I have been getting serious about crypto-currencies and blockchain technology at an accelerating pace for several years now. The more I think about the implications of a decentralized protocol for money and the exchange of value the more I see it as a disruptive technology that will shake the foundations of how the economy works. It is more of a shift than you can imagine.
The first thing to note about this technology is that it is un-stoppable. Now that it exists, there is simply no way to put it back in the box. There is no feasible way to block the traffic on these protocols over the internet and there is no way that governments or banks will be able to permanently prevent or lock out the ability to sell crypto-currencies back into fiat. There is no future where bitcoin won’t exist – even if in 50 years people don’t use bitcoins it will be kept alive for the nostalgia.
Secondly, while bitcoin is almost 10 years old now, it has only recently become more than a toy for dedicated hackers. Realistically it’ll take several more years of development before normal people use it. This is a long term play for the future and we’ll continue to see improvements happening going forward.
When we extrapolate out what we expect to see in terms of properties of future blockchains things get crazy. Transaction costs could eventually approach electricity costs, which should be close to zero as more efficient consensus and validation algorithms are developed. At the same time expect major improvements to the transaction throughput as various strategies are used to scale to millions of transactions per second. With low cost and high scale it becomes possible to create entirely new paradigms about how money is spent.
Imagine I am an author with a collection of books published through a publisher and available for sale in various e-commerce and retails stores. Each book has a complex set of royalty agreements that determine percentages for the editor, co-authors, artists etc that had a hand in writing the books. In the current state of the world I would probably get a quarterly cheque. but the blockchain future allows this to be a real-time stream of money flowing into my accounts. When someone buys the book, the retailer takes their percentage and pays the wholesale price into the publishers smart contract which calculates the royalties and the appropriate amounts cascade into beneficiary accounts. Thousands of retailers funnelling money into a handful of smart contracts and finally to me. End to end completely automated and happening in just a few seconds – without banks, or credit card companies being involved.
With peer to peer micro-transfers it becomes possible to get rid of bookending some types of transactions. When you fill up your car with gas you start by swiping a credit card to pre-authorize a maximum amount to spend, and after filling the actual amount is charged to the card. If instead you created a transaction for every $0.01 worth of gas then it becomes technically possible for the car to pay the pump directly. If the car had a computer that could talk to the pump and that computer had the authorization to purchase gas then the driver wouldn’t have to deal with payment directly at all. You may think “big deal”, but if the sharing economy takes over with cars, then avoiding the complexity of how to pay for the gas/electricity is an important thing to solve.
If you think beyond simply money then things can get more interesting. digital ownership can be tracked and transferred. Unique digital goods can be created which can’t be copied. Identities can be verified without even seeing an identity. There are interesting things that can be done with cryptography when building on top of these distributed systems.
This stuff is going to throw the finance sector into a bit of chaos for the next decade or more. What do you do with calculating capital gains if you are atomic swapping between a dozen different crypto tokens and currencies with thousands of micro-transactions per day? Will law enforcement lose the ability to seize the money of drug cartels, or countries that don’t pay their bond holders? Will privacy coins make the economy as opaque as a GPG encrypted hard drive? Stay tuned.
Economists are going to have to re-think some significant assumptions in a new world where trust is not required for efficient co-operation and where machines can become their own independent actors within the economy.
There are just so many things to be excited about in the future. It’ll be fascinating to see how it all evolves and try to be a part of as much of the coolest bits as I can.