SYSTEMS

Is this vision a world we want to live in?

On one hand, we have:

Strengthened the grip of totalitarian state control that can prevent people from moving between borders, or even attaining basic goods and services without the blessing of an all powerful system.

Reinforced a capitalist system run amok which continues to entrench a wealthy ruling class based increasingly on the cognitive ability to jump through pre-defined mental hoops.

On the other hand, we have:

Lowered geographic barriers that have traditionally prevented billions of people in developing countries from having access to stable stores of value, investments, education, and other privileges available only to the wealthiest and most well connected.

Created entirely new incentivization structures that reward new kinds of behaviors, and lead to new kinds of social structures.

Thus, this book is about really about systems viewed through the lens of Distributed Ledger Technology. Our real focus is not on explaining the raw technology itself (though that is an important building block), but rather about how applications of DLT can solve real world problems including:

The entire harvest of bananas lost from one Salmonella outbreak because location data was not shared between members of the supply chain.

The laborer that loses 1% of her wages every time she tries to send money home.

The marauding silicon valley big data giant making 18 dollars per user per quarter on advertising, while providers of the data unwittingly feed a closed source artificial intelligence for free.

If any of the use cases below interest you buckle up, we’re in for a wild ride.

TARGET AUDIENCE

We feel three distinct groups will benefit the most from reading this book.

Family offices, sovereign wealth funds, and other institutional investors looking to diversify into an emerging non-correlated asset class that will run the monetized infrastructure of the new internet.

Entrepreneurs and corporate intrapreneurs looking for the best platforms to launch their new ideas on, and what the potential pit falls and opportunities are when creating distributed applications.

Retail investors and lay professionals looking for a more nuanced and holistic view of the space to hedge their personal portfolios by participating in the ecosystem as early adopter users.

OUTLINE

In a distributed system, two people can transact value with each other without the need for a middleman to facilitate the transaction. For the first time in history, “trust” is now distributed instead of centralized.

Applying new computer science and cryptography principles will allow us to fundamentally rewrite how our institutions work, increasing transparency and accountability throughout the value chain.

Part I: How It Works

We will begin by giving every reader a crash course in how distributed ledgers work from a high level computer science perspective. From zero experience in the space, to complete technical mastery of all things blockchain, we feel all readers can benefit from these first few introductory chapters.

We will attempt to demystify the blockchain by explaining the rapid evolution of the technology from its humble origins in the Bitcoin blockchain, to more recent implementations that will enable a global network of interconnected distributed ledgers to form the backbone of an entire new internet of value.

After a brief introduction, Part I consists of five fairly dense technical chapters, each with a main concept that builds on top of the last incrementally:

1.1 dApp Revolution: An explanation of what “distributed” applications (dApps) are, and how they are fundamentally different from existing centralized cloud applications.

1.2 Brute Force Consensus: The Bitcoin chapter where we explain how Bitcoin works, and the core elements that make it successful.

1.3 Other ways to Make the Sausage: The “Altcoin” (not bitcoin) chapter where we explain how competing systems (called protocols) attempt to do what Bitcoin does at a larger scale and more efficiently.

1.4 Good Architecture: An overview of how these new protocols are designed as many distinct overlapping layers. These layers interact with each other efficiently by only performing actions in the part of the subsystem most relevant to the task at hand.

1.5 High Assurance: Our final push will explore the continuum on which we trust the developers writing the code by learning how high assurance functional programming and formal verification paradigms work.

Part II: How It Really Works

In an ideal world, the best system would immediately be discovered and adopted. However, the real world is a complex adaptive system with many agents acting in their own self interest both rationally and irrationally.

Thus, Part II is a deep meditation on the motivations beyond the technical that drive success and failure in the distributed ledger space.

2.1 Fitness Landscape: Competition is fierce. Trillions of dollars of capital are on the line for whoever can capture the most market share from entrenched centralized players in every major industry from banking, to media, to supply chains. Framing the conversation in terms of evolutionary biology will help guide the rest of part II by giving a backdrop to why the life cycle of innovation, adaptation, and ultimately death is a natural part of all business processes.

2.2 Life cycle: Distributed ledger projects are inherently centralized as tokens first need to be created before being distributed. The ways in which tokens are distributed vary as much as the protocols themselves, and change as projects evolve over time. From projects with fixed supplies, to highly inflationary supplies, to bounty based distribution, to “airdrops” (giving owners of existing tokens ownership of a new project) each strategy creates different incentives among participants in the system.

2.3 Decentralization: We will dissect the continuum on which applications can be run in a decentralized fashion, and the myriad of social, technical, and regulatory implications when attempting to run applications on an (im)mutable network of interchangeable computers.

2.4 Interaction: Distributed ledgers cannot succeed unless new capital is onboarded into them. We will explore the development of the exchange industry from its origins in early exchanges like Mt. Gox, to custodial and KYC issues faced by incumbent centralized exchanges, and the emergence of decentralized exchanges which have the potential to undermine any attempts at regulation.

2.5 Force of Will: At the core of all great projects lies a convincing story. We will explore how corporate and governmental partnerships, conferences, key hires, and social media twirl together to form an over arching narrative that drives project success or failure.

2.6 Correlation and Killer Apps: We will explore the platform app token ecosystem, and what drives developers to choose one distributed ledger platform to launch their distributed applications (dApps) on over another.

2.7 Bear Case: We will end part II by summarizing all of the ways distributed ledgers could fail either through catastrophic technical failures, lack of adoption, or continued market share dominance (forced or voluntary) by centralized systems.

2.8 Bull Case: As a counterpoint to our bear case, we will lay out a road map for catalysts that can spur more widespread adoption including custodial solutions, tokenization of real world assets, and many other breakthroughs both technical and socio-cultural.

Part III: Where it’s Going (Speculative Fiction)

Our final section will present versions of the future we will be forced to confront sooner rather than later.

3.1 Avocado Wars: An explosive mix of water rights, property rights, and human rights collide when trying fill an unsatiatable global supply chain that demands a constantly increasing supply of avocados.

3.2 Permanent Record: From birth every doctor’s visit, report card, purchase, paycheck, and communication is stored in a global database unequivocally tied to a unique DNA fingerprint. Unless you go dark..

3.3 Big Data Jury: Families of 300 people killed in a fatal plane crash are seeking damages that threaten to bankrupt a major decentralized airline with millions of investors. 12,000 of the world’s top jurors will decide the case.

3.4 Take Your Pills: Healthcare premiums can be so much less expensive… if you agree to simply place your pill bottle on a small scale each time you take your medication. Each successful dosage yields one health savings account token. There are no fake medications or mass recalls, the chain of custody is traceable directly from the factory to each individual consumer.

ONWARD

We hope by the end of this book a new generation of investors and entrepreneurs will be excited about leveraging distributed ledger technology to create a world that pays more than lip service to “being more open and connected”. This means leaving idealism and egoism at the door to take a deeply introspective look at the ramifications DLTs pose to the daily lives of billions of people.

A helpful way to keep this egoism is check is to place the Macbethian melodrama that was Theranos in the front of our minds as we take this journey together.

At Theranos, the rewards for creating a blood testing machine that could perform hundreds of tests with a single pin prick of blood were immense. Unfortunately, the realities of how diluted a sample of blood could be before causing issues with the sensors in the machine (e.g. the laws of physics) got in the way.

As much as we want to downplay the gravity technology plays in our lives, at some point distributed ledgers will be life and death.

An inmate is put to death based on a record in a database.

Who gets a kidney transplant and who doesn’t is based on a record in a database.

Who is considered a political dissenter is based on a record in a database.

Unlike Theranos’ technology, distributed ledger technology works today in a crude but effective form, and will continue to advance over time by incrementally solving the next set of computer science challenges. Many projects will fail for reasons honest and duplicitous, but the collective body of work will live on as successive generations continue to innovate.