Blockchain and a decentralized future

You might want to get ready: the terms blockchain, smart contracts and decentralized networks will become more and more usual in the following years. Both due to to their disruptive potential and to the several impacts they’ve already been causing, these innovations hold promises of changing the way we interact with the Internet, the economy and society as a whole. But what are, exactly, smart contracts and what is the blockchain technology all about? In what ways will they change the Internet and social relations in the next decade?

Blockchain and its origins

Without going technical, the blockchain is a big public decentralized ledger which allows for the permanent registry of chained information in a secure and fraud immune manner. Imagine, then, a huge ledger of who has what, who transferred to whom which quantity. This ledger has thousands of copies in thousands of machines distributed around the world and connected by the Internet. Trying to alter it in one of such machines would result to a rejection by all the other ones, which would keep on working towards a consensus. In order to grant the privacy of its users, blockchain uses cryptography and identifiers that make sure that, in spite of it being public, it’s impossible to identify individual agents doing exchanges through its system.

Originally developed to possibilitate the functioning of the first digital decentralized currency, Bitcoin, the technology proved itself as a powerful tool for other kinds of application: the Ethereum platform, for instance, allows for any program – from social networks to e-mail systems – to be incorporated to the blockchain. The disruptive potential of this technology, therefore, is enormous.

The functioning of the blockchain depends on thousands of machines processing, validating and altering their database in a decentralized and non hierarchic manner. Think of how torrents work for file sharing, with each peer contributing to the system: blockchain is able to do something similar for all kinds of applications.

What are the impacts of this technology?

The possibilities are many. Blockchain has a significative potential for decentralizing the Internet once again, as it distributes certain services, which now depend on centralized middle persons, through all its distributed processing network.

Through a trustworthy, cheap and safe ledger of transactions, the blockchain technology has, as its main beneficiary, the financial sector. The investment of banks and financial institutions on the development of blockchain apps is already happening: in Brazil, the bank Itaú is already part of the R3CEV, a group of over 50 international financial institutions which utilize the technology in order to optimize the financial sector.

Blockchain financial apps don’t benefit only the big banks, however. As it’s already possible through Bitcoin, the technology allows for any person to transfer values to anywhere in the world at low cost, virtually ending the elevated costs and complications of the international sendings. More sophisticated apps might expand and facilitate microcredit and, consequently, democratize the access to financial services.

Decentralized networks, DAOs and Law

The disruption caused by the blockchain is also noted in Law. Several bureaucratic institution may, in the near future, be substituted by blockchain applications. All the statal structure of authenticating documents, ownership and properties might be simplified, optimized and reduced through the authentication features inherent to the technology. For example, instead of having to reccur to a registry in order to authenticate the document that stablished ownership rights over a given property, blockchain could be used to do so. In a similar fashion, an artist wanting to prove that she is the author of a specific work wouldn’t need to go through the bureaucracy of of registering it in the competent organs: a blockchain registry could serve as an almost inquestionable proof of authenticity, or at least of anteriority, of such work. The brazilian company OriginalMy already offers this service with an ease uncommon to the traditional bureaucratic system.

In corporations, great bureaucracy complications can also be replaced or reduced by means of blockchain technology. The Ethereum platform allows for the creation of Decentralized Autonomous Applications – DAOs, which enable the a corporation structure, complete with power attribution over several duties (like responsibility for the corporation’s accounts, for example), division of shares and interaction mechanisms with others.

The main way for this interaction to exist, and also the edifying blocks of a DAO, are smart contracts. Smart Contracts are written in computer codes, which differentiate from judicial contracts due to the fact that they are self-executable. That is, once accepted, they automatically fulfil the agreement established by the code, or guarantee that it is accomplished. For example, a smart contract involving the purchase of real estate would make this transaction as simple as buying a pound of meat at the store: one person agrees to transfer the amount of money, and the other agrees to immediately transfer its keys. Value and property are authentically transfered, without any need for notary register processes to make it viable. Therefore, the system creates a trustless trust, which does not depend on the parts trusting each other, because the system is trustworthy for itself.

Blockchain would guarantee that A transferred value X to B and, in exchange, B passed on its real estate property to A. All the points in the network would look at this transaction to guarantee that it has occurred according to code laws and would later assure its authenticity in case a third party (C) tried, for example, to say that real estate Z is actually his.

Code is Law

The autonomy of the code, which leads to Lessig’s “Code is Law” to a whole new level, can facilitate or even substitute several organizational mechanisms that currently depend on bureaucracy for its safety and authenticity. At the same time, it adds a certain inflexibility that does not exist in human interactions: even though a bureaucracy process is difficult to work with, it still has a human factor in it and it may be capable of dealing with details that a code may sometimes not be able to foresee and resolve.

The future of blockchain will mainly depend on the speed by which most users will acquire confidence in the technology. To many, delivering to computers functions so important related to property rights and money is too risky. However, in a certain way, ATMs that are routinely used today were some of the first smart contracts, though centralized. What is certain is that this technology is here to stay, and it has the potential to be so disruptive as the internet was in the 90s.