Blockchain and Distributed Autonomous Organisations

You have probably by now heard of Bitcoin, the magic money making machine that doubles in value every 24 hours, until it doesn't.

Bitcoin is the most famous example of a cryptocurrency - an electronic means of exchange - that has a value because people think it has a value. The logic behind cryptocurrencies was to create a trustless means of exchange. Instead of having to believe that the gold you were giving me was real gold, or the bank transfer you were paying me with wouldn't turn out to be a scam, a system would be created that would record every transaction ever made. 

To ensure this record of transactions could be trusted completely it would be written down onto lots of computers. When all of the computer records matched the transaction would be completed. This is called "the ledger" and the system of writing it down onto lots of different "blocks" that form one "ledger" is known as the "block chain".

Now within the crypto community there are lots of different opinions on the best technology (some say the fundamentals behind Bitcoin won't allow it to scale up into a proper payments system, recording every single transaction on every single part of the chain would not be possible) but the idea of a ledger that cannot be altered is universally regarded as a good thing. 

There are some who say that the crypto enthusiasts are all getting a bit over excited and there aren't actually that many functions that a ledger could do that couldn't be  done a lot more easily with an existing database. These people are told, in reply, that it is because they haven't yet understood the technology and potential applications. Separating the technology from the hype is difficult. Fortunes are/were being made overnight, but with daily valuation swings of 20-50%, and the inherent risk of a system with no government approval and scammers galore it isn't for the faint-hearted.   

However the idea of a ledger that records all transactions does have some exciting potential to change the way we record ownership of assets, and how we own and manage them.

This is called "tokenisation" and is the area I am most interested in, but it would require some major regulatory changes.

The most basic explanation would be that tokens would be issued in specific projects and ownership rights would be in proportion to the stake invested. They are effectively shares, but less regulated, (the possibility of remaining) anonymous and more democratic.

Whether being able to invest anonymously is a good or bad thing is a controversial area. As someone who believes in the rule of law and is keen on well funded public services I wouldn't be happy with completely anonymous flows of criminal money controlling all assets. Then again I'm not sure that doesn't happen now through shell companies. At least under a ledger system the ultimate asset holder is recorded - whoever owns the key to the tokens on the blockchain is the owner. 

Single assets such as houses, works of art, classic cars, pieces of land are relatively easy to tokenise and could open up a whole new class of assets for people to invest in. This could range from a community coming together to buy their local shopping parade to tens of thousands collectively purchasing art for investment.

Even more complicated than that to understand, but potentially transformative for how we work, is the distributed autonomous organisation (DAO). This is basically a new way of forming businesses that is democratic, agile and has the potential to create huge amounts of additional, productive employment.

At the moment if you come up with a really good idea you either have to have money, contacts, skills or ideally all three. Funding is restricted to approved people, there are good reasons for this (to avoid conmen taking the life savings of vulnerable people) but also some outdated, paternalistic views of people's ability to make sensible decisions. I am of the opinion that if investing at the early stages of business was a bad thing the rich wouldn't restrict opportunities to do so to themselves.

Under the DAO model you would put together a business plan and ask for skills or capital to help achieve the aim. Say your work in a hospital had identified a huge opportunity to save money through software. You'd post the work, people could offer cash to help or offer to work on the project. Both would be rewarded with equity in the business and voting rights on how to proceed. Shares in the project would be issued based on a valuation. People from all over the world could join in, something small companies cannot easily do at the moment. 

People could easily spread risk and diversify by investing small amounts in a wide range of projects, or pour themselves into one project they believe in, working for the DAO in exchange for a wage or additional equity.

Could local authorities raise cash quickly by issuing tokens for projects? If, for example, a clear need has arisen for additional capacity in the care home system a fixed return token asset could be issued paying a return to the holder. The money raised would pay for the new care home. If the interest paid on the token was less than the cost of borrowing the money privately (and by cutting out the middle man it should be) then it would be worth consideration.

I remain slightly cynical that blockchain technology will be as revolutionary as some are claiming, at least beyond tokenisation, which in itself will still require government and public backing. Most of the recording we do in the public sector is already done on databases with full audit features so the "trustless" element is overstated. Still it will be worth monitoring the developments and seeing if any good ideas are worth further consideration.