Blockchain Revolution

Breakthrough: The proof of work required to mint coins also time-stamps transactions, so that only the first spend of a coin would clear and settle. Combined with PKI, the blockchain not only prevents a double spend but also confirms ownership of every coin in circulation, and each transaction is immutable and irrevocable. In other words, we can’t trade what isn’t ours on the blockchain, whether it’s real property, intellectual property, or rights of personhood. Nor can we trade what we aren’t authorized to trade on somebody else’s behalf in an agency role, perhaps as a lawyer or a company manager. And we can’t stifle people’s freedom of expression, assembly, and religion.

Haluk Kulin of Personal BlackBox said it best: “In the thousands of years of human social interaction, every time we’ve taken the right of participation from the people, they have come back and broken the system. We’re discovering that, even in digital, stealing their consent is not sustainable.”⁴⁰ As the Ledger of Everything, the blockchain can serve as a public registry through such tools as Proof of Existence (PoE), a site that creates and registers cryptographic digests of deeds, titles, receipts, or licenses on the blockchain. Proof of Existence doesn’t maintain a copy of any original document; the hash of the document is calculated on the user’s machine, not on the PoE site, thus ensuring confidentiality of content. Even if a central authority shuts down Proof of Existence, the proof remains on the blockchain.⁴¹ So the blockchain provides means of proving ownership and preserving records without censorship.

On the Internet, we couldn’t necessarily enforce contractual rights or oversee implementation. And so, for more complex transactions involving bundles of rights and multiple parties, we now have the smart contract, a piece of special purpose code that executes a complex set of instructions on the blockchain. “That intersection of legal descriptions and software is fundamental, and the smart contracts are the first step in that direction,” said Steve Omohundro, president of think tank Self-Aware Systems. “Once the principles of how you codify law digitally become more understood, then I think every country will start doing it Each jurisdiction would

encode its laws, precisely and digitally, and there would be translation programs between them Getting rid of the friction of all legal stuff is going to be a huge

economic gain.”⁴²

A smart contract provides a means for assigning usage rights to another party, as a composer might assign a completed song to a music publisher. The code of the contract could include the term or duration of the assignment, the magnitude of royalties that would flow from the publisher’s to the composer’s bitcoin account during the term, and some triggers for terminating the contract. For example, if the

composer’s account received less than a quarter of a bitcoin in a consecutive thirty- day period, then all rights would automatically revert to the composer, and the publisher would no longer have access to the composer’s work registered on the blockchain. To set this smart contract in motion, both the composer and the publisher

—and perhaps representatives of the publisher’s finance and legal teams—would sign using their private keys.

A smart contract also provides a means for owners of assets to pool their resources and create a corporation on the blockchain, where the articles of incorporation are coded into the contract, clearly spelling out and enforcing the rights of those owners. Associated agency-employment contracts could define the decision rights of managers by coding what they could and couldn’t do with corporate resources without ownership permission.

Smart contracts are unprecedented methods of ensuring contractual compliance, including social contracts. “If you have a big transaction with a specific control structure, you can predict the outcome at any period in time,” said Antonopoulos. “If I have a fully verified signed transaction with a number of signatures in a multisignature account, I can predict whether that transaction will be verifiable by the network. And if it is verifiable by the network, then that transaction can be redeemed and irrevocably so. No central authority or third party can revoke it, no one can override the consensus of the network. That’s a new concept in both law and finance. The bitcoin system provides a very high degree of certainty as to the outcome of a contract.”⁴³

The contract couldn’t be seized, stopped, or redirected to a different bitcoin address. You need only to transmit the signed transaction to any of the bitcoin network nodes from anywhere using any medium. Said Antonopoulos, “People could shut down the Internet, and I could still transmit that transaction over shortwave radio with Morse code. A government agency could try to censor my communication, and I could still transmit that transaction as a series of smiley emoticons over Skype. As long as someone on the other end could decode the transaction and record it in the blockchain, I could effect the [smart contract]. So we’ve converted something that, in law, is almost impossible to guarantee into something that has verifiable mathematical certainty.”⁴⁴

Consider property rights, both real and intellectual: “Ownership is just a recognition by a government or an agency that you own something and they will defend your claims on that ownership,” said Stephen Pair, CEO of BitPay. “That’s just a contract that can be signed by whatever authority that will defend your rights for you and they sign it over to your identity, and then once you have that, and that ownership is recorded, you then can transfer it to other people. That’s very straightforward.”⁴⁵ Communities with shared resources could consider a spectrum of

rights, borrowing from Nobel Prize–winning economist Elinor Ostrom’s pyramid of rights, a pecking order of sorts. At the lowest level, there are authorized users who may only access and withdraw resources; claimants who have those rights but can also exclude others from access; proprietors who hold management rights beyond access and exclusion; and owners who can access, use, exclude others, manage, and sell the resource (i.e., right of alienation).⁴⁶

Now consider the rights to privacy and publicity: “Our model is really rights applied to the market,” said Kulin of Personal BlackBox. His company uses blockchain technology to represent and enforce the rights of individuals to extract value from their personal data. “The blockchain provides us a whole group of people who are both mission-aligned and technology-aligned to create different ways that enterprises can leverage these unique data sets rather than protect their data silos.”⁴⁷ Simply put, people create better data than what a company can frack from them, and consumers are much better at emotionally aligning with brands and influencing their peers than companies are.

Implications for the Blockchain Economy: As an economic design principle, enforcing rights must start with clarifying rights. In the field of management science, the holacracy movement is an interesting, if not controversial, example of how members of organizations are defining the work that needs to be done and then assigning rights and the responsibility to do this work as part of a whole.⁴⁸ Who did we agree should have this set of decisions and activities at our company? The answer to that question can be codified in a smart contract and placed on the blockchain so that the decisions, progress toward the goal, and incentives are all transparent and reached by consensus.

To be sure, this is not simply about technology. It’s much bigger than physical assets, intellectual property, or Personal BlackBox’s privacy tool with a publicity rights module for the Kardashians. We need greater education about rights and the development of new understandings about rights management systems. We’ll have voting rights management systems and property rights management systems. Some start-up will create a rights dashboard that will indicate a person’s level of civic engagement, where voting is but one of several measures, like donating skills, reputation, time, and bitcoin or providing free access to one’s physical or intellectual property. Buckle up.

7. 
   Inclusion