This paper argues that many so-called digital technologies can be construed as notational technologies, explored through the example of Monegraph, an art and digital asset management platform built on top of the blockchain system originally developed for the cryptocurrency bitcoin. As the paper characterizes it, a notational technology is the performance of syntactic notation within a field of reference, a technologized version of what Nelson Goodman called a “notational system.” Notational technologies produce abstracted entities through positive and reliable, or constitutive, tests of socially acceptable meaning. Accordingly, this account deviates from typical narratives of blockchains (usually characterized as Turing or state machines), instead demonstrating that blockchain technologies are effective at managing digital assets because they produce abstracted identities through the performance of notation. Since notational technologies rely on configurations of socially acceptable meaning, this paper also provides a philosophical account of how blockchain technologies are socially embedded.
We theorize about the governance of blockchain organizations and empirically explore the phenomenon using panel data on cryptocurrencies. Our findings point to interesting effects of governance on returns (i.e. cryptocurrency price increases or decreases). Internally, while centralized governance design choices at the blockchain level decrease returns, centralized governance design choices at the protocol and the organizational levels appear to be more beneficial for returns. The results correspond to the idea that, on the one hand, investors value cryptocurrencies’ core value proposition, rooted in decentralization; but on the other hand, are suspicious of decentralized governance at higher levels in the organization because they could slow down strategic decision-making (e.g., regarding the introduction of new innovations) or create information asymmetries between investors and technologists.
If one is to believe the popular press and many “technical writings,” blockchains create not only a perfect transactional environment but also obviate the need for banks, lawyers and courts. The latter will soon be replaced by smart contracts: unbiased and infallible computer programs that form, perform and enforce agreements. Predictions of future revolutions must, however, be distinguished from the harsh reality of the commercial marketplace and the technical limitations of blockchains. The fact that a technological solution is innovative and elegant need not imply that it is commercially useful or legally viable. Apart from attempting a terminological “clean-up” surrounding the term smart contract, this paper presents some technological and legal constraints on their use. It confronts the popular claims concerning their ability to automate transactions and to ensure perfect performance. It also examines the possibility of reducing contractual relationships to code and the ability to integrate smart contracts with the complexities of the real world. A closer analysis reveals that smart contracts can hardly be regarded as a semi-mythical technology liberating the contracting parties from the shackles of traditional legal and financial institutions.
We analyze the Bitcoin protocol for electronic peer-to-peer payments and the operations that support the “blockchain” that underpins it. It is shown that the protocol maps formally into a dynamic game that is an extension of standard models of R&D racing. The model provides a technical foundation for any economic analysis of ‘proof-of-work’ protocols. Using the model, we demonstrate that free entry is solely responsible for determining resource usage by the system for a given reward to mining. The endogenous level of computational difficulty built into the Bitcoin protocol does not mitigate this usage and serves only to determine the time taken to process transactions. Regulating market structure will mitigate resource use highlighting the importance of identifying the benefits of competition for the operation of the blockchain.
Keywords: bitcoin, blockchain, racing, mining, competition, free entry
Governance in Blockchain Technologies & Social Contract Theories
This paper is placed in the context of a growing number of social and political critiques of blockchain technologies. We focus on the supposed potential of blockchain technologies to transform political institutions that are central to contemporary human societies, such as money, property rights regimes, and systems of democratic governance. Our aim is to examine the way blockchain technologies canbring about – and justify – new models of governance. To do so, we draw on the philosophical works of Hobbes, Rousseau, and Rawls, analyzing blockchain governance in terms of contrasting social contract theories. We begin by comparing the justifications of blockchain governance offered by members of the blockchain developers’ community with the justifications of governance presented within social contract theories. We then examine the extent to which the model of governance offered by blockchain technologies reflects key governance themes and assumptions located within social contract theories, focusing on the notions of sovereignty, the initial situation, decentralization and distributive justice.
A Multistakeholder Approach to the Stewardship of Blockchain and CryptocurrenciesBlockchain, or distributed ledger technology, could soon give rise to a new era of the Internet even more disruptive and transformative than the current one. Blockchain’s ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet’s evolution, from an Internet of Information to a new generation Internet of Value. The key to enabling this transition is the formation of a multistakeholder consensus around how the technology functions, its current and potential applications and how to create the regulatory, cultural and organizational conditions for it to succeed.
Financial services strategy consulting firm, Quinlan & Associates, has released a landmark 156-page report on the cryptocurrency space, the largest and most detailed examination of the industry to date [LINK TO REPORT PAGE].
The report, titled ‘Fool’s Gold? Unearthing The World of Cryptocurrency’, takes an in-depth look at the fundamental functions of cryptocurrencies and the surrounding ecosystem, powered by blockchain technology.
The report also seeks to demystify the ongoing debate in financial markets (and the wider economy) around the true value of Bitcoin and its future outlook through detailed valuation models.
Cryptocurrencies have been heralded as the revolution of the financial system since its proof of concept by Wei Dai and Nick Szabo in 1998, followed by Satoshi Nakamoto’s whitepaper detailing a ‘peer-to-peer electronic cash system’ and open source code, which is now known as Bitcoin.
Underpinned by blockchain technology, cryptocurrencies promised an end to third party institutions and barriers to financial transactions. And in recent years, they have exploded onto the scene at an exponential rate. At its 2017 peak, there were over 1,300 cryptocurrencies in existence, with a combined market capitalisation of nearly USD 650 billion, rivalling the GDP of nations such as Saudi Arabia. Bitcoin (BTC) itself, the most popular cryptocurrency, has touched market capitalisations similar to economies such as Malaysia and Vietnam.
The sudden rise of the cryptocurrency market has generated heated debate by both believers and critics alike for its value, future potential, and use cases. At the centre of this discussion is BTC, with its meteoric price rise capturing daily headlines in mainstream and social media alike, with speculators rushing to the market in the hopes of joining the wave of overnight millionaires. A plethora of inter-related industries have also spawned, including wallets and payment services, crypto exchanges, and mining, as entrepreneurs across the globe look to capitalise on new revenue pools that have opened up on the back of this technological revolution.
To appreciate the recent rise of cryptocurrencies and their future potential, one must understand the underlying technology, surrounding ecosystem, and the place of cryptocurrencies in financial markets (and the wider economy). Our report details the aforementioned criteria, utilising BTC as the exemplar for current cryptocurrencies in place at the time of writing. We also drew further insights from interviews with a wide range of industry stakeholders, as well as survey responses from over 1,500 individuals working predominantly in financial services, FinTech, consulting, and technology.
Most current iterations of cryptocurrencies are, at their core, meant to operate as currencies. However, currencies have, for many centuries, needed to meet a number of specific criteria to be recognised as such – namely, acting as a unit of account, a medium of exchange, and a store of value. Despite fulfilling most of the characteristics of a traditional fiat currency, cryptocurrencies are largely being utilised as speculative investment assets, leading to considerable volatility in their value. This lack of stability, together with soaring valuations, means they are rarely used for payments. In order to achieve status as a legitimate currency, the public must spend cryptocurrencies widely to determine a credible benchmark for their actual value, encouraging businesses to accept them as a medium of payment (hence making them more liquid in the long run). Until then, most cryptocurrencies, including BTC, will continue to exist in a speculative capacity, with all the undertones of being a bubble.
2017 saw the price of BTC surpass the asset price inflation of the 17th century tulip mania, while rendering “bubbles” such as dotcom a mere blip by comparison. Its strong – albeit slowly unwinding – correlation to alternative cryptocurrencies also indicates a collapse in the price of BTC could lead to a rapid downfall for the broader non-fiat cryptocurrency market.
A number of factors underpinned BTC’s price rise in 2017. In the earlier part of the year, many of the gains could be tied to ongoing discourse around its potential regulatory legitimacy. Since then, however, its popularity – and infamy – has appeared to fuel a widespread “fear of missing out” (FOMO), a classic characteristic of most bubbles. Yet, consensus regarding its future value remains literally non-existent, with valuations ranging from USD 0 to as high as USD 1,000,000. Moreover, the majority of these predictions do not appear to be based on any robust, quantitative methods, but are more a reflection of individual opinion.
To determine whether BTC is indeed a bubble, we looked to calculate its value using two overarching approaches: (1) as an asset; and (2) as a currency.
As an asset, we valued Bitcoin using a cost of production approach and a store of value approach, resulting in values of USD 2,161 and USD 687 respectively. To value BTC as a currency, we estimated its utilisation for both legal, retail transactions payments, as well as payments in the black market. After significant testing, we calculated the price of BTC 1 to be USD 1,780.
Irrespective of the valuation methodology employed, we found the price of BTC deviates significantly from its current price of ~USD 14,000. For the longer-term, we are even less optimistic around the future price of BTC and believe it will ultimately be ruled out as a mainstream form of payment. We see this exerting greater downward pressure on its price and forecast it to trade at ~USD 810 by 2020, if not even lower. We therefore believe that BTC, at its current valuation, is a bubble waiting to burst.
While our views on the price (and future applications of BTC) remain muted, our outlook for the broader cryptocurrency industry remains much more sanguine. Existing cryptocurrencies that were designed to replace fiat currencies, such as BTC, are unlikely to act as viable substitutes to the money or currency system we have in place today, due to their inherent challenge to central bank and government functions – namely, fiscal and monetary policy. However, cryptocurrencies with associated utility applications (such as Ethereum’s ETH), as well as fiat cryptocurrencies attached to a sovereign nation, are likely to grow in significance, given the ability of the underlying blockchain technology to provide meaningful enhancements to current payment systems, as well as their broader applications beyond being used as speculative assets (e.g. facilitating the execution of smart contracts).
Although a sharp decline in the price of BTC in 2018 is likely to take the value of other nonutility cryptocurrencies with it, we see the correlation with utility cryptocurrencies being much less pronounced. While we anticipate valuations to decline in the short-term in response to the widespread unwinding of the digital currency space, valuations of utility cryptocurrencies are likely to recover and dominate the market in the long-term. We forecast total market capitalisation of private cryptocurrencies to be USD 407 billion by 2020. We also see fiat cryptocurrencies gaining momentum as governments accelerate their research and piloting efforts, with potential to be a USD 150 billion market by 2020.
While we believe BTC can largely be viewed as fool’s gold at present, digital currencies will continue to unearth major enhancements to the global payments system in years to come.
To ensure public safety and security, it is vitally important for governments to collect information from businesses and analyse it. Such information can be used to determine whether transported goods might be suspicious and therefore require physical inspection. Although businesses are obliged to report some information, they are reluctant to share additional information for fear of sharing competitively sensitive information, becoming liable and not being compliant with the law. These reasons are often overlooked in the design of software architectures for information sharing. In the present research, we followed a design science approach to develop a software architecture for business-to-government information sharing. Based on literature and a case study, we elicited the requirements an architecture that provides for the sharing of information should meet to make it acceptable to businesses. We then developed the architecture and evaluated it against the requirements. The architecture consists of a blockchain that stores events and rules for information sharing that are controlled by businesses. For each event, two parties use their private keys to encrypt its Merkle root to confirm that they know the data are correct. This makes it easy to check whether information is reliable and whether an event should be accepted. Access control, metadata and context information enable the context-based sharing of information. This is combined with the encryption and decryption of data to provide access to certain data within an organisation.
Blockchain refers to a range of general purpose technologies to exchange information and transact digital assets in distributed networks. The core question addressed in this paper is whether blockchain technology will lead to innovation and transformation of governmental processes. To address this question we present a critical assessment of the often exaggerated benefits of blockchain technology found in the literature and discuss their implications for governmental organizations and processes. We plea for a shift from a technology-driven to need-driven approach in which blockchain applications are customized to ensure a fit with requirements of administrative processes and in which the administrative processes are changed to benefit from the technology. Having sound governance models are found to be a condition for realizing benefits. Based on a critical assessment we offer directions for further research into the potential benefits of BC applications in e-government and the role of governance of BC architectures and applications to comply with societal needs and public values.
Technological Sovereignty, Vol. 2
We deserve to have other technologies, something better than what we nowadays call “Information and Communication Technologies”. This book deals with its psychological, social, political, ecological and economic costs while it relates experiences to create Technological Sovereignty. The authors bring us closer to other ways of desiring, designing, producing and maintaining technologies. Experiences and initiatives to develop freedom, autonomy and social justice while creating autonomous mobile telephony systems, simultaneous translation networks, leaks platforms, security tools, sovereign algorithms ethical servers and appropriate technologies among others. The texts are by Alex Haché, Benjamin Cadon, COATI, Carolina, Kali Kaneko, Loreto Bravo, Maxigas and Margarita Padilla.