The next 20 years will be filled with disruptions in industry, but not for reasons most people are aware of today. Blockchain technology is removing requirements of trust and intermediaries across a wide range of economic institutions. Firms and governments will feel this disruption the most, through the rise of individual economic empowerment. This disruption will also be the most difficult, shifting power from the few to the many.
When we hear the word disruption, we typically imagine Silicon Valley, robots or self driving cars. Yes, artificial intelligence and automation will replace jobs. Factories are already seeing job loss and automation thanks to Amazon, where the humans are simply there to serve the robots. Driver-less trucks are on their way with Anheuser Busch ordering 40 Tesla trucks recently. I believe the job loss in these sectors is real and coming fast. However, there is also a disruption of highly skilled, intellectual, white collar workers on the horizon.
If you want to make a deal with someone you don’t know, cannot meet and cannot communicate with, how would you? The key to so much of our progress and innovation is trust. Trust in a religion, government or organization got us where we are today. But trust is waning. A more connected and technocratic society is becoming aware of the hypocrisies in corporations and even the most developed nation states. Today we’re demanding control over our privacy as individuals. Tomorrow we will demand control of our assets, corporations we transact with regularly and even our government institutions. How will blockchain help us realize this shift of control?
Public blockchains are open and transparent systems. Anyone can inspect the code, accounts, transactions and balances. Private keys, held by individuals, hold the power to own accounts and sign transactions in order to exchange digital assets. Through this PGP encryption, game theory and some heady computer science, blockchains like Bitcoin have been operating in the wild for years. We finally have examples of individually owned digital assets that are secure across an open network, with no central authority. We can own and exchange on the internet, globally and peer to peer, without censorship or intermediaries. This is a paradigm shift.
There are also privacy oriented currencies like Monero and ZCash. Also, Zero Knowledge Proofs are coming to the Ethereum blockchain. These features don’t weaken the trust-less nature of a blockchain network, but expand the scope of possible use cases to further empower the individual. How would an individual or business take advantage of this shift?
At the heart of any firm or government is a complicated web of contractual agreements between individuals and other economic actors like organizations. There are two types of contracts, complete and incomplete. Complete contracts specify what will occur for every possible outcome. Incomplete contracts allow unknowns to be negotiated. Complete contracts are impossible to execute, while incomplete contracts leave room for inefficiencies, corruption and subjectivity. Blockchain based contract code is free of subjectivity and executed precisely with extremely low transaction fees, enabling individuals to organize and coordinate like never before.
Organizations such as firms and governments are inefficient. With each organization comes the overhead of… organizing. Due to the incomplete nature of most contracts, the organization was born to interpret and negotiate them. We developed firms and governments because of the high transaction costs of executing contracts. Markets are a popular way to settle on an objective price when subjectivity is a factor, but traditional markets also suffered high transaction fees. Market regulation is a relic from an era where transaction fees were high, capital scarce and individuals needed protection from volatility. With blockchain technology comes trust-less contract execution, low transaction fees and naturally an expansion of services into the sphere of firms and governments.
Smart contracts as they were dubbed by the cypherpunk Nick Szabo in 1994, are complete contracts executed by software code. It wasn’t until the Ethereum blockchain we could execute them in a trust-less manner. While smart contracts today are complete, they are also extremely simple. This has spurred expanding research in mechanism design, cryptoeconomics, game theory and markets. The race to replace firms and governments with decentralized, autonomous organizations (DAOs) is on. Can you see the disruption coming?
Many to One
We’ve reaped the benefits of highly efficient organizations for several years. In fact with computers and engineering graduates turning into business leaders since the 1980s, we’ve never witnessed more corporate efficiency. Perhaps a little too efficient if you ask me.
It’s no secret that household wealth is down and wages stagnant over the past 30–40 years. Additionally, one could argue civil liberties and privacy are under attack. I’ll leave this debate to others. What’s hard to debate is the ruthless efficiency of our modern organizations. Through this efficiency, the many have been hypnotized into a spoon fed, consumerist mob. Hyperbole? Maybe.
What motivates me about blockchain technology is our chance to re-organize organizations. To move power from the few decision makers that run firms, shaping large portions of our lives, to the many individuals that transact with these firms on a regular basis. I believe organizations will behave more like clubs, tribes and networked societies, aligning on specific ideals, transactional behavior and economic democracy through market systems for governance. It’s still to early to paint in the focal points and details, but the broad strokes of disruption are there.
My suggestions, follow the influencers and start reading!
Some of my favorite blockchain people: