alm s f ro m c ars t o l ig ht b ulb s t o B an d-A id s a re in vestig atin g h ow t h ey c an e m bed s m art c h ip s i n to t h eir p ro ducts o r p arts t h ere o f a n d m onito r, co lle ct, a n d a n aly ze p erfo rm an ce d ata . W ith s u ch d ata , t h ey c o uld p ro vid e a u to m atic u pgra d es, an tic ip ate c lie n t n eed s, a n d o ffe r n ew s e rv ic es, i n e ffe ct c h an gin g f ro m p ro duct s u pplie rs t o ongoin g s o ftw are -b ase d s e rv ic es.

11.

H om e M an ag em en t Feelin g l o nely ? Y ou c an a lw ay s t a lk t o y our h ouse . Y our o w n h om e a n d n um ero us p ro ducts a n d se rv ic es a re e n te rin g t h e m ark et t o a llo w a u to m ate d a n d r e m ote h om e m onito rin g. T hese s e rv ic es go b ey ond t h e “ n an ny c am ” t o i n clu de a ccess c o ntr o ls , t e m pera tu re a d ju stm en ts , l ig htin g, a n d, ev en tu ally , j u st a b out e v ery th in g e ls e i n y our h om e. W hile “ sm art h om es” h av e b een r e la tiv ely slo w t o t a k e o ff, c o m pan ie s s u ch a s A pple , S am su ng, a n d G oogle a re w ork in g t o s im plif y in sta lla tio n a n d o pera tio ns. A cco rd in g t o B CC R ese arc h , “ T he U .S . h om e a u to m atio n m ark et i s estim ate d t o g o f ro m a lm ost $ 6.9 b illio n i n 2 014 t o $ 10.3 b illio n i n 2 019 . . . t h e g ro w th w ill b e ste ad y a n d l o ng-te rm .” 23 12.

R eta il O pera tio ns a n d S ale s Walk in g d ow n t h e s tr e et, y our m obile d ev ic e a d vis e s y ou t h at t h e d re ss y ou l o ve i s a v aila b le a t th e G ap . W alk i n to t h e s to re a n d t h e d re ss, i n y our s iz e, i s w aitin g f o r y ou. A fte r t r y in g i t o n, y ou sc an i t a n d t h e p ay m en t i s c o m ple te . B ut y ou’v e g ot o th er t h in gs t o d o, s o t h e d re ss f in ds i ts w ay to y our h ouse b efo re y ou g et h om e. I n a d ditio n t o o pera tio nal e ffic ie n cie s a n d e n vir o nm en ta l monito rin g, r e ta ile rs w ill b e a b le t o p ers o naliz e p ro ducts a n d s e rv ic es t o i d en tif ia b le c u sto m ers a s th ey w alk o r d riv e b y b ase d o n t h eir l o catio n, d em ogra p hic s, k now n i n te re sts , a n d p urc h asin g his to ry , p ro vid ed t h at t h ose c u sto m ers o pen ed t h eir b la ck b oxes t o r e ta ile rs o n t h e b lo ck ch ain . TH E E C O NO M IC P A YO FF Thro ughout t h is c h ap te r w e’v e r e fe re n ced n um ero us p ote n tia l b en efits o f t h e d is tr ib ute d , blo ck ch ain -e n ab le d I o T a t m an y l e v els ( in div id ual, o rg an iz atio nal, i n dustr ia l, s o cie ta l) .

Red esig nin g a n d a u to m atin g p ro cesse s a cro ss p eer-to -p eer n etw ork s, r a th er t h an t h ro ugh p eo ple or c en tr a liz ed i n te rm ed ia ry a p ps, c o uld b rin g n um ero us b en efits a s a lr e ad y i d en tif ie d i n clu din g:

Speed ( e n d-to -e n d a u to m atio n) Red uced c o sts ( a sso cia te d w ith s e n din g n early i n fin ite a m ounts o f d ata t o g ia n t c en tr a l pro cessin g f a cilitie s; e lim in atio n o f e x pen siv e i n te rm ed ia rie s) In cre ase d r e v en ue, e ffic ie n cy , a n d/o r p ro ductiv ity ( fre ein g u p e x cess c ap acity f o r r e u se ) Im pro ved e ffe ctiv en ess ( b uilt- in c h eck lis ts a n d o th er p ro to co ls r e d uce i m pact o f h um an erro r) In cre ase d s e cu rity a n d i n te g rity ( p ers o n-to -p ers o n t r u st i s n ot r e q uir e d a s t r u st i s desig ned i n to t h e n etw ork a rc h ite ctu re ) Red uced l ik elih ood o f s y ste m f a ilu re ( e lim in atio n o f b ottle n eck s, b uilt- in r e silie n cy ) Red uced e n erg y c o nsu m ptio n ( e n erg y r e q uir e d b y t h e n etw ork i ts e lf o ffs e t b y i n cre ase d effic ie n cy a n d r e d uced w asta g e, d ynam ic p ric in g, a n d f e ed back l o ops) In cre ase d p riv acy p ro te ctio n ( in te rm ed ia ry c an ’t o verrid e o r i g nore r u le s d efin ed i n t h e blo ck ch ain ) Im pro ved u nders ta n din g o f u nderly in g p atte rn s a n d p ro cesse s a n d o pportu nitie s t o im pro ve t h em t h ro ugh t h e c o lle ctio n a n d a n aly sis o f “ in fin ite d ata ” Str e n gth en ed p re d ic tiv e c ap ab ility o f v ario us e v en ts w heth er n eg ativ e ( s e v ere w eath er, earth quak es, f a ilin g h ealth ) o r p ositiv e ( b est t im e t o p la n t c ro ps, b uyin g p atte rn s).

The d is tr ib ute d o pen m odel m ean s t h at I o T n etw ork s c an b e s e lf -s u sta in in g e v en a fte r a co m pan y p ulls o ut o r a m an ufa ctu re r f a ils . I n te ro pera b ility , w hen d esig ned i n to t h e s y ste m , w ill en ab le t h e c o nnectin g o f d if fe re n t I o T n etw ork s a n d w ill u nle ash e v en g re ate r v alu e.

24 Man y o f t h ese b en efits d ep en d u pon t h e c o ncep ts o f d is tr ib ute d , o r d ecen tr a liz ed , n etw ork s an d t h e e lim in atio n o f a c en tr a l ( e .g ., c o m man d a n d c o ntr o l) o r o th er i n te rm ed ia ry ( e .g ., a cle arin ghouse o r m an ag em en t a p p). O nce t h ese n ew i n te rm ed ia rie s a re i n p la ce, o th ers w ill f e el pre ssu re t o “ w ork a ro und” o r e lim in ate t h em . I n E ric J e n nin gs’s v ie w , “ P eo ple w ill d o t h e t h in gs th ey ’ll d o t o m in im iz e t h eir o w n d is c o m fo rt, l e ad in g t o s ilo s a n d c o ncen tr a tio n a n d cen tr a liz atio n. W hat’ s a s h ort- te rm g ain f o r t h ose p artic u la r p eo ple i s a l o ng-te rm l o ss f o r ev ery one e ls e .” H e s a id , “ T he I n te rn et o f T hin gs s h ould b e c o m ple te ly d ecen tr a liz ed w here dev ic es c an be a u to nom ous, d is c o ver e ach o th er d ir e ctly , e sta b lis h s e cu re c o m munic atio n w ith each o th er d ir e ctly , a n d e v en tu ally p ay e ach o th er i n v alu e, d ir e ctly b etw een m ach in es.” 25 The I B M I n stitu te f o r B usin ess V alu e h as c o nducte d r e se arc h i n to w hat i t c alls t h e f iv e m ajo r “v ecto rs o f d is ru ptio n” t h at w ill i n cre ase o ur l e v era g e o f p hysic al a sse ts a s t h e r e su lt o f t h e blo ck ch ain -e n ab le d I o T .

26 W hile I B M c le arly h as a b usin ess i n te re st i n t h e I o T , i ts w ork o n busin ess v alu e i s n oneth ele ss v ery h elp fu l.

Fir s t, t h e i n stitu te n ote d t h at t h ese n ew n etw ork s w ill e n ab le u se rs t o i n sta n tly s e arc h , a ccess, an d p ay f o r a v aila b le p hysic al a sse ts , s u ch a s u nderu tiliz ed s to ra g e o r c o m putin g c ap ab ility . T he asse ts i n s u pply c an m atc h t h em se lv es t o d em an d. B ecau se w e c an a sse ss r is k a n d c re d it au to m atic ally o nlin e a n d r e p osse ss v ir tu ally , w e c an r e p ric e c re d it a n d r is k s ig nif ic an tly dow nw ard . A uto m ate d u sa g e o f s y ste m s a n d d ev ic es i m pro ves o pera tio nal e ffic ie n cy . F in ally , fir m s c an c ro w dso urc e, c o lla b ora te , a n d o ptim iz e w ith b usin ess p artn ers i n r e al t im e t h ro ugh dig ita lly i n te g ra te d v alu e c h ain s.

In s h ort, y ou h av e a n o pportu nity t o m ak e c o ncep tu ally s im ple r, m ore e ffic ie n t m ark ets . Y ou can a ccess p re v io usly i n accessib le a sse ts , d ete rm in e p ric e i n r e al t im e, a n d r e d uce y our r is k .

Once t h e b asic i n fra str u ctu re i s i n p la ce, b arrie rs t o e n tr y a re l o w ( e .g ., j u st d ev elo p a n a p p), a n d th e o ngoin g c o sts a ls o r e la tiv ely l o w ( e .g ., n o m ore t h ir d -p arty s e rv ic e f e es). I t d ra stic ally l o w ers th e c o st o f t r a n sm ittin g f u nds a n d l o w ers t h e b arrie r t o h av in g a b an k a cco unt, o bta in in g c re d it, an d i n vestin g. I t c o uld e v en s u pport m ic ro pay m en t c h an nels , m atc h in g m in ute -b y-m in ute s e rv ic e usa g e w ith m in ute -b y-m in ute p ay m en t.

The L ed ger o f T hin gs e n ab le s “ d is tr ib ute d c ap ita lis m ,” n ot j u st r e d is tr ib ute d c ap ita lis m . F ar fro m a f re e-fo r-a ll, t h ese m ark ets c an b e s h ap ed a cco rd in g t o o ur v alu es— as i n div id uals , co m pan ie s, a n d s o cie tie s— an d t h ese v alu es c o ded i n to t h e b lo ck ch ain , s u ch a s i n cen tiv es t o u se re n ew ab le e n erg y, u se r e so urc es f ro m o ur c lo se st n eig hbors f ir s t, h onor p ric e c o m mitm en ts , a n d pro te ct p riv acy . I n s h ort, t h e L ed ger o f E very th in g o n t o p o f t h e I o T a n im ate s a n d p ers o naliz es th e p hysic al w orld e v en a s w e s h are m ore . A s I B M s ta te d , “ A t a m acro eco nom ic l e v el, w e a re a ll win ners i n t h e I o T f u tu re , e v en t h ough d if fe re n t i n dustr ie s w ill e x perie n ce a m ix o f d if fe re n t effe cts .” 27 A cco rd in g t o t h e M cK in se y G lo bal I n stitu te , t h e e co nom ic v alu e o f t h e I o T h as, i f an yth in g, b een u ndere stim ate d ; t h e e co nom ic im pact— in clu din g c o nsu m er s u rp lu s— co uld b e a s much a s $ 11.1 t r illio n p er y ear i n 2 025 f o r I o T a p plic atio ns.

28 T hat’ s a 1 0 p erc en t l if t o n c u rre n t glo bal G DP o f w ell o ver $ 100 t r illio n; t h at’ s h uge!

Netw ork ed i n te llig en ce , a p hra se c o in ed i n The D ig ita l E co nom y, r e fe rre d t o h ow t h e netw ork w ould b e s m arte r t h an i ts s m arte st n ode i n o ne d om ain a fte r a n oth er. A s w e h av e ex pla in ed , t h e f ir s t g en era tio n o f t h e I n te rn et d ro pped t r a n sa ctio n c o sts s o m ew hat. W e h av e fa ste r s u pply c h ain s, n ew a p pro ach es t o m ark etin g, a n d p eer-to -p eer c o lla b ora tio ns l ik e L in ux an d W ik ip ed ia o n a m assiv e s c ale , w ith m an y i n novativ e n ew b usin ess m odels . B lo ck ch ain te ch nolo gy w ill a ccele ra te t h is p ro cess. A s t h e I n te rn et o f T hin gs t a k es h old , t h ese t r e n ds w ill g o in to h yperd riv e.

TH E F U TU RE: F R O M U BER T O S U BER We’v e c o vere d a l o t o f g ro und i n t h is c h ap te r. N ow l e t’ s p ull a ll t h e s tr a n ds o f i n novatio n to geth er i n j u st o ne s c en ario .

Consid er s e rv ic e a g gre g ato rs l ik e U ber a n d L yft. U ber i s a n a p p-b ase d r id e-s h arin g n etw ork of d riv ers w ho a re w illin g t o g iv e o th er p eo ple a l if t f o r a f e e. T o u se U ber, y ou d ow nlo ad t h e Uber a p p, c re ate a n a cco unt, a n d p ro vid e U ber w ith y our c re d it c ard i n fo rm atio n. W hen y ou u se th e a p p t o r e q uest a c ar, i t a sk s y ou t o s e le ct t h e t y pe o f c ar y ou w an t a n d m ark s y our l o catio n o n a m ap . T he a p p w ill k eep y ou p oste d o n t h e a v aila b ility a n d w here ab outs o f y our p ro sp ectiv e driv er. A t t h e e n d o f t h e r id e, U ber a u to m atic ally c h arg es y our c re d it c ard . I f y ou d on’t w an t t o giv e t h e d efa u lt t ip , t h en y ou n eed t o c h an ge y our b illin g s e ttin gs o n U ber’s W eb s ite .

29 U ber Tech nolo gie s, I n c., t h e c o m pan y b eh in d t h e d ev elo pm en t a n d o pera tio n o f t h e U ber a p p, r e ta in s a sh are o f t h e p ric e p aid f o r e v ery r id e.

It s o unds g re at, p artic u la rly i n c itie s w ith a s m all t a x i f le et. B ut U ber’s s e rv ic es c o m e w ith a num ber o f p ro ble m s a n d r e d f la g s. D riv er a cco unts h av e b een h ack ed , r id es a re s u bje ct t o s u rg e pric in g, a n d p asse n gers h av e b een s u bje ct t o r e ck le ss d riv in g a n d s e x ual h ara ssm en t o r a ssa u lt.

30 Uber i s a ls o t r a ck in g u se rs ’ e v ery m ove, r e le asin g s o m e o f t h is i n fo rm atio n t o c ity o ffic ia ls f o r tr a ffic s tu die s. T o t o p i t a ll o ff, d riv ers c re ate c o nsid era b le v alu e b ut t h ey g et t o k eep o nly p art o f it.

Now l e t’ s i m ag in e t h e U ber e x perie n ce i f i t w ere a d is tr ib ute d a p plic atio n o n t h e b lo ck ch ain .

Mik e H earn , a f o rm er G oogle e m plo yee w ho q uit his j o b t o w ork f u ll t im e o n b itc o in , l a id o ut th is a lte rn ativ e u niv ers e b ase d o n b itc o in t e ch nolo gy a t t h e 2 013 T urin g F estiv al.

31 H earn c alle d th is n etw ork “ T ra d eN et” a n d d esc rib ed h ow , w ith t h e h elp o f b itc o in , p eo ple c o uld b eg in t o r e ly on d riv erle ss v eh ic le s.

It w ork s l ik e t h is . M ost p eo ple d on’t o w n c ars , b ut r a th er s h are v eh ic le s i n a c o m mons. I n Chic ag o, M elis sa r e q uests a c ar t h ro ugh S U ber ( th in k b lo ck ch ain S uper U ber). A ll t h e a v aila b le veh ic le s s ta rt a u to m atic ally p ostin g o ffe rs , w hic h M elis sa ’s n ode r a n ks a n d p re se n ts t o h er b ase d on h er s e le ctio n c rite ria . M elis sa f a cto rs i n h ow m uch s h e’s w illin g t o p ay f o r f a ste r r o ute s ( e .g ., hig her-p ric ed t o ll l a n es).

Mean w hile J o hn, u nlik e m ost u se rs , i s a S U ber v eh ic le o w ner a n d a s h is s e lf -d riv in g c ar i s ta k in g h im t o w ork , i t i d en tif ie s a ll t h e p ark in g o ptio ns, b oth p ublic a n d p riv ate ly o w ned , s e le cts a s p ace, a n d r e se rv es a n d p ay s f o r i t t h ro ugh a n a u to nom ous p ark in g m ark etp la ce. B ecau se Jo hn’s p re d ete rm in ed p ara m ete rs a lw ay s i n clu de s e ek in g t h e c h eap est a v aila b le s p ot w ith in a te n -m in ute w alk o f h is d estin atio n, h e a lm ost a lw ay s g oes w ith h is c ar’s f ir s t c h oic e. T he underly in g p ark in g d ata b ase t h at s u pports t h e p ark in g a ls o c o nta in s i n fo rm atio n o n p ark in g r u le s fo r s p ecif ic s tr e ets o n d if fe re n t d ay s a n d a t d if fe re n t t im es o f d ay , w heth er o r n ot t h e p ark in g sp ace i s c o vere d o r i n t h e o pen , o r w heth er t h e o w ner o f t h e s p ace h as e sta b lis h ed a m in im um pric e. A ll t h is r u ns o n a d is tr ib ute d p eer-to -p eer p la tf o rm — co nnectin g m ultip le a p ps— so n o cen tr a liz ed c o m pan y i s m ed ia tin g t h e o rd ers o r t a k in g p art o f t h e f e e. T here i s n o s u rg e p ric in g an d n o u nex pecte d f e es.

What i s s tr ik in g a b out t h is p ro pose d m odel i s n ot t h e d riv erle ss v eh ic le s, b ecau se s e lf -d riv in g cars w ill b e c o m monpla ce— pro bab ly s o oner r a th er t h an l a te r. R ath er, t h e c ars c o uld b e f u lly au to nom ous a g en ts t h at e arn t h eir o w n f a re s, p ay f o r t h eir o w n f u el a n d r e p air , g et t h eir o w n a u to in su ra n ce, n eg otia te l ia b ility i n c o llis io ns, a n d o pera te ( “ d riv e”) w ith out o uts id e h um an c o ntr o l, ex cep t w hen t h ey n eed t o t a k e s o m e e n tity — may be a h um an b ein g— to c o urt.

As a c o nditio n o f o pera tin g, S U ber a d m in is tr a to rs c o uld p ro gra m t h e v eh ic le s’ p ro to co ls i n to th e b lo ck ch ain t o o bey a ll t r a ffic r u le s, t a k e t h e m ost d ir e ct, f a ste st, o r l e ast e x pen siv e r o ute , a n d honor t h eir b id s. T he d riv ers ’ i n itia l e n tr y a n d r e g is tr a tio n i n to t h e S U ber s y ste m c o uld r e q uir e veh ic le s t o r e g is te r n ecessa ry d ocu m en ta tio n i n clu din g o w ners h ip , s a fe ty in sp ectio ns, a n d in su ra n ce, a n d t h e s y ste m w ould p erm an en tly l o g t h ese r e co rd s t o e n su re r e in sp ectio n o r in su ra n ce a n d p erm it r e n ew als a s r e q uir e d . S en so rs c o uld m onito r t h e o vera ll “ h ealth ” o f t h e veh ic le a n d s ig nal n ecessa ry r e p air s , m ak e t h e a p poin tm en t a t t h e a p pro pria te r e p air s h op, a n d pre o rd er a n y n ecessa ry p arts . B ecau se t h e v eh ic le s a re d riv erle ss, t h ey ’re n ot s u bje ct t o s a rc asm , cro nyis m , s e x is m , r a cis m , o r o th er f o rm s o f h um an d is c rim in atio n o r c o rru ptio n. P lu s, t h ey w on’t tr y t o p ush t h eir p olitic s o r l in e t h e d ash board w ith i n cen se . A ll o f t h is h ap pen s b eh in d t h e sc en es, b etw een o bje cts , a n d p ow ere d b y a n a u to nom ous a p plic atio n. T he d riv ers h av e c re ate d a blo ck ch ain c o opera tiv e a s d esc rib ed i n t h e p re v io us c h ap te r a n d t h ey r e ceiv e n early a ll t h e wealth t h ey c re ate . T he u se rs — Melis sa a n d J o hn— ex perie n ce o nly t h e c o nven ie n ce, w ith n one of t h e h assle . W hat’ s n ot t o l o ve?

Where t h e I n te rn et r e d uced t h e c o sts o f s e arc h a n d c o ord in atio n, a d ig ita l c u rre n cy l ik e bitc o in o n t h e b lo ck ch ain w ill e n ab le u s t o c u t t h e c o sts o f b arg ain in g, c o ntr a ctin g, p olic in g, a n d en fo rc in g t h ese c o ntr a cts . W e’ll b e a b le t o n eg otia te t h e b est d eal a n d g et t h e p ro m is e d d eliv ery fro m a n y o th er e n tity t h at w ill a ccep t b itc o in , i n clu din g a d riv erle ss t a x i. H ow w ill t h e U bers o f th e w orld c o m pete ?

But t h e s c en ario d oesn ’t s to p t h ere . I n te llig en ce d esig ned i n to t h e c ity ’s i n fra str u ctu re w ill move t r a ffic a lo ng ( v aria b le l a n e d ir e ctio n, v aria b le p ric in g, a u to m ate d t r a ffic s ig nal man ag em en t b ase d o n t r a ffic f lo w ), f u rth er r e d ucin g w aste d e n erg y a n d c o sts . T he b lo ck ch ain co uld s u pport s a fe ty c o ntr o ls , b oth o n t h e v eh ic le s ( d riv er a n d d riv erle ss) a n d/o r o n t h e in fra str u ctu re , s u ch a s p ro xim ity w arn in gs a n d a u to m ate d b ra k in g, a s w ell a s a n tith eft o r pre v en tio n o f u nqualif ie d o r i n eb ria te d d riv ers f ro m t a k in g t h e w heel. I n a d ditio n, c itie s w ill u se th e s e n so rs t o h elp m an ag e t h e t r a n sp orta tio n i n fra str u ctu re , i n clu din g a sse t m an ag em en t o f in fra str u ctu re a n d f le ets , m onito rin g r a il l in e a n d p av em en t c o nditio ns, g en era tin g m ain te n an ce pla n s a n d b udgets , a n d d is p atc h in g r e p air c re w s w hen n ecessa ry .

What’ s t r u ly p ow erfu l, t h e s y ste m s w ork t o geth er— in te llig en t v eh ic le s o pera tin g o n a n in te llig en t i n fra str u ctu re . W hile t h ere w ill s till b e b usin ess f o r d riv ers o f s h are d v eh ic le s, au to nom ous v eh ic le s w ill b e a b le t o o pera te s a fe ly o n c ity s tr e ets w ith t h eir b uilt- in n av ig atio n an d s a fe ty s y ste m s, o fte n i n te ra ctin g w ith t h e i n te llig en t i n fra str u ctu re t o f in d a n d p ay f o r a n accele ra te d l a n e, o r p ark in g, o r t o s e arc h f o r a n d f in d a p re fe rre d ro ute . T he r e ad y a v aila b ility , affo rd ab ility , a n d r e lia b ility o f t h e a u to nom ous v eh ic le s w ill s ig nif ic an tly r e d uce t h e n um ber o f priv ate v eh ic le s t h at, l ik e t h e c o m merc ia l r e al e sta te e x am ple a b ove, a re o fte n j u st p ark ed w aitin g an d u nuse d .

And i t w on’t j u st b e t e ch nolo gy o r c ar c o m pan ie s t h at w ill m ak e t h is h ap pen . W hile a ll o f th is c o uld , i n t h eo ry , b e d ev elo ped , o w ned , o pera te d , a n d m an ag ed b y a s in gle c iv ic tr a n sp orta tio n a u th ority , t h at i s l ik ely n ot t o b e t h e p ath f o rw ard . S U ber i s m ore l ik ely t o e v olv e an d i n novate a s a n o pen a n d s h are d t r a n sp orta tio n p la tf o rm , w ith v ario us a p plic atio ns d ev elo ped an d i n tr o duced b y l o cal e n tr e p re n eu rs , c o m munity g ro ups, g overn m en t, a n d o th ers i n e ith er a pro fit- m ak in g ( th ro ugh r e v en ue e arn ed o n a f le et o f d riv erle ss v an s), s h are d c o -o p ( a neig hborh ood g ro up i n vests i n t e n v eh ic le s t o b e r e se rv ed a n d s h are d u sin g t h e S U ber a p p), public s e rv ic e ( m ain ta in in g a n d o pera tin g a t r a in o r e x pre ss b use s o n h ig h-d em an d r o ute s), o r so cia l e n te rp ris e ( n ot- fo r-p ro fits i n vestin g i n S U ber “ p oin ts ,” w hic h t h eir c lie n ts c an a ccess w hen th ey n eed t r a n sp orta tio n).

This m ay e m erg e f ir s t i n j u ris d ic tio ns w ith r e la tiv ely a d van ced i n fra str u ctu re , a lr e ad y se p ara te t r a n sp orta tio n c o rrid ors ( ra il, r o ad , b ik e, p ed estr ia n ), s ig nif ic an t t r a n sp orta tio n i s su es (tr a ffic c o ngestio n), a n d a p opula tio n w ith a l o ng t r a d itio n o f o bey in g t r a ffic r u le s. I t m ay a ls o beg in i n “ g re en fie ld ” c ity d ev elo pm en ts i n c o opera tio n w ith t e ch nolo gy c o m pan ie s a n d c ar co m pan ie s l o okin g f o r t e st b ed s f o r t h eir a p plic atio ns. A ny s c en ario i n volv in g d riv erle ss v eh ic le s would b e l e ss s u ccessfu l, e v en h ig hly d an gero us, w hen o th er r o ad u se rs c an not b e i s o la te d ( o n se p ara te c o rrid ors ), o r p re d ic te d ( a n im als o n t h e r o ad ), o r c o ntr o lle d ( d is tr a cte d p ed estr ia n s). The S U ber s c en ario i s i n cre asin gly f e asib le . S uch a p plic atio ns w ill l ik ely e m erg e i n t h e n ex t fe w y ears a n d c o m e t o s o lv e o ur t r a n sp orta tio n n eed s o ver t h e l o ng t e rm . A lr e ad y t o day , l o cal ta x i a n d l im ousin e c o m mis sio ns a re b attlin g U ber i n m an y c itie s. C ity g overn m en ts a re str u gglin g t o b ala n ce c o nsu m er d esir e f o r a ffo rd ab le o ptio ns w ith p ublic s a fe ty a n d t a x i lic en sin g, e v en a s t h e n ew m odels a re s e em in gly i n ev ita b le . W hy n ot l o ok w here t h e tr a n sp orta tio n s e cto r i s g oin g a n d d esig n s o lu tio ns t h at b est m eet t h e c ity ’s n eed s, a s C hic ag o h as done i n o ur h ypoth etic al S U ber s c en ario ?

HACK IN G Y O UR F U TU RE F O R A W ORLD O F S M ART T H IN G S We’v e s e en t h ro ughout t h is c h ap te r s o m e m in d-b ogglin g o pportu nitie s i n v ir tu ally a ll a sp ects o f our l iv es, i n clu din g— perh ap s e sp ecia lly — man y a re as b are ly t o uch ed b y t h e f ir s t w av e o f t h e dig ita l r e v olu tio n. A t t h e s a m e t im e, t h ese o pportu nitie s t h re ate n e x is tin g b usin esse s a n d w ay s o f doin g b usin ess.

Key I ssu es:

W hat s h ould y ou a s a m an ag er b e d oin g o n b oth s id es o f t h is e q uatio n— to re aliz e n ew o pportu nitie s, w hile m in im iz in g t h re ats ? W heth er y ou’re a m an ag er i n t h e p ublic , priv ate , o r s o cia l s e cto r, d o y ou h av e u n- o r u nderu tiliz ed p hysic al a sse ts t h at c an b e t a p ped f o r gre ate r v alu e? A re y ou r e aliz in g t h e g re ate st p ossib le e ffic ie n cie s a n d o pportu nitie s t o d ev elo p pro ducts a n d t e ch nolo gie s f o r t h e I o T i ts e lf ? A re n ew e n tr a n ts i n to t h is e co nom y t a k in g y our cu sto m ers a n d r e d ucin g y our r e v en ues t h ro ugh i n novativ e n ew a p p-b ase d b usin ess m odels t h at you s h ould b e i n sta llin g f ir s t?

New V alu e:

What a re y our p hysic al a sse ts a n d h ow c an y ou e n han ce t h em t o d eliv er g re ate r valu e t o y our o rg an iz atio n o r c o m munity ? D o y ou h av e p hysic al s p aces, m ach in es, i n ven to ry , o r oth er a sse ts t h at y ou c o uld t a g , m onito r, a n d a n im ate a s p art o f a n a u to nom ous n etw ork w here you e sta b lis h t h e o pera tin g p ara m ete rs t o d riv e o ut c o sts o r a d d v alu e? C ould y ou e m bed , upgra d e, a n d p ro gra m s e n so rs a s p art o f a l a rg er n etw ork f o r g re ate r f u nctio nality a n d v alu e?

Could y ou g le an n ew i n fo rm atio n f ro m a n I o T n etw ork t o i m pro ve y our p la n nin g a n d a n aly sis fo r t h e f u tu re ?

New B usin ess M od els :

W hat o pportu nitie s e x is t f o r n ew p ro ducts a n d s e rv ic es b ase d o n t h e new f u nctio nality a n d d ata y ou c o uld g ath er t h ro ugh y our n etw ork ? C ould y our i n fo rm atio n a n d asse ts e arn r e v en ue b ecau se o f t h eir v alu e t o o th ers , f o r e x am ple , r e n tin g o ut t h at e x pen siv e p ie ce of e q uip m en t w hen y ou’re n ot u sin g i t? T hin kin g a b out t h e v alu e o f i n fo rm atio n i s n ot n ew (re m em ber S ab re a n d A m eric an A ir lin es? ), b ut s till o verlo oked .

Opportu nit ie s:

C ould y ou l in k y our n etw ork u p w ith o th ers f o r e v en g re ate r v alu e, p erh ap s as p art o f a n e n d-to -e n d s u pply c h ain o r d is tr ib utio n a n d s a le s c h an nel? A s a n i n dustr y , a re t h ere sh are d p ro cesse s a n d f u nctio ns t h at c o uld b e a u to m ate d b y u tiliz in g t h e b lo ck ch ain ? A re y ou en ab lin g t h is in te ro pera b ility b y u sin g t e ch nolo gy b uilt o n o pen s ta n dard s a n d v ette d t h ro ugh in te rn atio nal c o lla b ora tio n?

Threa ts :

What l in es o f b usin ess w ill n ew e n tr a n ts a tta ck w ith t h eir n ew I o T -b ase d b usin ess models t o s e rv e m ark ets t h at y ou c u rre n tly s e rv e? F or e x am ple , r a th er t h an a o ne-tim e s a le o f a veh ic le , c o nsu m er g ood, o r p ie ce o f s p ecia liz ed e q uip m en t, i s t h ere o ngoin g v alu e f o r y ou a n d your c lie n ts i n a n ew s e rv ic e m odel b uilt u pon y our o ngoin g c o nnectio n t o t h at e q uip m en t? C an you c ap ita liz e u pon y our e x is tin g e x pertis e , r e so urc es, i n fra str u ctu re , a n d c u sto m er l o yalty t o desig n n ew I o T -b ase d b usin ess m odels t h at d ecre ase t h e “ sp ace” a n d, t h ere fo re , t h e l ik elih ood o f en tr y o f a d is ru ptiv e n ew p la y er?

Busin ess C ase :

What a re t h e c o sts a n d b en efits o f t h ese o pportu nitie s? W here d oes t h e r e al valu e e x is t f o r y our o rg an iz atio n? A re y ou s o lv in g a n a ctu al b usin ess p ro ble m o r n eed o r j u st le ad in g w ith t h e t e ch nolo gy? H ow a b out d ev elo pin g a p ro of o f c o ncep t w ith a l e ad in g c lie n t?

Str a te g ic P la n :

Acco rd in g t o M cK in se y , “ ex ecu tiv es w ill n eed t o d eal w ith t h re e s e ts o f ch alle n ges: o rg an iz atio nal m is a lig nm en t, t e ch nolo gic al i n te ro pera b ility a n d a n aly tic s h urd le s, an d h eig hte n ed c y bers e cu rity r is k s.” 32 W e a d d a f o urth m ajo r c h alle n ge t o t h is l is t— build in g i n priv acy a n d a n i n cen tiv e p la n , i n clu din g a p pro pria te s a fe g uard s, f ro m t h e b eg in nin g. H ow w ill I T an d b usin ess f u nctio ns h av e t o a d ap t t o t h e I o T ? W hic h p arts o f t h e o rg an iz atio n a n d b usin ess le ad ers s h ould y ou i n volv e?

T CH APT ER 7 SO LV IN G T H E P R O SPE R IT Y P A RA DOX:

EC O NOM IC I N CLU SIO N A ND E N TR EPR EN EU RSH IP A P IG I S N O T A P IG GY B A NK he P acif ic c o ast o f N ic ara g ua i s o ne o f t h e m ost b eau tif u l l a n dsc ap es i n t h e A m eric as, w here verd an t g re en f o re st m eets e n dle ss b lu e w ate rs . I ts r o llin g h ills a n d s tu nnin g b each es m ak e i t a t o p d estin atio n f o r b ack pack ers , s u nbath ers , a n d e co to uris ts a lik e. N ic ara g ua i s a ls o o ne o f t h e p oore st a n d l e ast d ev elo ped c o untr ie s i n t h e r e g io n. S ix ty p erc en t o f t h e p opula tio n l iv es b elo w t h e p overty l in e. T hose n ot e m plo yed i n i ts t o uris m i n dustr y s u rv iv e o n n ear-s u bsis te n ce-le v el a g ric u ltu re a n d f is h in g. N ic ara g ua h as t h e s e co nd-lo w est n om in al g ro ss d om estic p ro duct i n t h e A m eric as, w ith 1 0 p erc en t o f i ts e n tir e G DP f ro m r e m itta n ces— money e arn ed o vers e as a n d r e p atr ia te d b y t h e N ic ara g uan d ia sp ora . N in ete en p erc en t o f N ic ara g uan s h av e a f o rm al b an k a cco unt, b ut o nly 1 4 p erc en t a re a b le t o b orro w a n d o nly 8 p erc en t h av e f o rm al s a v in gs.

1 Y et 9 3 p erc en t h av e a m obile p hone s u bsc rip tio n, u su ally i n t h e f o rm o f p re p aid a ccess.

2 That i s t h e r e ality t h at J o yce K im f a ced w hen s h e t o ok h er t e am d ow n t o N ic ara g ua. K im i s t h e e x ecu tiv e d ir e cto r o f t h e S te lla r D ev elo pm en t F oundatio n, a n ot- fo r-p ro fit b lo ck ch ain t e ch nolo gy o rg an iz atio n ( n ot t o b e c o nfu se d w ith S te lla r, t h e l a rg e a rc h ite ctu re a n d c o nstr u ctio n f ir m ). A N ic ara g uan m ic ro fin an ce o pera tio n w an te d t o l e arn m ore a b out S te lla r’s f in an cia l p la tf o rm . T he w oefu lly u nderd ev elo ped b an kin g i n dustr y i n N ic ara g ua k eep s m ost p eo ple i n a n i n esc ap ab le c y cle o f p overty a n d e x acerb ate s t h e p lig ht o f w ould -b e e n tr e p re n eu rs . T hey s tr u ggle t o s ta rt n ew b usin esse s, r e g is te r t itle s t o t h eir l a n d a n d o th er a sse ts , a n d r e so lv e o uts ta n din g c la im s f ro m t h e S an din is ta g overn m en t’ s m ass l a n d ex pro pria tio n i n t h e 1 980s.

3 S te lla r’s p la tf o rm w ould e n ab le N ic ara g uan s t o t r a n sfe r, s a v e, i n vest, b orro w , a n d l e n d m oney .

Kim w as b oth i m pre sse d a n d s u rp ris e d b y t h e l o cal f o cu s o n m ic ro cre d it. S he u nders to od t h at a ccess t o c re d it w as p ara m ount t o e co nom ic i n clu sio n b ut b elie v ed t h at s a v in gs, t h e a b ility t o s to re v alu e r e lia b ly a n d s e cu re ly , w as a p re re q uis ite f o r a lm ost a ll o th er f in an cia l s e rv ic es. W hen K im a sk ed a b out s a v in gs, s h e w as t o ld , “ O h, s a v in gs i s n ot a p ro ble m a ro und h ere . P eo ple h av e p ig s.” 4 Liv esto ck m ak es u p t h e v ast m ajo rity o f f a rm ers ’ n et w orth i n m an y a g ra ria n e co nom ie s b ecau se f in an cia l s e rv ic es a re n ot w id ely a v aila b le a n d i n div id uals h av e a t e n uous r ig ht t o t h eir l a n d. I n N ic ara g ua t h at m ean s p eo ple o w n p ig s, a n d l o ts o f t h em . K im w as s u rp ris e d a t f ir s t, b ut q uic k ly s a w t h e a g e-o ld l o gic t o i t. “ Y ou w alk o ut o f a m eetin g, a n d y ou l o ok a ro und a n d y ou s e e p ig s a re e v ery w here .” 5 L iv esto ck h as l o ng b een a n a ccep te d , r e la tiv ely u se fu l f o rm o f s a v in gs.

F or t h ose e x clu ded f ro m t h e d ig ita l e co nom y, a n im als a re a b out a s l iq uid a n a sse t a s y ou c an ow n, e v en m ore s o i f t h ey p ro duce m ilk , a n d t h ey p ay d iv id en ds i n p ig le ts , e g gs, l a m bs, c alv es, an d s o m etim es c h eese .

Pro sp erity i s a r e la tiv e c o ncep t. I n K en ya, M asa i t r ib esm en w ho o w n f o ur t o f iv e h undre d head o f g oats a re c o nsid ere d p ro sp ero us, b ut t h eir l iv es c an b e r o ugh, b ru tis h , a n d s h ort.

Liv esto ck -b ase d w ealth i s “ h ig hly l o caliz ed , s o t h at y ou c an ’t a ctu ally t r a n sa ct w ith a n ybody unle ss t h ey ’re r ig ht t h ere i n f ro nt o f y ou,” K im s a id . “ Y ou r u n t h e h uge r is k s w ith y our a n im als ru nnin g a w ay o r g ettin g s ic k o r s o m e b lig ht c o m in g t h at c o uld a ctu ally w ip e o ut a ll o f y our sa v in gs.” 6 Cre d it w as a n e v en t o ugher n ut t o c ra ck t h an s a v in gs. K im g ot t o k now a l o cal N ic ara g uan fis h erm an , a m em ber o f a c o opera tiv e, w ho e x pla in ed t h at n o o ne f is h erm an e v er h as a ccess t o en ough c re d it t o o utf it a n e n tir e r ig . A cco rd in g t o K im , “ th ey f o rm f is h erm en c re w s w here o ne pers o n w ill g et a l o an f o r t h e n et, s o m eb ody e ls e w ill g et a l o an f o r t h e b ait, s o m eb ody e ls e g ets a lo an f o r t h e b oat, s o m eb ody e ls e a l o an f o r t h e m oto r, a n d t h en t h ey c o m e t o geth er a n d t h ey f o rm a c re w .” N o o ne p ers o n i s a b le t o f lo at h is o r h er o w n v en tu re ( n o p un i n te n ded ) b ecau se a ccess to c re d it i s s o t ig ht. T he m odel w ork s, b ut i t i n volv es a s m an y m id dle m en a s t h ere a re f is h erm en .

The l if e lo ng f in an cia l s tr u ggle o f t h e N ic ara g uan f is h erm en a n d fa rm ers i s t h e s to ry o f m ost unban ked p eo ple , a ro und t w o b illio n a d ults i n t h e w orld t o day .

7 W hat t h ey l a ck — a s to re o f v alu e th at w on’t g et m ad c o w d is e ase o r d ie o f o ld a g e, o r a p ay m en t m ech an is m t h at e x te n ds b ey ond th e v illa g e— we t a k e f o r g ra n te d .

Fin an cia l i n clu sio n i s a p re re q uis ite f o r e co nom ic i n clu sio n. I ts r e p erc u ssio ns e x te n d b ey ond fin an ce. K im s a id , “ I d on’t c o nsid er f in an cia l a ccess a n d f in an cia l i n clu sio n t o b e t h e e n d g oal.

It’ s a p ath w e a ll h av e t o w alk t o g et b ette r e d ucatio n, b ette r h ealth c are , e q ual w om en ’s r ig hts , an d e co nom ic d ev elo pm en t.” 8 I n s h ort, f in an cia l i n clu sio n i s a f u ndam en ta l r ig ht.

This c h ap te r l o oks a t o pportu nitie s f o r m obile a n d f in an cia l s e rv ic e p ro vid ers a n d o th er busin esse s t o u se b lo ck ch ain s t o u nle ash t h e e co nom ic p ote n tia l a t t h e b otto m o f t h e p yra m id .

We’re t a lk in g b illio ns o f n ew c u sto m ers , e n tr e p re n eu rs , a n d o w ners o f a sse ts , o n t h e g ro und a n d re ad y t o b e d ep lo yed . R em em ber, b lo ck ch ain t r a n sa ctio ns c an b e t in y, f ra ctio ns o f p en nie s, a n d co st v ery l ittle t o c o m ple te . A nyone w ith t h e s m alle st o f a sse ts — sa y , a t a le n t f o r e m bro id ery o r music , s p are w ate r p ails , a c h ic k en t h at l a y s e g gs, a m obile p hone t h at r e co rd s d ata , a u dio , a n d im ag es— co uld e x ch an ge v alu e. T he n ew p la tf o rm a ls o e lim in ate s t h e p oin t- o f-a ccess b arrie r. I f you c an a ccess t h e I n te rn et o n a m obile d ev ic e, t h en y ou c an a ccess a sse ts w ith n o f o rm s t o f ill out a n d v ery l ittle l ite ra cy . T hese a re s e em in gly s m all b ut i n cre d ib ly i m porta n t b re ak th ro ughs. I f we d o t h is r ig ht, b lo ck ch ain t e ch nolo gy c o uld u nle ash t h e b ig gest u nta p ped p ool o f h um an cap ita l i n h is to ry , b rin gin g b illio ns o f e n gag ed , p ro sp erin g e n tr e p re n eu rs i n to t h e g lo bal eco nom y.

TH E N EW P R O SP E R IT Y P A RADO X For t h e f ir s t t im e i n m odern h is to ry , t h e g lo bal e co nom y i s g ro w in g b ut f e w a re b en efitin g. O n one h an d, t h e d ig ita l a g e i s b rin gin g l im itle ss p ossib ilitie s f o r i n novatio n a n d e co nom ic p ro gre ss.

Corp ora te p ro fits a re b allo onin g. O n t h e o th er h an d, p ro sp erity h as s ta lle d . T hro ughout m odern his to ry , i n div id uals a n d f a m ilie s a t t h e 5 1st p erc en tile w ere o n t h e r is e . D esp ite d ep re ssio ns a n d upheav als , p ro sp erity f o r t h ese i n div id uals , a n d f o r s o cie ty a s a w hole , s te ad ily i n cre ase d . T his i s no l o nger t h e c ase . S ta n dard s o f l iv in g a re e v en d eclin in g i n t h e d ev elo ped w orld . M ed ia n w ag es are s ta g natin g i n O EC D c o untr ie s. A nd, a cco rd in g t o t h e I n te rn atio nal Lab our O rg an iz atio n, youth u nem plo ym en t i n m ost o f t h e w orld i s s tu ck a t a b out 2 0 p erc en t. “ Y oung p eo ple [ a re ] nearly t h re e t im es a s l ik ely a s a d ults t o b e u nem plo yed ,” t h e I L O r e p orte d .

9 I n m an y d ev elo pin g natio ns, t h e n um bers a re s ig nif ic an tly h ig her. S uch u nem plo ym en t i s c o rro siv e t o a ll s o cie tie s, n o matte r w hat t h eir l e v el o f d ev elo pm en t. M ost c itiz en s w an t t o c o ntr ib ute t o t h eir c o m munity .

Anyone w ho h as b een j o ble ss k now s h ow i t e ro des s e lf -e ste em a n d w ell- b ein g. T hose w ith pow er a n d w ealth a re g ettin g a h ead , a n d t h ose w ith out a re f a llin g b eh in d.

This n ew p ro sp erity p ara d ox, n ot t o b e c o nfu se d w ith t h e i n te rg en era tio nal “ P ara d ox o f Pro sp erity ” c o in ed b y e co nom is ts s u ch a s G ilb ert M orris , h as b efu ddle d e v ery p olic y m ak er i n th e W este rn w orld . O ne o f t h e b est- s e llin g b usin ess b ooks o f 2 014, Capita l i n t h e T w en ty -F ir st Cen tu ry b y T hom as P ik etty , b ecam e t h e # 1 b est s e lle r o n t h e New Y ork T im es h ard co ver nonfic tio n l is t i n 2 014. A t o ur d e f o rc e o f a cad em ic s c h ola rs h ip , Capita l e x pla in s w hy i n eq uality is a ccele ra tin g a n d w ill l ik ely c o ntin ue t o d o s o a s l o ng a s t h e r e tu rn o n c ap ita l e x ceed s l o ng-te rm eco nom ic g ro w th . T he r ic h h av e g otte n r ic h er b ecau se t h eir m oney m ad e t h em m ore m oney t h an th eir w ork d id . H en ce, t h e p ro lif e ra tio n o f n ew m illio nair e s a n d b illio nair e s. B ut h is s o lu tio n f o r how t o s te m g ro w in g s o cia l i n eq uality , b y i m posin g a w ealth t a x o n t h e o nes w ho o w n m ost o f th e w orld ’s w ealth , w as s o m ew hat l e ss i n sp ir in g, i f o nly b ecau se w e’v e h eard i t b efo re .

10 I n deed , fo r a s l o ng a s c ap ita lis m h as b een t h e p rim ary m ode o f p ro ductio n, t h e d eb ate a b out h ow t o s h are th e f ru its m ore e q ually h as n ot m oved m uch b ey ond t h e r e d is tr ib utio n o f w ealth , u su ally t h ro ugh ta x atio n o f t h e r ic h a n d t h e p ro vis io n o f p ublic s e rv ic es t o t h e p oor. A dvocate s o f o ur c u rre n t eco nom ic m odel p oin t t o t h e h undre d s o f m illio ns o f p eo ple i n t h e d ev elo pin g w orld ( m ostly i n Asia ) w ho h av e b een l if te d o ut o f a b je ct p overty , b ut o fte n o verlo ok t h e a sy m metr ic b en efits co nfe rre d t o t h e v ery w ealth y a n d t h e w id en in g c h asm b etw een t h e s u perric h a n d t h e r e st o f t h e popula tio n i n t h ose s a m e c o untr ie s. T oday , t h e g lo bal 1 p erc en t o w ns h alf t h e w orld ’s w ealth while 3 .5 b illio n p eo ple e arn f e w er t h an t w o d olla rs a d ay .

Defe n ders o f t h e s ta tu s q uo a re q uic k t o p oin t o ut t h at m ost o f t h e w orld ’s s u perric h g ot r ic h by c re atin g c o m pan ie s, n ot t h ro ugh i n herita n ce. H ow ev er, b eh in d t h e s u ccesse s o f a f e w a re so m e v ery t r o ublin g s ta tis tic s. T he r a te o f n ew b usin ess f o rm atio n i s d ow n. I n t h e U nite d S ta te s, th e s h are o f t o ta l f ir m s t h at a re y ounger t h an o ne y ear o ld f e ll b y n early h alf b etw een 1978 a n d 2011, f ro m 1 5 p erc en t t o 8 p erc en t.

11 T he m ille n nia l g en era tio n, o ft c h ara cte riz ed a s en tr e p re n eu ria l r is k t a k ers , i s d oin g l ittle t o b uck t h e t r e n d a n d m ay b e c o ntr ib utin g t o i t. A r e cen t an aly sis o f F ed era l R ese rv e d ata f o und t h at o nly 3 .6 p erc en t o f A m eric an h ouse h old s h ead ed b y so m eo ne u nder t h ir ty h eld a s ta k e i n a p riv ate c o m pan y, d ow n f ro m 1 0.6 p erc en t i n 1 989.

12 In t h e d ev elo pin g w orld , t h e d ig ita l r e v olu tio n h as d one l ittle t o c le ar t h e e n tr e p re n eu ria l p ath of r e d t a p e a n d c o rru ptio n. W here i t c o sts o nly 3 .4 p erc en t o f p er-c ap ita i n co m e t o s ta rt a busin ess i n O EC D c o untr ie s, i t c o sts 3 1.4 p erc en t i n L atin A m eric a a n d a s h ock in g 5 6.2 p erc en t in s u b-S ah ara n A fric a. I n B ra zil, a n e n tr e p re n eu r h as t o w ait a lm ost 1 03 d ay s t o i n co rp ora te h is co m pan y v ers u s 4 d ay s i n t h e U nite d S ta te s a n d h alf a d ay i n N ew Z eala n d.

13 E xasp era te d b y govern m en t b lo at a n d i n effic ie n cy , m an y w ould -b e d ev elo pin g-w orld e n tr e p re n eu rs i n ste ad ch oose t o o pera te i n t h e s o -c alle d i n fo rm al e co nom y. “ T here a re a b unch o f t h in gs t a k en f o r gra n te d i n t h e W est. P ro perty r e co rd s a re f in e-tu ned , f o r e x am ple . I n t h e G lo bal S outh , en tr e p re n eu rs w ould r a th er t h e g overn m en t n ot k now t h ey e x is t. W e n eed t o m ak e i d en tity a pro fita b le p ro positio n,” s a id H ern an do d e S oto . F or n ow , s ta y in g i n t h e s h ad ow s f re es t h ese en tr e p re n eu rs f ro m m ed dle so m e a n d c o rru pt o ffic ia ls , b ut i t a ls o p ro fo undly l im its t h eir a b ility t o gro w t h eir b usin ess, l im its r ig hts , a n d m ak es “ d ead c ap ita l” o f m oney t h at c o uld o th erw is e b e dep lo yed m ore e ffic ie n tly .

14 M ore o ver, e v en f o r t h ose w ho o pera te t h eir b usin esse s i n t h e o pen , la w s o f m an y c o untr ie s d o n ot p ro vid e f o r l im ite d l ia b ility . I f y our b usin ess f a ils , y ou’re pers o nally o n t h e h ook f o r a ll l ia b ilitie s. I f y ou b ounce a b usin ess c h eck i n m an y A ra b c o untr ie s, you g o s tr a ig ht t o j a il— “d o n ot p ass g o” o r a n y o th er i n stitu tio ns o f d ue p ro cess o n t h e w ay .

15 Okay , t h en , t h e w orld h as a lw ay s h ad h av es a n d h av e-n ots . T oday f e w er p eo ple s ta rv e t o death , o r d ie f ro m m ala ria o r t h ro ugh v io le n t c o nflic t. F ew er p eo ple l iv e i n e x tr e m e p overty to day t h an i n 1 990.

16 C erta in e m erg in g e co nom ie s h av e b en efite d f ro m o uts o urc in g o f man ufa ctu rin g a n d l ib era liz atio n o f e co nom ic p olic ie s— Chin a b ein g a p rim e e x am ple o f b oth — an d t h e m ean i n co m e o f c itiz en s i n m ost d ev elo ped c o untr ie s i n cre ase d . O n b ala n ce, p eo ple a re bette r o ff t h an t h ey u se d t o b e, r ig ht? S o w hat i f t h e r ic h j u st h ap pen t o o w n s ig nif ic an tly m ore ?

Should n’t t h ey k eep w hat t h ey ’v e e arn ed t h ro ugh t h eir e ffo rts ? W hat’ s t h e p ro ble m ?

Pik etty p oin te d a t c ap ita lis m . B ut c ap ita lis m , a s a s y ste m f o r o rg an iz in g t h e e co nom y, i s n ot th e p ro ble m . I n f a ct, c ap ita lis m i s a g re at w ay t o c re ate w ealth a n d p ro sp erity f o r t h ose w ho know h ow t o u se i t. T he p ro ble m i s t h at m ost p eo ple n ev er g et a s h ot a t s e ein g t h e b en efits o f t h e sy ste m b ecau se t h e R ube G old berg m ach in e o f m odern f in an ce p re v en ts m an y f ro m a ccessin g i t.

Fin an cia l a n d e co nom ic e x clu sio n i s t h e p ro ble m . F if te en p erc en t o f t h e p opula tio n i n O EC D co untr ie s h as n o r e la tio nsh ip w ith a f in an cia l i n stitu tio n, w ith c o untr ie s l ik e M ex ic o h av in g 7 3 perc en t o f t h e p opula tio n u nban ked . I n t h e U nite d S ta te s, 1 5 p erc en t o ver f if te en y ears o f a g e, or 37 m illio n A m eric a ns, a re u nban ked .

17 Fin an cia l i n eq uality i s a n e co nom ic c o nditio n t h at c an q uic k ly m orp h i n to a s o cia l c ris is .

18 I n 2014, t h e W orld E co nom ic F oru m , a m ultis ta k eh old er o rg an iz atio n w hose m em bers i n clu de t h e la rg est c o m pan ie s a n d m ost p ow erfu l g overn m en ts i n t h e w orld , a rg ued t h at g ro w in g i n eq uality pose d t h e s in gle b ig gest r is k g lo bally , b eatin g o ut g lo bal w arm in g, w ar, d is e ase , a n d o th er cala m itie s.

19 B lo ck ch ain c o uld b e t h e s o lu tio n. B y l o w erin g b arrie rs t o f in an cia l i n clu sio n a n d en ab lin g n ew m odels o f e n tr e p re n eu rs h ip , t h e t o nic o f t h e m ark et c o uld b e b ro ught t o b ear o n t h e dre am s a n d i d eas o f b illio ns o f t h e u nban ked .

Pro sp erit y P urg ato ry : A n E xercis e i n F utilit y For c en tu rie s, b an ks h av e r e lie d o n n etw ork e ffe cts . E ach s u ccessiv e c u sto m er, b ra n ch , p ro duct, dolla r i n , a n d d olla r o ut i n cre ase s t h e v alu e o f t h e b an k’s n etw ork . H ow ev er, b uild in g t h ese netw ork s h as c o m e a t a c o st. S pecif ic ally , t h e c o st o f a cq uir in g a p ro fit- tu rn in g c u sto m er h as only i n cre ase d . I f a p ro sp ect’ s m oney w on’t e arn i ts k eep , t h e b an k w on’t b e i n te re ste d i n keep in g i t. T hus, b an ks h av e l ittle e co nom ic i n cen tiv e t o w in c u sto m ers i n t h e b otto m h alf o f t h e pyra m id . A cco rd in g t o T yle r W in kle v oss, b an ks d on’t s e rv e m ost o f t h e w orld a n d h av e n o ex is tin g p la n s t o s e rv e t h em . H ow ev er, n ew t e ch nolo gy c o uld r e m ove t h at s te p . H e s a id , “ A l o t of A fric an c o untr ie s l e ap fro gged t h e i n fra str u ctu re o f l a n dlin e t e le co m s w ith c ellu la r. T hey sk ip ped t h at s te p . B lo ck ch ain w ill h av e t h e g re ate st i m pact i n a re as w here t h e p ay m en t n etw ork s don’t e x is t o r a re v ery p oor.” 20 B lo ck ch ain w ill p ush m an y n asc en t i n itia tiv es, s u ch a s m obile - money se rv ic e p ro vid ers l ik e M -P esa i n K en ya, o w ned b y S afa ric o m , a n d m ic ro cre d it o utf its glo bally , i n to h ig h g ear b y m ak in g t h em o pen , g lo bal, a n d l ig htn in g f a st. A b an k i s t h e m ost c o m mon f in an cia l i n stitu tio n, a n d s o w e w ill u se i t a s a n e x am ple h ere .

How d o y ou o pen a b an k a cco unt? I f y ou l iv e i n t h e d ev elo pin g w orld t o day , y ou w ill l ik ely h av e to v is it t h e b ra n ch i n p ers o n. I n N ic ara g ua, t h ere a re o nly 7 b an k b ra n ch es p er 1 00,0 00 p eo ple co m pare d w ith 3 4 p er 1 00,0 00 i n t h e U nite d S ta te s. N ic ara g ua l o oks w ell b an ked c o m pare d w ith man y c o untr ie s i n A fric a, w here t h ere c an b e f e w er t h an 2 b ra n ch es p er 1 00,0 00 p eo ple .

21 S o you w ill p ro bab ly h av e t o t r a v el a g ood d is ta n ce t o f in d a b an k. Y ou w ill a ls o n eed t o b rin g a govern m en t- is su ed i d en tity c ard , b ut t h at w ill b e j u st a s d if fic u lt t o c o m e b y i f y ou d on’t a lr e ad y hav e o ne.

In t h e d ev elo ped w orld — sa y , t h e U nite d S ta te s— you n eed t o m eet c erta in r e q uir e m en ts .

While t h ese r e q uir e m en ts v ary f ro m b an k t o b an k a n d s ta te t o s ta te , y ou t y pic ally n eed t o d ep osit an d m ain ta in a $ 100 t o $ 500 m in im um b ala n ce. Y ou a ls o n eed t o p ro ve y our i d en tity . B an ks t h at do b usin ess i n t h e S ta te s m ust c o m ply w ith s tr in gen t “ k now y our c u sto m er,” “ an ti– m oney la u nderin g,” a n d “ an ti– te rro ris m f in an cin g” r e g ula tio ns.

22 A nd s o t h ey m ust d o m ore co m pre h en siv e b ack gro und c h eck s o n a p plic an ts b efo re g ra n tin g t h em a n a cco unt. U ltim ate ly , th e b an k i s l e ss i n te re ste d i n e v alu atin g y our c h ara cte r t h an i t i s i n c o m ply in g w ith r e g ula to ry ag en cie s. T hat m ean s a l a u ndry l is t o f r e q uir e m en ts . F ir s t, y ou n eed a S ocia l S ecu rity c ard . D on’t hav e o ne? T hat’ s u su ally e n ough t o g et r e je cte d . H ow a b out a p hoto I D l ik e a d riv er’s l ic en se o r passp ort? D on’t h av e o ne? Y ou’re n ot o pen in g a b an k a cco unt. L et’ s s a y y ou h av e b oth a S ocia l Secu rity c ard a n d p hoto I D . T he b an k, j u st t o b e s a fe , a sk s f o r a r e cen t u tility b ill a s p ro of o f perm an en t r e sid en ce o r s o m e p ro of o f a p re v io us b an k a cco unt. I f y ou h ap pen t o b e n ew t o t o w n, or s ta y in g w ith f a m ily , o r f ro m a n e n tir e ly unbanked re g io n o f t h e w orld , y ou’d l ik ely f a il s o m e of t h ese t e sts . T he b an k d oesn ’t w an t y ou a s a c u sto m er u nle ss i t c an c o nfir m y our i d en tity b ase d on v ario us p ap ere d c re d en tia ls . I t’ s n ot i n te re ste d i n k now in g y ou a s a w ell- ro unded p ers o n. I t’ s in te re ste d i n k now in g y ou a s a s e t o f c h eck ed b oxes. P re v io us a tte m pts t o s tr e am lin e t h is p ro cess fo r i m mig ra n ts a n d t h e p oor, s u ch a s t h e N ew Y ork s c h em e t o a llo w p eo ple t o u se t h eir c ity I D card s, h av e f a ile d .

23 The P ro sp erit y P assp ort: A n E xercis e i n U tilit y Fortu nate ly f o r t h e u nban ked , b lo ck ch ain t e ch nolo gy i s e n gen derin g a n ew f o rm o f f in an cia l id en tity — one n ot d ep en den t u pon o ne’s r e la tio n t o a b an k b ut r o ote d i n o ne’s o w n r e p uta tio n. I n th is n ew p ara d ig m , b ein g “ b an ked ” i n t h e t r a d itio nal s e n se i s n o l o nger a p re re q uis ite . I n ste ad o f passin g t h e t r a d itio nal I D t e sts , i n div id uals c an c re ate a p ers is te n t d ig ita l I D a n d v erif ia b le re p uta tio n a n d d ep lo y i t, i n w hole o r i n p art, i n d if fe re n t r e la tio nsh ip s a n d t r a n sa ctio ns. T he blo ck ch ain e n dow s t h is d ig ita l I D w ith t r u st a n d a ccess t o f in an cia l s e rv ic es. T his c ap ab ility i s unpre ced en te d a t a m assiv e s c ale . J o se p h L ubin o f C onse n S ys s a id , “ W e a ll h av e r e p uta tio n. I t ju st i s n ’t e asy t o u se a s s o cia l a n d e co nom ic s y ste m s a re c u rre n tly c o nstr u cte d . M ost o f i t i s eth ere al a n d e p hem era l. I n t h e b est c ase , i t i s f ra g m en te d a n d y ou h av e t o p re se n t s h allo w docu m en ta tio n o f i t a n ew f o r e v ery v en tu re t h at r e q uir e s i t. I n t h e w ors t c ase , b illio ns o f p eo ple don’t h av e a w ay o f p re se n tin g r e p uta tio n t o a n ybody b ut t h eir i m med ia te s o cia l c ir c le .” 24 I t mig ht a s w ell b e a p ig o r a c o w . H ow ev er, w ith t h e b asic b uild in g b lo ck s, p eo ple c an c o nstr u ct dig ita l i d en titie s t h at a re n ot f ra g m en te d o r e th ere al b ut u niv ers a l a n d s ta n dard iz ed , w ith r o bust atte sta tio ns o f a sp ects o f t h em se lv es a n d t h eir i n te ra ctio ns. T hey c an s h are t h ese d ig ita l I D s gra n ula rly — th at i s , s h are o nly v ery s p ecif ic i n fo rm atio n a b out t h eir i d en tity — to f a cilita te m ore in te ra ctio ns t h at w ill l ik ely l e ad t o t h eir o w n p ers o nal e co nom ic g ro w th a n d p ro sp erity . D av id Bir c h , a c ry pto gra p her a n d b lo ck ch ain t h eo ris t, s u m med i t u p: “ Id en tity i s t h e n ew m oney .” 25 Consid er t h e p ossib ilitie s: t h e u nderb an ked o f t h e w orld c an e n fra n ch is e t h em se lv es a s t h ey in te ra ct w ith m ic ro le n din g o utf its . P ote n tia l v en dors o r l e n ders c an t r a ck t h eir u sa g e a n d re p ay m en t o f t in y l o an s, p re v io usly u nfe asib le , o n t h e b lo ck ch ain r a th er t h an r e ly o n s o m e c re d it sc o re . “ O nce a p re v io usly u nban ked p ers o n p ay s b ack a m ic ro lo an , t h ey a re o n t h eir w ay t o se cu rin g m ore a n d l a rg er l o an s t o b uild t h eir b usin esse s,” 26 s a id L ubin . T his b eh av io r, w hen re p eate d , a d ds t o t h e r e p uta tio n s c o re o f t h e b orro w er. C om bin ed w ith a g lo bal, f ric tio nle ss pay m en t p la tf o rm , i n div id uals a n d s m all b usin ess o w ners c an d o t h e p re v io usly i m possib le : p ay a r e m ote v en dor f o r m erc h an dis e o r s e rv ic es, t h ere b y a d van cin g t h eir p ro sp ects i n t h e g lo bal eco nom y. J o yce K im m use d , “ W hat i f w e c o uld c re ate a c re d it s c o re f o r w om en b ase d o n t h eir house h old h is to ry ?” 27 Eco nom ic a n d f in an cia l f a u lt l in es o fte n r u n a lo ngsid e g en der l in es, mak in g t h is t e ch nolo gy a b oon f o r t h e w orld ’s d is e n fra n ch is e d w om en . R efe rrin g t o t h e g lo bal poor, d e S oto s a id , “ It’ s n ot t h at t h ey d on’t w an t t o c o m e i n to t h e g lo bal e co nom y. I t’ s t h at t h e sta n dard s a n d i n fo rm atio n t o b rin g t h em i n to t h e s y ste m a re n ot i n p la ce. B lo ck ch ain i s t e rrif ic becau se i t g iv es u s a c o m mon p la tf o rm t o b rin g p eo ple t o geth er.” 28 What c o uld t h is p ers is te n t r e p uta tio n m ean f o r g lo bal e n tr e p re n eu rs h ip ? I f y ou h av e a re lia b le , u niq ue, a n d r o bust i d en tity , a n d y ou’re d eem ed t r u stw orth y, c o unte rp artie s w ill f e el more c o m fo rta b le p ro vid in g y ou w ith a ccess t o v alu e. T his i s n ot r e d is tr ib utio n o f w ealth b ut a wid er d is tr ib utio n o f o pportu nity . H alu k K ulin , C EO o f P ers o nal B la ck B ox, s a id , “ T he b ig gest re d is tr ib utio n t h at i s a b out t o h ap pen i s n ot a r e d is tr ib utio n o f w ealth b ut a r e d is tr ib utio n o f valu e. W ealth i s h ow m uch m oney y ou h av e. V alu e i s w here y ou p artic ip ate .” 29 B lo ck ch ain c an en ab le e v ery p ers o n t o h av e a u niq ue a n d v erif ia b le r e p uta tio n-b ase d i d en tity t h at a llo w s t h em t o partic ip ate e q ually i n t h e e co nom y. T he i m plic atio ns o f t h is e q uality a re p ro fo und. L ubin im ag in es a f u tu re w here t h e “ u nban ked a n d u nderb an ked w ill b eco m e i n cre asin gly e n fra n ch is e d as m ic ro le n din g s e rv ic es w ill e n ab le i n vesto rs a cro ss t h e g lo be t o c o nstr u ct d iv ers e p ortf o lio s o f man y m ic ro lo an s o f w hic h t h e u sa g e a n d r e p ay m en t c an b e t r a ck ed i n f u ll d eta il o n t h e blo ck ch ain , u sin g B ala n c3 ’s [ a C onse n S ys p ortf o lio c o m pan y] t r ip le -e n tr y a cco untin g s y ste m , fo r i n sta n ce.” 30 I n t h is n ew f u tu re , w hen p eo ple r e p ay m ic ro lo an s, t h ey a re o n t h eir w ay t o se cu rin g m ore a n d l a rg er l o an s t o b uild t h eir b usin esse s.

RO AD M AP T O P R O SP E R IT Y Fin an cia l i d en tity i s t h e g en esis f o r a w id e a rra y o f f in an cia l a n d e co nom ic o pportu nity pre v io usly u natta in ab le f o r m ore t h an t w o b illio n o f t h e w orld ’s p opula tio n. B lo ck ch ain te ch nolo gy e n ab le s p eo ple f ro m a ll w alk s o f l if e t o m ap o ut t h eir o w n p ro sp erity . I m ag in e t h at, a wealth o f o ne’s o w n— fo r l a rg e n um bers , u ltim ate ly b illio ns o f p eo ple .

Tools o f A bundan ce:

T he m ost b asic r e q uir e m en ts t o p artic ip ate i n a n e co nom y a re t o ols lik e a m obile p hone a nd s o m e k in d o f I n te rn et a ccess, t h e p orta l t h ro ugh w hic h p eo ple i n te ra ct with d if fe re n t v alu e s y ste m s. D r. B ala ji S rin iv asa n , m an ag in g p artn er a t A ndre esse n H oro w itz an d a l e ctu re r a t Sta n fo rd U niv ers ity , s a id , “ If y ou c an a ccess t h e I n te rn et o n a m obile p hone, su dden ly y ou’re a b le t o a ccess a ll t h ese o th er t h in gs. Y ou c an a ccess a b an k o r a t l e ast t h e mech an is m s f o r i t.” 31 B lo ck ch ain t e ch nolo gy c re ate s a w hole n ew s e t o f b usin ess m odels pre v io usly u nim ag in ab le t h at e m pow er i n div id uals a s e co nom ic a g en ts .

Persis te n t I d en tit y :

You c an u se a n d p ort i d en tity i n to d if fe re n t n etw ork s t o e sta b lis h re p uta tio n i n a f in an cia l t r a n sa ctio n o r t o p lu g i n to d if fe re n t s o cia l n etw ork s. S udden ly , a p ig n o lo nger h as t o b e t h e f a m ily p ig gy b an k. N ew p ay m en t r a ils a n d m ean s t o s to re v alu e a n d t r a n sa ct with c o unte rp artie s w ill o pen n ew f ro ntie rs . I n deed , t h is l o w erin g o f b arrie rs t o f in an cia l in clu sio n w ill m ak e i t e asie r t h an e v er f o r e n tr e p re n eu rs i n t h e d ev elo ped a n d d ev elo pin g w orld alik e t o b uild b usin esse s. T his i n clu des e v ery th in g f ro m t u rn in g o n a p ay m en t m ech an is m , t o hav in g a r e lia b le s to re o f v alu e, t o u sin g b lo ck ch ain s o ftw are t o m an ag e f in an cia l s ta te m en ts .

Dem ocra tiz ed E ntr ep ren eu rsh ip :

U nder t h e r ig ht c o nditio ns, e n tr e p re n eu rs a re t h e e n gin es of e co nom ic g ro w th i n s o cie ty . T hey b rin g f re sh t h in kin g t o t h e m ark etp la ce a n d f u el t h e c re ativ e destr u ctio n t h at m ak es m ark et e co nom ie s p ro sp er. B lo ck ch ain t e ch nolo gy b esto w s i n div id uals an d s m all c o m pan ie s a n yw here i n t h e w orld w ith m an y o f t h e s a m e c ap ab ilitie s o f l a rg er org an iz atio ns. B lo ck ch ain -b ase d l e d gers a n d s m art c o ntr a cts l o w er b arrie rs t o s ta rtin g a co m pan y, e x ped ite i n co rp ora tio n, a n d c u t r e d t a p e p artic u la rly i n t h e d ev elo pin g w orld , w here i t ta k es t h re e t im es l o nger t o i n co rp ora te a n d c o sts f iv e t im es a s m uch .

Blo ck ch ain s c an a u to m ate , s tr e am lin e, a n d o th erw is e d ra m atic ally i m pro ve t h e t h re e co m ponen ts o f b usin ess b uild in g: f o rm atio n, f u nd-ra is in g, a n d s a le s. F orm atio n c o sts w ill d ro p sig nif ic an tly , a s b lo ck ch ain i s a t r u ste d , k now n w ay t o i n co rp ora te a b usin ess. Y ou c an s e e ow ners h ip a n d m ain ta in r e co rd s e asily , e sp ecia lly h elp fu l i n a re as w here t h e r u le o f l a w i s a b se n t.

Fin an cin g a c o m pan y i s e asie r a s y ou c an a ccess e q uity a n d d eb t c ap ita l o n a g lo bal s c ale , a n d i f you’re u sin g a c o m mon d en om in ato r— lik e b itc o in — you n eed n ot w orry a b out e x ch an ge r a te s an d c o nvers io n r a te s. S ale s b eco m e a f u nctio n o f a ccessin g a n yone w ith a c o nnecte d d ev ic e.

Buyers d on’t n eed a c re d it c ard , l o cal c u rre n cy , o r b an k a cco unt.

Thro ugh s e cu re a n d i m muta b le l e d gers , e n tr e p re n eu rs w ill b e a b le t o r e g is te r t h eir b usin ess an d t itle o f c o rp ora te a sse ts ; m an ag e i n ven to ry , pay ab le s, a n d r e ceiv ab le s; a n d l e v era g e o th er fin an cia l m etr ic s t h ro ugh t r ip le -e n tr y a cco untin g s o ftw are a n d o th er b lo ck ch ain -b ase d ap plic atio ns, r e d ucin g t h e n eed f o r a u dito rs , t a x l a w yers , a n d o th er v en dors w ho w eig h o n s m all busin esse s.

32 R eg ula to rs m ig ht c u t s m all b usin esse s a b re ak f o r o ptin g i n to a t r ip le -e n tr y acco untin g s c h em e. T hat m ean s m ore t o t h e b otto m l in e a n d l e ss w aste d t im e. A s t h e c o m pan y gro w s, r e co ncilin g c o rp ora te a ctio ns a n d d ocu m en ta tio n w ill b eco m e l e ss c o m ple x . T hro ugh sm art c o ntr a cts , a n e n tr e p re n eu r c o uld a u to m ate m an y a sp ects o f a c o m pan y’s o pera tio ns:

purc h ase o rd ers , p ay ro ll, i n te re st o n d eb t, a n d f in an cia l a u dits i n r e al t im e. T w o n ew m odels f o r in div id ual e n tr e p re n eu rs h ip w ill g ain t r a ctio n:

M ETER IN G EX CE SS CAPA CIT Y .

Fro m t h e c en tr a liz ed s h arin g e co nom y t o t h e d is tr ib ute d mete rin g e co nom y, i n div id uals w ill b e a b le t o l o an o ut t h eir s p are b ed s, w heelb arro w s, o xen , a n d oth er t a n gib le a n d i n ta n gib le a sse ts t o p eers i n a n etw ork b ase d o n r e p uta tio n s c o re s. B lo ck ch ain en ab le s p re v io usly i m possib le r e v en ue s tr e am s s u ch a s m ete rin g W i- F i, e le ctr ic ity g en era te d fro m r o of-in sta lle d s o la r p an els , N etf lix s u bsc rip tio ns, l a te n t c o m putin g p ow er i n y our p hone, an d o th er h ouse h old a p plia n ces— all t h ro ugh m ic ro pay m en ts a n d s m art c o ntr a cts . T he blo ck ch ain b eco m es a n ew u tility f o r i n div id uals t o c re ate v alu e a n d e arn i n co m e i n nontr a d itio nal w ay s.

M IC RO M O NETIZ IN G DATA .

Pare n ts w ho w ork i n t h e h om e a n d f a m ily c are g iv ers o f a ll k in ds who l a b or t ir e le ssly o ver y oung c h ild re n a n d a g in g p are n ts c an a t l a st m onetiz e t h eir e ffo rts a n d be r e co gniz ed f o r t h e v alu e t h ey d eliv er e v ery h our o f t h e d ay . T his i s n ot a d ev elo ped -w orld opportu nity e x clu siv ely . B ig c o m pan ie s a re l o okin g f o r w ay s t o m ark et t o p eo ple i n t h e g lo bal South b ut o fte n l a ck t h e r ig ht d ata t o m ak e b usin ess d ecis io ns. C ontr a ctin g a n d l ic en sin g pers o nal d ata c o uld b e a g re at o pportu nity t o a d d a n ew r e v en ue s tr e am f o r a y oung e n tr e p re n eu r while h e i s l a u nch in g h is n ew b lo ck ch ain I P O . T oday , h uge d ig ita l c o nglo m era te s l ik e F aceb ook an d G oogle h arv est p eta b yte s o f d ata a b out b illio ns o f p eo ple . W e e n te r i n to a F au stia n b arg ain where w e g iv e u p d ata i n e x ch an ge f o r c o ol s e rv ic es, b ut w e l o se p riv acy a n d d ata i n te g rity i n t h e pro cess. B lo ck ch ain t u rn s c o nsu m ers i n to pro su m ers . N ik e m ig ht l ik e t o k now w hat y ou a te f o r bre ak fa st, h ow o fte n y ou g o f o r a r u n, a n d w heth er y ou a re t h in kin g o f b uyin g n ew w ork out g ear.

Why n ot c o ntr a ct t h at d ata i n e x ch an ge f o r N ik e p oin ts or r e al m oney ? L et’ s g o o ne s te p f u rth er:

In su ra n ce c o m pan ie s a re s e arc h in g f o r t h e b est d ata t o m ak e a ctu aria l c alc u la tio ns. Y our o w n data — how m uch y ou e x erc is e , i f y ou s m oke, w hat y ou e at— are v ery v alu ab le t o t h em . E nte r in to a l ic en sin g a g re em en t w here e v ery t im e t h ey u se y our d ata t o m ak e a n a ctu aria l c alc u la tio n an d p ric e a n ew p ro duct, y ou g et a m ic ro pay m en t.

33 Dis tr ib ute d O wnersh ip a n d I n vestm en t We’re m ovin g i n to a p erio d o f h um an h is to ry w here b y v ery l a rg e n um bers o f p eo ple c an b eco m e ow ners o f w ealth t h ro ugh d is tr ib ute d l e d ger t e ch nolo gy. E nab lin g a ccess t o t h e w orld ’s f in an cia l mark ets a n d t h ere fo re t h e u niv ers e o f i n vestm en t o pportu nitie s, f ro m c o nven tio nal i n vestm en ts t o partic ip atio n i n m ass c o lla b ora tiv e v en tu re s, m ic ro le n din g s c h em es, b lo ck ch ain I P O s, a n d re p uta tio n-b ase d m ic ro le n din g, w ill o pen a ccess t o c ap ita l. A lr e ad y, c ro w dfu ndin g i s c h an gin g th e f a ce o f f in an ce. I n 2 012, n onblo ck ch ain c ro w dfu ndin g c am paig ns r a is e d $ 2.7 b illio n a ro und th e w orld , a n 8 0 p erc en t i n cre ase o ver t h e y ear b efo re . W ith d ir e ct p eer-to -p eer c ro w dso urc ed blo ck ch ain f in an cin gs, t h ese n um bers a re p ois e d t o g ro w m an if o ld . I n div id uals c an c o ntr ib ute sm all a m ounts o f m oney t h ro ugh c ro w dfu ndin g c am paig ns. I m ag in e a c am paig n t h at e n gag es a millio n p eo ple e ach g iv in g a d olla r. C all i t d is tr ib ute d o w ners h ip . N ot m ean in gfu l, y ou s a y ?

Augur, t h e p re d ic tio n m ark et p la tf o rm , r a is e d m illio ns o f d olla rs i n s m all i n cre m en ts f ro m th ousa n ds a ro und t h e g lo be. T he r a n ge o f p ossib ilitie s i s v ast. B lo ck ch ain I P O s n ot o nly c an im pro ve t h e e ffic acy a n d e ffic ie n cy o f r a is in g m oney , l o w erin g t h e c o st f o r t h e i s su er, t h ey c an als o b e b ro ad ly i n clu siv e, a llo w in g p re v io usly u nim ag in ab le g ro ups o f b urg eo nin g i n vesto rs t o partic ip ate . T o d ate , t h e r a n ge o f p ro posa ls t o c h an ge i n co m e a n d w ealth d is p arity h as n ot re ach ed b ey ond h ig her t a x es f o r t h e w ealth y o n t h e o ne e n d, o r, a t i ts m ost e x tr e m e, o utr ig ht ex pro pria tio n b y t h e s ta te . I n ste ad o f r e d is tr ib utin g a n d e x pro pria tin g w ealth , l e t’ s i m ag in e h ow blo ck ch ain c an c re ate o pportu nitie s t o s h are m ore e q ually i n t h e w ealth c re ate d b y s o cie ty .

REM IT TA NCES: T H E S T O RY O F A NALIE D O M IN G O Analie D om in go 34 h as b een w ork in g a s a n an ny a n d h ouse k eep er f o r t w en ty -fiv e y ears . O ne o f more t h an 2 00,0 00 F ilip in o-b orn p eo ple l iv in g i n T oro nto , 35 h er s to ry i s f a ir ly t y pic al: S he l e ft th e P hilip pin es a s a y oung w om an t o s e ttle i n C an ad a w ith n o s a v in gs, n o f o rm al e d ucatio n, a n d very l ittle k now le d ge o f h er a d optiv e c o untr y . A nalie h as w ork ed v ery h ard a n d h as c arv ed o ut a lif e f o r h ers e lf a n d h er f a m ily . T en y ears a g o, s h e u se d h er s a v in gs t o p ut a d ow n p ay m en t o n a house , a r e m ark ab le f e at a s s h e h ad b een d utif u lly s e n din g m oney t o h er f a m ily i n t h e P hilip pin es fo r t h e p re v io us t h re e h undre d m onth s. A nalie s e n t h om e s o m uch m oney t h at h er m oth er, n ow i n her s e v en tie s, w as a b le t o p urc h ase a h om e o f h er o w n i n M an ila .

Analie g ra cio usly a g re ed t o l e t u s j o in h er o n p ay day t o d ocu m en t h er e x perie n ce. O n F rid ay afte rn oon, A nalie g ot h er p ay ch eck , h an dw ritte n b y h er e m plo yer, a n d w alk ed i t t o t h e l o cal ban k. T his t o ok f if te en m in ute s; t w en ty m in ute s i f y ou i n clu de t h e l in eu p a t t h e t e lle r. A fte r s h e dep osite d i t, s h e w ith dre w $ 200 C an ad ia n . C old h ard c ash i n h an d, s h e w alk ed a b lo ck t o c atc h a lo cal b us. I n ste ad o f h ead in g t o w ard h er h om e, s h e w en t t w o m ile s i n t h e o pposite d ir e ctio n a n d got d ro pped o ff a t w hat c an o nly b e d esc rib ed a s a b ad n eig hborh ood. S he w alk ed f o r a n oth er fo ur b lo ck s a n d f in ally a rriv ed a t t h e “ fin an cia l i n stitu tio n” f ro m w hic h s h e w ould s e n d t h e money : a n i R em it c o unte r a t t h e b otto m o f a h ousin g b lo ck i n T oro nto ’s S t. J a m es T ow n— one o f th e p oore st a n d m ost n oto rio usly d an gero us n eig hborh oods i n C an ad a. B ecau se m an y p eo ple who u se i R em it’ s s e rv ic es a re u nban ked , t h e c o m pan y h as b eg un o ffe rin g o th er f in an cia l se rv ic es, s u ch a s c h eck c ash in g. A nalie f ille d o ut a p ap er f o rm , a s s h e h as d one h undre d s o f tim es b efo re , a n d h an ded o ver h er h ard -e arn ed m oney . F or a $ 200 w ir e , A nalie p aid a f la t f e e o f $10. O n t h e r e ceiv in g e n d, h er s e v en ty -y ear-o ld m oth er e n dure d a s im ila rly t a x in g ( a n d e q ually rid ic u lo us) t r e k t o r e ceiv e t h e m oney . O f c o urs e , s h e h ad t o w ait t h re e t o f o ur d ay s b efo re g oin g to t h e b an k, t h e a v era g e t im e t h ese p ay m en ts t a k e t o g et p ro cesse d . A nalie w alk ed b ack t o t h e bus s to p, b oard ed t h e b us, a s u bw ay , a n d a n oth er b us, a n d e v en tu ally , o ne h our l a te r, r e ach ed h er hom e.

The c o st o f s e n din g t h at r e m itta n ce, $ 10, i s e q ual t o 5 p erc en t o f t h e t o ta l v alu e. I n a d ditio n, th ere i s t y pic ally a s p re ad o n t h e e x ch an ge r a te o f aro und 1 t o 2 p erc en t. A t a ro und 7 p erc en t t h is is a s lig ht d is c o unt t o t h e i n te rn atio nal a v era g e o f 7 .6 8 p erc en t.

36 T hat t h ey a re b oth “ b an ked ” an d s till h av e t o g o t h ro ugh t h is p ro cess m ak es t h e w hole f a rc ic al r o utin e m ore e g re g io us. T he hard c o st f a ils t o c ap tu re t h e a ll- in c o st. F or e x am ple , t h e t im e v alu e o f t h e t w o h ours A nalie waste d d oin g t h is i s e q ual t o a n oth er $ 40, b ase d o n h er w ag es. M ore o ver, s h e h ad t o l e av e w ork early b ecau se s h e f e els u nsa fe g oin g t o t h e n eig hborh ood w hen i t’ s d ark . F or h er m oth er, a se p tu ag en aria n l iv in g i n M an ila , t h e p hysic al t o ll o n h er b ody o f m ak in g t h e j o urn ey t o p ic k u p th e m oney i s e q ually s ig nif ic an t. T he p urc h asin g p ow er o f t h e $ 10 A nalie f o rw en t t o m ak e t h e tr a n sa ctio n h ap pen i s c erta in ly m ate ria l t o h er, b ut f a r m ore f o r h er m oth er. W here as i n C an ad a $10 i s t h e c o st o f a m eal a n d b us f a re , i n M an ila i t c o uld b uy f o od f o r a w eek . O ver h er l if e tim e, Analie h as p aid th ousa nds o f d olla rs t o i n te rm ed ia rie s s u ch a s W este rn U nio n t o s e n d m oney hom e. E ach m onth ly f e e c o ntr ib ute s t o a g lo bal h oney pot o f $ 38 b illio n i n f e es p aid a n nually o n re m itta n ces.

37 Rem itta n ces o f f u nds s e n t b ack t o t h eir h om ela n ds b y p eo ple l iv in g i n d is ta n t l o catio ns co nnect d ia sp ora s g lo bally . D ia sp ora s a re g lo bal c o m munitie s f o rm ed b y p eo ple d is p ers e d f ro m th eir a n cestr a l l a n ds b ut w ho s h are a c o m mon c u ltu re a n d s tr o ng i d en tity w ith t h eir h om ela n d.

One o f t h e f u nctio ns o f m an y o f t o day ’s d ia sp ora s i s t o a d dre ss a n d h elp s o lv e c o m mon, glo bal p ro ble m s. R em itta n ces r e p re se n t o ne o f t h e l a rg est f lo w s o f c ap ita l t o d ev elo pin g co untr ie s a n d c an h av e a n e n orm ously p ositiv e i m pact o n t h e q uality o f t h e l iv es o f s o m e o f t h e world ’s m ost v uln era b le p eo ple . I n s o m e c o untr ie s, r e m itta n ces a re a h uge a n d v ita l c o m ponen t of t h e e co nom y. I n H aiti, f o r e x am ple , r e m itta n ces a cco unt f o r 2 0 p erc en t o f G DP. T he Philip pin es r e ceiv es $ 24 b illio n e v ery y ear i n r e m itta n ces, o r 1 0 p erc en t o f G DP.

38 A cco rd in g t o th e I n te rn atio nal M oneta ry F und, r e cip ie n ts u su ally s p en d r e m itta n ces o n n ecessitie s— fo od, clo th in g, m ed ic in e, a n d s h elte r, m ean in g r e m itta n ces “ h elp l if t h uge n um bers o f p eo ple o ut o f poverty b y s u pportin g a h ig her l e v el o f c o nsu m ptio n t h an w ould o th erw is e b e p ossib le .” 39 Rem itta n ce f lo w s t o d ev elo pin g n atio ns a re e stim ate d t o b e t h re e t o f o ur t im es a s l a rg e a s f o re ig n aid f lo w s.

40 T he p ositiv e e ffe cts o f r e m itta n ces o n t h e p oor i n d ev elo pin g c o untr ie s a re w ell unders to od, y et d esp ite t h is e n orm ous e co nom ic i n je ctio n, r e m itta n ce c o sts a re s till a p pallin gly hig h. I n s o m e o f t h e m ost e x pen siv e c o rrid ors b etw een n atio ns, f e es o n r e m itta n ces c an r u n n orth of 2 0 p erc en t.

41 Can ad a i s o ne o f t h e l a rg est n et s e n ders o f r e m itta n ces i n t h e w orld . I n O nta rio , C an ad a’s la rg est p ro vin ce b y p opula tio n a n d l a rg est e co nom y, 3 .6 m illio n p eo ple i d en tif y a s b ein g f o re ig n born a n d e v ery y ear b illio ns o f d olla rs l e av e t h e p ro vin ce i n t h e f o rm o f r e m itta n ces.

42 A nalie ’s sto ry i s n ote w orth y b ecau se i t i s t h e n orm i n C an ad a.

Consid er t h e D uffe rin M all, a ls o i n T oro nto . O n m ost d ay s t h e m all s e es a s te ad y f lo w o f tr a ffic a n d c o uld b e m is ta k en f o r a n y o th er s h oppin g c en te r i n C an ad a o r t h e U nite d S ta te s. B ut ev ery T hurs d ay a n d F rid ay a ro und f iv e o ’c lo ck i n t h e e v en in g, s o m eth in g e n tir e ly d if fe re n t hap pen s. P ay ch eck s i n h an d, t h ousa n ds o f f o re ig n-b orn C an ad ia n s d esc en d o n t h e m all t o s e n d re m itta n ces f ro m t h e m all’ s v ario us b an ks a n d f o re ig n e x ch an ge d eale rs t o n eed y f a m ily mem bers i n t h eir h om e c o untr ie s. A c o tta g e i n dustr y o f f o re ig n e x ch an ge d eale rs a n d W este rn Unio n o utp osts h as p opped u p i n c o nven ie n ce s to re s, b ars , a n d r e sta u ra n ts i n t h e s u rro undin g are a t o d eal w ith t h e o verflo w .

Ofte n tim es t r a v elin g b y b us, s tr e etc ar, o r s u bw ay , w ith c h ild re n i n t o w a n d e x hau ste d f ro m a lo ng d ay , T oro nto nia n s s p eak in g F ilip in o, C an to nese , S pan is h , P unja b i, T am il, A ra b ic , P olis h , an d o th er l a n guag es g et t o t h e m all, a n d t h en s ta n d i n l o ng l in es w aitin g f o r t h e c h an ce t o s e n d th eir h ard -e arn ed m oney h om e. T hese d ay s, m ost p eo ple p ass t h e t im e o n t h eir s m art p hones, ch attin g o ver W hats A pp, S kypin g f rie n ds a n d f a m ily i n T oro nto a n d a b ro ad , p la y in g g am es, a n d watc h in g v id eo s. M ore o fte n t h an n ot, i t t a k es u pw ard s o f a w eek f o r t h is m oney t o a rriv e a t i ts in te n ded d estin atio n, a t w hic h p oin t s o m eo ne o n t h e r e ceiv in g e n d n eed s t o g o t h ro ugh a sim ila rly t e d io us, t im e-c o nsu m in g p ro cess.

What’ s w ro ng w ith t h is s c en ario ? J u st a b out e v ery th in g. L et’ s t e ase o ut t h e b rig ht s p ots .

Rem em ber, m ost o f t h e p eo ple w aitin g i n l in e w ere u sin g s m art p hones, a t e ch nolo gy t h at i s perv asiv e i n C an ad a a n d i n cre asin gly u biq uito us g lo bally . S ev en ty -th re e p erc en t o f C an ad ia n s ow n a s m art p hone, a n d i n T oro nto t h e n um ber i s a lm ost c erta in ly h ig her. T he c o untr y h as a wir e le ss n etw ork i n fra str u ctu re a m ong t h e b est i n t h e w orld , w hic h m ean s t h at n ot o nly c an m ost Can ad ia n s o w n a s m art p hone ( e ffe ctiv ely a s u perc o m pute r), b ut t h ey c an a ls o u se i t t o h arn ess th e p ow er o f t h e m obile W eb i n w ay s t h at w ould h av e s e em ed l ik e s c ie n ce f ic tio n t w o d ecad es ag o. W hy d o t h ose p eo ple w ait i n l in e t o s e n d m oney v ia a p hysic al p oin t o f s a le u sin g d ecad es- old t e ch nolo gy i n ste ad o f w hat t h ey h av e a t t h eir f in gertip s? Dolla rs a re a l o t l e ss d ata i n te n siv e th an H D v id eo . I n f a ct, a cco rd in g t o S kype, v id eo c allin g c o nsu m es 5 00 k ilo bits p er s e co nd.

43 Sen din g o ne b itc o in t a k es a b out 5 00 b its , o r r o ughly o ne o ne-th ousa n dth t h e d ata c o nsu m ptio n o f one se co nd o f v id eo S kype!

By d is in te rm ed ia tin g t r a d itio nal t h ir d p artie s a n d r a d ic ally s im plif y in g p ro cesse s, b lo ck ch ain can f in ally e n ab le i n sta n t, f ric tio nle ss p ay m en ts , s o t h at p eo ple d on’t w ait i n l in e f o r a n h our o r more , t r a v el g re at d is ta n ces, o r r is k l if e a n d l im b v en tu rin g i n to d an gero us n eig hborh oods a t nig ht j u st t o s e n d m oney . T oday , a n um ber o f c o m pan ie s a n d o rg an iz atio ns a re l e v era g in g t h e bitc o in p ro to co l t o l o w er r e m itta n ce c o sts . T heir g oal i s t o p ut b illio ns o f d olla rs i n to t h e h an ds o f th e w orld ’s p oore st p eo ple . T hese i n dustr ie s h av e b een c o ntr o lle d b y a h an dfu l o f f ir m s t h at h av e use d t h eir u niq ue p ositio nin g a n d l e g acy i n fra str u ctu re t o p ro duce m onopoly e co nom ic s. B ut th ey t o o s e e t h e r is k f ro m t h is t e ch nolo gy a n d t h ey ’re s c are d . A cco rd in g t o E ric P is c in i, w ho le ad s D elo itte ’s c ry pto cu rre n cy g ro up, c o m pan ie s i n t h e p ay m en t s p ace t o day “ are r e ally n erv ous ab out w hat t h e b lo ck ch ain i s a ctu ally d oin g t o t h em . W este rn U nio n, M oney G ra m , i R em it, a n d oth ers a re v ery n erv ous a b out t h e d is ru ptio n t o t h eir b usin ess m odel.” 44 T hey s h ould b e, a s t h ere is a n e m erg in g i n dustr y o f n ew a n d d is ru ptiv e c o m pan ie s t h at p la n t o t a k e t h eir p la ce.

Well, L uke, M y F rie n d, W hat A bou t Y ou ng A nalie ?

There a re t w o m ain o bsta cle s t o c re atin g a b lo ck ch ain -b ase d p ay m en t n etw ork f o r t h e w orld ’s poor. F ir s t, m an y o f t h e p eo ple s e n din g t h e m oney g et p aid i n c ash a n d t h ose o n t h e r e ceiv in g en d l iv e i n a p re d om in an tly c ash -b ase d e co nom y. S eco nd, m ost p eo ple i n t h e d ev elo ped a n d dev elo pin g w orld a lik e d on’t h av e t h e k now le d ge a n d t o ols t o u se b lo ck ch ain e ffe ctiv ely . W hile cash m ay v ery w ell g o t h e w ay o f t h e d odo, u ntil e m plo yers s ta rt b eam in g v alu e t o s m art w alle ts in t h e d ev elo ped w orld , a n d t in y s tr e ets id e m erc h an ts i n M an ila , P ort- a u -P rin ce, a n d L ag os s ta rt accep tin g d ig ita l p ay m en ts , w e w ill s till n eed h ard c u rre n cy . W este rn U nio n u nders ta n ds t h at, an d t h at’ s w hy i t i s s till v ery r e le v an t t o day , w ith m ore t h an 500,0 00 a g en ts a ll o ver t h e w orld .

45 If y ou’re l o okin g t o e x ch an ge y our r e m itta n ce f o r c ash , y our o ptio ns a re l im ite d . W este rn U nio n would n’t b e e ffe ctiv e i f i t h ad o nly o ne a g en t. I ts n etw ork h as a llo w ed i t t o m ain ta in a monopoly positio n o n t h e e n tir e m ark et f o r d ecad es. T here h av e b een f e w i f a n y c o m pan ie s w ith a se am le ss, e asy -to -u se “ k ille r a p p” t e ch nolo gy. U ntil n ow .

Ente r A bra , a n d o th er c o m pan ie s l ik e i t. W ith a n am e l ik e A bra , o ne w ould e x pect t o s e e a little “ cad ab ra ,” a n d t h e c o m pan y d oes n ot d is a p poin t. A bra i s b uild in g a g lo bal d ig ita l a sse t man ag em en t s y ste m o n t h e b itc o in b lo ck ch ain . I ts s ta te d m is sio n i s t o t u rn e v ery s m art p hone in to a t e lle r t h at c an d is p en se p hysic al c ash t o a n y o th er m em ber o f t h e n etw ork . W e w an te d t o te st w heth er t h is s o lu tio n i m pro ved A nalie ’s e x perie n ce.

Analie a n d h er m om b oth d ow nlo ad ed t h e a p p t o t h eir A ndro id s m art p hones. A nalie ’s bala n ce t o s ta rt w as i n C an ad ia n d olla rs . A t t h e c lic k o f a b utto n, A nalie i n itia te d t h e t r a n sfe r t o her m om . S he g ot i t, i n p eso s, a lm ost i n sta n tly . A t t h is p oin t, h er m om h ad t h e c h oic e o f k eep in g peso s o n h er p hone a s a s to re o f v alu e a n d c h oosin g t o s p en d t h em a t a g ro w in g n um ber o f merc h an ts t h at n ow a ccep t A bra a s a p ay m en t s y ste m . B y c re atin g a p ay m en t m ech an is m a n d sto re o f v alu e, A bra e ffe ctiv ely d is p la ces t h e c o nven tio nal b an kin g s y ste m ’s t w o m ost e sse n tia l ro le s: p ay m en ts a n d v alu e s to ra g e. T his a lo ne i s a r e v olu tio nary c o ncep t, b ut h ere ’s w here i t g ets re ally i n te re stin g: M om w an ts c ash . S he p ay s h er r e n t, b uys h er f o od, a n d m an ag es v ir tu ally a ll oth er e x pen se s i n c ash . S he c h eck s t h e a p p a n d n otic es t h ere a re f o ur o th er A bra u se rs w ith in a fo ur-b lo ck r a d iu s o f h er. S he m essa g es t h em a ll t o s e e w ho w ill e x ch an ge h er d ig ita l p eso s f o r physic al p eso s a n d a t w hat p ric e. T he f o ur c o m e b ack t o h er w ith d if fe re n t “ b id s” f o r t h eir se rv ic es. O ne p ers o n w ill d o i t f o r 3 p erc en t, a n oth er f o r 2 p erc en t, a n d t w o m ore f o r 1 .5 p erc en t.

Mom d ecid es t o g o w ith t h e t e lle r o ffe rin g 2 p erc en t— not b ecau se i t’ s t h e c h eap est b ut b ecau se th is t e lle r h as a f iv e-s ta r r a tin g a n d h as a g re ed t o m eet h er h alf w ay . T hey m eet a n d s h e s w ap s h er Abra p eso s f o r p hysic al p eso s, t h e t e lle r m ak es h is c o m mis sio n, a n d t h ey b oth w alk a w ay h ap py.

Abra t a k es a 2 5-b asis -p oin t f e e o n c o nvers io n. The e n tir e p ro cess, f ro m m oney l e av in g T oro nto t o t h e F ilip in o r e cip ie n t h old in g c ash , t a k es le ss t h an a n h our a n d c o sts 2 5 b asis p oin ts n et, i n clu siv e o f f o re ig n e x ch an ge a n d a ll o th er tr a n sa ctio n c o sts . W here as e v ery W este rn U nio n t r a n sa ctio n r e q uir e s u p t o s e v en o r e ig ht in te rm ed ia rie s— co rre sp ondin g b an ks, l o cal b an ks, W este rn U nio n, t h e i n div id ual a g en ts , a n d oth ers — th e A bra t r a n sa ctio n r e q uir e s o nly t h re e: t w o p eers an d t h e A bra p la tf o rm . “ I g et i t n ow .

That’ s r e ally c o ol! ” s a id A nalie , e csta tic ally .

46 For A bra t o s c ale g lo bally , i t m ust a d dre ss t w o c o re c h alle n ges. F ir s t, t h e n etw ork r e q uir e s a critic al m ass o f t e lle rs t o m ak e t h e s e rv ic e c o nven ie n t. A nalie ’s m om w on’t u se i t i f t h e n eare st te lle r i s t w en ty m ile s a w ay . A bra u nders ta n ds t h is , a n d i t i s p re sig nin g t e lle rs — at l a st c o unt man y t h ousa n ds i n t h e P hilip pin es a lo ne— who a re r e ad y t o t r a n sa ct w hen t h in gs g o l iv e. S eco nd, th e m odel w ork s o n t h e a ssu m ptio n t h at t e lle rs a n d c u sto m ers w ill a b id e b y t h eir c o m mitm en t when t h ey t r a n sfe r d ig ita l f o r p hysic al c u rre n cy . T his i s l e ss o f a c o ncern . B usin esse s l ik e Air b nb, L en din g C lu b, a n d Z ip car h av e d eb unked t h e m yth t h at i n div id uals w ill n ot t r u st o ne an oth er. I n deed , f o r A bra C EO B ill B arh ydt, t h e s ta g gerin g g ro w th i n t h e n um ber o f s o -c alle d sh arin g e co nom y c o m pan ie s c o nvin ced h im t h is w asn ’t a n i s su e. “ P eo ple a re w illin g t o t r u st e ach oth er f a ste r t h an t h ey ’re w illin g t o t r u st a n i n stitu tio n,” h e s a id .

47 The s m art p hone i s k ey t o a ll o f t h is . I n t h e s a m e w ay t h e s m art p hone a llo w s y ou t o r e n t your a p artm en t t o s o m eo ne e ls e o r r e n t y our c ar t o s o m eo ne e ls e o r p ro vid e r id e s h arin g t o so m eo ne e ls e , i t c an a ls o b e u se d a s a n A TM . B arh ydt s a id , “ It’ s a m azin g w hat p eo ple a re willin g t o d o i n a s h are d e co nom y m odel a n d t h ey ’re j u st n ot d oin g i t f o r m oney y et, m ay be w ith th e e x cep tio n o f p eer-to -p eer l e n din g.” M ore o ver, h e s a id , “ It’ s m ore i m porta n t t o u s t h at y ou tr u st e ach o th er r a th er t h an A bra . I f y ou t r u st e ach o th er, i t’ s h ig hly l ik ely t h at y ou’re g oin g t o get t o k now A bra , a n d t h at y ou’re g oin g t o l ik e i t a n d y ou’re g oin g t o h av e a g ood e x perie n ce,” an d u ltim ate ly t r u st t h e p la tf o rm .

48 Abra i s n ot a r e m itta n ce a p p b ut i n ste ad a n ew g lo bal p la tf o rm f o r v alu e e x ch an ge t h at co m bin es i n e q ual m easu re t h e d is tr ib ute d , t r u stle ss b lo ck ch ain n etw ork , t h e p ow er o f s m art phone t e ch nolo gy, a n d t h e v ery h um an i n clin atio n t o w an t t o t r u st p eers i n a n etw ork . B y offe rin g u se rs t h e a b ility t o s to re v alu e i n t r a d itio nal c u rre n cie s, t r a n sm it v alu e a cro ss t h e netw ork , a n d a ls o p ay a t a g ro w in g m erc h an t n etw ork , A bra t a k es o n n ot o nly W este rn U nio n, but a ls o t h e c re d it c ard n etw ork s, l ik e V is a . A cco rd in g t o B arh ydt:

The s e ttle m en t r a ils f o r a W este rn U nio n t r a n sa ctio n, a n d t h e s e ttle m en t r a ils f o r a V is a tr a n sa ctio n, a re v ery d if fe re n t. B ut t h e s e ttle m en t ra ils f o r a n A bra t r a n sa ctio n t h at’ s use d f o r b oth p ers o n-to -p ers o n p ay m en t, a s w ell a s p ers o n-to -m erc h an t p ay m en ts , a re ex actly t h e s a m e. . . . W e h av e c o m e u p w ith a s in gle s o lu tio n t h at w ork s d om estic ally or c ro ss-b ord er, a n d t h at c an b e u se d f o r b oth p ers o n-to -p ers o n p ay m en ts a n d p ers o n-to - merc h an t p ay m en ts f o r t h e f ir s t t im e.

49 Abra m ig ht e v en tu ally b eco m e a g lo bal j u ggern au t, r a ttlin g t h e w alls o f t h e b ig gest f in an cia l in stitu tio ns i n t h e w orld . B ut f o r n ow , i t’ s a n e le g an t a n d s im ple s o lu tio n t o a n i m porta n t g lo bal pro ble m . W ith r e m itta n ces t o ppin g h alf a t r illio n d olla rs n ex t y ear, t h e m ark et o pportu nity i s noth in g t o s n eeze a t. BLO CK CH AIN H UM ANIT A RIA N A ID Can b lo ck ch ain f u ndam en ta lly t r a n sfo rm h ow N GOs, g overn m en ts , a n d i n div id ual d onors deliv er f o re ig n a id ? H undre d s o f b illio ns o f d olla rs o f a id f lo w a n nually i n to d ev elo pin g n atio ns, yet t h e m acro eco nom ic e ffe cts o f a id a re n ot a lw ay s c le ar.

50 T here i s a m ple e v id en ce t o s u ggest th at c o rru pt o ffic ia ls , l o cal s tr o ngm en , a n d o th er i n te rm ed ia rie s s te al m uch o f i t l o ng b efo re i t ev er r e ach es i ts i n te n ded s o urc e. M ore t r o ublin g, a cco rd in g t o t h e Jo urn al o f I n te rn atio nal Eco nom ic s , a n “ in cre ase i n g overn m en t r e v en ues m ay lo w er t h e p ro vis io n o f p ublic g oods.” T he re p ort c o nclu ded t h at “ la rg e d is b urs e m en ts o f a id , o r w in dfa lls , d o n ot n ecessa rily l e ad t o in cre ase d w elf a re .” 51 O rg an iz atio nal b lo at a n d l e ad ers h ip c o rru ptio n c o m bin e f o r l o ts o f w aste an d g re ate r d is p arity b etw een h av es a n d h av e-n ots i n t h e p oore st c o untr ie s. T his i s t r u e f o r d ir e ct fo re ig n a id f ro m g overn m en t t o g overn m en t b ut a ls o f o r N GOs t h at p ut b oots o n t h e g ro und i n hard -h it p la ces.

We t o uch ed b rie fly o n t h e q uestio n o f f o re ig n a id i n o ur i n tr o ductio n. L et’ s e x plo re i t f u rth er.

Recall t h at t h e R ed C ro ss c am e u nder f ir e i n t h e a fte rm ath o f t h e 2 010 H aiti e arth quak e a fte r a stu dy c o nducte d b y P ro P ublic a, a n i n dep en den t, n ot- fo r-p ro fit n ew s o rg an iz atio n, a n d N atio nal Public R ad io f o und t h e o rg an iz atio n s q uan dere d f u nds a n d d id n ot f u lf ill m an y o f i ts co m mitm en ts s u ch a s b uild in g 1 30,0 00 n ew h om es. I t b uilt o nly s ix .

52 I n i ts d efe n se , t h e R ed Cro ss a rg ued t h at H aiti’ s s h oddy l a n d t itle r e g is tr y h in dere d i ts e ffo rts : n obody c o uld f ig ure o ut who a ctu ally o w ned t h e l a n d. A s a r e su lt, t h e R ed C ro ss i m pro vis e d a l e ss d esir a b le s o lu tio n.

Could a b lo ck ch ain -b ase d l a n d t itle r e g is tr y i m pro ve t h is s itu atio n b y p ro vid in g c le ar t itle a n d perh ap s p re v en t u nla w fu l e x pro pria tio n?

Fore ig n a id i s p erh ap s t h e c le are st e x am ple o f t h e i n ep titu de o f m an y g overn m en ts a n d t h e re n t- s e ek in g b eh av io r o f u neth ic al i n te rm ed ia rie s, a n d i s t h us e x celle n t g ro unds t o e x plo re blo ck ch ain s o lu tio ns. T he 2 010 H aiti e arth quak e w as o ne o f t h e m ost d ev asta tin g h um an ita ria n cris e s o f t h e p ast h undre d y ears .

53 W hile t h e g overn m en t w as p ara ly zed a n d t h e c ris is r a g ed o n, th ousa n ds o f “ d ig ita l h um an ita ria n s” c o nverg ed o n t h e I n te rn et t o h elp f ir s t r e sp onders c o lle ct, tr ia g e, a n d v is u aliz e p le as f o r h elp f ro m m obile p hones o f d ev asta te d H aitia n s. O rig in ally f o rm ed onlin e b y l ik e-m in ded v olu nte ers , t h ese a d h oc g ro ups b ecam e i n cre asin gly o rg an iz ed a n d effe ctiv e a m id t h e c ris is . O ne i n p artic u la r— Cris is C om mons— mad e a r e al d if fe re n ce.

Cris is C om mons e x em plif ie s a g lo bal s o lu tio n n etw ork , a n e m erg in g n onsta te n etw ork o f c iv il so cie ty o rg an iz atio ns, c o m pan ie s, a n d i n div id uals , c o lla b ora tin g t o s o lv e a m ajo r p ro ble m . T he dig ita l r e v olu tio n h as e n ab le d n ew n etw ork s t o c o nnect a n d c o lla b ora te a cro ss b ord ers a n d c an so lv e p ro ble m s a n d e n ab le g lo bal c o opera tio n a n d g lo bal g overn an ce. T he I n te rn et m ak es a ll t h is possib le . N ev er b efo re c o uld p eo ple o rg an iz e c o lle ctiv ely t o c re ate a p ublic g ood a s t h ey d id i n Haiti. T his i n fo rm atio n l a y er o f t h e I n te rn et p ro ved v ita l— pro vid in g c ritic al c o nnectio ns, k now - how , a n d d ata f o r p eo ple i n n eed a n d v olu nte er o rg an iz atio ns a lik e. I m ag in e i f t h ere w as a ls o a valu e l a y er. W hat k in d o f p ossib ilitie s c o uld t h at e n ab le ?

The b lo ck ch ain c an i m pro ve t h e d eliv ery o f f o re ig n a id i n t w o w ay s. F ir s t, b y dis in te rm ed ia tin g t h e m id dle m en w ho a ct a s c o nduits o f l a rg e a id t r a n sfe rs , i t c an r e d uce t h e ch ro nic p ro ble m o f o utr ig ht m is a p pro pria tio n a n d t h eft. S eco nd, a s a n i m muta b le l e d ger o f t h e flo w o f f u nds, i t c o m pels l a rg e i n stitu tio ns, f ro m a id g ro ups t o g overn m en ts , t o a ct w ith i n te g rity an d a b id e b y t h eir c o m mitm en ts . I f t h ey d on’t, p eo ple w ill b e a b le t o s e e t h eir m alf e asa n ce a n d hold t h em t o a cco unt. One c o uld e asily i m ag in e U NIC EF o r t h e U N’s w om en ’s i n itia tiv e u sin g t h e b lo ck ch ain t o get f u ndin g d ir e ctly t o w om en a n d c h ild re n w ith out h av in g t o g o t h ro ugh l o cal p ow er s tr u ctu re s.

In div id uals i n p oor c o untr ie s c o uld s ig n u p f o r c erta in b en efits t h ro ugh a d is tr ib ute d l e d ger man ag ed b y a n etw ork o f d if fe re n t a id g ro ups a ctin g a s n odes o n t h e n etw ork . W hen p artic u la r aid i s d eliv ere d — sa y , v accin atio ns f ro m t h e R ed Cro ss o r s c h ool s u pplie s b y U NIC EF— th ose “tr a n sa ctio ns” c an b e t im e-s ta m ped o n t h e l e d ger. T his w ould r e d uce o r p erh ap s p re v en t a id gro ups a ccid en ta lly d ouble s p en din g o n p artic u la r p eo ple o r c o m munitie s, t h us s p re ad in g t h e ben efits o f a id m ore e q uita b ly .

In deed , U NIC EF h as b eg un e x plo rin g c ry pto cu rre n cie s. I n J u ne 2 015, U NIC EF a n nounced th e l a u nch o f U nic o in , a d ig ita l c u rre n cy t h at c h ild re n c an “ m in e” b y s u bm ittin g a n i n sp ir a tio nal dra w in g t o t h e p ro gra m . T he c o in s a re t h en e x ch an ged f o r a n ote p ad a n d p en cil.

54 T his i s a s m all sta rt, b ut t h e o pportu nitie s a re l im itle ss. I t’ s n ot f a r t o i m ag in e t h e h ypoth etic al w e p ose d i n ch ap te r 1 — orp han ag es i n v illa g es a ll a ro und t h e d ev elo pin g w orld w ork in g w ith U NIC EF t o s e t up a cco unts f o r e ach c h ild f ro m t h e m om en t t h ey a rriv e. D onatio ns c o uld b e s p lit o n a p ro r a ta basis i n to e ach k id ’s p ers o nal i n div id ual a cco unt. G overn m en ts , s tr o ngm en , a n d o th er c o rru pt offic ia ls s im ply c o uld n’t a ccess i t. T he p oore st a n d m ost v uln era b le c h ild re n i n t h e w orld w ould hav e t h e f u nds t o s ta rt a l if e w hen t h ey m ove i n to a d ulth ood. T his i s a tta in ab le w ith b lo ck ch ain .

Natu ra l d is a ste r r e lie f o r p ro vis io ns f o r t h e p oor c an not a ll b e p eer t o p eer, o f c o urs e .

Ofte n tim es, i n stitu tio ns a re n ot o nly d esir a b le b ut a ls o e sse n tia l. B ut t h e b lo ck ch ain c an r a d ic ally im pro ve t h e t r a n sp are n cy o f h ow t h ose o rg an iz atio ns, a n d o th er i n stitu tio ns i n t h e f o re ig n a id valu e c h ain , f u nctio n. E very d olla r d onate d t o t h e R ed C ro ss c o uld b e t r a ck ed f ro m i ts s ta rtin g a ll th e w ay t h ro ugh t h e v alu e c h ain t o t h e i n div id ual i t d ir e ctly b en efits . R ecall o ur h ypoth etic al i n ch ap te r 1 — th e R ed C ro ss c o uld r u n c ro w dfu ndin g c am paig ns f o r e ach o f i ts m ost i m porta n t in itia tiv es— deliv erin g m ed ic al a id a n d f ig htin g t h e s p re ad o f d is e ase , w ate r p urif ic atio n, t h e re b uild in g o f h om es— an d w hen y ou d onate y ou w ould k now w heth er y our d olla r w en t t o a pla n k o f w ood, a g allo n o f w ate r, o r a g au ze B an d-A id . I f f u nds w en t m is sin g, t h e c o m munity would k now a n d c o uld h old t h ese o rg an iz atio ns a cco unta b le . S m art c o ntr a cts c o uld b e e m plo yed th at h old t h e a id g ro ups t h em se lv es a cco unta b le . T he f u nds f o r m ajo r p ro je cts — fro m h ousin g in itia tiv es t o t h e i m ple m en ta tio n o f a w ate r p urif ic atio n s c h em e— co uld s im ply g o i n to e sc ro w an d b e r e le ase d o nly a fte r t h e s u ccessfu l c o m ple tio n o f k ey m ile sto nes— se cu rin g t itle f o r a s ite , im portin g r a w m ate ria ls , s ig nin g a c o ntr a ct w ith a l o cal s u pplie r, b uild in g t h e f in is h ed p ro duct, in sta llin g a c erta in n um ber o f c le an w ate r a ccess p oin ts — is a ch ie v ed . T he r e su lt? R ad ic ally im pro ved t r a n sp are n cy a n d a cco unta b ility in t h e d eliv ery o f f o re ig n a id , a n d t h us s ig nif ic an t im pro vem en ts i n t h e e n d r e su lts .

Fore ig n a id i s t h e s e co nd-la rg est f u nd t r a n sfe r f ro m d ev elo ped t o d ev elo pin g n atio ns, a fte r re m itta n ces. B lo ck ch ain t e ch nolo gy c an e n ab le t r a n sp are n cy , a cco unta b ility , a n d m ore e ffic ie n t opera tio ns f o r w ell- m ean in g N GOs a n d b ette r d eliv ery o f c ritic al s e rv ic es i n t im es o f c ris is a n d in n orm al c ir c u m sta n ces. O f c o urs e , t h ere a re a m ultitu de o f i m ple m en ta tio n c h alle n ges— th in gs th at m ust b e o verc o m e. P eo ple o n t h e g ro und w ill n eed t o k now h ow t o u se t h is t e ch nolo gy.

Mobile p hone n etw ork s c o uld f a il i n t h e m id st o f a c ris is . C ra fty c rim in al e le m en ts a n d c o rru pt govern m en ts m ig ht s till f in d w ay s t o d efra u d t h e p oor a n d d estitu te . B ut a re t h ese r e aso ns n ot t o ex plo re t h is t e ch nolo gy? N o. T he s itu atio n t o day i s d ysfu nctio nal a n d i n m an y c ase s p la in ly bro ken . E m pow erin g i n div id uals a n d h old in g a id g ro ups a cco unta b le w ill m ean m ore a id i n t h e han ds o f t h e r ig ht p eo ple . A lle v ia tin g p overty a n d a d dre ssin g c ata str o phic c ris e s i s t h e f ir s t r u ng of t h e l a d der t o g lo bal p ro sp erity . L et’ s t a k e a c h an ce o n b lo ck ch ain .

Mic ro fin an ce: P eer-to -P eer A id w it h P ic o p aym en ts Mic ro fin an ce i s a n i n dustr y t h at t r a n sc en ds b oth f in an cia l s e rv ic es a n d d ev elo pm en t a id . R ath er th an d eliv erin g a id f ro m t h e t o p d ow n, m ic ro fin an ce i n stitu tio ns ( M FIs ) t r y t o e m pow er in div id uals t o s a v e, i n vest, a n d b uild s m all b usin esse s. M ore o fte n t h an n ot, t h ey t a k e t h e f o rm o f co m munal s a v in gs c o -o ps, w here m em bers o f t h e c o m munity c o m e t o geth er t o p ool t h eir f u nds an d l o an t h em o ut t o o ne a n oth er f o r s h ort- te rm n eed s. W hen i m ple m en te d a n d m an ag ed pro perly , m ic ro fin an ce o utf its c an d eliv er a r e al b en efit t o s tr u gglin g c o m munitie s: t h ey r e d uce ch ro nic h unger, i n cre ase s a v in gs a n d i n vestm en t, a n d i n m an y c ase s e m pow er w om en .

55 How ev er, t h ere a re s o m e p ro ble m s w ith M FIs t o day : F ir s t, t h ere i s v ery l ittle o vers ig ht i n to how t h ey a re r u n a n d o ccasio nally t h ey e n ab le p re d ato ry l o an s a n d c o erc iv e l o an r e co very meth ods, s tr a in in g c o m munitie s a n d a d din g t o t h eir d esp era tio n. S eco nd, i n l ig ht o f t h is , govern m en ts i n d ev elo pin g c o untr ie s h av e f o und t h at t h e b est w ay t o c u rb b ad b eh av io r i s t o outla w o r s e v ere ly r e str ic t M FIs a lto geth er, a s w as t h e c ase i n I n dia i n 2 010, f o llo w in g a n M FI co ntr o vers y .

56 T hir d , f u nds d on’t a lw ay s e n d u p i n t h e r ig ht h an ds. T here i s n o w ay t o e n su re th at t h e c o m munity m em ber who n eed s t h e m oney t h e m ost r e ceiv es i t. F ourth , t h ey a re s till la rg ely r e g io nal, l im itin g b oth f u nds a n d a ls o o pportu nity t o i n vest a n d s a v e.

So, p eo ple w ho a re w ork in g o n p overty w ill a sk t h em se lv es, w here d oes t h e b lo ck ch ain f it i n th e m ix o f t o ols ? H ow c an i t i m pro ve o n w hat w e’re d oin g?

Fir s t, i t w ill i m pro ve a d m in is tr a tiv e a cco unta b ility . A s w ith c o rp ora te t r a n sp are n cy , d onors will b e s im ila rly a ttr a cte d t o a n y n onpro fit o utf it t h at u se s t h e b lo ck ch ain f o r g re ate r t r a n sp are n cy an d a cco unta b ility . A dditio nally , i f m ic ro lo an s a re r e co rd ed t o t h e b lo ck ch ain a n d c u sto m ers o f an M FI a re g ra n te d p erm is sio n t o a ccess t h em , t h en t h ey c an h old t h ose o utf its m ore a cco unta b le fo r b ad b eh av io r. W hat w ould -b e b orro w er o r s a v er w ould c h oose t h e o paq ue a n d m urk y w hen sh e c an c h oose t h e o pen ?

Seco nd, i t c an m ean b ette r p ro te ctio n o f w om en a n d c h ild re n . T hro ugh s m art c o ntr a cts , f u nds can b e d onate d i n to e sc ro w a cco unts , a ccessib le o nly b y w om en , s a y , f o r a ccessin g f o od, fe m in in e p ro ducts , h ealth c are , a n d o th er e sse n tia ls . T he m en c an ’t t a k e i t o ut o f t h eir h an ds t o buy c ig are tte s o r b ooze, o r t o g am ble , w hic h c an b e a p ers is te n t p ro ble m w ith m oney f ro m sa v in gs o r m ic ro fin an ce.

Thir d , i t w ill e n ab le p eo ple t o s o urc e f u nds a n d o pportu nity w orld w id e, a n d w ill a ttr a ct donors w orld w id e. C om munitie s a re t y pic ally l im ite d b y g eo gra p hy i n w hic h M FI t h ey u se . I n th e f u tu re , a w ould -b e b orro w er c o uld g o o nlin e a n d s o urc e t h e b est b id s f ro m a n um ber o f pote n tia l l e n ders , f in din g t h e o ne w ith t h e b est r a te s, t e rm s, a n d r e p uta tio n. F orm al M FIs w ill co ntin ue t o e x is t, o f c o urs e , b ut t h ere w ill b e e asie r w ay s t o c o nnect p eers t h ro ugh b lo ck ch ain th at w ill m ak e t h em l e ss n ecessa ry .

Fin ally , b lo ck ch ain p ay m en t r a ils , s u ch a s b itc o in , a re b asic ally t a ilo r-m ad e f o r s m all, dis e n fra n ch is e d b orro w ers b y e n ab lin g t in y p ay m en ts ( p ic o pay m en ts , w e c all t h em ) a n d b y dro ppin g c o sts c lo se t o z ero . I n a w orld w here e v ery p en ny c o unts , u se rs s h ould b e a b le t o p ay back l o an s, w ith dra w f u nds, a n d s a v e i n t in y i n cre m en ts , a ll o f w hic h w as f a r m ore c h alle n gin g in a p re b lo ck ch ain w orld . T hey s h ould a ls o b e a b le t o d o i t i n sta n tly a n d e ffic ie n tly , g iv en t h at desp ite a b je ct p overty i n m an y p arts o f t h e w orld , c ell p hone p en etr a tio n a n d I n te rn et co nnectiv ity a re b eco m in g c o m moditiz ed .

SA FE A S H OUSE S? T H E R O AD T O A SSE T O W NER SH IP Lan d t itle r e g is tr a tio n i s w hat H ern an do d e S oto r e fe rre d t o a s a n onm ark ete d t r a n sa ctio n, a n eco nom ic e x ch an ge g en era lly i n volv in g a l o cal g overn m en t. N onm ark ete d t r a n sa ctio n c o sts in clu de t h e r e so urc es w aste d b y w aitin g i n l in e, t r a ck in g d ow n o w ners h ip , c o m ple tin g a n d f ilin g pap erw ork , c u ttin g t h ro ugh r e d t a p e, r e so lv in g d is p ute s, g re asin g t h e p alm s o f o ffic ia ls a n d in sp ecto rs , a n d s o o n.

57 T hese c o sts a re r a m pan t i n p oor e co nom ie s w here s y ste m s a re w eak a n d govern m en t o ffic ia ls a re k now n t o b eh av e w ith out i n te g rity . H ondura s i s s u ch a p la ce, t h e se co nd-p oore st c o untr y i n C en tr a l A m eric a w ith a n e x tr e m ely u neq ual d is tr ib utio n o f i n co m e.

The e co nom ic d ow ntu rn o f 2 008 s ty m ie d t h e i n flo w o f r e m itta n ces, a n d a m ilita ry c o up o uste d th e d em ocra tic ally e le cte d M an uel Z ela y a i n 2 009. T he c o up w as b ack ed b y o ne o f t h e r e g io n’s la rg est l a n dow ners , a p alm o il t y co on w ho b en efite d s ig nif ic an tly i n e arlie r l a n d g ra b s t h at co erc ed A guán c am pesin os t o s e ll t h eir l a n d t itle s.

58 Sin ce t h e m id -1 990s, t h e W orld B an k a n d o th er g lo bal N GOs 59 h av e p oure d $ 125.3 m illio n plu s t e ch nic al e x pertis e i n to H ondura s f o r d esig nin g a n d m an ag in g l a n d-re la te d d ev elo pm en t pro je cts t h at w ould a ccele ra te t h e c o untr y ’s g ro w th .

60 W e c am e a cro ss p la n s t o i n co rp ora te sp atia l d ata i n fra str u ctu re s t h at w ould s u pport t h e g eo ta g gin g o f d ata o n l a n d a n d n atu ra l re so urc e o w ners h ip a n d u sa g e, c lim atic a n d n atu ra l h azard s, a n d s o cio eco nom ic c o nditio ns t h at munic ip alitie s c o uld u se t o i n fo rm s tr a te g ic p la n nin g a n d i n vestm en t. T here w as a ls o m en tio n o f in te g ra tin g d ata b ase s o f l a n d p ro je cts w ith d ata b ase s o f e n vir o nm en ta l a n d d is a ste r m an ag em en t pro je cts a t n atio nal a n d l o cal l e v els .

61 V ery a m bitio us.

The p ro ble m i s t h at t h ere a re s till a lle g atio ns o f p erv asiv e c o rru ptio n i n p ro perty r e g is tr y , la n d s a le s, a n d d is p ute r e so lu tio n, i n clu din g a ccu sa tio ns a g ain st t h e m id dle m en , j u dges, a n d l o cal bure au cra ts . A cco rd in g t o t h e O ffic e o f t h e U .S . T ra d e R ep re se n ta tiv e, t h e p ro perty r e g is tr a tio n sy ste m i s s till h ig hly u nre lia b le .

62 H ouse h old s i n r u ra l v illa g es w ere s y ste m atic ally p asse d o ver durin g l a n d t itle r e g is tr a tio n o f r e sid en ces, u su ally t h eir m ost v alu ab le a sse t, b ecau se t h e govern m en t l im ite d t h e W orld B an k’s j u ris d ic tio n t o u rb an z o nes. I n r u ra l a re as, t h e c ash - str a p ped c am pesin os b en efite d l e ast f ro m l a n d a d m in is tr a tio n p ro gra m s. R ura l p overty has n ot decre ase d i n H ondura s s in ce 1 998. A m big uity a n d c o rru ptio n m an if e st t h em se lv es i n t itle dis p ute s a ll o ver t h e d ev elo ped w orld . I f H ondura s w as t o s u ffe r a c ata str o phic n atu ra l d is a ste r, as H aiti d id i n 2 010, a id o rg an iz atio ns l ik e t h e R ed C ro ss w ould b e s im ila rly h am str u ng i n unta n glin g t h e m ess o f t itle s t o d eliv er s a fe , d ura b le h ousin g.

“W hat i f t h ere w as a u niv ers a l l e d ger t h at c o uld i n clu de a ll t h ese d ata a n d i n fu se t r u st i n to a hig hly u ntr u stw orth y s itu atio n? B lo ck ch ain s e em s t o b e p artic u la rly g ood a t h an dlin g tr a n sa ctio ns, w hic h n one o f t h e o th er s y ste m s n ecessa rily a re ,” s a id d e S oto . “ T he f a ct i s p oor co untr ie s a re b y n atu re v ery c o rru pt, a n d s o h av in g y our t r a n sa ctio n l e d ger i n e v ery n ode w ith sa fe ty p ro ced ure s m ak es t h e s y ste m e ffic ie n t, c h eap , a n d f a st, b ut i t i s a ls o t h e k in d o f t h in g t h at th e p oor w an t t o o b ecau se i t p ro te cts t h eir r ig hts ,” h e a d ds.

63 H ere ’s h ow i t w ork s: T he blo ck ch ain i s a n o pen l e d ger, m ean in g t h at i t c o uld r e sid e o n t h e d esk to ps o f t h e H ondura n offic ia ls w ho n eed ed t o r e fe re n ce i t, t h e m obile d ev ic es o f f ie ld w ork ers w ho i n put d ata , a n d citiz en s w ho w an t t o m ain ta in a c o py. I t’ s a d is tr ib ute d l e d ger, m ean in g t h at n one o f t h ese p artie s ow ns i t, a n d i t’ s a P 2P n etw ork , m ean in g t h at a n ybody c o uld a ccess i t. I n j u ris d ic tio ns l ik e Hondura s w here t r u st i s l o w i n p ublic i n stitu tio ns a n d p ro perty r ig hts s y ste m s a re w eak , t h e bitc o in b lo ck ch ain c o uld h elp t o r e sto re c o nfid en ce a n d r e b uild r e p uta tio n.

That’ s w hat t h e T ex as-b ase d s ta rt- u p F acto m p la n s t o d o i n c o opera tio n w ith t h e H ondura n re g im e a n d i n p artn ers h ip w ith E pig ra p h, a t itle s o ftw are c o m pan y. F acto m ’s p re sid en t, P ete r Kir b y, s a id , “ T he c o untr y ’s d ata b ase w as b asic ally h ack ed . S o b ure au cra ts c o uld g et i n t h ere a n d th ey c o uld g et t h em se lv es b each fro nt p ro pertie s.” H e a d ded t h at 6 0 p erc en t o f H ondura n l a n d i s undocu m en te d . T he g oal o f t h e p ro je ct, w hic h h as n ot b een s ig ned d efin itiv ely , i s t o r e co rd t h e govern m en t’ s l a n d t itle s o n t h e b lo ck ch ain l e d ger. K ir b y t o ld R eu te rs t h at H ondura s c o uld le ap fro g l e g acy s y ste m s u se d i n t h e d ev elo ped w orld b y d ep lo yin g F acto m ’s b lo ck ch ain te ch nolo gy, a n d i t w ould e v en tu ally m ak e f o r m ore s e cu re m ortg ag es a n d m in era l r ig hts .

64 “D ocu m en ta tio n f o r o w ners h ip f ro m p ate n ts t o h ouse s i s e x tr a o rd in arily p ap er-b ase d , a n d t h ere ’s no r e aso n i t s h ould b e, o th er t h an h is to ry . B lo ck ch ain w ork s w ith a n y t r a n sa ctio n o r i n te ra ctio n where p ro perty r ig hts a n d t im in g m atte rs ,” 65 s a id K au sik R ajg opal, w ho h ead s u p M cK in se y ’s Silic o n V alle y o ffic e a n d p ay m en ts p ra ctic e.

At t h e e n d o f t h e d ay w e d on’t k now w heth er t h e H ondura n g overn m en t w ill e n fo rc e l a n d title s r e g is te re d o n t h e b lo ck ch ain o r s u sta in i ts u se . I n p re v io us l a n d r e g is tr a tio n a tte m pts , t h e govern m en t h as b ack ed a w ay f ro m t h e a d ditio nal c o sts o f s c alin g u p a n d i n clu din g m ore p eo ple .

But i f t h e l e d ger d eliv ers r e lia b le , t a m perp ro of d ata , t h en N GOs c o uld g et t h e a d ditio nal d ata th ey n eed t o i n fo rm a n d i n flu en ce p olic y d ecis io ns a n d g overn an ce. I f i t e lim in ate s f iv e o f t h e s ix ste p s c u rre n tly r e q uir e d t o r e g is te r l a n d i n H ondura s, a n d c u ts t h e l e n gth o f t im e f ro m t w en ty -tw o day s t o t e n m in ute s, t h en t h ose n onm ark ete d t r a n sa ctio n c o sts d ro p t o n early z ero .

66 A nd p erh ap s it w ould e n ab le j o urn alis ts a n d r ig hts a d vocate s t o s h am e l a rg e g lo bal c o rp ora tio ns i n to n ot purc h asin g o r b uild in g o n o r s o urc in g t im ber o r w ate r f ro m l a n d t h at h as b een d esig nate d f o r en vir o nm en ta l p ro te ctio n o r h as h is to ric ally b een u se d b y t h e c am pesin os o r i n dig en ous p eo ple with out c o m pen sa tin g t h em f a ir ly . W e’re h opefu l!

IM PL EM EN TA TIO N C H ALLEN G ES A ND L EA DER SH IP O PPO RTU NIT IE S Blo ck ch ain t e ch nolo gy i s o bvio usly n ot a p an acea f o r t h e w orld ’s e co nom ic a n d f in an cia l w oes.

Tech nolo gy d oes n ot c re ate p ro sp erity ; p eo ple d o. T here a re o bsta cle s t o o verc o m e a n d opportu nitie s f o r l e ad ers h ip . T he f ir s t i s t e ch nic al. A cco rd in g t o I n te rn atio nal Tele co m munic atio ns U nio n d ata , t h ere a re s till s ig nif ic an t g ap s i n I n te rn et c o nnectiv ity , e ith er becau se t h e t e le co m munic atio ns i n fra str u ctu re i s p oor o r b ecau se s e rv ic e i s u naffo rd ab le .

67 The s e co nd i s l ite ra cy . U sin g s m art p hones a n d i n te ra ctin g o nlin e r e q uir e s a w ork ab le l e v el of l ite ra cy . I n t h e U nite d S ta te s, 1 8 p erc en t o f a d ults o ver t h e a g e o f s ix te en r e ad b elo w t h e f if th - gra d e l e v el, 3 0 p erc en t h av e l o w m ath l ite ra ry , 68 a n d 4 3 p erc en t o f t h ese i llite ra te a d ults l iv e i n poverty .

69 L ite ra cy i s h ig hly u nev en i n t h e d ev elo pin g w orld . I n m an y p arts o f A fric a, l ite ra cy hovers a ro und 5 0 p erc en t, a n d t h e p ro ble m i s e v en m ore s e v ere w hen c o m parin g t h e g en ders . F or ex am ple , i n p la ces l ik e A fg han is ta n , N ig er, S ie rra L eo ne, C had , M ozam biq ue, a n d o th er p oor natio ns, t h e g ap b etw een m ale a n d f e m ale l ite ra cy i s a s ta g gerin g 2 0 p erc en t.

70 The t h ir d i s c o rru ptio n. B lo ck ch ain i s a p ow erfu l t o ol, b ut l ik e a ll t e ch nolo gie s, i t i s n ot in here n tly g ood o r b ad . P eo ple c an h arn ess b rillia n t te ch nolo gie s, f ro m e le ctr ic ity t o t h e r a d io an d t h ro ugh t o t h e I n te rn et, f o r b en ev ole n t o r m ale v ole n t g oals . W e n eed l e ad ers h ip f ro m t h e in stitu tio ns i n s o cie ty t h at c an l e v era g e b lo ck ch ain t e ch nolo gy f o r g ood, s u ch a s a id g ro ups, c iv il so cie ty o rg an iz atio ns, c o m pan ie s, a n d g overn m en ts , r ig ht d ow n t o t h e i n div id uals w ho a re co nnectin g t o t h is v ast n etw ork . O nly w hen t h ese c h alle n ges h av e b een m et a n d o verc o m e w ill blo ck ch ain t e ch nolo gy f u lf ill i ts p ote n tia l a s a n i n str u m en t o f g lo bal p ro sp erity a n d p ositiv e ch an ge.

T CH APT ER 8 REB U IL D IN G G OVER N M EN T A ND D EM OCRA CY he R ep ublic o f E sto nia i s a B altic s ta te w ith L atv ia t o t h e s o uth a n d R ussia t o t h e e ast. W ith a p opula tio n o f 1 .3 m illio n, i t h as s lig htly f e w er p eo ple t h an t h e c ity o f O tta w a.

1 W hen E sto nia r e g ain ed i ts i n dep en den ce f ro m t h e f o rm er S ovie t U nio n i n 1 991, i t h ad a n o pportu nity t o c o m ple te ly r e th in k t h e r o le o f g overn m en t a n d r e d esig n h ow i t w ould o pera te , w hat s e rv ic es i t w ould p ro vid e, a n d h ow i t w ould a ch ie v e i ts g oals t h ro ugh I n te rn et t e ch nolo gie s.

Today , E sto nia i s w id ely r e g ard ed a s t h e w orld l e ad er i n d ig ita l g overn m en t, a n d i ts p re sid en t, T oom as H en drik I lv es, w ill b e t h e f ir s t t o s a y s o : “ W e’re v ery p ro ud o f w hat w e’v e d one h ere ,” h e t o ld u s. “ A nd w e h ope t h e r e st o f t h e w orld c an l e arn f ro m o ur s u ccesse s.” 2 Esto nia r a n ks s e co nd o f a ll c o untr ie s o n t h e s o cia l p ro gre ss i n dex f o r p ers o nal a n d p olitic al r ig hts , t ie d w ith A ustr a lia a n d t h e U nite d K in gdom .

3 E sto nia ’s l e ad ers h av e d esig ned t h eir e - g overn m en t s tr a te g y a ro und d ecen tr a liz atio n, i n te rc o nnectiv ity , o pen ness, a n d c y bers e cu rity .

T heir g oal h as b een t o f u tu re -p ro of i n fra str u ctu re t o a cco m modate t h e n ew . A ll r e sid en ts c an a ccess i n fo rm atio n a n d s e rv ic es o nlin e, u se t h eir d ig ita l i d en tity t o c o nduct b usin ess, a n d u pdate o r c o rre ct t h eir g overn m en t r e co rd s. W hile m uch o f E sto nia ’s w ork p re d ate s t h e b lo ck ch ain , t h e c o untr y i n tr o duced a k ey le ss s ig natu re i n fra str u ctu re t h at i n te g ra te s b eau tif u lly w ith b lo ck ch ain t e ch nolo gy.

Cen tr a l t o t h e m odel o f e -E sto nia i s a d ig ita l i d en tity . A s o f 2 012, 9 0 p erc en t o f E sto nia n s h ad a n e le ctr o nic I D c ard t o a ccess g overn m en t s e rv ic es an d t r a v el w ith in t h e E uro pean U nio n.

4 T he c h ip e m bed ded i n t h e c ard h old s b asic i n fo rm atio n a b out t h e c ard hold er a s w ell a s t w o c ertif ic ate s— one t o a u th en tic ate i d en tity a n d o ne t o p ro vid e a d ig ita l s ig natu re — an d a p ers o nal i d en tif ic atio n n um ber ( P IN ) o f t h eir c h oic e.

Esto nia n s u se t h ese t o v ote , r e v ie w , a n d e d it t h eir a u to m ate d t a x f o rm s o nlin e, a p ply f o r s o cia l s e cu rity b en efits , a n d a ccess b an kin g s e rv ic es a n d p ublic t r a n sp orta tio n. N o n eed f o r b an k c ard s o r M etr o card s. A lte rn ativ ely , E sto nia n s c an d o t h e s a m e w ith m obile -ID o n t h eir m obile p hones. I n 2 013, E sto nia n s s u bm itte d o ver 9 5 p erc en t o f t a x es e le ctr o nic ally a n d c o nducte d 9 8 p erc en t o f b an kin g t r a n sa ctio ns o nlin e.

Pare n ts a n d s tu den ts u se E sto nia ’s e -S ch ool t o t r a ck a ssig nm en ts , c u rric u lu m , a n d g ra d es, a n d t o c o lla b ora te w ith t e ach ers . E sto nia a g gre g ate s i n r e al t im e d iv ers e h ealth i n fo rm atio n f ro m v ario us s o urc es i n to a s in gle r e co rd f o r e ach c itiz en , a n d s o t h ese r e co rd s d on’t r e sid e o n a s in gle d ata b ase . E ach E sto nia n h as e x clu siv e a ccess t o h is o w n r e co rd a n d c an c o ntr o l w hic h d octo rs o r f a m ily m em bers h av e a ccess t o t h ese d ata o nlin e.

5 Sin ce 2 005, c itiz en s h av e u se d i - v otin g f o r t h eir n atio nal e le ctio ns. U sin g t h eir I D c ard o r m obile -ID , E sto nia n s c an l o g i n a n d v ote f ro m a n yw here i n t h e w orld . I n t h e 2 011 p arlia m en ta ry ele ctio n, c itiz en s c ast a lm ost 2 5 p erc en t o f b allo ts o nlin e, u p f ro m 5 .5 p erc en t i n t h e p re v io us parlia m en ta ry e le ctio n. T he p eo ple o bvio usly l ik e a n d t r u st t h e s y ste m : t h e n um ber w en t u p ag ain f o r t h e 2 014 E uro pean P arlia m en t e le ctio ns i n w hic h a t h ir d o f v ote rs p artic ip ate d o ver t h e In te rn et f ro m n in ety -e ig ht d if fe re n t c o untr ie s. T he E sto nia n c ab in et u se s a p ap erle ss p ro cess a n d mak es a ll d ra ft l e g is la tio n a ccessib le o nlin e. T he a v era g e l e n gth o f w eek ly c ab in et m eetin gs h as gone f ro m a ro und f iv e h ours t o u nder n in ety m in ute s.

6 Esto nia h as a n e le ctr o nic l a n d r e g is tr y t h at h as t r a n sfo rm ed t h e r e al e sta te m ark et, r e d ucin g la n d t r a n sfe rs f ro m t h re e m onth s t o a l ittle o ver a w eek .

7 I n t h e l a st f e w y ears , E sto nia h as la u nch ed i ts e -R esid en cy p ro gra m , w here a n yone i n t h e w orld c an a p ply f o r a “ tr a n sn atio nal dig ita l i d en tity ” a n d a u th en tic atio n t o a ccess s e cu re s e rv ic es, e n cry pt, v erif y , a n d s ig n d ocu m en ts dig ita lly . A n e n tr e p re n eu r a n yw here i n t h e w orld c an r e g is te r h is o r h er c o m pan y o nlin e i n f e w er th an t w en ty m in ute s a n d a d m in is te r t h e c o m pan y o nlin e. T hese c ap ab ilitie s c o ntr ib ute t o Esto nia ’s i m ag e a s a d ig ita l c o untr y .

8 None o f t h is w ould w ork o r b e a ccep ta b le w ith out s o lid c y bers e cu rity .

As M ik e G au lt, C EO of G uard tim e, n ote d , “ In te g rity i s t h e n um ber-o ne p ro ble m i n c y bers p ace a n d t h is i s w hat E sto nia re co gniz ed t e n y ears a g o. T hey b uilt t h is t e ch nolo gy s o t h at e v ery th in g o n g overn m en t n etw ork s co uld b e v erif ie d w ith out h av in g t o t r u st h um an s . . . i t i s i m possib le f o r t h e g overn m en t t o l ie t o its c itiz en s.” 9 Esto nia ’s c y bers e cu rity d eriv es f ro m i ts k ey le ss s ig natu re i n fra str u ctu re ( K SI), w hic h v erif ie s an y e le ctr o nic a ctiv ity m ath em atic ally o n t h e b lo ck ch ain w ith out s y ste m a d m in is tr a to rs , cry pto gra p hic k ey s, o r g overn m en t s ta ff. T his c ap ab ility e n su re s t o ta l t r a n sp are n cy a n d acco unta b ility ; s ta k eh old ers c an s e e w ho h as a ccesse d w hic h i n fo rm atio n, w hen , a n d w hat t h ey may h av e d one w ith i t. C onse q uen tly , t h e s ta te c an d em onstr a te r e co rd i n te g rity a n d r e g ula to ry co m plia n ce, a n d i n div id uals c an v erif y t h e i n te g rity o f t h eir o w n r e co rd s w ith out t h e i n volv em en t of a t h ir d p arty . I t l o w ers c o sts : t h ere a re n o k ey s t o p ro te ct, a n d n o d ocu m en ts t o r e -s ig n perio dic ally . A cco rd in g t o e -E sto nia .c o m , “ W ith K SI, h is to ry c an not b e r e w ritte n .” 10 Cle arly , b lo ck ch ain t e ch nolo gy a p plie s n ot o nly t o c o rp ora tio ns f ix ate d o n p ro fits b ut a ls o t o public i n stitu tio ns f o cu se d o n p ro sp erity f o r a ll, f ro m g overn m en t, e d ucatio n, a n d h ealth c are t o en erg y g rid s, t r a n sp orta tio n s y ste m s, a n d s o cia l s e rv ic es. W here t o s ta rt?

SO M ETH IN G I S R O TTEN I N T H E S T A TE In h is G etty sb urg A ddre ss i n 1 863, A bra h am L in co ln s a id t h at s o cie ty ’s g re ate st g oal w as a “g overn m en t o f t h e p eo ple , b y t h e p eo ple , f o r t h e p eo ple .” T w elv e d ecad es l a te r, P re sid en t Ronald R eag an s a id i n h is 1 981 I n au gura l A ddre ss, “ G overn m en t i s n ot t h e s o lu tio n t o o ur pro ble m ; g overn m en t is t h e p ro ble m .” M an y i n t h e n asc en t b lo ck ch ain e co sy ste m a g re e. I n a 2013 s u rv ey , o ver 4 4 p erc