Blockchain: A blueprint for a new economy

Stocks are an integral part of every company. A company's stock represents a share of equity in the company. It represents the owner's rights to the company's assets and net profits. Owning stocks allows him to attend shareholder meetings, allows him to directly or indirectly participate in the company's business decisions, or even pay dividends. Blockchain technology is taking the era of conventional stocks to the next level.

Companies have shares, management, CEOs, staff and office addresses. Decentralized Autonomous Organizations (DAOs) based on blockchain technology do not have those. As a result, they can be more cost-effective and enable entirely new business models. DAOs are autonomous organizations based on smart contracts, which are rules written in the form of computer code[1]. Smart contracts[2] were first described in 1994 by Nick Szabo, a computer scientist, legal scholar and cryptographer:

“A smart contract is a computerized transaction protocol that enforces the terms of a contract. The general goals are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and enforcement), minimize the risk of malicious behavior and accidents, and minimize the need for trusted intermediaries. Related economic goals include reducing fraud losses, arbitration and enforcement costs, and other transaction costs.[3]”

In 2009, fifteen years after smart contracts had been implemented in practice, Bitcoin was released. It was a revolution in payments. Development continued, and in 2005, with the initial release of Ethereum, a Turing-complete open-source smart contract programming platform[4], anyone could build his or her own distributed application. In my previous blog, I have described some examples of DAOs[5].

Each DAO has its own payment token, which can be thought of as the equivalent of a company's stock. It grants access to a set of operations provided by the DAO protocol. DAO tokens can be traded, and their value can change. One of the laws to take into account when discussing the value of tokens is Metcalfe's law [6], which states that the value of a telecommunications network is proportional to the square of the number of users in the system (n^2). In a telecommunications network, two phones can only have one connection, five phones can have 10 connections, and 12 phones can have 66 connections.

Metcalfe's Law - Value grows as n^2 (Source: https://s-media-cache-ak0.pinimg.com/736x/40/eb/0a/40eb0afc2e259425ee02d2d278033e08.jpg)

Metcalfe’s Law is a blueprint for network effects in many applications beyond simple telecommunication networks. It could be a social network like Facebook or Twitter, or a messaging app like WhatsApp or Telegram.

Metcalfe’s Law—Tencent and Facebook

In 2013, Zhang Xingzhou, Liu Jingjie, and Xu Zhiwei [7] showed that Metcalfe's law is actually verified by data obtained from Facebook and Tencent, a Chinese-owned holding company. They showed that the Metcalfe's law for both Facebook and Tencent is a constant multiplied by n^2, where n is the number of their users.

Bitcoin total market value and daily transactions (Source: http://i.imgur.com/jLnrOuK.gif)

Metcalfe’s Law also applies to Bitcoin. The square of the number of Bitcoin transactions per day is proportional to the market cap of Bitcoin. Similar insights can be obtained from other DAOs.

Another model that can demonstrate the potential of blockchain technology is the Gartner Cycle for Emerging Technologies. Gartner is a well-respected American research and consulting company that provides IT-related insights[8]. Gartner publishes its annual Cycle for Emerging Technologies, identifying key trends that companies should track to gain competitive advantage. In July 2016, blockchain was recognized by Gartner as a major platform implementation technology.

Gartner's 2016 forecast of the development cycle of emerging technologies. Source: http://www.gartner.com/newsroom/id/3412017

According to Gartner, blockchain still has 5 to 10 years to go until it becomes mainstream. This suggests that we are still in the early stages of the technology adoption life cycle, a sociological model that describes the market adoption of high-tech innovations.

Technology Adoption Life Cycle
Technology Adoption Lifecycle

According to this model, which was extensively described by Geoffrey A. Moore in his book Crossing the Chasm by Geoffrey A. Moore[19], there is a huge gap, with early markets accounting for only 16% of the total number of potential users, while mass market constitutes the remaining 84%. Since blockchain technology is still clearly in the early market, we are still many years ahead of mass market adoption.

Explaining the gap between early-stage and mainstream markets for blockchain technology at the 2016 Shanghai Global Blockchain Roadshow

I founded DECENT with this vision in mind. There have been many successful crowdsales of tokens (ICOs: Initial Coin Offerings) of Blockchain technologies. For instance, Ethereum raised $18'000'000, WAVES raised $16'500'000 and TheDAO raised $160'000'000 a couple of months ago, which was the largest crowdsale in human history [10]. This is just another piece of evidence that Blockchain is getting attention and is on its way to mainstream markets. DECENT ICO is starting on 10 September 2016 and will last for 8 weeks. We will decentralize Amazon, Netflix, Youtube, Steam, iTunes, and much more to eliminate the unnecessary middlemen from the world of digital content distribution, reduce transaction costs and give more value to authors and content consumers.

I founded DECENT with this vision in mind. There have been many successful ICOs (Initial Coin Offerings) for blockchain technology. For example, Ethereum raised $18,000,000, WAVES raised $16,500,000 and a few months ago, TheDAO raised $160,000,000, the largest crowdsale in human history[10]. This is just another proof that blockchain is gaining more and more attention and moving towards mainstream markets. The DECENT ICO started on September 11, 2016 and will last for 8 weeks. We will decentralize Amazon, Netflix, Youtube, Steam, iTunes, and more by removing the middlemen from the global distribution of digital content, reducing transaction costs and providing more value to authors and consumers of content.

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[1] https://en.wikipedia.org/wiki/Decentralized_autonomous_organization
[2] https://en.wikipedia.org/wiki/Smart_contract
[3] http://szabo.best.vwh.net/smart.contracts.html
[4] https://en.wikipedia.org/wiki/Ethereum
[5] https://slovakstartup.com/2016/04/14/blockchain-powerhouse-trust-security/
[6] https://en.wikipedia.org/wiki/Metcalfe%27s_law
[7] http://link.springer.com/article/10.1007%2Fs11390-015-1518-1
[8] https://en.wikipedia.org/wiki/Gartner
[9]https://www.amazon.com/Crossing-Chasm-Marketing-High-Tech-Mainstream/dp/0060517123
[10] https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects