This is the long delayed third in a multi-part series (part 1, part 2) on what I predict is one of the most important ongoing technological trends, the decentralization revolution. By creating a way for the transfer of value to be performed over a trustless distributed network Bitcoin has already changed the world but Bitcoin is only the tip of the decentralization iceberg.

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What would it mean if you could truly trust a government to do what it says it will do? And I don’t mean the kind of soft-trust that we put in governments today, where we trust that the checks and balances that are supposed to keep governments honest (or at least mostly honest), I mean what if you could trust your government like you trust an (open source) operating system? What if you could trust a government like you trust math?

In my last two posts I described how decentralized cryptographic networks are creating a new gold-standard in the establishment of trust (1), and how it is trust that defines the flow of power in human societies (2), now I want to elaborate on what it might look like if and when we apply the principles of decentralized crytography to governance.

What would it look like if the key institutions of society, everything from schools to corporations and even national governments, were built on decentralized cryptographic systems? Well to find out, lets try envision what a cryptography might have to offer for a small to medium sized community. What follows is a fictional account of how embracing decentralized crytographic technology could revolutionize our expectations of government transparency and efficiency.

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Welcome to BitVille

When one enters BitVille they might be forgiven for thinking that this town is just like any other. It is clean, but not necessarily cleaner than any other town, and the people are happy, but not necessarily happier than those in any other town. The economy is doing well, but not a lot better than any other town in the area. BitVille is pretty much indistinguishable from any other well run town, but it is well run. Over the last several years, BitVille has embraced decentralized cryptographic technology similar to Bitcoin, and according to those behind the transition they are a model for how local governments of the future will operate.

“The most important thing is that we have regained the trust of the citizens of BitVille,” says Clara Barnes the city manager who has overseen the implementation of much of the cryptographic technology in BitVille.

“Having proud citizens who feel invested in the success of their town is absolutely the most important factor in the success or failure of a town. Everything else falls apart if people don’t feel they can trust their governments. In BitVille we know exactly what a loss of trust looks like. The city was losing millions in bogus contract competitions and inefficient bureaucracies, the schools and roads were falling apart, crime was going up, there was garbage on the streets, and people had lost faith in their city.”

A few years ago, BitVille was collecting and spending 15% more tax money per capita than cities of comparable size, yet their infrastructure was falling apart. When Barnes took over the job of city manager, she was tasked with figuring out a way to both cut down on city spending and increase the service standards for city services, a seemingly impossible task. But Barnes had a secret weapon: a background in cryptocurrency.

“So we issued a cryptocurrency” Barnes said, letting the statement hang in the air for a minute.

Barnes went on, “we started small. We issued a the CityBits cryptocurrency, pegged at 1:1 with proven USD city funds on the Ethereum ecosystem. CityBits are exchanged through a single webportal to buy or sell them using other cryptocurrencies or electronic cash transfers. At this point we are also working with local banks and businesses to allow people to use CityBits around town, but its been a relatively slow uptake for this.”

“Is it a currency or a tool then?” I ask

“There are also some tricky legal questions about whether a city can actually issue a floating currency of its own, so we envision CityBits really as more of an administrative tool than a true cryptocurrency. It is a secure means of managing city funds in a transparent and efficient manner.”

“How did you get started with this system?”

“The pilot project used CityBits for executive payroll at city hall. Most of us set up automatic exchanges for the bulk of our CityBits to be converted to cash transfers, so the system is pretty invisible to us now. It worked seamlessly almost from day one, and it was love at first sight for our payroll office.

We have since expanded CityBits to function as the backbone for all payroll at city hall, and we didn’t stop there. Over 80% of procurement for the city is also administered through CityBits. Vendors are required to accept payment in the form of CityBits, which again can be exchanged for cash through our Webportal any time.

Earlier this year, we launched CityBits contracting platform. We are now able to host the entire bidding process, contracting, and implementation, of city projects on the CityBits blockchain. It still has some bugs to work out, but when fully implemented, we will require all contractors to accept payments exclusively in the form of CityBits.”

“So the results have been mostly positive?” I asked.

Barnes answered with a gleam in her eye, “the change has been dramatic. Human resources, payroll, accounting, and managers in every department are thrilled with the new system. Simple web interfaces make it extremely easy for managers to authorize transfers, and track where funds are going in real time, and in the future. The citizens get to see almost in real time how city hall money is being spent, and is planned to be spent. Money in, money out, its all very transparent and very clear, and most importantly it inspires the trust of the taxpayers.”

“What are your long term plans for CityBits?”

“In the medium term I would like to see transactions from citizens, such as paying parking tickets, done through the CityBits system. This would make it much easier for citizens to see exactly where the money goes when they pay money into the city. The feeling that money sent into City Hall is simply going into a bottomless pit is a real problem which I feel CityBits can address

Also, it would be great to start to integrate some more smart contracting into the system. For instance, with snow plow contracts we could set up an automatic payout based on the snowfall for that particular year.

In the very long term, I think the sky is the limit for CityBits. We could eventually tie everything from official power structures, budgetary approval, citizen oversight, and voting into the system. For instance, the power of the mayor to approve budgets might be built into a CityBits charter which matheamtically limits their ability to approve spending to 4 years. This would be a mathematical limit to political power. CityBits could help create a system which fundamentally enfranchises citizens with control over government which citizens have a right to.

CityBits can help to create the kind of 21st century City government that the citizens deserve.”

That gleam was back in Barnes’ eyes.

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The story of CityBits is the story of cryptocurrencies. The real magic is their scalability, a cryptocurrency like CityBits could start as a simple means to administer employee payroll that could one day grow up to define the legal charter of an entire city. Equal parts incremental improvement and revolutionary breakthrough, both an arcane administrative tool and a radical new mechanism of transaction, like other technological breakthrough that have preceded them, cryptocurrencies will become what we dream them to be.

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