Blockchain: Blueprint for a New Economy

1. Preface

a. Currency, Contracts, and

Applications beyond

Financial Markets

b. Blockchain 1.0, 2.0, and 3.0

c. What Is Bitcoin?

d. What Is the Blockchain?

e. The Connected World and

Blockchain: The Fifth

Disruptive Computing

Paradigm

i. M2M/IoT Bitcoin

Payment Network to

Enable the Machine

Economy

f. Mainstream Adoption: Trust,

Usability, Ease of Use

i. Bitcoin Culture: Bitfilm

Festival

g. Intention, Methodology, and

Structure of this Book

h. Safari® Books Online

i. How to Contact Us

j. Acknowledgments

2. 1. Blockchain 1.0: Currency

a. Technology Stack:

Blockchain, Protocol,

Currency

b. The Double-Spend and

Byzantine Generals’

Computing Problems

c. How a Cryptocurrency

Works

i. eWallet Services and

Personal

Cryptosecurity

ii. Merchant Acceptance

of Bitcoin

d. Summary: Blockchain 1.0 in

Practical Use

i. Relation to Fiat

Currency

ii. Regulatory Status

3. 2. Blockchain 2.0: Contracts

a. Financial Services

b. Crowdfunding

c. Bitcoin Prediction Markets

d. Smart Property

e. Smart Contracts

f. Blockchain 2.0 Protocol

Projects

g. Wallet Development Projects

h. Blockchain Development

Platforms and APIs

i. Blockchain Ecosystem:

Decentralized Storage,

Communication, and

Computation

j. Ethereum: Turing-Complete

Virtual Machine

i. Counterparty Re-

creates Ethereum’s

Smart Contract

Platform

k. Dapps, DAOs, DACs, and

DASs: Increasingly

Autonomous Smart Contracts

i. Dapps

ii. DAOs and DACs

iii. DASs and Self-

Bootstrapped

Organizations

iv. Automatic Markets and

Tradenets

l. The Blockchain as a Path to

Artificial Intelligence

4. 3. Blockchain 3.0: Justice

Applications Beyond Currency,

Economics, and Markets

a. Blockchain Technology Is a

New and Highly Effective

Model for Organizing

Activity

i. Extensibility of

Blockchain Technology

Concepts

ii. Fundamental Economic

Principles: Discovery,

Value Attribution, and

Exchange

iii. Blockchain Technology

Could Be Used in the

Administration of All

Quanta

iv. Blockchain Layer

Could Facilitate Big

Data’s Predictive Task

Automation

b. Distributed Censorship-

Resistant Organizational

Models

c. Namecoin: Decentralized

Domain Name System

i. Challenges and Other

Decentralized DNS

Services

ii. Freedom of

Speech/Anti-

Censorship

Applications:

Alexandria and Ostel

iii. Decentralized DNS

Functionality Beyond

Free Speech: Digital

Identity

d. Digital Identity Verification

i. Blockchain Neutrality

ii. Digital Divide of

Bitcoin

e. Digital Art: Blockchain

Attestation Services (Notary,

Intellectual Property

Protection)

i. Hashing Plus

Timestamping

ii. Proof of Existence

iii. Virtual Notary,

Bitnotar, and Chronobit

iv. Monegraph: Online

Graphics Protection

v. Digital Asset Proof as

an Automated Feature

vi. Batched Notary Chains

as a Class of

Blockchain

Infrastructure

vii. Personal Thinking

Blockchains

f. Blockchain Government

i. Decentralized

Governance Services

ii. PrecedentCoin:

Blockchain Dispute

Resolution

iii. Liquid Democracy and

Random-Sample

Elections

iv. Random-Sample

Elections

v. Futarchy: Two-Step

Democracy with Voting

+ Prediction Markets

vi. Societal Maturity

Impact of Blockchain

Governance

5. 4. Blockchain 3.0: Efficiency and

Coordination Applications Beyond

Currency, Economics, and Markets

a. Blockchain Science:

Gridcoin, Foldingcoin

i. Community

Supercomputing

ii. Global Public Health:

Bitcoin for Contagious

Disease Relief

iii. Charity Donations and

the Blockchain—

Sean’s Outpost

b. Blockchain Genomics

i. Blockchain Genomics

2.0: Industrialized All-

Human-Scale

Sequencing Solution

ii. Blockchain Technology

as a Universal Order-

of-Magnitude Progress

Model

iii. Genomecoin,

GenomicResearchcoin

c. Blockchain Health

i. Healthcoin

ii. EMRs on the

Blockchain: Personal

Health Record Storage

iii. Blockchain Health

Research Commons

iv. Blockchain Health

Notary

v. Doctor Vendor RFP

Services and

Assurance Contracts

vi. Virus Bank, Seed Vault

Backup

d. Blockchain Learning: Bitcoin

MOOCs and Smart Contract

Literacy

i. Learncoin

ii. Learning Contract

Exchanges

e. Blockchain Academic

Publishing: Journalcoin

f. The Blockchain Is Not for

Every Situation

g. Centralization-

Decentralization Tension and

Equilibrium

6. 5. Advanced Concepts

a. Terminology and Concepts

b. Currency, Token, Tokenizing

i. Communitycoin:

Hayek’s Private

Currencies Vie for

Attention

ii. Campuscoin

iii. Coin Drops as a

Strategy for Public

Adoption

iv. Currency: New

Meanings

c. Currency Multiplicity:

Monetary and Nonmonetary

Currencies

d. Demurrage Currencies:

Potentially Incitory and

Redistributable

i. Extensibility of

Demurrage Concept

and Features

7. 6. Limitations

a. Technical Challenges

b. Business Model Challenges

c. Scandals and Public

Perception

d. Government Regulation

e. Privacy Challenges for

Personal Records

f. Overall: Decentralization

Trends Likely to Persist

8. 7. Conclusion

a. The Blockchain Is an

Information Technology

i. Blockchain AI:

Consensus as the

Mechanism to Foster

“Friendly” AI

ii. Large Possibility Space

for Intelligence

iii. Only Friendly AIs Are

Able to Get Their

Transactions Executed

iv. Smart Contract

Advocates on Behalf of

Digital Intelligence

v. Blockchain Consensus

Increases the

Information Resolution

of the Universe

9. A. Cryptocurrency Basics

a. Public/Private-Key

Cryptography 101

10. B. Ledra Capital Mega Master

Blockchain List

11. Endnotes and References

12. Index

Blockchain

Blueprint for a New Economy

Melanie Swan

Blockchain

by Melanie Swan

Copyright © 2015 Melanie Swan. All

rights reserved.

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Please consult a qualified professional if

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978-1-491-92049-7

[LSI]

Preface

We should think about the blockchain

as another class of thing like the

Internet—a comprehensive

information technology with tiered

technical levels and multiple classes

of applications for any form of asset

registry, inventory, and exchange,

including every area of finance,

economics, and money; hard assets

(physical property, homes, cars); and

intangible assets (votes, ideas,

reputation, intention, health data,

information, etc.). But the

blockchain concept is even more; it

is a new organizing paradigm for the

discovery, valuation, and transfer of

all quanta (discrete units) of

anything, and potentially for the

coordination of all human activity at

a much larger scale than has been

possible before.

We may be at the dawn of a new

revolution. This revolution started with

a new fringe economy on the Internet, an

alternative currency called Bitcoin that

was issued and backed not by a central

authority, but by automated consensus

among networked users. Its true

uniqueness, however, lay in the fact that

it did not require the users to trust each

other. Through algorithmic self-policing,

any malicious attempt to defraud the

system would be rejected. In a precise

and technical definition, Bitcoin is

digital cash that is transacted via the

Internet in a decentralized trustless

system using a public ledger called the

blockchain. It is a new form of money

that combines BitTorrent peer-to-peer

file sharing1 with public key

cryptography. 2 Since its launch in 2009,

Bitcoin has spawned a group of

imitators—alternative currencies using

the same general approach but with

different optimizations and tweaks.

More important, blockchain technology

could become the seamless embedded

economic layer the Web has never had,

serving as the technological underlay for

payments, decentralized exchange, token

earning and spending, digital asset

invocation and transfer, and smart

contract issuance and execution. Bitcoin

and blockchain technology, as a mode of

decentralization, could be the next major

disruptive technology and worldwide

computing paradigm (following the

mainframe, PC, Internet, and social

networking/mobile phones), with the

potential for reconfiguring all human

activity as pervasively as did the Web.

Currency, Contracts, and

Applications beyond Financial

Markets

The potential benefits of the blockchain

are more than just economic—they

extend into political, humanitarian,

social, and scientific domains—and the

technological capacity of the blockchain

is already being harnessed by specific

groups to address real-world problems.

For example, to counter repressive

political regimes, blockchain technology

can be used to enact in a decentralized

cloud functions that previously needed

administration by jurisdictionally bound

organizations. This is obviously useful

for organizations like WikiLeaks (where

national governments prevented credit

card processors from accepting

donations in the sensitive Edward

Snowden situation) as well as

organizations that are transnational in

scope and neutral in political outlook,

like Internet standards group ICANN and

DNS services. Beyond these situations

in which a public interest must transcend

governmental power structures, other

industry sectors and classes can be freed

from skewed regulatory and licensing

schemes subject to the hierarchical

power structures and influence of

strongly backed special interest groups

on governments, enabling new

disintermediated business models. Even

though regulation spurred by the

institutional lobby has effectively

crippled consumer genome services, 3

newer sharing economy models like

Airbnb and Uber have been standing up

strongly in legal attacks from

incumbents. 4

In addition to economic and political

benefits, the coordination, record

keeping, and irrevocability of

transactions using blockchain technology

are features that could be as fundamental

for forward progress in society as the

Magna Carta or the Rosetta Stone. In this

case, the blockchain can serve as the

public records repository for whole

societies, including the registry of all

documents, events, identities, and assets.

In this system, all property could

become smart property; this is the

notion of encoding every asset to the

blockchain with a unique identifier such

that the asset can be tracked, controlled,

and exchanged (bought or sold) on the

blockchain. This means that all manner

of tangible assets (houses, cars) and

digital assets could be registered and

transacted on the blockchain.

As an example (we’ll see more over the

course of this book), we can see the

world-changing potential of the

blockchain in its use for registering and

protecting intellectual property (IP). The

emerging digital art industry offers

services for privately registering the

exact contents of any digital asset (any

file, image, health record, software, etc.)

to the blockchain. The blockchain could

replace or supplement all existing IP

management systems. How it works is

that a standard algorithm is run over a

file (any file) to compress it into a short

64-character code (called a hash) that is

unique to that document.5 No matter how

large the file (e.g., a 9-GB genome file),

it is compressed into a 64-character

secure hash that cannot be computed

backward. The hash is then included in a

blockchain transaction, which adds the

timestamp—the proof of that digital

asset existing at that moment. The hash

can be recalculated from the underlying

file (stored privately on the owner’s

computer, not on the blockchain),

confirming that the original contents

have not changed. Standardized

mechanisms such as contract law have

been revolutionary steps forward for

society, and blockchain IP (digital art)

could be exactly one of these inflection

points for the smoother coordination of

large-scale societies, as more and more

economic activity is driven by the

creation of ideas.

Blockchain 1.0, 2.0, and 3.0

The economic, political, humanitarian,

and legal system benefits of Bitcoin and

blockchain technology start to make it

clear that this is potentially an extremely

disruptive technology that could have the

capacity for reconfiguring all aspects of

society and its operations. For

organization and convenience, the

different kinds of existing and potential

activities in the blockchain revolution

are broken down into three categories:

Blockchain 1.0, 2.0, and 3.0. Blockchain

1.0 is currency, the deployment of

cryptocurrencies in applications related

to cash, such as currency transfer,

remittance, and digital payment systems.

Blockchain 2.0 is contracts, the entire

slate of economic, market, and financial

applications using the blockchain that

are more extensive than simple cash

transactions: stocks, bonds, futures,

loans, mortgages, titles, smart property,

and smart contracts. Blockchain 3.0 is

blockchain applications beyond

currency, finance, and markets—

particularly in the areas of government,

health, science, literacy, culture, and art.

What Is Bitcoin?

Bitcoin is digital cash. It is a digital

currency and online payment system in

which encryption techniques are used to

regulate the generation of units of

currency and verify the transfer of funds,

operating independently of a central

bank. The terminology can be confusing

because the words Bitcoin and

blockchain may be used to refer to any

three parts of the concept: the underlying

blockchain technology, the protocol and

client through which transactions are

effected, and the actual cryptocurrency

(money); or also more broadly to refer

to the whole concept of

cryptocurrencies. It is as if PayPal had

called the Internet “PayPal,” upon which

the PayPal protocol was run, to transfer

the PayPal currency. The blockchain

industry is using these terms

interchangeably sometimes because it is

still in the process of shaping itself into

what could likely become established

layers in a technology stack.

Bitcoin was created in 2009 (released

on January 9, 20096) by an unknown

person or entity using the name Satoshi

Nakamoto. The concept and operational

details are described in a concise and

readable white paper, “Bitcoin: A Peer-

to-Peer Electronic Cash System.” 7

Payments using the decentralized virtual

currency are recorded in a public ledger

that is stored on many—potentially all—

Bitcoin users’ computers, and

continuously viewable on the Internet.

Bitcoin is the first and largest

decentralized cryptocurrency. There are

hundreds of other “altcoin” (alternative

coin) cryptocurrencies, like Litecoin and

Dogecoin, but Bitcoin comprises 90

percent of the market capitalization of

all cryptocurrencies and is the de facto

standard. Bitcoin is pseudonymous (not

anonymous) in the sense that public key

addresses (27–32 alphanumeric

character strings; similar in function to

an email address) are used to send and

receive Bitcoins and record

transactions, as opposed to personally

identifying information.

Bitcoins are created as a reward for

computational processing work, known

as mining, in which users offer their

computing power to verify and record

payments into the public ledger.

Individuals or companies engage in

mining in exchange for transaction fees

and newly created Bitcoins. Besides

mining, Bitcoins can, like any currency,

be obtained in exchange for fiat money,

products, and services. Users can send

and receive Bitcoins electronically for

an optional transaction fee using wallet

software on a personal computer, mobile

device, or web application.

What Is the Blockchain?

The blockchain is the public ledger of

all Bitcoin transactions that have ever

been executed. It is constantly growing

as miners add new blocks to it (every 10

minutes) to record the most recent

transactions. The blocks are added to the

blockchain in a linear, chronological

order. Each full node (i.e., every

computer connected to the Bitcoin

network using a client that performs the

task of validating and relaying

transactions) has a copy of the

blockchain, which is downloaded

automatically when the miner joins the

Bitcoin network. The blockchain has

complete information about addresses

and balances from the genesis block (the

very first transactions ever executed) to

the most recently completed block. The

blockchain as a public ledger means that

it is easy to query any block explorer

(such as https://blockchain.info/) for

transactions associated with a particular

Bitcoin address—for example, you can

look up your own wallet address to see

the transaction in which you received

your first Bitcoin.

The blockchain is seen as the main

technological innovation of Bitcoin

because it stands as a “trustless” proof

mechanism of all the transactions on the

network. Users can trust the system of

the public ledger stored worldwide on

many different decentralized nodes

maintained by “miner-accountants,” as

opposed to having to establish and

maintain trust with the transaction

counterparty (another person) or a third-

party intermediary (like a bank). The

blockchain as the architecture for a new

system of decentralized trustless

transactions is the key innovation. The

blockchain allows the disintermediation

and decentralization of all transactions

of any type between all parties on a

global basis.

The blockchain is like another

application layer to run on the existing

stack of Internet protocols, adding an

entire new tier to the Internet to enable

economic transactions, both immediate

digital currency payments (in a

universally usable cryptocurrency) and

longer-term, more complicated financial

contracts. Any currency, financial

contract, or hard or soft asset may be

transacted with a system like a

blockchain. Further, the blockchain may

be used not just for transactions, but also

as a registry and inventory system for the

recording, tracking, monitoring, and

transacting of all assets. A blockchain is

quite literally like a giant spreadsheet

for registering all assets, and an

accounting system for transacting them

on a global scale that can include all

forms of assets held by all parties

worldwide. Thus, the blockchain can be

used for any form of asset registry,

inventory, and exchange, including every

area of finance, economics, and money;

hard assets (physical property); and

intangible assets (votes, ideas,

reputation, intention, health data, etc.).

The Connected World and

Blockchain: The Fifth

Disruptive Computing Paradigm

One model of understanding the modern

world is through computing paradigms,

with a new paradigm arising on the

order of one per decade (Figure P-1).

First, there were the mainframe and PC

(personal computer) paradigms, and then

the Internet revolutionized everything.

Mobile and social networking was the

most recent paradigm. The current

emerging paradigm for this decade could

be the connected world of computing

relying on blockchain cryptography. The

connected world could usefully include

blockchain technology as the economic

overlay to what is increasingly

becoming a seamlessly connected world

of multidevice computing that includes

wearable computing, Internet-of-Things

(IoT) sensors, smartphones, tablets,

laptops, quantified self-tracking devices

(i.e., Fitbit), smart home, smart car, and

smart city. The economy that the

blockchain enables is not merely the

movement of money, however; it is the

transfer of information and the effective

allocation of resources that money has

enabled in the human- and corporate-

scale economy.

With revolutionary potential equal to that

of the Internet, blockchain technology

could be deployed and adopted much

more quickly than the Internet was, given

the network effects of current

widespread global Internet and cellular

connectivity.

Just as the social-mobile functionality of

Paradigm 4 has become an expected

feature of technology properties, with

mobile apps for everything and sociality

as a website property (liking,

commenting, friending, forum

participation), so too could the

blockchain of Paradigm 5 bring the

pervasive expectation of value exchange

functionality. Paradigm 5 functionality

could be the experience of a

continuously connected, seamless,

physical-world, multidevice computing

layer, with a blockchain technology

overlay for payments—not just basic

payments, but micropayments,

decentralized exchange, token earning

and spending, digital asset invocation

and transfer, and smart contract issuance

and execution—as the economic layer

the Web never had. The world is already

being prepared for more pervasive

Internet-based money: Apple Pay

(Apple’s token-based ewallet mobile

app) and its competitors could be a

critical intermediary step in moving to a

full-fledged cryptocurrency world in

which the blockchain becomes the

seamless economic layer of the Web.

Figure P-1. Disruptive computing

paradigms: Mainframe, PC, Internet,

Social-Mobile, Blockchain8

M2M/IoT Bitcoin Payment

Network to Enable the Machine

Economy

Blockchain is a revolutionary paradigm

for the human world, the “Internet of

Individuals,” and it could also be the

enabling currency of the machine

economy. Gartner estimates the Internet

of Things will comprise 26 billion

devices and a $1.9 trillion economy by

2020. 9 A corresponding “Internet of

Money” cryptocurrency is needed to

manage the transactions between these

devices,10 and micropayments between

connected devices could develop into a

new layer of the economy.11 Cisco

estimates that M2M (machine-to-

machine) connections are growing faster

than any other category (84 percent), and

that not only is global IP traffic forecast

to grow threefold from 2012 to 2018, but

the composition is shifting in favor of

mobile, WiFi, and M2M traffic.12 Just as

a money economy allows for better,

faster, and more efficient allocation of

resources on a human scale, a machine

economy can provide a robust and

decentralized system of handling these

same issues on a machine scale.

Some examples of interdevice

micropayments could be connected

automobiles automatically negotiating

higher-speed highway passage if they

are in a hurry, microcompensating road

peers on a more relaxed schedule.

Coordinating personal air delivery

drones is another potential use case for

device-to-device micropayment

networks where individual priorities can

be balanced. Agricultural sensors are an

example of another type of system that

can use economic principles to filter out

routine irrelevant data but escalate

priority data when environmental

threshold conditions (e.g., for humidity)

have been met by a large enough group

of sensors in a deployed swarm.

Blockchain technology’s decentralized

model of trustless peer-to-peer

transactions means, at its most basic

level, intermediary-free transactions.

However, the potential shift to

decentralized trustless transactions on a

large-scale global basis for every sort of

interaction and transaction (human-to-

human, human-to-machine, machine-to-

machine) could imply a dramatically

different structure and operation of

society in ways that cannot yet be

foreseen but where current established

power relationships and hierarchies

could easily lose their utility.

Mainstream Adoption: Trust,

Usability, Ease of Use

Because many of the ideas and concepts

behind Bitcoin and blockchain

technology are new and technically

intricate, one complaint has been that

perhaps cryptocurrencies are too

complicated for mainstream adoption.

However, the same was true of the

Internet, and more generally at the

beginning of any new technology era, the

technical details of “what it is” and

“how it works” are of interest to a

popular audience. This is not a real

barrier; it is not necessary to know how

TCP/IP works in order to send an email,

and new technology applications pass

into public use without much further

consideration of the technical details as

long as appropriate, usable, trustable

frontend applications are developed. For

example, not all users need to see (much

less manually type) the gory detail of a

32-character alphanumeric public

address. Already “mainstream wallet”

companies such as Circle Internet

Financial and Xapo are developing

frontend applications specifically

targeted at the mainstream adoption of

Bitcoin (with the goal of being the

“Gmail of Bitcoin” in terms of frontend

usability—and market share). Because

Bitcoin and ewallets are related to

money, there is obvious additional

sensitivity in end-user applications and

consumer trust that services need to

establish. There are many

cryptocurrency security issues to

address to engender a crypto-literate

public with usable customer wallets,

including how to back up your money,

what to do if you lose your private key,

and what to do if you received a

proscribed (i.e., previously stolen) coin

in a transaction and now cannot get rid

of it. However, these issues are being

addressed by the blockchain industry,

and alternative currencies can take

advantage of being just another node in

the ongoing progression of financial

technology (fintech) that includes ATMs,

online banking, and now Apple Pay.

Currency application adoption could be

straightforward with trustable usable

frontends, but the successful mainstream

adoption of beyond-currency blockchain

applications could be subtler. For

example, virtual notary services seem

like a no-brainer for the easy, low-cost,

secure, permanent, findable registration

of IP, contracts, wills, and similar

documents. There will doubtlessly

remain social reasons that people prefer

to interact with a lawyer about certain

matters (perhaps the human-based

advice, psychoanalysis, or validation

function that attorneys may provide), and

for these kinds of reasons, technology

adoption based exclusively on efficiency

arguments could falter. Overall,

however, if Bitcoin and the blockchain

industry are to mature, it will most likely

be in phases, similar to the adoption

pattern of the Internet for which a clear

value proposition resonated with

different potential audiences, and then

they came online with the new

technology. Initially, the Internet solved

collaborative research problems for a

subgroup: academic researchers and the

military. Then, gamers and avid

recreational users came online, and

eventually, everyone. In the case of

Bitcoin, so far the early adopters are

subcultures of people concerned about

money and ideology, and the next steps

for widespread adoption could be as

blockchain technology solves practical

problems for other large groups of

people, For example, some leading

subgroups for whom blockchain

technology solves a major issue include

those affected by Internet censorship in

repressive political regimes, where

decentralized blockchain DNS (domain

name system) services could make a big

difference. Likewise, in the IP market,

blockchain technology could be

employed to register the chain of

invention for patents, and revolutionize

IP litigation in the areas of asset custody,

access, and attribution.

Bitcoin Culture: Bitfilm

Festival

One measure of any new technology’s

crossover into mainstream adoption is

how it is taken up in popular culture. An

early indication that the cryptocurrency

industry may be starting to arrive in the

global social psyche is the Bitfilm

Festival, which features films with

Bitcoin-related content. Films are

selected that demonstrate the universal

yet culturally distinct interpretations and

impact of Bitcoin. The festival began in

2013 and has late 2014/early 2015 dates

in Berlin (where Bitfilm is based),

Seoul, Buenos Aires, Amsterdam, Rio,

and Cape Town. Congruently, Bitfilm

allows viewers to vote for their favorite

films with Bitcoin. Bitfilm produces the

film festival and, in another business

line, makes promotional videos for the

blockchain industry (Figure P-2).

Figure P-2. Bitfilm promotional videos

Intention, Methodology, and

Structure of this Book

The blockchain industry is nascent and

currently (late 2014) in a phase of

tremendous dynamism and innovation.

Concepts, terminology, standards, key

players, norms, and industry attitudes

toward certain projects are changing

rapidly. It could be that even a year from

now, we look back and see that Bitcoin

and blockchain technology in its current

instantiation has become defunct,

superseded, or otherwise rendered an

artifact of the past. As an example, one

area with significant evolving change is

the notion of the appropriate security for

consumer ewallets—not an insubstantial

concern given the hacking raids that can

plague the cryptocurrency industry. The

current ewallet security standard is now

widely thought to be multisig (using

multiple key signatures to approve a

transaction), but most users (still early

adopters, not mainstream) have not yet

upgraded to this level of security.

This book is intended as an exploration

of the broader concepts, features, and

functionality of Bitcoin and blockchain

technology, and their future possibilities

and implications; it does not support,

advocate, or offer any advice or

prediction as to the industry’s viability.

Further, this text is intended as a

presentation and discussion of advanced

concepts, because there are many other

“Blockchain 101” resources available.

The blockchain industry is in an

emergent and immature phase and very

much still in development with many

risks. Given this dynamism, despite our

best efforts, there may be errors in the

specific details of this text whereas even

a few days from now information might

be outdated; the intent here is to portray

the general scope and status of the

blockchain industry and its possibilities.

Right now is the time to learn about the

underlying technologies; their potential

uses, dangers, and risks; and perhaps

more importantly, the concepts and their

extensibility. The objective here is to

provide a comprehensive overview of

the nature, scope, and type of activity

that is occurring in the cryptocurrency

industry and envision its wide-ranging

potential application. The account is

necessarily incomplete, prone to

technical errors (though it has been

reviewed for technical accuracy by

experts), and, again, could likely soon

be out-of-date as different projects

described here fail or succeed. Or, the

entire Bitcoin and blockchain technology

industry as currently conceived could

become outmoded or superseded by

other models.

The underlying sources of this work are

a variety of information resources

related to Bitcoin and its development.

The principal sources are developer

forums, Reddit subgroups, GitHub white

papers, podcasts, news media, YouTube,

blogs, and Twitter. Specific online

resources include Bitcoin industry

conference proceedings on YouTube and

Slideshare, podcasts (Let’s Talk Bitcoin,

Consider This!, Epicenter Bitcoin),

EtherCasts (Ethereum), Bitcoin-related

news outlets ( CoinDesk, Bitcoin

Magazine, Cryptocoins News, Coin

Telegraph), and forums (Bitcoin

StackExchange, Quora). Other sources

were email exchanges and conversations

with practitioners in the industry as well

as my experiences attending

conferences, Bitcoin workshops, Satoshi

Square trading sessions, and developer

meetups.

This work is structured to discuss three

different tiers in the way that the

conceptualization of Bitcoin and

blockchain technology is starting to gel:

Blockchain 1.0, 2.0, and 3.0. First, I

cover the basic definitions and concepts

of Bitcoin and blockchain technology,

and currency and payments as the core

Blockchain 1.0 applications. Second, I

describe Blockchain 2.0—market and

financial applications beyond currency,

such as contracts. I then envision

Blockchain 3.0, meaning blockchain

applications beyond currency, finance,

and markets. Within this broad category

are justice applications such as

blockchain governance, uplifting

organizations (like WikiLeaks, ICANN,

and DNS services) away from

repressive jurisdictional regimes to the

decentralized cloud, protection of IP,

and digital identity verification and

authentication. Fourth, I consider another

class of Blockchain 3.0 applications

beyond currency, finance, and markets,

for which the blockchain model offers

scale, efficiency, organization, and

coordination benefits in the areas of

science, genomics, health, learning,

academic publishing, development, aid,

and culture. Finally, I present advanced

concepts like demurrage (incitory)

currency, and consider them in the

greater context of the wide-scale

deployment of blockchain technology.

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Acknowledgments

I would like to acknowledge Andreas M.

Antonopoulos, Trent McConaghy, Steve

Omohundro, Piotr Piasecki, Justin Sher,

Chris Tse, and Stephan Tual.

Chapter 1. Blockchain 1.0:

Currency

Technology Stack: Blockchain,

Protocol, Currency

Bitcoin terminology can be confusing

because the word Bitcoin is used to

simultaneously denote three different

things. First, Bitcoin refers to the

underlying blockchain technology

platform. Second, Bitcoin is used to

mean the protocol that runs over the

underlying blockchain technology to

describe how assets are transferred on

the blockchain. Third, Bitcoin denotes a

digital currency, Bitcoin, the first and

largest of the cryptocurrencies.

Table 1-1 demonstrates a helpful way to

distinguish the different uses. The first

layer is the underlying technology, the

blockchain. The blockchain is the

decentralized transparent ledger with the

transaction records—the database that is

shared by all network nodes, updated by

miners, monitored by everyone, and

owned and controlled by no one. It is

like a giant interactive spreadsheet that

everyone has access to and updates and

confirms that the digital transactions

transferring funds are unique.

The middle tier of the stack is the

protocol—the software system that

transfers the money over the blockchain

ledger. Then, the top layer is the

currency itself, Bitcoin, which is

denoted as BTC or Btc when traded in

transactions or exchanges. There are

hundreds of cryptocurrencies, of which

Bitcoin is the first and largest. Others

include Litecoin, Dogecoin, Ripple,

NXT, and Peercoin; the major alt-

currencies can be tracked at

http://coinmarketcap.com/.

Table 1-1. Layers in the technology

stack of the Bitcoin blockchain

Cryptocurrency: Bitcoin (BTC), Litecoin,

Dogecoin

Bitcoin protocol and client: Software

programs that conduct transactions

Bitcoin blockchain: Underlying

decentralized ledger

The key point is that these three layers

are the general structure of any modern

cryptocurrency: blockchain, protocol,

and currency. Each coin is typically both

a currency and a protocol, and it may

have its own blockchain or may run on

the Bitcoin blockchain. For example, the

Litecoin currency runs on the Litecoin

protocol, which runs on the Litecoin

blockchain. (Litecoin is very slightly

adapted from Bitcoin to improve on a

few features.) A separate blockchain

means that the coin has its own

decentralized ledger (in the same

structure and format as the Bitcoin

blockchain ledger). Other protocols,

such as Counterparty, have their own

currency (XCP) and run on the Bitcoin

blockchain (i.e., their transactions are

registered in the Bitcoin blockchain

ledger). A spreadsheet delineating some

of the kinds of differences between

Crypto 2.0 projects is maintained here:

http://bit.ly/crypto_2_0_comp.

The Double-Spend and

Byzantine Generals’

Computing Problems

Even without considering the many

possible uses of Bitcoin and blockchain

technology, Bitcoin, at its most

fundamental level, is a core

breakthrough in computer science, one

that builds on 20 years of research into

cryptographic currency, and 40 years of

research in cryptography, by thousands

of researchers around the world. 13

Bitcoin is a solution to a long-standing

issue with digital cash: the double-

spend problem. Until blockchain

cryptography, digital cash was, like any

other digital asset, infinitely copiable

(like our ability to save an email

attachment any number of times), and

there was no way to confirm that a

certain batch of digital cash had not

already been spent without a central

intermediary. There had to be a trusted

third party (whether a bank or a

quasibank like PayPal) in transactions,

which kept a ledger confirming that each

portion of digital cash was spent only

once; this is the double-spend problem.

A related computing challenge is the

Byzantine Generals’ Problem, connoting

the difficulty of multiple parties

(generals) on the battlefield not trusting

each other but needing to have some sort

of coordinated communication

mechanism. 14

The blockchain solves the double-spend

problem by combining BitTorrent peer-

to-peer file-sharing technology with

public-key cryptography to make a new

form of digital money. Coin ownership

is recorded in the public ledger and

confirmed by cryptographic protocols

and the mining community. The

blockchain is trustless in the sense that a

user does not need to trust the other party

in the transaction, or a central

intermediary, but does need to trust the

system: the blockchain protocol

software system. The “blocks” in the

chain are groups of transactions posted

sequentially to the ledger—that is, added

to the “chain.” Blockchain ledgers can

be inspected publicly with block

explorers, Internet sites (e.g.,

www.Blockchain.info for the Bitcoin

blockchain) where you can see a

transaction stream by entering a

blockchain address (a user’s public-key

address, like

1DpZHXi5bEjNn6SriUKjh6wE4HwPFBPvfx

How a Cryptocurrency Works

Bitcoin is money, digital cash, a way of

buying and selling things over the

Internet. The Bitcoin value chain is

composed of several different

constituencies: software developers,

miners, exchanges, merchant processing

services, web wallet companies, and

users/consumers. From an individual

user’s perspective, the important

elements in transacting coin (I’ll use

“coin” in the generic sense here) are an

address, a private key, and wallet

software. The address is where others

can send Bitcoin to you, and the private

key is the cryptographic secret by which

you can send Bitcoin to others. Wallet

software is the software you run on your

own computer to manage your Bitcoin

(see Figure 1-1). There is no centralized

“account” you need to register with

another company; if you have the private

key to an address, you can use that

private key to access the coin associated

with that address from any Internet-

connected computer (including, of

course, smartphones). Wallet software

can also keep a copy of the blockchain

—the record of all the transactions that

have occurred in that currency—as part

of the decentralized scheme by which

coin transactions are verified.

Appendix A covers the practicalities of

maintaining an altcoin wallet in more

detail.

Figure 1-1. Bitcoin ewallet app and

transferring Bitcoin (image credits: Bitcoin

ewallet developers and InterAksyon)

eWallet Services and Personal

Cryptosecurity

As responsible consumers, we are not

used to many of the new aspects of

blockchain technology and personal

cryptosecurity; for example, having to

back up our money. Decentralized

autonomy in the form of private keys

stored securely in your ewallet means

that there is no customer service number

to call for password recovery or private

key backup. If your private key is gone,

your Bitcoin is gone. This could be an

indication that blockchain technology is

not yet mature enough for mainstream

adoption; it’s the kind of problem that

consumer-facing Bitcoin startups such as

Circle Internet Financial and Xapo are

trying to solve. There is opportunity for

some sort of standardized app or service

for ewallet backup (for example, for

lost, stolen, bricked, or upgraded

smartphones or laptop/tablet-based

wallets), with which users can confirm

exactly what is happening with their

private keys in the backup service,

whether they self-administer it or rely on

external vendors. Personal

cryptosecurity is a significant new area

for consumer literacy, because the stakes

are quite high to ensure that personal

financial assets and transactions are

protected in this new online venue of

digital cash. Another element of

personal cryptosecurity that many

experts recommend is coin mixing,

pooling your coins with other

transactions so that they are more

anonymous, using services like Dark

Coin, Dark Wallet, and BitMixer.15 As

the marketplace of alternative currencies

grows, demand for a unified ewallet

will likely rise, because installing a new

and separate wallet is required for most

blockchain-related services, and it is

easy to have 20 different ewallets

crowding your smartphone.

Despite their current clunkiness in

implementation, cryptocurrencies offer

many great benefits in personal

cryptosecurity. One of the great

advantages is that blockchain is a push

technology (the user initiates and pushes

relevant information to the network for

this transaction only), not a pull

technology (like a credit card or bank

for which the user’s personal

information is on file to be pulled any

time it is authorized). Credit card

technology was not developed to be

secure on the Internet the way that

blockchain models are developing now.

Pull technology requires having

datastores of customer personal

information that are essentially

centralized honey pots, increasingly

vulnerable to hacker identity theft attacks

(Target, Chase, and Dairy Queen are just

a few recent examples of large-scale

identity-theft vendor database raids).

Paying with Bitcoin at any of the 30,000

vendors that accept it as of October

2014 (e.g., Overstock, New Egg, and

Dell Computer; see

https://bitpay.com/directory#/) means

not having to entrust your personal

financial information to centralized

vendor databases. It might also possibly

entail a lower transaction fee (Bitcoin

transaction fees are much lower than

merchant credit card processing fees).

Merchant Acceptance of

Bitcoin

At the time of writing, the main Bitcoin

merchant processing solutions for

vendors to accept Bitcoin are BitPay and

Coinbase in the United States, and

Coinify in Europe.16 However, it is

difficult for vendors, like the local café,

to run two separate payment systems

(traditional and Bitcoin), so a more

expedient future solution would involve

integrating Bitcoin payment into existing

vendor payment networks. Mobile

payment functionality is also needed for

quick point-of-sale Bitcoin purchases

(for example, a cup of coffee) via

mobile phone. CoinBeyond and other

companies focus on mobile Bitcoin

payments specifically, and BitPay and

CoinBase have solutions for mobile

checkout. In one notable step forward,

Intuit’s QuickBooks accounting software

for small businesses makes it possible

for vendors to accept incoming Bitcoin

payments from CoinBase and BitPay

with its PayByCoin module. 17

Summary: Blockchain 1.0 in

Practical Use

Blockchain is already cash for the

Internet, a digital payment system, and it

may become the “Internet of Money,”

connecting finances in the way that the

Internet of Things (IoT) connects

machines. Currency and payments make

up the first and most obvious

application. Alternative currencies make

sense based on an economic argument

alone: reducing worldwide credit card

merchant payment fees from as much as

3 percent to below 1 percent has

obvious benefits for the economy,

especially in the $514 billion

international remittances market, where

transaction fees can run from 7 to 30

percent.18 Furthermore, users can

receive funds immediately in digital

wallets instead of waiting days for

transfers. Bitcoin and its imitators could

pave the way for currency, trade, and

commerce as we know it to be

completely redefined. More broadly,

Bitcoin is not just a better version of

Visa—it could also allow us to do things

we have not even thought of yet.

Currency and payments is just the first

application.19 The core functionality of

blockchain currencies is that any

transaction can be sourced and

completed directly between two

individuals over the Internet. With

altcoins, you can allocate and trade

resources between individuals in a

completely decentralized, distributed,

and global way. With that ability, a

cryptocurrency can be a programmable

open network for the decentralized

trading of all resources, well beyond

currency and payments. Thus,

Blockchain 1.0 for currency and

payments is already being extended into

Blockchain 2.0 to take advantage of the

more robust functionality of Bitcoin as

programmable money.

Relation to Fiat Currency

Considering Bitcoin as the paradigm and

most widely adopted case, the price of

Bitcoin is $399.40 as of November 12,

2014. The price has ranged considerably

(as you can see in Figure 1-2), from $12

at the beginning of 2013 to a high of

$1,242 per coin on November 29, 2013

(trading higher than gold—$1,240 per

ounce—that day). 20 That peak was the

culmination of a few factors: the Cyprus

banking crisis (March 2013) drove a

great deal of demand, for example. The

price was also driven up by heavy

trading in China until December 5, 2013,

when the Chinese government banned

institutions (but not individuals) from

handling Bitcoin, after which the price

fell. 21 In 2014, the price has declined

gradually from $800 to its present value

of approximately $350 in December

2014. An oft-reported though disputed

metric is that 70 percent of Bitcoin

trades are made up of Chinese Yuan.22 It

is difficult to evaluate how much of that

figure indicates meaningful economic

activity because the Chinese exchanges

do not charge trade fees, and therefore

people can trade any amount of currency

back and forth for free, creating fake

volume. Further, much of the Yuan-

denominated trade must be speculation

(as is true for overall Bitcoin trade), as

there are few physical-world vendors

accepting Bitcoin and few consumers

using the currency for the widespread

consumption of goods and services.

Figure 1-2. Bitcoin price 2009 through

November 2014 (source:

http://coinmarketcap.com/currencies/bitcoin/#charts

Some argue that volatility and price

shifts are a barrier to the widespread

adoption of cryptocurrency, and some

volatility-smoothing businesses have

launched to address this: Bitreserve,

which locks Bitcoin deposits at fixed

exchange rates;23 Realcoin’s

cryptocurrency, which is pegged to the

US dollar (USD);24 and Coinapult’s

LOCKS, which allow purchasers to peg

Bitcoin to the price of gold, silver, the

US dollar, the British pound, or the

Euro. 25 One of the first USD-pegged

Bitcoin cryptocurrencies was Ripple’s

XRP/USD BitStamp, and there is also

BitShares’ BitUSD. Others point out that Bitcoin volatility is less than some fiat

currency’s volatility and inflation

(making Bitcoin a better relative value

choice), and that many operations of

Bitcoin are immediate transfers in and

out of other currencies for which the

volatility does not matter as much in

these spot rate (i.e., immediate)

transactions.

Bitcoin’s market capitalization as of

November 2014 is $5.3 billion (see

http://coinmarketcap.com/), calculated

as the current price ($399.40) multiplied

by the available supply (13,492,000

Bitcoin). This is already on the order of

a small country’s GDP (Bitcoin would

rank as the 150th largest world economy

on a list of 200). Unlike fiat currencies

for which governments can print more

money, the money supply of Bitcoin

grows at a predetermined (and capped)

rate. New currency (in blocks) is being

issued at a regular and known pace, with

about 13.5 million units currently

outstanding, growing to a capped amount

of 21 million units in 2040. At a price of

roughly $400 Bitcoin per dollar, Bitcoin

is infeasible to use directly for daily

purchases, and prices and exchanges for

practical use are typically denominated

in subunits of millibitcoins (a thousandth

of a Bitcoin; 1 mBTC = ~$0.40) and

Satoshis (a millionth of a Bitcoin; 1

Satoshi = ~$0.000004).

Regulatory Status

Government regulation is possibly one

of the most significant factors as to

whether the blockchain industry will

develop into a full-fledged financial-

services industry. As of October 2013, a

handful of countries have completely

banned Bitcoin: Bangladesh, Bolivia,

Ecuador, Iceland (possibly related to

using Auroracoin, instead), Kyrgyzstan,

and Vietnam. China, as mentioned,

banned financial institutions from

dealing in the virtual currency as of

December 2013, although trading

volume in Chinese Yuan persists. 26

Germany, France, Korea, and Thailand

have all looked unfavorably on

Bitcoin.27 The European Banking

Authority, Switzerland, Poland, Canada,

and the United States continue to

deliberate about different Bitcoin-

related issues. 28 Countries try to match

up Bitcoin (and the concept of digital

currencies) to their existing regulatory

structures, often finding that

cryptocurrencies do not quite fit and

ultimately concluding that

cryptocurrencies are sufficiently

different that new legislation might be

required. At present, some countries,

like the UK, have classified Bitcoin as a

currency (and therefore not subject to

VAT), whereas other countries, like

Australia, were not able to classify

Bitcoin as a currency due to laws about

nationalized issuance (and Bitcoin

therefore is subject to VAT or GST—the

goods and services tax).29

In the United States, the Internal Revenue

Service treats Bitcoin as property (like

stock) and not as money, meaning that

users of Bitcoin are liable for capital

gains taxes on transactions.30 For

taxation, virtual currencies are property,

not currency. However, nearly every

other US government agency—including

FinCEN (financial crimes enforcement

network), banking regulators, and the

CFPB, SEC, CFTC, and DOJ—regulate

Bitcoin as a currency. 31

Chapter 2. Blockchain 2.0:

Contracts

From its very beginning, complexity

beyond currency and payments was

envisioned for Bitcoin; the possibilities

for programmable money and contracts

were baked into the protocol at its

invention. A 2010 communication from

Satoshi Nakamoto indicates that “the

design supports a tremendous variety of

possible transaction types that I designed

years ago. Escrow transactions, bonded

contracts, third-party arbitration,

multiparty signature, etc. If Bitcoin

catches on in a big way, these are things

we’ll want to explore in the future, but

they all had to be designed at the

beginning to make sure they would be

possible later.” 32 As we’ll see in

Chapter 3, these structures could be

applied beyond financial transactions, to

any kind of transaction—even

“figurative” ones. This is because the

concepts and structure developed for

Bitcoin are extremely portable and

extensible.

Blockchain 2.0 is the next big tier in the

development of the blockchain industry,

an area of prodigious activity as of the

fall of 2014.33 Because the Blockchain

2.0 space is in development, there are

many different categories, distinctions,

and understandings of it, and standard

classifications and definitions are still

emerging. Some of the terminology that

broadly refers to the Blockchain 2.0

space can include Bitcoin 2.0, Bitcoin

2.0 protocols, smart contracts, smart

property, Dapps (decentralized

applications), DAOs (decentralized

autonomous organizations), and DACs

(decentralized autonomous

corporations).

Whereas Blockchain 1.0 is for the

decentralization of money and payments,

Blockchain 2.0 is for the

decentralization of markets more

generally, and contemplates the transfer

of many other kinds of assets beyond

currency using the blockchain, from the

creation of a unit of value through every

time it is transferred or divided.

An approximate technological metaphor

for Bitcoin is that it is analogous to the

protocol stack of the Web. After the

underlying Internet technology and

infrastructure was in place, services

could be built to run on top of it—

Amazon, Netflix, and Airbnb—

becoming increasingly sophisticated

over time and always adding new ways

to take advantage of the underlying

technology. Blockchain 1.0 has been

likened to the underlying TCP/IP

transport layer of the Web, with the

opportunity now available to build 2.0

protocols on top of it (as HTTP, SMTP,

and FTP were in the Internet model).

Blockchain 2.0 protocols either literally

use the Bitcoin blockchain or create

their own separate blockchains, but are

in the same cryptocurrency decentralized

technical architecture model of the three-

layer stack: blockchain, protocol, and

currency. However, it is important to

note that these “new Internet plumbing

layers” are very much still in

development and any metaphor might

become quickly outdated. These

analogies might be like calling Chrome a

“Napster 2.0,” or Facebook or AdBlock

a “Web Browser 3.0.”

The key idea is that the decentralized

transaction ledger functionality of the

blockchain could be used to register,

confirm, and transfer all manner of

contracts and property. Table 2-1 lists

some of the different classes and

examples of property and contracts that

might be transferred with the blockchain.

Satoshi Nakamoto started by specifying

escrow transactions, bonded contracts,

third-party arbitration, and multiparty

signature transactions. All financial

transactions could be reinvented on the

blockchain, including stock, private

equity, crowdfunding instruments, bonds,

mutual funds, annuities, pensions, and all

manner of derivatives (futures, options,

swaps, and other derivatives).

Table 2-1. Blockchain applications

beyond currency (adapted from the

Ledra Capital Mega Master

Blockchain List; see Appendix B )34

Class

Examples

General

Escrow transactions, bonded

contracts, third-party

arbitration, multiparty

signature transactions

Financial

Stock, private equity,

transactions

crowdfunding, bonds, mutual

funds, derivatives, annuities,

pensions

Public

Land and property titles,

records

vehicle registrations,

business licenses, marriage

certificates, death

certificates

Identification Driver’s licenses, identity

cards, passports, voter

registrations

Private

IOUs, loans, contracts, bets,

records

signatures, wills, trusts,

escrows

Attestation

Proof of insurance, proof of

ownership, notarized

documents

Physical

Home, hotel rooms, rental

asset keys

cars, automobile access

Intangible

Patents, trademarks,

assets

copyrights, reservations,

domain names

Public records, too, can be migrated to

the blockchain: land and property titles,

vehicle registrations, business licenses,

marriage certificates, and death

certificates. Digital identity can be

confirmed with the blockchain through

securely encoded driver’s licenses,

identity cards, passports, and voter

registrations. Private records such as

IOUs, loans, contracts, bets, signatures,

wills, trusts, and escrows can be stored.

Attestation can be executed via the

blockchain for proof of insurance, proof

of ownership, and notarized documents.

Physical asset keys (which is explored

further in Chapter 3) can be encoded as

digital assets on the blockchain for

controlled access to homes, hotel rooms,

rental cars, and privately owned or

shared-access automobiles (e.g.,

Getaround). Intangible assets (e.g.,

patents, trademarks, copyrights,

reservations, and domain names) can

also be protected and transferred via the

blockchain. For example, to protect an

idea, instead of trademarking it or

patenting it, you could encode it to the

blockchain and you would have proof of

a specific cargo being registered with a

specific datetime stamp for future proof

(as is discussed in “Digital Art:

Blockchain Attestation Services (Notary,

Intellectual Property Protection)”).

Financial Services

A prime area for blockchain businesses

is interfacing cryptocurrencies with

traditional banking and financial

markets. Venture capital–backed Ripple

Labs is using blockchain technology to

reinvent the banking ecosystem and

allow traditional financial institutions to

conduct their own business more

efficiently. Ripple’s payment network

lets banks transfer funds and foreign

exchange transactions directly between

themselves without a third-party

intermediary, as is now required:

“Regional banks can now move money

bilaterally to other regional banks

without having to relay those funds

through an intermediary. ”35 Ripple is

also developing a smart contracts

platform and language, Codius. Another

potential symbiosis between the

traditional banking industry and Bitcoin

is exemplified by Spanish bank

Bankinter’s Innovation Foundation

investment in Coinffeine, a Bitcoin

technology startup that aims to make it

possible for end users to buy and sell

Bitcoin directly without an exchange. 36

Other businesses are also connecting

Bitcoin to traditional financial and

payments market solutions. PayPal is an

instructive example because its

development as a platform has parallels

with Bitcoin, and it is on the Bitcoin

adoption curve itself. PayPal was

initially an innovative payments market

solution outside of the traditional

financial-services market, like Bitcoin,

but has since become a more formal

business within the regulated industry,

collecting and validating detailed

personal information about its

customers. PayPal had been known for

being on the edge of financial

innovation, but it then became more

corporate focused and lost the

possibility of providing early market

leadership with regard to Bitcoin. Now,

PayPal has been incorporating Bitcoin

slowly, as of September 2014

announcing partnerships with three

major Bitcoin payment processors:

BitPay, Coinbase, and GoCoin.37 Also in

September 2014, Paypal’s Braintree unit

(acquired in 2013), a mobile payments

provider, is apparently working on a

feature with which customers can pay

for Airbnb rentals and Uber car rides

with Bitcoin.38

In the same area of regulation-compliant

Bitcoin complements to traditional

financial services is the notion of a

“Bitbank.” Bitcoin exchange Kraken has

partnered with a bank to provide

regulated financial services involving

Bitcoin.39 There is a clear need for an

analog to and innovation around

traditional financial products and

services for Bitcoin—for example,

Bitcoin savings accounts and lending

(perhaps through user-selected rules

regarding fractional reserve levels).

BTCjam is an example of such

decentralized blockchain-based peer-to-

peer lending. Tera Exchange launched

the first US-regulated Bitcoin swaps

exchange, which could make it possible

for institutional and individual investors

to buy Bitcoin contracts directly through

its online trading platforms. Part of the

offering includes an institutional Bitcoin

price index, the Tera Bitcoin Price

Index, to be used as the benchmark for

trading USD/XBT contracts. 40 In the

same space, startup Vaurum is building

an API for financial institutions to offer

traditional brokerage investors and bank

customers access to Bitcoin. Another

project is startup Buttercoin, a Bitcoin

trading platform and exchange for high-

volume transactions (200,000–500,000

Bitcoin, or $70–$175 million), targeted

at a business clientele who has a need to

complete large-scale Bitcoin

transactions. 41 Buttercoin is partnered

with capital markets firm Wedbush

Securities, itself one of the first security

analysts to cover Bitcoin and accept

Bitcoin payments for its research.

Other ventures are more radically

positioned against artificial unregulated

monopolies in the current stock trading

market infrastructure, like the

Depository Trust Company and the

National Securities Clearing

Corporation, or DTCC, which is

involved in the clearing and settlement

of securities. Overstock CEO Patrick

Byrne and Counterparty created a new

venture, Medici, announced in October

2014, to provide a decentralized stock

market for equity securities in the

blockchain model. 42

Crowdfunding

Another prime example of how financial

services are being reinvented with

blockchain-based decentralized models

is crowdfunding. The idea is that peer-

to-peer fundraising models such as

Kickstarter can supplant the need for

traditional venture capital funding for

startups. Where previously a centralized

service like Kickstarter or Indiegogo

was needed to enable a crowdfunding

campaign, crowdfunding platforms

powered by blockchain technology

remove the need for an intermediary

third party. Blockchain-based

crowdfunding platforms make it possible

for startups to raise funds by creating

their own digital currencies and selling

“cryptographic shares” to early backers.

Investors in a crowdfunding campaign

receive tokens that represent shares of

the startup they support. 43

Some of the leading cryptocurrency

crowdfunding platforms include Swarm,

an incubator of digital currency–focused

startups that raised $1 million in its own

crowdfunding, completed in July 2014. 44

Holding the company’s own

cryptocurrency, Swarmcoin, gives

investors rights to the dividends from the

startups in the incubator’s portfolio. 45

Swarm has five projects comprising its

first class of funded applications:

Manna, a developer of smart personal

drone networks; Coinspace, an operator

of a decentralized cryptocurrency

workplace; Swarmops, a decentralized

organizational management software

platform; Judobaby, a decentralized

gaming platform; and DDP, a

decentralized dance-party entertainment

concept.46 Another crowdfunding

platform is Koinify, whose one project

so far is the Gems decentralized social

network. Koinify is linked with the

Melotic wallet/asset exchange platform

to curate a decentralized application

marketplace. 47 Ironically, or perhaps as

a sign of the symbiotic times, Koinify

raised $1 million in traditional venture

capital finance to start its crowdfunding

platform. 48 Another project is

Lighthouse, which aims to enable its

users to run crowdfunding or assurance

contracts directly from within a Bitcoin

wallet. In Japan, a Bitcoin crowdfunding

site, bitFlyer, has launched as part of the

general crowdfunding site fundFlyer. 49

Crowdfunding is a high-profile topic at

Bitcoin industry conferences, and

experts argue over its legality.

Opponents complain that there is

currently no legal way to do

crowdfunding whereby one actually

owns shares in the underlying

organization, and there may be different

ways in which crowdfunding violates

securities laws. The workaround offered

by crowdfunding platforms like Swarm

and Koinify, as well as one-off

crowdfundings like Ethereum is to sell

nonshare items, such as early access to

software. However, this is somewhat

disingenuous because in many cases the

marketing still looks a lot like selling

shares. The result is that there can be de

facto investors in cryptocurrency

projects who are not getting much more

than early access to open source

software. A better way to crowdfund

cryptocurrency projects in a

decentralized yet legal way, with more

effective checks and balances, is

needed.

Bitcoin Prediction Markets

One example of new tech with old tech

is Bitcoin prediction markets like

Predictious and Fairlay. 50 Bitcoin prediction markets offer a betting venue

for the usual real-world outcomes as

prediction markets always have, such as

elections, political legislation, sports

matches, and technology product

releases, and also serve as a good

source of information about the

developing blockchain industry. Bitcoin

prediction markets are one way to see

what insiders think about Bitcoin’s

future price directions, the success of

different altcoin and protocol 2.0

projects, and industry issues more

generally (e.g., technical development

issues with Bitcoin, such as when there

will be a hard fork—significant change

—of the code, and the level of difficulty

of the mining algorithm).

Smart Property

The blockchain can be used for any form

of asset registry, inventory, and

exchange, including every area of

finance, economics, and money; hard

assets (physical property); and

intangible assets (votes, ideas,

reputation, intention, health data, and

information). Using blockchain

technology this way opens up multiple

classes of application functionality

across all segments of businesses

involved in money, markets, and

financial transactions. Blockchain-

encoded property becomes smart

property that is transactable via smart

contracts.

The general concept of smart property is

the notion of transacting all property in

blockchain-based models. Property

could be physical-world hard assets like

a home, car, bicycle, or computer, or

intangible assets such as stock shares,

reservations, or copyrights (e.g., books,

music, illustrations, and digital fine art).

An example of using the blockchain to

control and transfer limited-run artworks

is Swancoin, where 121 physical-world

artworks, crafted on 30 × 30 cm

varnished plywood, are available for

purchase and transfer via the Bitcoin

blockchain (see Figure 2-1). 51 Any asset can be registered in the blockchain, and

thus its ownership can be controlled by

whoever has the private key. The owner

can then sell the asset by transferring the

private key to another party. Smart

property, then, is property whose

ownership is controlled via the

blockchain, using contracts subject to

existing law. For example, a pre-

established smart contract could

automatically transfer the ownership of a

vehicle title from the financing company

to the individual owner when all the

loan payments have been made (as

automatically confirmed by other

blockchain-based smart contracts).

Similarly, mortgage interest rates could

reset automatically per another

blockchain-based smart contract

checking a prespecified and contract-

encoded website or data element for

obtaining the interest rate on certain

future days.

Figure 2-1. Swancoin: limited-circulation

digital asset artwork (image credit:

http://swancoin.tumblr.com/)

The key idea of smart property is

controlling ownership and access to an

asset by having it registered as a digital

asset on the blockchain and having

access to the private key. In some cases,

physical-world hard assets could quite

literally be controlled with the

blockchain. Smartphones could unlock

upon reaffirming a user’s digital identity

encoded in the blockchain. The doors

of physical property such as vehicles

and homes could be “smartmatter”-

enabled through embedded technology

(e.g., software code, sensors, QR codes,

NFC tags, iBeacons, WiFi access, etc.)

so that access could be controlled in real

time as users seeking entry present their

own hardware or software token to

match that of the asset. Absent

preconfigured access tokens, when the

user submits a real-time access request,

the blockchain smart contract could send

an acknowledgment or token access

mechanism to the physical asset or user

ewallet, such as a one-use QR code to

open a rental car or hotel room.

Blockchain technology offers the ability

to reinvent identity authentication and

secure access in ways that are much

more granular, flexible, and oriented to

real-time demand than are currently

possible, elegantly integrating physical-

world hardware technologies with

digital Internet-based software

technologies. 52

Smart property transacted with

blockchains is a completely new kind of

concept. We are not used to having

cryptographically defined property

rights that are self-enforced by code.

The code is self-enforced by the

technical infrastructure in the sense that

it is bound to operate based on the

underlying code and cannot deviate. A

property transfer specified in the code

cannot but occur as encoded.

Blockchain-based smart property thus

contemplates the possibility of

widespread decentralized trustless asset

management systems as well as

cryptographically activated assets.

There could be widespread implications

for the entire field of property law—or

great simplifications in that property

ownership can be recorded on the

property itself:

Trustless lending

The trustless networks feature of

blockchain technology is a key

enabler in the context of smart

property and smart contracts. Making

property smart allows it to be traded

with much less trust. This reduces

fraud and mediation fees, but more

importantly affords a much greater

amount of trade to take place that

otherwise would never have

happened, because parties do not

need to know and trust each other.

For example, it makes it possible for

strangers to lend you money over the

Internet, taking your smart property

as collateral, which should make

lending more competitive and thus

credit cheaper. 53 Further, there is the

possibility that smart contracts

executed in trustless networks could

result in much less disputation.

Contract disputes in the United

States (44%) and United Kingdom

(57%) account for the largest type of

litigation, and might be avoided with

more precision at the time of setting

forth agreements, and with automated

enforcement mechanisms.54 Related

to this, as cryptocurrency visionary

and smart contracts legal theorist

Nick Szabo points out, is the general

problem of poor (i.e., irrational)

human decision making, which might

be improved with automated

mechanisms like smart contracts.

Colored coins

One of the first implementations of

smart property on the blockchain is

colored coins. Certain Bitcoins are

“colored” or “tagged” as

corresponding to a particular asset

or issuer via the transaction memo

field in a Bitcoin transaction. The

idea is similar to giving someone a

dollar bill with an IOU for another

property asset (e.g., a car) written on

it. Thus, certain Bitcoins encode

some other asset that can be securely

transacted with the blockchain. This

model still requires some trust—in

this case, that the asset called out in

the memo field will be deployed as

agreed. Consequently, colored coins

are intended for use within a certain

community, serving as loyalty points

or tokens to denote a range of

physical and digital goods and

services. The basic idea is that

colored coins are Bitcoins marked

with certain properties to reflect

certain digital or physical assets so

that more complex transactions can

be carried out with the blockchain.

The transactions could be asset

exchange, and also the conduct of

various activities within

communities, such as voting, tipping,

and commenting in forums. 55

Smart Contracts

A general sense of blockchain-based

smart contracts emerges from the smart

property discussion. In the blockchain

context, contracts or smart contracts

mean blockchain transactions that go

beyond simple buy/sell currency

transactions, and may have more

extensive instructions embedded into

them. In a more formal definition, a

contract is a method of using Bitcoin to

form agreements with people via the

blockchain. A contract in the traditional

sense is an agreement between two or

more parties to do or not do something

in exchange for something else. Each

party must trust the other party to fulfill

its side of the obligation. Smart contracts

feature the same kind of agreement to act

or not act, but they remove the need for

one type of trust between parties. This is

because a smart contract is both defined

by the code and executed (or enforced)

by the code, automatically without

discretion. In fact, three elements of

smart contracts that make them distinct

are autonomy, self-sufficiency, and

decentralization. Autonomy means that

after it is launched and running, a

contract and its initiating agent need not

be in further contact. Second, smart

contracts might be self-sufficient in their

ability to marshal resources—that is,

raising funds by providing services or

issuing equity, and spending them on

needed resources, such as processing

power or storage. Third, smart contracts

are decentralized in that they do not

subsist on a single centralized server;

they are distributed and self-executing

across network nodes. 56

The classic example used to demonstrate

smart contracts in the form of code

executing automatically is a vending

machine. Unlike a person, a vending

machine behaves algorithmically; the

same instruction set will be followed

every time in every case. When you

deposit money and make a selection, the

item is released. There is no possibility

of the machine not feeling like

complying with the contract today, or

only partially complying (as long as it is

not broken). A smart contract similarly

cannot help but execute the prespecified

code. As Lessig reminds us, “code is

law” in the sense that the code will

execute no matter what. This could be

good or bad depending on the situation;

either way, it is a new kind of situation

in society that will require a heavy

accommodation period if blockchain-

based smart contracts are to become

widespread.

There are many considerations raised by

smart contracts and systems of

cryptographically activated assets with

regard to whether we need a new body

of law and regulation that distinguishes

between technically binding code

contracts and our more flexible legally

binding human contracts. 57 Contract

compliance or breach is at the discretion

of human agents in a way that it is not

with blockchain-based or any kind of

code-based contracts. Further, smart

contracts impact not just contract law,

but more broadly the notion of the social

contract within society. We need to

determine and define what kinds of

social contracts we would like with

“code law,” automatically and

potentially unstoppably executing code.

Because it could be nearly impossible to

enforce smart contracts with law as

currently enacted (for example, a

decentralized code swatch running after

the fact is difficult to control, regulate,

or sue for damages), the legal

framework is essentially pushed down to

the level of the contract. The endpoint is

not lawlessness and anarchy, but that

legal frameworks become more granular

and personalized to the situation. Parties

agreeing to the contract could choose a

legal framework to be incorporated into

the code. There could be multiple

known, vetted, “canned” legal

frameworks, similar to Creative

Commons licenses, such that users pick

a legal framework as a feature of a smart

contract. Thus, there could be a

multiplicity of legal frameworks, just as

there could be a multiplicity of

currencies.

Contracts do not make anything possible

that was previously impossible; rather,

they allow common problems to be

solved in a way that minimizes the need

for trust. Minimal trust often makes

things more convenient by taking human

judgment out of the equation, thus

allowing complete automation. An

example of a basic smart contract on the

blockchain is an inheritance gift that

becomes available on either the

grandchild’s eighteenth birthday or the

grandparent’s day of death. A transaction

can be created that sits on the blockchain

and goes uninitiated until certain future

events are triggered, either a certain time

or event. To set up the first condition—

the grandchild receiving the inheritance

at age 18—the program sets the date on

which to initiate the transaction, which

includes checking if the transaction has

already been executed. To set up the

second condition, a program can be

written that scans an online death

registry database, prespecified online

newspaper obituaries, or some other

kind of information “oracle” to certify

that the grandparent has died. When the

smart contract confirms the death, it can

automatically send the funds. 58 The

Daniel Suarez science-fiction book

Daemon implements exactly these kinds

of smart contracts that are effected upon

a character’s death.

Another use case for smart contracts is

setting up automatic payments for betting

(like limit orders in financial markets).

A program or smart contract can be

written that releases a payment when a

specific value of a certain exchange

good is triggered or when something

transpires in the real world (e.g., a news

event of some sort, or the winner of a

sports match). Smart contracts could

also be deployed in pledge systems like

Kickstarter. Individuals make online

pledges that are encoded in a

blockchain, and if the entrepreneur’s

fundraising goal is reached, only then

will the Bitcoin funds be released from

the investor wallets. No transaction is

released until all funds are received.

Further, the entrepreneur’s budget,

spending, and burn rate could be tracked

by the subsequent outflow transactions

from the blockchain address that

received the fundraising.

Blockchain 2.0 Protocol

Projects

There are many next-generation

blockchain technology development

projects that can be very loosely

gathered under the header of Blockchain

2.0 protocol projects (Table 2-2),

although this label is not perfect. The

intent of Table 2-2 is to list some of the

current high-profile projects, not to get

into the descriptive details of how the

projects differ technically or

conceptually.

Table 2-2. Sample list of Blockchain

2.0 projects (extended from Piotr

Piaseki,

http://bit.ly/crypto_2_0_comp)

Bitcoin 2.0 project

Project

name and URL

description

Ripple

Gateway,

https://ripple.com/

payment,

exchange,

remittance

network; smart

contract

system: Codius

Counterparty

Overlay

https://www.counterparty.co/

protocol for

currency

issuance and

exchange

Ethereum

General-

http://ethereum.org/

purpose Turing-

complete

cryptocurrency

platform

Mastercoin

Financial

http://www.mastercoin.org/

derivatives

NXT

Altcoin mined

http://www.nxtcommunity.org/ with proof-of-

stake consensus

model

Open Transactions

Untraceable

http://opentransactions.org/

anonymous, no

latency

transactions

BitShares

Decentralized

http://bitshares.org/

crypto-equity

share exchange

Open Assets

Colored coin

https://github.com/OpenAssets issuance and

wallet

Colored Coins

Bitcoin asset

http://coloredcoins.org/

marking for

digital/physical

assets

Wallet Development Projects

Perhaps the primary category of

applications being built atop blockchain

protocols is wallets. Wallets are

obviously a core infrastructural element

for cryptocurrencies, because they are

the mechanism for the secure holding

and transfer of Bitcoin and any

cryptographic asset. Table 2-3 lists some

of the different wallet projects and

companies in development, with their

name and URL and the underlying

platform upon which they are built.

Table 2-3. Sample list of

Table 2-3. Sample list of

cryptocurrency wallet projects

Project

URL

name

Wallet projects

ChromaWallet http://chromawallet.com/

CoinSpark

http://coinspark.org/

Counterwallet https://counterwallet.io/

Wallet companies

Coinprism

https://www.coinprism.com/

Melotic

https://www.melotic.com/

OneWallet

https://www.onewallet.io

Blockchain Development

Platforms and APIs

In addition to Blockchain 2.0 protocol

projects, there are several developer

platform companies and projects

offering tools to facilitate application

development. Blockchain.info has a

number of APIs for working with its

ewallet software (it’s one of the largest

ewallet providers) to make and receive

payments and engage in other operations.

Chain has interfaces to make calls to the

data available in full blockchain nodes,

and standard information queries such as

the Bitcoin balances by address and

push notifications when there is activity

with a certain address. Stellar is a

semidecentralized (maintained by

gateway institutions, not miners) public

ledger platform and unified development

environment (blockchain APIs, multisig

APIs) linked to the Stripe payment

network. 59 Related to Stellar are

Block.io, Gem, and BlockCypher, which have multisig wallet APIs.

More unified API development

environments will be needed that

include the many diverse and growing

parts of the blockchain ecosystem

(storage, file serving, messaging, wallet

interactions, mobile payments, identity

confirmation, and reputation). There is

also an opportunity to link blockchain

development environments out to other

major segments like the machine-to-

machine (M2M) communication and

Internet-of-Things (IoT) networks

infrastructure for rapid application

development. An example of an

advanced integrated application of this

kind envisioned for the farther future

could be a smartwatch that can interact

with smart-city traffic-sensor data to

automatically reserve and pay for lane

space with a Bitcoin-denominated smart

contract.

Blockchain Ecosystem:

Decentralized Storage,

Communication, and

Computation

There is a need for a decentralized

ecosystem surrounding the blockchain

itself for full-solution operations. The

blockchain is the decentralized

transaction ledger that is part of a larger

computing infrastructure that must also

include many other functions such as

storage, communication, file serving,

and archiving. Specific projects that are

developing solutions for the distributed

blockchain ecosystem include Storj for

any sort of file storage (text, images,

audio, multimedia); IPFS for file

serving, link maintenance, and storage;

and Maidsafe and Ethereum for storage,

communication, and file serving. First,

in terms of storage, perhaps the most

obvious need is for secure,

decentralized, off-chain storage for files

such as an electronic medical record

(EMR) or genome, or even any simple

Microsoft Word document, which would

not be packed into the 40-byte (40-

character) OP_RETURN field used for

transaction annotation (even in the case

of Florincoin’s 528-character annotation

field). File storage could either be

centralized (like Dropbox or Google

Drive) or could be in the same

decentralized architecture as the

blockchain. The blockchain transaction

that registers the asset can include a

pointer and access method and

privileges for the off-chain stored file.

Second, in the case of file serving, the

IPFS project has proposed an interesting

technique for decentralized secure file

serving. IPFS stands for InterPlanetary

File System, which refers to the need for

a global and permanently accessible

filesystem to resolve the problem of

broken website links to files, well

beyond the context of blockchain

technology for the overall functionality

of the Internet. Here, BitTorrent peer-to-

peer file-sharing technology has been

merged with the tree and versioning

functionality of Git (initially applied to

software but “confirmable versioning”

as a concept being more widely

applicable to any digital asset). IPFS,

then, is a global, versioned, peer-to-peer

filesystem, a system for requesting and

serving a file from any of the multiple

places it might exist on the Web (versus

having to rely on a central repository)

per a hash (unique code) that confirms

the file’s integrity by checking that spam

and viruses are not in the file.60 IPFS is

congruent with the Bitcoin technical

architecture and ethos, rewarding file-

sharing nodes with Filecoin.

Third, in the area of archiving, a full

ecosystem would also necessarily

include longevity provisioning and end-

of-product-life planning for blockchains.

It cannot be assumed that blockchains

will exist over time, and their

preservation and accessibility is not

trivial. A blockchain archival system

like the Internet Archive and the

Wayback Machine to store blockchains

is needed. Not only must blockchain

ledger transactions be preserved, but we

also need a means of recovering and

controlling previously recorded

blockchain assets at later dates (that

might have been hashed with proprietary

algorithms) because it is likely that

certain blockchains will go out of

business. For example, it is great that

someone established proof-of-existence

of her will on the Bitcoin blockchain in

2014, but how can we know that the will

can be rehashed and authenticated in 60

years when it needs to be verified? If

blockchains are to become the lingua

franca archival mechanism for the whole

of a society’s documents, longevity,

preservation, and access mechanisms

need to be built into the value chain

explicitly. Further, the existence of these

kinds of tools—those that archive out-

of-use blockchains and consider the full

product lifecycle of the blockchain—

could help to spur mainstream adoption.

Ethereum: Turing-Complete

Virtual Machine

Blockchain technology is bringing

together concepts and operations from

several fields, including computing,

communications networks, cryptography,

and artificial intelligence. In Satoshi

Nakamoto’s original plan, there were

three steps, only two of which have been

implemented in Bitcoin 1.0. These are

the blockchain (the decentralized public

transaction ledger) and the Bitcoin

protocol (the transaction system to move

value between parties without third-

party interaction). This has been fine for

the Blockchain 1.0 implementation of

currency and payment transactions, but

for the more complicated tier of

Blockchain 2.0 applications such as the

recording and transfer of more complex

assets like smart property and smart

contracts, we need the third step—a

more robust scripting system—and

ultimately, Turing completeness (the

ability to run any coin, protocol, or

blockchain). Nakamoto envisioned not

just sending money from point A to point

B, but having programmable money and

a full feature set to enable it. One

blockchain infrastructure project aiming

to deliver a Turing-complete scripting

language and Turing-complete platform

is Ethereum.

Ethereum is a platform and a

programming language for building and

publishing distributed applications.

More fundamentally, Ethereum is a

foundational general-purpose

cryptocurrency platform that is a Turing-

complete virtual machine (meaning that

it can run any coin, script, or

cryptocurrency project). Rather than

being a blockchain, or a protocol

running over a blockchain, or a

metaprotocol running over a protocol

like other projects, Ethereum is a

fundamental underlying infrastructure

platform that can run all blockchains and

protocols, rather like a unified universal

development platform. Each full node in

the Ethereum network runs the Ethereum

Virtual Machine for seamless distributed

program (smart contract) execution.

Ethereum is the underlying blockchain-

agnostic, protocol-agnostic platform for

application development to write smart

contracts that can call multiple other

blockchains, protocols, and

cryptocurrencies. Ethereum has its own

distributed ecosystem, which is

envisioned to include file serving,

messaging, and reputation vouching. The

first component is Swarm (“Ethereum-

Swarm,” not to be confused with the

crowdfunding site Swarm) as a

decentralized file-serving method. A

second component is Whisper

(“Ethereum-Whisper,” also not to be

confused with other similarly named

projects), which is a peer-to-peer

protocol for secret messaging and digital

cryptography. A third component is a

reputation system, a way to establish

reputation and reduce risk between

agents in trustless networks, possibly

provided by TrustDavis, 61 or ideas

developed in a hackathon project,

Crypto Schwartz. 62

Counterparty Re-creates

Ethereum’s Smart Contract

Platform

In November 2014, Counterparty

announced that it had ported the open

source Ethereum programming language

onto its own platform.63 The implication

was that Counterparty re-created

Ethereum on the existing blockchain

standard, Bitcoin, so that these kinds of

smart contracts might be available now,

without waiting for the launch (and

mining operation) of Ethereum’s own

blockchain, expected in the first quarter

of 2015 as of November 2014.

The announcement was a sign of the

dynamism in the space and the rapid

innovation that open source software

enables (like most blockchain industry

projects, both Ethereum and

Counterparty’s software is all open

source). Any individual or any other

project can freely examine and work

with the code of other projects and bring

it into their own implementations. This

is the whole proposition of open source

software. It means that good ideas can

take seed more rapidly, become

standardized through iteration, and be

improved through the scrutiny and

contributions of others. Ethereum and

Counterparty both have deep visions for

the future architecture of blockchain

technology and decentralization, and

establishing the infrastructural layers

early in the process can help everyone

progress to the next levels. 64 Given the

functionality fungibility across some of

the many protocols and platforms in the

blockchain industry, perhaps the biggest

question is what kinds of value-added

services will be built atop these

infrastructural layers; that is, what is the

Netscape, Amazon, and Uber of the

future?

Dapps, DAOs, DACs, and DASs:

Increasingly Autonomous Smart

Contracts

We can now see a progression

trajectory. The first classes of

blockchain applications are currency

transactions; then all manner of financial

transactions; then smart property, which

instantiates all hard assets (house, car)

and soft assets (IP) as digital assets; then

government document registries, legal

attestation, notary, and IP services; and

finally, smart contracts that can invoke

all of these digital asset types. Over

time, smart contracts could become

extremely complex and autonomous.

Dapps, DAOs, DACs, DASs, automatic

markets, and tradenets are some of the

more intricate concepts being envisioned

for later-stage blockchain deployments.

Keeping the description here at a

summary level, the general idea is that

with smart contracts (Blockchain 2.0;

more complex transactions than those

related to payments and currency

transfer), there could be an increasing

progression in the autonomy by which

smart contracts operate. The simplest

smart contract might be a bet between

two parties about the maximum

temperature tomorrow. Tomorrow, the

contract could be automatically

completed by a software program

checking the official temperature reading

(from a prespecified external source or

oracle (in this example, perhaps

Weather.com), and transferring the

Bitcoin amount held in escrow from the

loser to the winner’s account.

Dapps

Dapps, DAOs, DACs, and DASs are

abbreviated terms for decentralized

applications, decentralized autonomous

organizations, decentralized autonomous

corporations, and decentralized

autonomous societies, respectively.

Essentially this group connotes a

potential progression to increasingly

complex and automated smart contracts

that become more like self-contained

entities, conducting preprogrammed and

eventually self-programmed operations

linked to a blockchain. In some sense the

whole wave of Blockchain 2.0 protocols

is Dapps (distributed applications), as is

Blockchain 1.0 (the blockchain is a

Dapp that maintains a public transaction

ledger). Different parties have different

definitions of what constitutes a Dapp.

For example, Ethereum defines a smart

contract/Dapp as a transaction protocol

that executes the terms of a contract or

group of contracts on a cryptographic

blockchain. 65

Our working definition of a Dapp is an

application that runs on a network in a

distributed fashion with participant

information securely (and possibly

pseudonymously) protected and

operation execution decentralized across

network nodes. Some current examples

are listed in Table 2-4. There is

OpenBazaar (a decentralized Craigslist),

LaZooz (a decentralized Uber), Twister

(a decentralized Twitter), Bitmessage

(decentralized SMS), and Storj

(decentralized file storage).

Table 2-4. Sample list of Dapps

Project name and

Activity

URL

OpenBazaar

Buy/sell items

https://openbazaar.org/

in local physical

world

LaZooz

Ridesharing,

http://lazooz.org/

including Zooz,

a proof-of-

movement coin

Twister

Social

http://twister.net.co/

networking,

peer-to-peer

microblogging66

Gems

Social

http://getgems.org/

networking,

token-based

social

messaging

Bitmessage

Secure

https://bitmessage.org

messaging

(individual or

broadcast)

Storj

File storage

http://storj.io/

Swarm

Cryptocurrency

https://www.swarm.co/

crowdfunding

Koinify

platforms

https://koinify.com/

bitFlyer

http://fundflyer.bitflyer.jp/

In a collaborative white paper, another

group offers a stronger-form definition

of a Dapp. 67 In their view, the Dapp must

have three features. First, the application

must be completely open source, operate

autonomously with no entity controlling

the majority of its tokens, and its data

and records of operation must be

cryptographically stored in a public,

decentralized blockchain. Second, the

application must generate tokens

according to a standard algorithm or set

of criteria and possibly distribute some

or all of its tokens at the beginning of its

operation. These tokens must be

necessary for the use of the application,

and any contribution from users should

be rewarded by payment in the

application’s tokens. Third, the

application may adapt its protocol in

response to proposed improvements and

market feedback, but all changes must be

decided by majority consensus of its

users. Overall, however, at present

every blockchain project may have a

slightly different idea of the exact

technicalities of what the term

decentralized application comprises.

DAOs and DACs

A DAO (decentralized autonomous

organization) is a more complex form of

a decentralized application. To become

an organization more formally, a Dapp

might adopt more complicated

functionality such as a constitution,

which would outline its governance

publicly on the blockchain, and a

mechanism for financing its operations

such as issuing equity in a crowdfunding.

DAOs/DACs (decentralized autonomous

organizations/corporations) are a

concept derived from artificial

intelligence. Here, a decentralized

network of autonomous agents perform

tasks, which can be conceived in the

model of a corporation running without

any human involvement under the control

of a set of business rules.68 In a

DAO/DAC, there are smart contracts as

agents running on blockchains that

execute ranges of prespecified or

preapproved tasks based on events and

changing conditions. 69 Not only would

groups of smart contracts operating on

the blockchain start to instantiate the

model of an autonomous corporation, but

the functions and operation of real

physical-world businesses could be

reconceived on the blockchain, as well.

As Bitcoin currency transactions

reinvent and make the remittances

market more efficient, DAOs and DACs

could do the same for businesses. A

remittance operator might have many

costs associated with physical plant and

locational jurisdiction, and so, too, do

businesses, with local jurisdictional

compliance such as business licensing,

registration, insurance, and taxation at

many municipal and regulatory levels.

Perhaps some of these functions could

be reinvented in a more efficient way or

eliminated when moved to the

blockchain, and every business could be

truly global. Cloud-based, blockchain-

based autonomous business entities

running via smart contract could then

electronically contract with compliance

entities like governments to self-register

in any jurisdictions in which they wanted

to operate. Every business could be a

general universal business first, and a

jurisdictional business later when better

decisions can be made about

jurisdictions. The same could be true for

individuals as general humans first, and

citizens on demand later.

One example of the DAO/DAC concept

in terms of automated smart contract

operation is Storj. As previously

mentioned, Storj is a decentralized cloud

storage platform that completed a

$461,802 crowdfunding in August

2014. 70 Storj uses the Bitcoin blockchain

technology and peer-to-peer protocols to

provide secure, private, and encrypted

cloud storage. There are two apps,

DriveShare and MetaDisk, which

respectively enable users to rent out

their unused hard disk space and store

their files on the Storj network.

Purported methods for safely sharing

unused hard disk space have been

developed by other community

computing models like Folding@Home

and BOINC, whose software is used by

SETI@Home. Of course, as with any

distributed project that involves opening

your computer to others’ use, caveat

emptor applies, and participants in Storj

or any similar project should

satisfactorily inform themselves of the

security details. Storj’s altcoin token,

Storjcoin X (SJCX), is a cryptocurrency

that runs on the Counterparty protocol.

The currency is used to purchase space

on the Storj network via Metadisk and

compensate network DriveShare storage

providers. Storj is seen as a

decentralized alternative to storage

providers like Dropbox or Google; the

company estimates that customers

overpay for data storage by a factor of

10 to 100, and that blockchain methods

could provide cheaper, more secure, and

decentralized data storage. 71

DASs and Self-Bootstrapped

Organizations

Eventually there could be DASs

(decentralized autonomous societies)—

essentially fleets of smart contracts, or

entire ecosystems of Dapps, DAOs, and

DACs operating autonomously. An

interesting concept related to intellectual

property and new ideas is the “self-

bootstrapped organization.” 72 This is a

new business idea arising from the

blockchain or via a person, in which the

project idea spins out to become a

standalone entity with some standardized

smart-contract, self-bootstrapping

software to crowdfund itself based on a

mission statement; operate; pay

dividends or other remuneration back to

crowdfunding investors; receive

feedback (automated or orchestrated)

through blockchain prediction markets

and decentralized blockchain voting; and

eventually dissolve or have periodic

confirmation-of-instantiation votes

(similar to business relationship

contracts evergreening or calling for

periodic reevaluations). Automatic

dissolution or reevaluation clauses

could be critical in avoiding situations

like those described in Daniel Suarez’s

science-fiction books Daemon and

Freedom, in which the world economy

ends up radically transformed by the

smart-contract type agents inexorably

following their programmed code.

Automatic Markets and

Tradenets

An automatic market is the idea that

unitized, packetized, quantized resources

(initially like electricity, gas, bandwidth,

and in the deeply speculative future,

units of synaptic potentiation in brains)

are automatically transacted based on

dynamically evolving conditions and

preprogrammed user profiles,

permissions, and bidding functions.73

Algorithmic stock market trading and

real-time bidding (RTB) advertising

networks are the closest existing

examples of automatic markets. In the

future, automatic markets could be

applied in the sense of having limit

orders and program trading for physical-

world resource allocation. Truly smart

grids (e.g., energy, highway, and traffic

grids) could have automatic bidding

functions on both the cost and revenue

side of their operations—for both inputs

(resources) and outputs (customers) and

participation in automatic clearing

mechanisms. A related concept is

tradenets: in the future there could be

self-operating, self-owned assets like a

self-driving, self-owning car.74 Self-

directing assets would employ

themselves for trade based on being

continuously connected to information

from the Internet to be able to assess

dynamic demand for themselves,

contract with potential customers like

Uber does now, hedge against oil price

increases with their own predictive

resource planning, and ultimately self-

retire at the end of their useful life—in

short, executing all aspects of

autonomous self-operation. Tradenets

could even have embedded,

automatically executing smart contracts

to trigger the building of new

transportation pods based on signals of

population growth, demand, and

business plan validity.

The Blockchain as a Path to

Artificial Intelligence

We should think of smart contracts as

applications that can themselves be

decentralized, autonomous, and

pseudonymously running on the

blockchain. Thus, the blockchain could

be one potential path to artificial

intelligence (AI) in the sense that smart-

contract platforms are being designed to

run at graduated stages of increasing

automation, autonomy, and complexity.

With Dapps, DAOs, DACs, and DASs,

there could be many interesting new

kinds of emergent and complex AI-like

behavior. One possible path is bringing

existing non-AI and non-blockchain rule-

based systems onto the blockchain to

further automate and empower their

operations. This could include systems

like chaining together simple if-this-

then-that (or IFTTT) behavior and the

open source Huginn platform for

building agents that monitor situations

and act on your behalf. A second

possible path is implementing

programmatic ideas from AI research

fields such as Wolfram’s cellular

automata, Conway’s Game of Life,

Dorigo’s Ant Colony Optimization and

Swarm Intelligence, Andy Clark’s

embodied cognitive robots, and other

general agent-based systems.

Chapter 3. Blockchain 3.0:

Justice Applications Beyond

Currency, Economics, and

Markets

Blockchain Technology Is a

New and Highly Effective

Model for Organizing Activity

Not only is there the possibility that

blockchain technology could reinvent

every category of monetary markets,

payments, financial services, and

economics, but it might also offer

similar reconfiguration possibilities to

all industries, and even more broadly, to

nearly all areas of human endeavor. The

blockchain is fundamentally a new

paradigm for organizing activity with

less friction and more efficiency, and at

much greater scale than current

paradigms. It is not just that blockchain

technology is decentralized and that

decentralization as a general model can

work well now because there is a liquid

enough underlying network with the Web

interconnecting all humans, including for

disintermediated transactions:

blockchain technology affords a

universal and global scope and scale

that was previously impossible. This can

be true for resource allocation, in

particular to allow for increasingly

automated resource allocation of

physical-world assets and also human

assets. Blockchain technology facilitates

the coordination and acknowledgment of

all manner of human interaction,

facilitating a higher order of

collaboration and possibly paving the

way for human/machine interaction.

Perhaps all modes of human activity

could be coordinated with blockchain

technology to some degree, or at a

minimum reinvented with blockchain

concepts. Further, blockchain technology

is not just a better organizational model

functionally, practically, and

quantitatively; by requiring consensus to

operate, the model could also have

greater liberty, equality, and

empowerment qualitatively. Thus, the

blockchain is a complete solution that

integrates both extrinsic and intrinsic

and qualitative and quantitative benefits.

Extensibility of Blockchain

Technology Concepts

Blockchain technology can potentially

unleash an important element of

creativity and invention in anyone who

encounters the concepts in a broad and

general way. This is in the sense that it is

necessary to understand the new ideas

separately and together. These include

concepts such as public-key and private-

key cryptography, peer-to-peer file

sharing, distributed computing, network

models, pseudonymity, blockchain

ledgers, cryptocurrency protocols, and

cryptocurrency. This calls into question

what might have seemed to be

established definitions of traditional

parameters of the modern world like

currency, economics, trust, value, and

exchange. It is a requirement and twenty-

first-century skill set to understand these

concepts in order to operate in the

blockchain technology environment.

When you understand the concepts

involved, not only is it possible to

innovate blockchain-related solutions,

but further, the concepts are portable to

other contexts. This extensibility of

blockchain-related concepts may be the

source of the greatest impact of

blockchain technology as human agents

understand these concepts and deploy

them in every venue they can imagine.

The Internet was a similar example of

universality in application and

extensibility of the core technology

concept; it meant that everything could

be done in a new way—quicker, with

greater reach, in real time, on demand,

via worldwide broadcast, at lower cost.

Blockchain technology is rich with new

concepts that could become part of the

standard intellectual vernacular and

toolkit.

Fundamental Economic

Principles: Discovery, Value

Attribution, and Exchange

One broad way of thinking about the use

of blockchain concepts is applying them

beyond the original context to see ways

in which everything is like an economy,

a market, and a currency—and equally

important, how everything is not like an

economy. This is a mindset that requires

recognizing the fundamental properties

of economics and markets in real-life

situations. Blockchain technology helps

elucidate that everything we see and

experience, every system in life, is

economics to some degree: a system for

allocating resources. Furthermore,

systems and interactions are economics

in that they are a matter of awareness

and discovery, value attribution, and

potential interaction and exchange, and

may include a mechanism for this

exchange like a currency or token, or

even a simple exchange of force, energy,

or concentration (as in biological

systems). This same basic economic

structure could be said to exist

universally, whether in a collaborative

work team or at a farmers’ market. The

quantized structure of blockchain

technology in the form of ledger

transaction-level tracking could mean

higher-resolution activity tracking,

several orders of magnitude more

detailed and extensive than we are

accustomed to at present, a time at which

we are still grateful for SKU-level

tracking on a bill of materials.

Blockchain tracking could mean that all

contributions to a system by all involved

parties, no matter how minute, can be

assessed and attributed in a seamless,

automated way, for later roll-up to the

macro level—or not, because some

community value systems might dictate

not having user contributions explicitly

tracked. The ethos and morality of

tracking is a separate and interesting

social-science topic to explore in the

blockchain studies research agenda more

generally. However, one way that the

blockchain-based capacity for tracking

could work is in the form of a “GitHub +

Bitcoin” concept, for example, that

tracks code contributions line by line

over all revisions of a software code

corpus over time. This is important,

because economically savvy rational

agents participating in the system (i.e.,

currently humans) want to assess the

contributions they and others have made,

and have these contributions tracked and

acknowledged for remuneration,

reputation, status garnering, and other

rewards.

Blockchain Technology Could

Be Used in the Administration

of All Quanta

What the blockchain could facilitate in

an automated computational way is one

universal, seamless model for the

coordinated activity of near-infinite

numbers of transactions, a universal

transaction system on an order never

before imagined for human activity. In

some sense, blockchain technology

could be a supercomputer for reality.

Any and all phenomena that can be

quantized (defined in discrete units or

packages) can be denoted this way and

encoded and transacted in an automated

fashion on the blockchain. Blockchain

venture capitalist David Johnston’s

summary and prognostication of this

dynamic is that anything that can be

decentralized will be, showing his belief

in the inherent efficiency and benefit or

superiority of the blockchain model.

Decentralization is “where water goes,”

where water flows naturally, along the

way of least resistance and least effort.

The blockchain could be an Occam’s

razor, the most efficient, direct, and

natural means of coordinating all human

and machine activity; it is a natural

efficiency process.

Blockchain Layer Could

Facilitate Big Data’s

Predictive Task Automation

As big data allows the predictive

modeling of more and more processes of

reality, blockchain technology could

help turn prediction into action.

Blockchain technology could be joined

with big data, layered onto the reactive-

to-predictive transformation that is

slowly under way in big-data science to

allow the automated operation of large

areas of tasks through smart contracts

and economics. Big data’s predictive

analysis could dovetail perfectly with

the automatic execution of smart

contracts. We could accomplish this

specifically by adding blockchain

technology as the embedded economic

payments layer and the tool for the

administration of quanta, implemented

through automated smart contracts,

Dapps, DAOs, and DACs. The

automated operation of huge classes of

tasks could relieve humans because the

tasks would instead be handled by a

universal, decentralized, globally

distributed computing system. We

thought big data was big, but the

potential quantization and tracking and

administration of all classes of activity

and reality via blockchain technology at

both lower and higher resolutions hints

at the next orders-of-magnitude

progression up from the current big-data

era that is itself still developing.

Distributed Censorship-

Resistant Organizational

Models

The primary argument for Blockchain

1.0 and 2.0 transactions is the economic

efficiency and cost savings afforded by

trustless interaction in decentralized

network models, but freedom and

empowerment are also important

dimensions of the blockchain.

Decentralized models can be especially

effective at promoting freedom and

economic transfer in countries with

restrictive political regimes and capital

controls. Freedom is available in the

sense of pseudonymous transactions

outside of the visibility, tracking, and

regulatory purview of local

governments. This can be a significant

issue for citizens in emerging markets

where local capital controls, government

regulations, and overly restrictive

economic environments make it much

harder to engage in a variety of standard

activities, including starting new

businesses. State economic controls,

together with a lack of trust in fiat

currency, have been driving a lot of

interest in cryptocurrencies.

The freedom attribute associated with

blockchain technologies becomes more

pronounced in Blockchain 3.0, the next

category of application beyond currency

and market transactions. Through its

global decentralized nature, blockchain

technology has the potential ability to

circumvent the current limitations of

geographic jurisdictions. There is an

argument that blockchain technology can

more equitably address issues related to

freedom, jurisdiction, censorship, and

regulation, perhaps in ways that nation-

state models and international diplomacy

efforts regarding human rights cannot.

Irrespective of supporting the legitimacy

of nation-states, there is a scale and

jurisdiction acknowledgment and

argument that certain operations are

transnational and are more effectively

administered, coordinated, monitored,

and reviewed at a higher organizational

level such as that of a World Trade

Organization.

The idea is to uplift transnational

organizations from the limitations of

geography-based, nation-state

jurisdiction to a truly global cloud. The

first point is that transnational

organizations need transnational

governance structures. The reach,

accessibility, and transparency of

blockchain technology could be an

effective transnational governance

structure. Blockchain governance is

more congruent with the character and

needs of transnational organizations than

nation-state governance. The second

point is that not only is the transnational

governance provided by the blockchain

more effective, it is fairer. There is

potentially more equality, justice, and

freedom available to organizations and

their participants in a decentralized,

cloud-based model. This is provided by

the blockchain’s immutable public

record, transparency, access, and reach.

Anyone worldwide could look up and

confirm the activities of transnational

organizations on the blockchain. Thus,

the blockchain is a global system of

checks and balances that creates trust

among all parties. This is precisely the

sort of core infrastructural element that

could allow humanity to scale to orders-

of-magnitude larger progress with truly

global organizations and coordination

mechanisms.

One activity for which this could make

sense is the administration of the

Internet. Internet administration

organizations have a transnational

purview but are based in nation-state

localities. An example is ICANN, the

Internet Corporation for Assigned

Names and Numbers. ICANN manages

Internet protocol numbers and

namespaces, coordinating the translation

of www.example.com to the numeric IP

address 93.184.216.119 for connection

across the Internet.

Blockchain technology simultaneously

highlights the issue of the appropriate

administration of transnational public

goods and presents a solution.

Wikipedia is a similar transnational

public good that is currently subject to a

local jurisdiction that could impose on

the organization an artificial or biased

agenda. It is possible that blockchain

mechanisms might be the most efficient

and equitable models for administering

all transnational public goods,

particularly due to their participative,

democratic, and distributed nature.

A notable case in which jurisdictional

nation-state entities were able to effect

centralized and biased control is

WikiLeaks. In the Edward Snowden

whistle-blowing case in 2010,

individuals were trying to make

financial contributions in support of the

WikiLeaks organization but, strongarmed

by centralized government agendas,

credit card payment networks and

PayPal, refused to accept such

contributions, and WikiLeaks was

effectively embargoed. 75 Bitcoin

contributions, had they been possible at

the time, would have been direct, and

possibly produced a different outcome.

The Electronic Freedom Foundation

(EFF), a nonprofit organization that

supports personal freedoms, and other

related organizations are similarly

located in jurisdictional locations at

present, which could always mean the

operation of curtailed agendas if

authorities were to exercise influence

over the organization and individuals

involved.

Namecoin: Decentralized

Domain Name System

One of the first noncurrency uses of

blockchain technology was to prevent

Internet censorship with Namecoin, an

altcoin that can be used to verify Domain

Name System (DNS) registrations.

Namecoin is an alternative DNS that is

transnational and cannot be controlled

by any government or corporation. The

benefit of a decentralized DNS is that it

makes it possible for anyone worldwide

who might be otherwise suppressed or

censored to publish information freely in

the Internet.

Just as Bitcoin is a decentralized

currency that cannot be shut down,

Namecoin is the basis for a

decentralized DNS (i.e., web URLs). 76

The idea is that URLs permanently

embedded in the blockchain would be

resistant to the government seizing of

domains. The censorship issue is that in

a URL such as google.com, centralized

authorities control the top-level domain,

the .com portion (the United States

controls .com URLs), and therefore can

potentially seize and redirect the URL.

Centralized authorities control all top-

level domains; for example, China

controls all .cn domains. Therefore, a

decentralized DNS means that top-level

domains can exist that are not controlled

by anyone, and they have DNS lookup

tables shared on a peer-to-peer network.

As long as there are volunteers running

the decentralized DNS server software,

alternative domains registered in this

system can be accessed. Authorities

cannot impose rules to affect the

operation of a well-designed and

executed global peer-to-peer top-level

domain. The same Bitcoin structure is

used in the implementation of a separate

blockchain and coin, Namecoin, for

decentralized DNS.

Namecoin is not at present intended for

the registration of all domains, but as a

free speech mechanism for domains that

might be sensitive to censorship (for

example, in countries with limited

political freedom). The top-level

domain for Namecoin is .bit. Interested

parties register .bit domains with

Namecoin. The actions necessary to

register a new domain or to update an

existing one are built in to the Namecoin

protocol, based on transaction type—for

example, the “name_new” transaction at

a cost of 0.01 NMC (Namecoin is

convertible in/out of Bitcoin). Domains

can be registered directly with the

Namecoin system or via a registration

service like https://dotbit.me/.

Because the top-level domain .bit is

outside the traditional operation of the

Internet, to facilitate viewing .bit

websites, there are .bit proxy servers to

handle DNS requests in a browser, as

well as Firefox and Chrome extensions.

According to the Bitcoin Contact

website as of October 2014, there are

178,397 .bit domains registered,

including, for example, wikileaks.bit.

The key point is that .bit domains are a

free-speech mechanism, because now

having the ability to view .bit websites

means attempts to silence those with a

legitimate message will have less of a

chance of succeeding. Just as there are

benefits to having decentralized currency

transactions, there are benefits to having

many other kinds of decentralized

transactions.

Challenges and Other

Decentralized DNS Services

Technical issues were found with the

Namecoin implementation that left .bit

domains vulnerable to takeover (a bug

that made it possible to update values if

the transaction input name matched the

transaction output name, as well as new

registrations to be overridden).77

Developers have been remedying these

issues. Other critics (as with Bitcoin in

general) point out how the key features

of decentralized DNS services (cheap

and anonymous domain name creation,

and a system that places domain names

out of the reach of central authorities)

enable bad players and illegality.78

However, an industry white paper

counters these claims with examples of

using the public traceability feature of

the blockchain ledger to apprehend

criminals, and points out that there are

many legitimate uses of this technology.79

Meanwhile, other decentralized name

services are in development, such as a

similar .P2P decentralized top-level

domain from BitShares. The project

points out how the decentralized DNS

model eliminates the certificate authority

as the third-party intermediary (which

can leave URLs vulnerable to attack),

and that a blockchain model can also be

more secure because you lose control of

your domain only if you share the private

key. 80 DotP2P has other features to

improve DNS registry, such as auction-

like price discovery to counter domain-

name squatting. Related to decentralized

DNS services is digital identity

confirmation services; in October 2014,

BitShares launched the KeyID service

toward this end. KeyID, rebranded from

Keyhotee, provides an identification and

email system on a decentralized

blockchain for secure messaging and for

secure authentication.81

Freedom of Speech/Anti-

Censorship Applications:

Alexandria and Ostel

Alexandria is one example of a

blockchain-based freedom-of-speech-

promoting project. It aims to create an

unalterable historical record by

encoding Twitter feeds to a blockchain.

Any tweets mentioning certain

prespecified keywords (like Ukraine or

ebola) are encoded into the Alexandria

blockchain using Florincoin, a

cryptocurrency based on Bitcoin and

Litecoin with quick transaction

processing (40 seconds) and a longer

memo annotation field (conceptually:

Memocoin). This method captures

tweets that might be censored out later

by takedown requests.82 Florincoin’s key

enabling feature for this is transaction

comments, a 528-character field for the

recording of both metadata and tweet

content. 83 The expanded commenting

functionality could be used more broadly

for many kinds of blockchain

applications, such as providing metadata

and secure pointers to genomic

sequences or X-ray files. Another

freedom-oriented application is Ostel’s

free encrypted Voice over IP (VoIP)

telephony service, because the United

States National Security Agency (NSA)

can listen in on other services like

Skype. 84 Ostel is a nice example of

David Brin’s bottom-up souveillance

counterweight85 to top-down NSA

surveillance (of both traditional

telephone calls and Skype86).

Decentralized DNS

Functionality Beyond Free

Speech: Digital Identity

Beyond its genesis motivation to enable

free speech and provide a

countermeasure to the centralized

control of the Internet, there are other

important uses of decentralized DNS

functionality in the developing

Blockchain 3.0 ecosystem. The

blockchain is allowing a rethinking and

decentralization of all Internet network

operations—for example, DNS services

(Namecoin, DotP2P), digital identity

(KeyID, and OneName and BitID, which

are discussed shortly), and network

traffic communications

(OpenLibernet.org, an open mesh

network communications protocol).

One challenge related to Bitcoin, the

Internet, and network communications

more generally is Zooko’s Triangle. This

is the problem encountered in any system

that gives names to participants in a

network protocol: how to make

identifiers such as a URL or a person’s

handle (e.g., DeMirage99)

simultaneously secure, decentralized,

and human-usable (i.e., not in the form of

a 32-character alphanumeric string).87

Innovations and maturity in blockchain

technology require having solutions to

the Zooko’s Triangle challenge.

Namecoin functionality might offer such

a solution. Namecoin is used to store

URLs, but it can store any information.

The core functionality of Namecoin is

that it is a name/value store system.

Therefore, just as Bitcoin has uses

beyond currency, Namecoin has uses

beyond DNS for storing information

more generally. Using the nondomain

namespaces of Namecoin, we can store

information that would otherwise be

hard to securely or conveniently

exchange. A prime application for this is

a resolution to Zooko’s Triangle,

allowing continuously available

Internet-based digital identity

confirmation of a public key (a 32-

character alphanumeric string) with a

human-usable handle (DeMirage99) as

digital identity services like OneName

and BitID allow.

Digital Identity Verification

OneName and BitID are examples of blockchain-based digital identity

services. They confirm an individual’s

identity to a website. Decentralized

digital verification services take

advantage of the fact that all Bitcoin

users have a personal wallet, and

therefore a wallet address. This could

speed access to all aspects of websites,

simultaneously improving user

experience, anonymity, and security. It

can also facilitate ecommerce because

customers using Bitcoin-address login

are already enabled for purchase.

On the surface, OneName is an elegant

Bitcoin-facilitating utility, but in the

background, it is a more sophisticated

decentralized digital identity verification

system that could be extensible beyond

its initial use case. OneName helps

solve the problem that 27- through 34-

character Bitcoin addresses are (at the

expense of being cryptographically

sound) cumbersome for human users.

Some other Bitcoin wallet services and

exchanges, like Coinbase, have allowed

Bitcoin to be sent to email addresses for

some time. The OneName service is a

more secure solution. With OneName,

users can set up a more practical name

(like a social media handle) to use for

Bitcoin transactions. After a user is

registered with OneName, asking for

payment is as easy as adding a plus sign

to your username (for example,

+DeMirage99). OneName is an open

source protocol built on the Namecoin

protocol that puts users in charge of their

digital identity verification, rather than

allowing centralized social media sites

like Facebook, LinkedIn, and Twitter to

be the de facto identity verification

platform, given that many websites have

opted to authenticate users with social

media APIs. 88

A similar project is BitID, which allows

users to log in to websites with their

Bitcoin address. Instead of “Login with

Facebook,” you can “Connect with

Bitcoin” (your Bitcoin address). BitID is

a decentralized authentication protocol

that takes advantage of Bitcoin wallets

as a form of identification and QR codes

for service or platform access points. It

enables users to access an online

account by verifying themselves with

their wallet address and uses a mobile

device as the private-key authenticator. 89

Another proposed digital identity

verification business is Bithandle, which

was developed as a hackathon project.

Bithandle offers short-handle

registration, verification, and

ecommerce service. As with Onename

and BitID, users can register an easy-to-

use handle—for instance,

“Coinmaster”—that is linked to a wallet

address via a public or private real-life

identity check and a Bitcoin blockchain

transaction. The service offers ongoing

real-time digital identity verification and

one-click auto-enabled ecommerce per

“Login with Bitcoin” website access. An

obvious problem with the mainstream

adoption of Bitcoin is the unwieldy 32-

character Bitcoin address, or QR code,

needed to send and receive funds.

Instead, Bithandle gives users the ability

to link a short handle to a Bitcoin

address, which is confirmed initially

with real-life identity and looked up in

the blockchain on demand at any future

moment. Real-time digital identity

verification services could be quite

crucial; already the worldwide market

size for identity authentication and

verification is $11 billion annually.90

Specifically, how Bithandle works is

that in the digital identity registration

process, participants register a Bitcoin

username, an easy-to-use handle that can

then be used to “Login with Bitcoin” to

websites. As mentioned, this is similar

to the ability to access websites by

“Login with Facebook” or “Login with

Twitter” but automatically connects to a

user’s Bitcoin address for proof of

identity. When a user sets up a

Bithandle, his real-life identity is

confirmed with Facebook, Twitter,

LinkedIn, or other services, and this can

be posted publically (like OneName) or

not (as OneName does not allow), with

the user’s Bithandle.

Later, for real-time digital identity

verification, “Logging in with Bitcoin”

means that a Bithandle is already

connected to a Bitcoin address, which

securely facilitates ecommerce without

the user having to register an account

and provide personal identity and

financial details. Bithandle thus helps

streamline user interactions with

websites in several ways. First,

websites do not have to maintain user

account registries (“honeypot” risks for

hacking). Second, every user “Logging

in with Bitcoin” is automatically

enabled for one-click ecommerce

purchases. Third, the Bithandle service

can provide real-time blockchain

lookups to confirm user digital identity

at any future time on demand—for

example, to reauthorize a user for

subsequent purchases.

Blockchain Neutrality

Cryptography experts and blockchain

developers and architects point out the

importance of designing the blockchain

industry with some of the same

principles that have become baked in to

the Internet structure over time, like

neutrality. In the case of the Internet, net

neutrality is the principle that Internet

service providers should enable access

to all content and applications

regardless of the source and without

favoring or blocking particular products

or websites. The concept is similar for

cryptocurrencies: Bitcoin neutrality

means the ability for all persons

everywhere to be able to easily adopt

Bitcoin. This means that anyone can start

using Bitcoin, in any and every culture,

language, religion, and geography,

political system, and economic regime. 91

Bitcoin is just a currency; it can be used

within any kind of existing political,

economic, or religious system. For

example, the Islamic Bank of Bitcoin is

investigating ways to conduct Sharia-

compliant banking with Bitcoin. 92 A key

point of Bitcoin neutrality is that the real

target market for whom Bitcoin could be

most useful is the “unbanked,”

individuals who do not have access to

traditional banking services for any

number of reasons, estimated at 53

percent of the worldwide population.93

Even in the United States, 7.7 percent of

households are forecast to be unbanked

or underbanked.94

Bitcoin neutrality means access for the

unbanked and underbanked, which

requires Bitcoin solutions that apply in

all low-tech environments, with features

like SMS payment, paper wallets, and

batched blockchain transactions. Having

neutrality-oriented, easy-to-use solutions

(the “Twitter of emerging market

Bitcoin”) for Bitcoin could trigger

extremely fast uptake in underbanked

markets, continuing the trend of 31

percent of Kenya’s GDP being spent

through mobile phones.95 There are

different SMS Bitcoin wallets and

delivery mechanisms (like 37Coins96

and Coinapult, and projects like

Kipochi97 that are integrated with commonly used emerging-markets

mobile finance platforms like M-Pesa. A

similar project is a mobile cryptowallet

app, Saldo.mx, which uses the Ripple

open source protocol for clearing, and

links people living in the United States

and Latin America for the remote

payment of bills, insurance, airtime,

credit, and products.

Digital Divide of Bitcoin

The term digital divide has typically

referred to the gap between those who

have access to certain technologies and

those who do not. In the case of

cryptocurrencies, if they are applied

with the principles of neutrality,

everyone worldwide might start to have

access. Thus, alternative currencies

could be a helpful tool for bridging the

digital divide. However, there is another

tier of digital divide beyond access:

know-how. A new digital divide could

arise (and arguably already has in some

sense) between those who know how to

operate securely on the Internet and

those who do not. The principles of

neutrality should be extended such that

appropriate mainstream tools make it

possible for anyone to operate

anonymously (or rather

pseudonymously), privately, and

securely in all of their web-based

interactions and transactions.

Digital Art: Blockchain

Attestation Services (Notary,

Intellectual Property

Protection)

Digital art is another arena in which

blockchain cryptography can provide a

paradigm-shifting improvement (it’s also

a good opportunity to discuss hashing

and timestamping, important concepts

for the rest of the book). The term

digital art refers to intellectual

property (IP) very generally, not just

online artworks. Art is connoted in the

patenting sense, meaning “owned IP.” As

we’ve discussed, in the context of digital

asset proof and protection, identity can

be seen as just one application, although

one that might require more extensive

specialty features. Whereas digital

identity relies on users having a Bitcoin

wallet address, digital asset proof in the

context of attestation services relies on

the blockchain functionality of hashing

and timestamping. Attestation services

(declaring something to be true, such as

asset ownership) are referred to as

digital art. The main use of the term

digital art in the blockchain industry is

to refer to using the blockchain to

register any form of IP (entirely digital

or representing something in the physical

world) or conduct attestation services

more generally, such as contract

notarization. The term is also used in the

blockchain industry to mean online

graphics, images photographs, or

digitally created artworks that are digital

assets, and thus IP to protect.

Hashing Plus Timestamping

For attestation services, blockchain

technology brings together two key

functions: hashing and secure

timestamping. Hashing is running a

computing algorithm over any content

file (a document, a genome file, a GIF

file, a video, etc.), the result of which is

a compressed string of alphanumeric

characters that cannot be back-computed

into the original content. For example,

every human genome file could be turned

into a 64-character hash string as a

unique and private identifier for that

content. 98 The hash represents the exact

content of original file. Anytime the

content needs to be reconfirmed, the

same hash algorithm is run over the file,

and the hash signature will be the same

if the file has not changed. The hash is

short enough to be included as text in a

blockchain transaction, which thus

provides the secure timestamping

function of when a specific attestation

transaction occurred. Via the hash, the

original file content has essentially been

encoded into the blockchain. The

blockchain can serve as a document

registry.

The key idea is using cryptographic

hashes as a form of asset verification

and attestation, the importance of which

could be extremely significant.

Blockchain hash functionality could be a

key function for the operation of the

whole of society, using the blockchain to

prove the existence and exact contents of

any document or other digital asset at a

certain time. Further, the blockchain

attestation functionality of hashing-plus-

timestamping supports the idea of the

blockchain as a new class of information

technology.

Blockchain attestation services more

generally comprise all manner of

services related to document filing,

storage, and registry; notary services

(validation); and IP protection. As

articulated, these functions take

advantage of the blockchain’s ability to

use cryptographic hashes as a permanent

and public way to record and store

information, and also to find it later with

a block explorer and the blockchain

address pointer from the blockchain as a

universal central repository. The core

functionality is the ability to verify a

digital asset via a public general ledger.

There are several blockchain-based

attestation services in different stages of

development or proof of concept, such

as Proof of Existence, Virtual Notary,

Bitnotar, Chronobit, and Pavilion.io. The

specifics of how they might be different

or similar are emerging, and there is

presumably a lot of functionality

fungibility in that any of the services can

simply hash a generic file of any type.

The first and longest-standing service,

Proof of Existence, is described in detail

next.

Proof of Existence

One of the first services to offer

blockchain attestation is Proof of

Existence. People can use the web-

based service to hash things such as art

or software to prove authorship of the

works.99 Founder Manuel Aráoz had the

idea of proving a document’s integrity by

using a cryptographic hash, but the

problem was not knowing when the

document was created, until the

blockchain could add a trusted

timestamping mechanism. 100 Proof of

Existence demonstrates document

ownership without revealing the

information it contains, and it provides

proof that a document was authored at a

particular time. Figure 3-1 shows a

screenshot from the scrolling list of

newly registered digital assets with the

Proof of Existence service.

Figure 3-1. “Last documents registered”

digest from Proof of Existence

With this tool, the blockchain can be

used to prove the existence and exact

contents of a document or other digital

asset at a certain time (a revolutionary

capability). Providing timestamped data

in an unalterable state while maintaining

confidentiality is perfect for a wide

range of legal and civic applications.

Attorneys, clients, and public

administrators could use the Proof of

Existence blockchain functionality to

prove the existence of many documents

including wills, deeds, powers of

attorney, health care directives,

promissory notes, the satisfaction of a

promissory note, and so on without

disclosing the contents of the document.

With the blockchain timestamp feature,

users can prove that a document (like a

will) they will be presenting to a court

in the future is the same unaltered

document that was presented to the

blockchain at a prior point in time.

These kinds of attestation services can

be used for any kind of documents and

digital assets. Developers, for example,

can use the service to create unique

hashes for each version of code that they

create and later verify versions of their

code, inventors can prove they had an

idea at a certain time, and authors can

protect their works.

The proof-of-existence function works in

this way: first, you present your

document (or any file) to the service

website; you’re then prompted to “click

or drag and drop your document

here." The site does not upload or copy

the content of the document but instead

(on the client side) converts the contents

to a cryptographic digest or hash.

Algorithms create a digest, or a

cryptographic string that is

representative of a piece of data; the

digest created by a hash function is

based on the characteristics of a

document. No two digests are the same,

unless the data used to compute the

digests is the same. Thus, the hash

represents the exact contents of the

document presented. The cryptographic

hash of the document is inserted into a

transaction, and when the transaction is

mined into a block, the block timestamp

becomes the document’s timestamp, and

via the hash the document’s content has

essentially been encoded into the

blockchain. When the same document is

presented again, the same marker will be

created and therefore provide

verification that the documents are the

same. If, however, the document has

changed in any way, the new marker will

not match the previous marker. This is

how the system verifies the document. 101

One benefit of attestation services is

how efficiently they make use of the

blockchain. Original documents are not

stored on the blockchain, just their hash

is stored, which is accessible by private

key. Whenever a proof of existence

needs to be confirmed, if the recomputed

hash is the same as the original hash

registered in the blockchain, the

document can be verified as unchanged.

The hash does not need to (and cannot)

translate back into the document (hashes

are only one-way; their security feature

makes back-computation impossible).

The retrieval phase of proof-of-

existence functionality can be thought of

as a “content verification service.”

Regarding longevity, the crucial part is

having the private key to the digital asset

(the hash) that is registered on the

blockchain. This does mean trusting that

whichever blockchain used will be

available in the future; thus, it would be

good to select an attestation service that

uses a standard blockchain like the

Bitcoin blockchain.

Limitations

Admittedly there are some limitations to

hashing-plus-timestamping blockchain

attestation services. First, a blockchain

is not required for timestamping,

because other third-party services

provide this for free, whereas a small

transaction fee (to compensate miners) is

required to post a digital asset

attestation to the blockchain. Also,

blockchain transaction confirmations are

not immediate; the time the document

was added to the blockchain is

recorded, not when the document was

submitted; and the precise time of digital

asset creation can be important in IP

registration services. Most

problematically, timestamping does not

prove ownership. However, blockchain

attestation services as currently

envisioned are an important first step

and could be incorporated in 3.0

versions that include other elements in

the blockchain ecosystem. Some ideas

propose including digital identity to

prove ownership and a non-blockchain-

based timestamping element for “time

document created.” A potential technical

limitation is the contention that the hash

might be less secure when you’re

hashing very large documents (an 8-GB

genome file, for example) compared to

small documents (a standard IOU

contract), but this concern is

unwarranted. The scalability to any file

size is the beauty of the hash structure,

and it is the hash length (typically 64

characters at present) that is the focus

for security, and it could be made longer

in the future. The usual threats to hash

technology—inverse hashes (an inverse

function to attempt to back-compute the

hashed content) and collisions (two

different files produce the same hash)—

are limited in the way hashes are

currently used in blockchain.

Virtual Notary, Bitnotar, and

Chronobit

Virtual Notary is another project that

similarly conceptualizes the need and

fulfillment of these kinds of blockchain

attestation services. Like Proof of

Existence, Virtual Notary does not store

files but instead provides a certificate

that attests to the file’s contents at the

moment of submission. The service

provides a certificate virtual notary-type

service for many different “file types”

such as documents, web pages, Twitter

feeds, stock prices, exchange rates,

weather conditions, DNS entries, email

address verifications, university

affiliations, real estate values,

statements and contracts, and random-

number drawing. Files can be in any

format, including Microsoft Word, PDF,

JPG, PNG, TXT, and PPT (Microsoft

PowerPoint). The site generates a

certificate that can be downloaded from

the site, and also offers the other side of

the service—examining existing

certificates. Virtual Notary’s aim is to

provide a digital, neutral, dispassionate

witness for recording online facts and

conveying them to third parties in a

trustworthy manner, a critical resource

as a larger fraction of our lives is now

digital. 102 Two other blockchain

timestamp projects are Bitnotar and

Chronobit. A similar blockchain-based

project for contract signing is

Pavilion.io, which provides the service

much cheaper than Adobe EchoSign or

DocuSign; contracts are free to send and

only one mBTC to sign.103 Two other

virtual notary projects are Blocksign and

btcluck.

Monegraph: Online Graphics

Protection

One digital-art protection project built

and intended as a proof of concept using

the blockchain ledger Bitcoin 3.0

applications related to new methods of

proof is Monegraph, whose slogan is

“because some art belongs in chains.”

Using this (currently free) application,

individuals can facilitate the

monetization of their online graphics—

digital media they have already created

and posted on the Web—by registering

their assets. Just as Bitcoin verifies

currency ownership, Monegraph verifies

property ownership; this is an example

of the smart property application of the

blockchain. Monegraph could be a

complementary service or feature for

stock photo image and graphic

repository websites like Shutterstock or

Getty Images, possibly adding future

functionality related to image use

enforcement and tracking.

Monegraph works in a two-step process

using Twitter, Namecoin, and

Monegraph. Namecoin is used because it

is an altcoin that can be used to verify

DNS registrations in an automated,

decentralized way; any similar DNS

confirmation service could be used.104

First, to stake the claim, the user goes to

http://www.monegraph.com/, gives it

permission to sign in to her Twitter

account (via the standardized Twitter

API OAuth token), and supplies the URL

of the graphic, upon which Monegraph

automatically tweets a link to that image

in the correct format. Second, to record

the title, after Monegraph tweets the link

to the image, it provides a block of code

for the user to copy and paste into the

Namecoin client. The user initiates a

new transaction in the Namecoin wallet

and adds the block of code as the key

and value in the Namecoin transaction

(you can see the transaction here:

http://bit.ly/monegraph_verification).

Only one copy of a digital image can

ever have a valid Monegraph signature.

Monegraph images are just ordinary

image files, so they can be duplicated

and distributed like any other images,

but only the original file will pass

validation against the Monegraph

system.

A related digital art and copyright

protection project is Ascribe, which is

aimed at providing an underlying

infrastructure for IP registry. The

company is building what it calls an

“ownership layer” for digital property in

the form of a service to register and

transfer copyright. Although existing

copyright law offers creators protection

against infringement and the right to

commercialize, there is no simple,

global interface to register, license, and

transfer copyright. The Ascribe service

aims to address this, registering a digital

work with the service hashes and

timestamping it onto the blockchain. An

earlier step in the registration process

uses machine learning to detect and

resolve any prior-art challenges.

Ownership rights can then be

transferred, which enables secondary

markets for digital IP. The service

handles digital fine art, photos, logos,

music, books, blog posts, tweets, 3D

CAD files, and more. Users need no

prior knowledge of the intricacies of the

blockchain, copyright law, or machine

learning to benefit from the service. The

bulk of Ascribe’s users are marketplaces

and white-label web services that use

Ascribe in the background, though

individual users can use the site directly,

as well.

Digital Asset Proof as an

Automated Feature

In the future, digital asset protection in

the form of blockchain registry could be

an automatically applied standardized

feature of digital asset publication. For

certain classes of assets or websites,

digital asset protection could be invoked

at the moment of publication of any

digital content. Some examples could

include GitHub commits, blog posts,

tweets, Instagram/Twitpic photos, and

forum participations. Digital asset

protection could be offered just as travel

insurance is with airline ticket

purchases. At account setup with

Twitter, blogging sites, wikis, forums,

and GitHub, the user could approve

micropayments for digital asset

registration (by supplying a Bitcoin

wallet address). Cryptocurrency now as

the embedded economic layer of the

Web provides microcontent with

functionality for micropayment and

microIPprotection. Cryptocurrency

provides the structure for this, whether

microcontent is tokenized and batched

into blockchain transactions or digital

assets are registered themselves with

their own blockchain addresses.

Blockchain attestation services could

also be deployed more extensively not

just for IP registry, but more robustly to

meet other related needs in the

publishing industry, such as rights

transfer and content licensing.

Batched Notary Chains as a

Class of Blockchain

Infrastructure

It is important to remember that this is

only the outset of what could blossom

into a full-fledged blockchain economy

with blockchain technology enabling

every aspect of human endeavor, the

blockchain being like the Internet, and

the blockchain as the fifth wave of the

Internet. In this vein, it is possible that

all current blockchain-related activity

could be seen as early-stage prototypes

looking back from some future moment.

What are piecemeal services now could

be collected into classes of blockchain

services.

From the point of view of overall design

principles for the blockchain

infrastructure, we would expect to see

these classes of sector-specific

functionality arriving. Not just separate

blockchain notary services, but a new

class of notary chains themselves as part

of the evolving blockchain

infrastructure. Notary chains are an

example of a DAO/DAC, a more

complicated group of operations that

together perform a class of functions

incorporating blockchain technology. In

this case, this is the idea of notary chains

as a class of blockchain protocols for

attestation services. For example, it

might be more efficient to post batches

of transactions as opposed to every

individual transaction (requiring the

greater-than-zero mining cost). Notary

blocks could be composed of the hashes

of many digitally notarized assets; the

blocks themselves could then be hashed

so that the notary block is the unit that is

inscribed into the blockchain, making

more efficient use of the system rather

than every single digital artifact that has

been notarized. Because hashes are a

one-way function, the existence of the

block-level hash in the Bitcoin

blockchain constitutes proof of the

existence of the subhashes. 105 Moving

blockchain design into such an

“industrial” DAO/DAC phase brings up

interesting questions about how the

optimal mix of hierarchical and

decentralized architectures will play out

in large-scale design architectures.

Factom is a project developing the idea

of batched transaction upload in blocks

to the blockchain, using the blockchain

attestation/notary hash functionality to

batch transactions as a means of

avoiding blockchain bloat.

Personal Thinking Blockchains

More speculatively for the farther future,

the notion of blockchain technology as

the automated accounting ledger, the

quantized-level tracking device, could

be extensible to yet another category of

record keeping and administration.

There could be “personal thinking

chains” as a life-logging storage and

backup mechanism. The concept is

“blockchain technology + in vivo

personal connectome” to encode and

make useful in a standardized

compressed data format all of a person’s

thinking. The data could be captured via

intracortical recordings, consumer

EEGs, brain/computer interfaces,

cognitive nanorobots, and other

methodologies. Thus, thinking could be

instantiated in a blockchain—and really

all of an individual’s subjective

experience, possibly eventually

consciousness, especially if it’s more

precisely defined. After they’re on the

blockchain, the various components

could be administered and transacted—

for example, in the case of a post-stroke

memory restoration.

Just as there has not been a good model

with the appropriate privacy and reward

systems that the blockchain offers for the

public sharing of health data and

quantified-self-tracking data, likewise

there has not been a model or means of

sharing mental performance data. In the

case of mental performance data, there is

even more stigma attached to sharing

personal data, but these kinds of “life-

streaming + blockchain technology”

models could facilitate a number of

ways to share data privately, safely, and

remuneratively. As mentioned, in the

vein of life logging, there could be

personal thinking blockchains to capture

and safely encode all of an individual’s

mental performance, emotions, and

subjective experiences onto the

blockchain, at minimum for backup and

to pass on to one’s heirs as a historical

record. Personal mindfile blockchains

could be like a next generation of Fitbit

or Apple’s iHealth on the iPhone 6,

which now automatically captures 200+

health metrics and sends them to the

cloud for data aggregation and

imputation into actionable

recommendations. Similarly, personal

thinking blockchains could be easily and

securely recorded (assuming all of the

usual privacy concerns with blockchain

technology are addressed) and mental

performance recommendations made to

individuals through services such as Siri

or Amazon’s Alexa voice assistant,

perhaps piped seamlessly through

personal brain/computer interfaces and

delivered as both conscious and

unconscious suggestions.

Again perhaps speculatively verging on

science fiction, ultimately the whole of a

society’s history might include not just a

public records and document repository,

and an Internet archive of all digital

activity, but also the mindfiles of

individuals. Mindfiles could include the

recording of every “transaction” in the

sense of capturing every thought and

emotion of every entity, human and

machine, encoding and archiving this

activity into life-logging blockchains.

Blockchain Government

Another important application

developing as part of Blockchain 3.0 is

blockchain government; that is, the idea

of using blockchain technology to

provide services traditionally provided

by nation-states in a decentralized,

cheaper, more efficient, personalized

manner. Many new and different kinds of

governance models and services might

be possible using blockchain technology.

Blockchain governance takes advantage

of the public record-keeping features of

blockchain technology: the blockchain as

a universal, permanent, continuous,

consensus-driven, publicly auditable,

redundant, record-keeping repository.

The blockchain could become both the

mechanism for governing in the present,

and the repository of all of a society’s

documents, records, and history for use

in the future—a society’s universal

record-keeping system. Not all of the

concepts and governance services

proposed here necessarily need

blockchain technology to function, but

there might be other benefits to

implementing them with blockchain

technology, such as rendering them more

trustworthy, and in any case, part of a

public record.

One implication of blockchain

governance is that government could

shift from being the forced one-size-fits-

all “greater good” model at present to

one that can be tailored to the needs of

individuals. Imagine a world of

governance services as individualized

as Starbucks coffee orders. An example

of personalized governance services

might be that one resident pays for a

higher-tier waste removal service that

includes composting, whereas a

neighbor pays for a better school

package. Personalization in government

services, instead of the current one-size-

fits-all paradigm, could be orchestrated

and delivered via the blockchain. One

example of more granular government

services could be a situation in which

smart cities issue Roadcoin to

compensate passing-by drivers for lost

#QualityofLife in road construction

projects. Likewise, there could be

Accidentcoin that those involved in an

accident pay to similarly compensate

passing-by drivers for lost

#QualityofLife; payment could be

immediate, and shifted later as insurance

companies assess blame.

In science-fiction parlance, it could be

said that franchulates as envisioned in

Neal Stephenson’s Snow Crash are

finally on the horizon. 106 Franchulates

are the concept of a combination of a

franchise and consulate, businesses that

provide fee-based quasigovernmental

services consumed by individuals as any

other product or service, a concept that

blockchain governance could make

possible. One attractive aspect of the

franchulates concept is the attitudinal

shift: the idea that governments need to

become more like businesses and less of

a default monopoly provider of

government services; they should have a

more proactive relationship with

consumer-citizens, offering value

propositions and services that are

demanded and valued by different

market segments of constituents.

Another implication of blockchain

governance is that one vision behind

“government on the blockchain” or

“putting a nation on the blockchain” is

that a more truly representative

democracy might be obtained. One way

of effectuating this is, rather than having

to rely on human agents as

representatives, using blockchain smart

contracts and DACs. Having many fewer

people involved in the governance

apparatus could potentially mean

smaller, less costly government, less

partisanship, and less special-interest

lobbyist-directed government. As

blockchain technology makes financial

systems more efficient, squeezing the

marginal cost down to zero, so too could

blockchain technology reconfigure the

tasks of governance and public

administration. The costs savings of

smaller government could proceed

directly to Guaranteed Basic Income

initiatives, promoting equality and

political participation in society and

easing the transition to the automation

economy.

The advent of the blockchain and

decentralized models calls into question

more generally the ongoing validity of

population-sized pooled models like

government and insurance that have been

de facto standards because other models

were not yet possible. However, pooled

models might no longer make economic

or political sense. Consensus-driven

models could be a superior solution

economically and offer a more

representative and equitable way of

interacting with reality, moving to an

open frame of eradicating situations of

illiberty. 107 The blockchain-as-an-

information-technology idea is further

underscored in blockchain governance

as a new, more efficient system for

organizing, administering, coordinating,

and recording all human interactions,

whether business, government, or

personal. The advent of blockchain

technology calls into question the more

effective execution of government

services, but also government-backed

rights, which in some cases by design do

not (and should not) respect

individuality. So far, most projects have

addressed only the governance services

side, so there is an opportunity to

develop interesting blockchain-based

models for rights enforcement.

Decentralized Governance

Services

Choose your government and choose

your services. This is the idea of putting

the nation-state on the blockchain, in the

sense of offering borderless,

decentralized, opt-in blockchain-based

governance services.108 These kinds of

services could include an ID system

based on reputation, dispute resolution,

voting, national income distribution, and

registration of all manner of legal

documents such as land deeds, wills,

childcare contracts, marriage contracts,

and corporate incorporations. In fact, the

blockchain—with its structure that

accommodates secure identities,

multiple contracts, and asset

management—makes it ideal for

situations such as marriage because it

means a couple can tie their wedding

contract to a shared savings account

(e.g., a Bitcoin wallet) and to a

childcare contract, land deed, and any

other relevant documents for a secure

future together. 109

Indeed, the world’s first blockchain-

recorded marriage occurred at

Disneyworld, Florida, on October 5,

2014 (Figure 3-2). The marriage was

submitted to the Bitcoin blockchain,

using the blockchain’s property of being

an online public registry. The vows

were transmitted in the text annotation

field, embedded in a Bitcoin transaction

of 0.1 Bitcoins ($32.50), to appear

permanently in the blockchain ledger.110

Liberty.me CEO Jeffrey Tucker

officiated at the ceremony and discussed

the further benefits of denationalized

marriage in the context of marriage

equality, how marriage can be more

equitably and permissively recorded and

recognized in a blockchain than in many