Great Chain of Numbers: A Guide to Smart Contracts - Amazon S3

130 Pages·2014·2.65 MB·English

Great Chain of Numbers: A Guide to Smart Contracts, Smart Property and Trustless Asset
Management

By Tim Swanson

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© Copyright 2014 by Tim Swanson
Cover art credit: Matt Thomas and Invisible Order
This manuscript is released under the Creative Commons - Attribution 4.0 International license: to copy,
transmit, share, adapt, remix, make commercial use of and freely distribute this work.

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Contents
Foreword ....................................................................................................................................................... 6
Preface .......................................................................................................................................................... 8
Acknowledgements ..................................................................................................................................... 10
Glossary ....................................................................................................................................................... 11
Chapter 1: Introduction .............................................................................................................................. 12
Keeping an Open Mind ........................................................................................................................... 12
Altcoins.................................................................................................................................................... 13
Chapter 2: Smart Contracts......................................................................................................................... 15
In Cryptoledgers We Trust ...................................................................................................................... 16
Not a One-Trick Pony or One-Hit Wonder .............................................................................................. 19
Assurance Contracts ............................................................................................................................... 21
Legalese Challenges ................................................................................................................................ 22
Argentina................................................................................................................................................. 23
Outside perspective ................................................................................................................................ 26
Chapter 3: Next Generation Platforms ....................................................................................................... 31
Colored Coins .......................................................................................................................................... 31
Mastercoin .............................................................................................................................................. 32
NXT .......................................................................................................................................................... 33
Ethereum ................................................................................................................................................ 35
BitShares ................................................................................................................................................. 36
Counterparty ........................................................................................................................................... 38
Open-Transactions .................................................................................................................................. 40
Ripple ...................................................................................................................................................... 41
Current Cryptoprotocol Infrastructure ................................................................................................... 44
Chapter 4: Smart Property .......................................................................................................................... 47
Paper Meets Electricity ........................................................................................................................... 49
Slowly Evolving ........................................................................................................................................ 50
Chapter 5: How smart contracts could work .............................................................................................. 52
Theory is grey .......................................................................................................................................... 52
Time Clock and Log-in ............................................................................................................................. 52
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Decentralized Autonomous Organization ............................................................................................... 53
Putting the DAC into DACP ..................................................................................................................... 54
Experimental Cases ................................................................................................................................. 55
Peercover ............................................................................................................................................ 56
Subledger ............................................................................................................................................ 58
Where the Rubber Meets the Road ........................................................................................................ 59
Abstractions and Decimalization ............................................................................................................ 60
Mitigating Abuse ..................................................................................................................................... 61
The Tao of DAO ....................................................................................................................................... 62
Chapter 6: Fundraising Landscape .............................................................................................................. 65
Changes over Four Decades .................................................................................................................... 65
Venture Capital Charts ............................................................................................................................ 66
Straight to the Source ............................................................................................................................. 67
What Angels Are Looking For .................................................................................................................. 68
Asia .......................................................................................................................................................... 71
Potential business opportunities ............................................................................................................ 74
Remittances, Value-Added Services, and Legal Considerations ............................................................. 77
Chapter 7: How to Get Involved with the Crypto Ecosystem ..................................................................... 80
Mining ..................................................................................................................................................... 80
Merchant Ecosystem .............................................................................................................................. 81
Developer, Developers, Developers ....................................................................................................... 82
BTCJam ................................................................................................................................................ 82
Crowdequity ........................................................................................................................................ 83
Ease of use and discovery ................................................................................................................... 84
Bitcloud ............................................................................................................................................... 86
Coinsimple ........................................................................................................................................... 87
BitPay .................................................................................................................................................. 88
Kraken ................................................................................................................................................. 89
Chapter 8: Jack-of-All-Trades? .................................................................................................................... 91
Niche payment processing platform ....................................................................................................... 92
Usage rates ............................................................................................................................................. 93
Decentralization for decentralization’s sake .......................................................................................... 94
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Cost benefit analysis of decentralizing ................................................................................................... 95
NGO use-cases ........................................................................................................................................ 97
China ................................................................................................................................................... 98
Startup Cities Institute ........................................................................................................................ 99
Chapter 9: Conclusions ............................................................................................................................. 101
Platform Matrix ..................................................................................................................................... 101
Synthesis ............................................................................................................................................... 103
About the author ...................................................................................................................................... 106
Endnotes ................................................................................................................................................... 107

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Foreword
"It is a rare mind indeed that can render the hitherto non-existent blindingly obvious. The
cry ‘I could have thought of that’ is a very popular and misleading one, for the fact is that
they didn’t, and a very significant and revealing fact it is too."
- Douglas Adams, Dirk Gently's Holistic Detective Agency

The physical world has an intractable problem; things exist.

Whether a bar of gold or a bus pass, left to their own devices these valuable objects will not move or act
of their own accord. Furthermore, if you want to sell such an item, you have the unenviable task of
finding someone who would like that item from you, is willing to pay you in the thing you desire and is
local enough to make such a deal logical.

Money used to have this problem; we used antiquated systems that move promises for dollars around
the world at 1960 speed. Bitcoin changed the equation, introducing the distributed ledger technology
that allows value to change owner with no regard for where the transacting users are geographically
located.

Bitcoin is to money what Smart Property is to ownership. A fundamental reinvention of how things
should work, and a better way. The problems are not new, and the solutions enacted to this point were
designed with that liability of physical existence in mind.

We are no longer constrained by this liability.

This all occurs against a backdrop of open source innovation and cooperative competition among the
projects vying to “win” the battle for Bitcoin 2.0. Where six months ago there were two projects, now
there are eight, with new protocols announced at least monthly.

When Satoshi Nakamoto mined the Genesis Block, he had months before there was much competition
for the tokens he was mining and years before the first competitor for his protocol emerged. In this
next generation there is no luxury of obscurity. The race is on and the only sure winner is technological
progress.

In the information age, technological optimization is often confused with technological progress. Both
are measures of growth, improvement in the lives of users of these technologies, but they are very
much not the same thing.

Optimization is a purely additive process. Moore's law and the competitive nature of the free market
demand that these items be made smaller and denser. Faster and cheaper. This is steady and
predictable, and it can be mapped and planned for.

Sometimes optimization constitutes progress; but most real progress, paradigm shifting in implication,
comes from doing something unexpected. Intentionally or not.

You cannot plan for this.

You are not prepared for this.
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But then, neither is anybody else.

So rejoice, because you got here first. Consider the manuscript that follows your guide to the exciting
world of smart property, and let me be the first to welcome you to the Future of Money.

Adam B. Levine
Editor-in-Chief, Let’s Talk Bitcoin! March 3rd, 2014
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Preface

With the help of many members of the community, I have written this short book for beginners,
entrepreneurs and risk-takers who – having heard of a bitcoin or cryptocurrency, but knowing little
about it – want to understand how algorithms can constrain governance and transfer value in a
consensus-driven, voluntary manner.

Trustless asset management tools built on top of a cryptoledger such as Bitcoin or Ripple (which are
tamper-proof) could not only reduce fees and redundancies in the developed world but also empower
those in the developing world who are more easily marginalized as they lack political capital
(guanxi).1 Cryptoledgers could also help governments and non-governmental institutions keep track of
internal assets and reduce the barriers to financial services, leveling the playing field and allowing
individuals from all walks of life to actually codify and manage scarce goods and value that they
currently own in a more secure manner.

From securely automating parts of the financial industry (e.g., back-offices) to lowering transaction costs
of international trade, this new type of mathematical tool – cryptoledgers – can be applied to many new
segments and markets, some more obvious than others. For instance, in January 2014 I was interviewed
by Donald McIntyre who asked me why I was interested in cryptocurrencies and smart contracts.2 I
explained that there are additional use-cases for using cryptoledgers to track property titles and
contractual agreements that could be utilized not only in the developed world but also in developing
countries like China.

While there are a number of analogies comparing the significance of these tools with historical
equivalents – from railroad infrastructure, to operating system platforms – at their core decentralized
applications like Bitcoin and its progeny have the potential to impact virtually any industry that is
integrated with the internet. And the insights from experts, entrepreneurs, investors and developers
below illustrate many of the other uses that cryptoprotocols can provide and gives readers a foundation
to build from and to explore.

There will likely be challenges and hurdles along the way, from embarking on educational outreach
beyond early-adopters to carefully studying and complying with all the legal and jurisdictional issues of a
particular instrument.

Yet there are also likely financial rewards for reducing the fees involved in remittances or providing
more secure and robust mobile payments. For instance, according to Gartner, “mobile payments will
top $720 billion a year by 2017, up from $235 billion last year [2013].”3 Finding a way to build an
application that provides value in this niche is just one area of disruptive potential that a decentralized
or distributed cryptoledger can attempt to do without exposure to counterparty risks.

Finally, this manuscript is not an exegesis on the economic foundation or utility of cryptocurrencies.
While economists were consulted, this guide is an attempt to show the potential of changing how
interactions and value can be transferred and managed in a manner that could not be technologically or
mathematically done until this past decade.

This is an exciting journey and one that I believe will outlive and outlast the hype and hyperbole of both
its largest ideological proponents and opponents. In time some of the visions and claims may ultimately
be vaporware, yet several have the potential to impact commerce the same way that the internet did 20
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years ago and the PC did 35 years ago. Let me help provide you with the knowledge that was distilled
and shared with me over the course of my own educational process.
Tim Swanson
San Francisco, March 2013
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