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Decimal Digest
13 Oct 2016

The Promise of Distributed Systems

As we had discussed in a previous weekly that according to Kardashev scale, civilizations can be categorized according to the sources of energy they can harness. We are currently a type zero civilization because we are not able to exploit all the energy emitted by the nearest star which is our sun. We will have become a type 1 civilization when we will be able to harness the energy of the sun completely.

The first step towards a type one civilization will be decentralization of money supply. As the marginal cost of energy approaches zero, it is logical to conclude that marginal cost of material goods will also approach zero. As this happens, the world where inflation or deflation needs to be controlled as a primary constraint is replaced by the world in which resource distribution needs to be efficiently enabled in the absence of effective price signals, as a primary constraint. Hence, money supply needs to be decentralized again, after a trend towards central control of money supply observed since 1694. The decentralization of money supply requires that we have certain new technologies in place to allow for such interactions in the economy for efficient allocation of resources.

As briefly mentioned in the previous weekly, when the society moves to Type I civilization, the self-actualization needs become the driver of economic activity. Unfortunately, self-actualization, by definition, is not a marketable commodity and cannot be subjected to standard pricing using a single common numerier (money) for all activities. A simple example is an Olympic Medal. The current monetary system is not able to value an Olympic Medal and hence does not even attempt to do so, creating apparent hardships for vast majority of excellent athletes.

Block chain a simple but revolutionary way of recording transactions, contracts, rewards and recognitions that may provide us with an opportunity to evolve into an economic model free of rent seekers and focused on value generation. It is possible to imagine several differing block chain based reward and recognition smart contracts emerging satisfying value transfer needs of variety of common interest groups and then at societal level “exchange rates” evolving for value transfer between various groups. This ecosystem can effectively replace monetary system.

For those who are unaware of the concept, the block chain is a distributed public ledger system where the ledger is stored in every node of the network. Using cryptographic security, the participants can identify and communicate transactions securely without any third party involvement. Due to its cryptographic security and mechanisms to generate consensus among participants the ledger can’t be altered and is immutable. This process removes the need for reputed third party intermediaries and replaces it with a safe and secure system based on trust in the system rather than an individual entity.

Any item of value can be digitized and used in a transaction on block chain based platforms, thereby allowing for smart contracts. The smart contract like a transaction is transmitted to everyone’s ledger. Once the conditions of the contract are met it is executed in every node of the network. This reduces counterparty risk by leaving out linguistic nuances of contracts. It also reduces the need for the legal apparatus significantly.

Thus, block chain allows for tremendous possibilities and will allow us to progress by making possible all kinds of transactions that generate intrinsic value but are not currently ascribed value (either sufficient value or value placed at right time) in the system of single numerier for each economy. One example of smart contract based on block chain is “borrowing from future performance of an athlete or an artist”, allowing people to work towards achieving their self-actualization needs while enjoying benefits of reputation of the future star today itself. In the current economic and monetary system, the only way an athlete can benefit from her future performance is buying long term option on his/her own performance, like the way father of Rory McIlroy, The Golf Open Champion of 2014, had purchased, when Rory was 15-years old, a 10 year bet with 1:500 odds that he will win the championship before turning 26. With smart contracts, instead of paying for the bet, the athletes can borrow from future performance from avid followers of the sport.

Thus, a Type 1 civilization, with abundant energy, where daily basics are fulfilled without any role of markets, new economic structures will evolve to support higher functions of society.


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