Creating A Complete Financial System With The Blockchain

Uses for the Blockchain

The original Blockchain was designed to store transaction data. Any time so much as a single Satoshi changes owners, the Bitcoin Blockchain logs that as a transaction. (Think of a Satoshi as being a penny, if you like. If you find one on the digital sidewalk, that’s considered lucky, but it’s still the smallest possible denomination of Bitcoin.) Then it can be seen as an ordinary accounting ledger that keeps track of debits and credits.

The fact that it can record currency transactions is pretty cool, but currency isn’t all there is to a financial system. The interesting thing about the Blockchain is what everybody in the cryptocurrency community is talking about these days. It can store transaction data for a cryptocurrency. It can also store encrypted files such as an ebook – although I’m sure I annoyed the owners of full nodes that have to store that data when I added a PDF file to the Bitcoin Blockchain last year. Blockchain technology has been used to register information about a marriage. Estonia has recognized the Blockchain’s potential for solving problems with its public notary system and for establishing what it calls an “E-Residency” program. Ethereum uses the Blockchain to create what amounts to the “Version 1.0” of self-enforcing contracts. So the Blockchain is good for more than just storing transaction data. It can process and store any type of data you like.

Smart Contracts

We have the currency. The next thing that would be useful is a contract system. It’s interesting to me that Ethereum’s Smart Contracts were unveiled after Bitnation drew up its public notary and Blockchain ID systems because contracts and property rights are both fundamental parts of a free market system where people want to be able to buy and sell with no worries about being cheated. A contract is, by definition, something that can be referred back to when interested parties need to be reminded about what was agreed to.

It’s called a Smart Contract because it can actually check to make sure the terms of the contract are being fulfilled and reverse itself if one party fails to fulfill their end of the deal or if it can be established that fraud was a factor, thus making it valuable to create a Smart Contract system that can cross-check with an ID system and a notary system to make sure that the parties have the right to use an asset as part of a trade in the first place. The usual example is that a self-driving car can drive itself back to the dealership if a client stored on its computer receives information that indicates that the owner missed a payment or never had the Bitcoin to pay for it in the first place.

This will naturally be useful in an environment that does not have a well-developed judicial system yet or the judicial system has been rigged against people who have lost money or assets they can’t afford to lose due to somebody else’s actions, but they also can’t afford to hire an attorney or bribe a judge. (And, yes, there really is a rampant corruption problem in the judicial systems of some nations.) Future colonists’ word will simply be backed up by Smart Contract systems that can lock assets or return them to their original owners if one of a contract’s signatories does not keep up his or her end of the deal. It will not even matter how much those assets were worth because the prevalent use of Smart Contracts creates an environment where the injured party won’t have to hire an expensive attorney or spend years pursuing a court case just to get his money back.

This is especially useful for colonies that may have to purchase some supplies by buying futures on commodity markets. They’re buying a contract to have commodities delivered at some point in the future. This could protect their interests when buying through marketplaces in which prices can change quickly. The price of tritium might be relatively low right now, but if they don’t buy now, that price could double by the time a launch window for delivery opens up. That’s tritium they might need for their nuclear fusion power source, so of course they’re going to want to take the lower price while they still can. If the provider fails to deliver as promised, the colony gets its money back, which sends a message to commodities providers that they’d better take any contract they have that includes a space colony as an interested party seriously – though of course the colony might not care much about the money if a provider lets them down.

Ethereum is the best known system for creating Smart Contracts and, in fact, many of the best known Blockchain-based systems that involve Smart Contract technology in some way are built around the Ethereum system. These include tools for placing money on the prediction market such as Augur, services that provide management of assets on the rental market such as Slock.it, and collaborative decision-making apps such as BoardRoom. If it involved some form of agreement between multiple individuals or organizations, the details can be stored on the appropriate Smart Contract app and that agreement automatically becomes a self-executing application.

It’s a program. It keeps track of the truth or falsehood of statements such as, “Bob Smith made this month’s car payment on time,” and executes the appropriate actions. If the statement is true, Bob Smith’s car stays in his garage. If the statement is false, Bob Smith’s car drives itself back to the dealership. The good part here is that Bob Smith can establish that he really did make a payment simply by sending the appropriate amount of the agreed-upon cryptocurrency to a specific address that the appropriate contract watches. If he doesn’t, at least he’ll know where the car went so the situation can be dealt with.

Reputation System

How many times have you refused to buy a product because you heard that the manufacturer is not a very good one or you saw that it has only a two-star rating on Amazon? That’s the effect that reputation has on buying choices. That’s why a significant part of large companies’ PR efforts go into managing reputation, especially when there’s been bad news of some sort. Nobody wants to buy from somebody with a poor reputation.

In fact, that’s one reason some people still hesitate to get into Bitcoin. They’ve heard about things like Dread Pirate Roberts being convicted of running an illegal drug trading platform with Bitcoin as a payment option on the Dark Web and police departments being infected with malware that holds their computer system hostage and demands a Bitcoin ransom. They don’t hear about Bitcoin miners raising thousands of dollars’ worth of Bitcoin to donate to a nonprofit organization that helps African children who have been orphaned by AIDS. This is not the fault of Bitcoin and, in fact, the Blockchain can manage a reputation system that’s completely fair.

On a future Mars, a reputation as a Martian who knows his or her business counts for a lot. The roguish Sisterhoods know this and so should you.

Think of it as the interplanetary trade version of a credit score, if you like. Other colonists may be a little more understanding if somebody failed to deliver as promised once out of a thousand trade deals because maybe it was due to circumstances out of his control. However, if a colonist has a reputation of regularly failing to keep up his end of the deal, nobody’s going to want to do business with him. Not even the roguish Martian Sisterhoods mentioned so often in How To Live On Mars will be able to do much business if they have the equivalent of a “street” reputation for never delivering the smuggled ICBMs they promised.

This reputation system would probably run as a sidechain of some sort that can keep track of the number of contracts that a business, colony or corporation has successfully fulfilled and the ratings that people who have done business with that party have left. If a colony holds a “Smart” futures contract to have an Earth-based corporation deliver supplies and the corporation does not deliver as promised, that information is shared with the sidechain and the reputation system logs that as a negative on the corporation’s reputation rating so that colonies know not to do business with that corporation in the future. The reputation information will always exist on the system, which means that parties that are willing to trust the Blockchain with their reputation might be able to bribe judges and juries to ignore some shady business they were involved with, but won’t be able to bribe Blockchain specialists to make the relevant information stored by the reputation system disappear altogether.

Public Notary System

I’ve mentioned that Estonia has recognized the potential of the Blockchain for solving issues with its public notary. In fact, it’s signed an agreement with Bitnation to set up a Blockchain application that can be used to help manage its public notary system. The significance of this is that Estonia previously had a flawed notary system that led to rampant real estate fraud and it believes that the Blockchain can help get the notary system back on track.

Property rights are a concern for anyone who cares about living in a civil society that recognizes that people have the right to the fruits of their labors. There are words for people who use violence to force others to hand over their assets or work for them without compensation. The famous feud between the Hatfields and the McCoys started over a stolen pig, and this was no small matter at a time when the legitimate owner of a pig may have needed to butcher it that autumn to avoid starvation over the winter. Clear demarcations of what, exactly, belongs to two neighboring colonies will be even more important for colonists that care about not getting into skirmishes over who has the right to use resources. If you have two colonies, Colony Y claims territory that gives it access to a surplus of tritium, and Colony X claims territory that gives it access to a surplus of nickel and iron, how difficult would it be to take that to a Blockchain-based notary system that can recognize both claims so that the two can engage in peaceful trade?

Not too hard, actually, as long as the Blockchain can establish that the territory involved isn’t already claimed, in whole or in part, by other colonies. A Blockchain notary system application can check previous records before it recognizes the claim as valid and can reject anything that would cause a duplication or overlap in its records. This solves the problem of overlapping claims and it can also be used to solve the issue of who owns what.

The notary system can log authorized changes in ownership of assets and does not need to notice whether that asset is a piece of real estate or a pig. If the Blockchain had existed at the time of the Hatfield and McCoy feud, attorneys for both families could have looked up the appropriate record and established that, yes, that pig really did belong to the Hatfields.

As Medium asked when announcing the launch of Stampery, “Can Blockchain technology send notaries on vacation for good”? Actually, it probably could. It would encourage the retirement of notary officers who could be bribed or distracted by a talkative criminal who aims to use the notary system to commit fraud. The Blockchain would be doing all the work of timestamping and processing new entries, as well as checking to make sure each new entry is a legitimate one that doesn’t duplicate existing records.

One final note of interest: Is a marriage a matter for a Blockchain notary system, or a Smart Contract application? If you can legitimately have the matter handled at the county clerk’s office, it would be reasonable to say that it’s a matter for the notary system. That means marriages, birth certificates and death certificates. As a Bitnation advisor named David Mondrus said during coverage of the first wedding recorded on the Blockchain, “We believe that like the Blockchain, our love and marriage are forever and that our relationship is not defined by governments or the church. So enshrining our commitment to each other in the Blockchain in front of our friends is very dear to us.” This is simply another case of how the Blockchain does not give a rip about exactly who uses it. It just cares about whether the data stored on it checks out as valid.

However, there are parts of Earth that still say that marriage is usually part of a contract – at least, their societies do even when the government says that’s technically illegal. These “contracts” are usually arranged marriages in which the girl didn’t have much say in who her husband is going to be. Use that as a reminder if the Feminazis are getting on your nerves if you like, but it would not be at all unreasonable for two grown adults to have a marriage contract that last five or ten years and is renewed only if both spouses agree to it. That way, a married person would never need to feel like he or she is trapped in a marriage forever. The person who wants to leave would not need to take part in a protracted divorce court battle when he or she could simply walk away and any prenuptial agreements could be regarded as part of the marriage contract. That basically means that he or she could walk away with the same assets that he or she had originally brought to the marriage.

The Supply Chain

This is a natural one to tie in with a notary system that can log transfers of ownership of property because a Blockchain supply chain app would log the movement of assets at each stop in a supply chain. If the McCoys hadn’t stolen that pig, the Hatfields could have sold it to a butcher, who would have carved up the meat and sold it to families, restaurants and a pet food manufacturer. The supply chain app can keep track of every step along the routes the meat took to establish where it’s been and where it’s going.

When shipping raw materials, keeping track of where shipments are coming from might only matter if you care about not buying “blood diamonds” that fund civil wars or crude oil that funds terrorism. One barrel of high-grade oil is a lot another one of the same grade. Most refineries don’t care much about the source. They just care about the grade. However, in situations where civil rights factor into market forces, a Blockchain supply chain app that’s easy for the average consumer to use will give them some choices about where that oil comes from. Earth might care about refusing to support space piracy when buying shipments of platinum group elements from the asteroid belt. A coalition of colonies that participate in trade with one another might take the more practical route of refusing to trade with a colony that abuses its trading privileges in some way. The Blockchain supply chain app makes it possible for participants in trade to tell where supplies came from so that they can make that choice.

As much as you would love to believe that a sweet deal on Ray-Ban sunglasses if you bought it for $10, it’s probably a fake knockoff. Same goes for Ugg boots if they have a “Made in China” tag. Fraudulent consumer products like this are annoying. If products such as medical equipment that people’s lives depend on came from a fraudulent source, that’s beyond annoying. Caveat emptor, right? With a Blockchain supply chain app that provides transparency at every stop, caveat emptor need not apply. It can send red flags to personnel at every depot stop along the way if an attempt to deliver supplies that were never logged at a valid source is made.

Besides being a good case for colonies to be as self-sufficient as possible and have a few good 3D printers on hand, it’s also a case for them to make sure their supply chain is only delivering authentic, quality supplies. That oxygen generator had better work when you plug it in, or you’re going to feel like the total heel who ordered it from the wrong source before you become incapable of feeling anything at all.

Organizations like Provenance are already on the case. Knowing that you bought some Fair Trade tea is good. Knowing exactly where the tea came from, as you can with Provenance’s partnership with Cup Above Tea, is even better. This can be expanded to the interplanetary economy so that future colonists never have to guess about where their supplies come from.

Voting Apps and Tamper-Proof ID Cards

How To Create Your Own Blockchain ID

This might not seem to fall under the heading of a financial system, but how often have you had to show a photo ID before you could buy a case of beer? What if future spaceliners are required to establish that their passengers are who they say they are before they can board? Mars Society president Robert Zubrin likes to talk about the freedoms that future Martians should have in books like How To Live On Mars, such as “the right to immigrate or emigrate,” but you’ll still be ticked off if you show up at the spaceport and someone claiming to be you has already claimed your slot.

Which means having a form of identification that can’t be duplicated easily. A Blockchain-based photo ID system such as the one demoed by Bitnation would make it impossible to duplicate someone else’s photo ID without the duplicate being rejected by the valid Blockchain system. It can even take the DMV out of the picture. You could get a photo ID at the same place where you got you marriage contract notarized, if you wish, and that’s assuming that notary offices are still in business once everything has been moved to the Blockchain.

How A Voting App Could Work

What’s the biggest issue when voting during every election cycle, besides deciding who you’re going to vote for? Voting fraud usually comes up. Some voters complained that their votes somehow got changed at the ballot box or they somehow got kicked off the rolls during this year’s primary season in the United States of America. Some security experts say that it’s ridiculously easy to hack into voting machines and change the results.

However, a voting app can easily be tied to the ID system so that all citizens that have an ID can be automatically registered when they become eligible to vote and receive so many tokens that they can use to cast votes. Instead of going to the polling place, you can take two minutes to cast your vote while you’re still at your desk. Think somebody’s going to steal your ID and cast your vote for you? Then you’re still too used to the idea of a plastic ID card that can be easily stolen. If you truly want to tell politicians where they can stuff it, you can have a chip with your ID stored in it embedded in any body part you like. As an added bonus, nobody’s going to steal your ID without you noticing the attempt.

Voting for public officials is not even the only application that a voting app can be used for. Elon Musk has recently recommended direct democracy as a suitable form of government for a future Martian colony. That means future Martians won’t need to waste time writing ineffectual letters or signing equally ineffectual petitions to be sent to their representatives in the government. If they don’t like a particular state of affairs, they can just make sure the matter gets added to the ballot this time around so it can be voted on. It might not stop them from getting ticked off if they lose, but at least it would be very difficult to claim voter fraud if the other colonists told them to go lose themselves by casting an overwhelming number of votes against their position.

Issues to be voted on can range from the serious to the frivolous. Colonists can vote on whether to accept an offer from a neighboring colony for a certain quantity of nickel. They can also vote on whether they want carrots or broccoli as their vegetable for dinner tonight. Direct democracy does not sound so unreasonable when each voter ID is assigned so many digital tokens that they can cast as votes and the votes can be automatically tallied in a way that can’t be altered after the fact. The futuristic equivalent of blackballing – casting a vote against a candidate or position – may even be possible if some colonists just don’t like the taste of broccoli.

This also works for votes on issues that affect an entire coalition of trading partners. Remember that rule where one node equals one vote? This works for protecting the voice of smaller colonies that are going to insist on equal representation for the same reasons that the smaller of the original 13 U.S. states insisted on having equal representation in at least one chamber of Congress. It ensures that a tiny state like New Hampshire has the same two votes in the Senate as a larger state like New York. A similar model used by future trading partners in space will help to ensure that the needs of smaller colonies aren’t being ignored simply because of their size.

Yes, you can also have representation based on population size. Nothing here is written in stone yet and members of larger colonies probably won’t want their voices diluted by sheer size. This assumes, of course, that colonists will have the right to vote for their representatives. That’s why the U.S. Congress uses a bicameral model that also includes the House of Representatives. The bicameral model was a compromise between smaller states that were concerned that larger states might be able to control Congress by organizing what would have amounted to an 18th-century political version of a “51% attack” and larger states that did not wish to completely give up their clout. Isn’t it great when you don’t have to make something an “either/or” choice?

Whatever form this ends of taking, don’t forget to implement the concept of “one colony = one node = one vote” in some form – even as part of a compromise – if you care about the rights of your colony not being trampled on. As an additional bonus, a Blockchain voting application can be set to be completely anonymous, or at least pseudonymous in the sense that a randomized string of letters and numbers won’t be associated with anybody’s name, if there is a concern that colonists might be retaliated against for voting a certain way. It can set to record the vote of each qualified voter so that the voter cannot wiggle out of being confronted with proof of his or her vote if something goes wrong. The voting app is fully customizable to suit the colony that wishes to make use of a nearly foolproof method of voting.

Finance-as-a-Service

These can be combined into an array of services that entrepreneur Alex Oberhauser calls Finance-as-a-Services (FaaS). One Blockchain app could be used to enable stock trading and an associated sidechain can be used to enable shareholders who own, say, O-stock to cast votes at each shareholder meeting. In fact, the NXT system is one example of how this could work because it has a polling system in which users can create polls in which only the owners of a specific asset or currency can vote. FaaS could become an ala carte service in which colonists can select Smart Contracts, a reputation app and an easy way to vote on important issues if that’s all they’re going to need at first.

Once a colony’s node has successfully relayed a block of transactions, the colonists probably won’t know or care which distant node it was relayed to next. This is a lot like most cloud services in which you don’t particularly care which server your data is being stored on and might not even remember which city the data center is in for as long as authorized personnel can access the data when they need to, even when it’s three in the morning. What makes a Blockchain-based FaaS system different is that nobody except the owner of a data center and his insurance company will care if that particular data center burns down because the data is still safely stored on other nodes on the decentralized network.

What makes this possible is the Blockchain’s decentalized nature that cuts out the third party service provider. As we mentioned in the last chapter, a fully enabled Blockchain infrastructure would only add two layers to existing networking models to enable a whole new framework for a financial system. The international financial industry could be thought of as a Finance-as-a-Service system, but it’s an inefficient, expensive and manipulative one because it’s highly centralized. Would a coalition of colonies put up with one colony trying to exist purely as a central bank for long? Probably not. With Blockchain apps in which each colony’s node gets one vote on any issue that involves that system, this coalition probably would have no qualms about kicking these wannabe bankers off the system.

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