The Internet of Value
Because the blockchain is a secure system that enables a trusted network it may be described as a value-exchange protocol. In this respect, it is often said that what the Web did for the exchange of information the blockchain will do for the exchange of value. Just as the web revolutionized the use and exchange of information within society disrupting whole industries based upon the centralization of information, so to the blockchain is set to do the same for the recording and exchange of all forms of quantifiable value. The idea of value lies at the heart of the blockchain, if there is no value involved in the process then there is no need for trust and no need to use a blockchain. The vision of the internet of value is for any quantum of value to be exchanged as quickly and fluidly as information is today. Although information moves around the world instantly, a single payment from one country to another is slow, expensive and unreliable often taking days and involving numerous intermediate third parties to validate and process transactions. Thus it is no accident that the first widespread use of the blockchain was for currency because it is the most immediate and obvious source of quantified value within society. However to truly understand the revolutionary potential of this technology is to appreciate how value and its exchange influences and regulates almost all aspects of human affairs. As a consequence, the control of how value gets defined, measured and exchanged is a key source of power and control within society and has been since the origins of civilization.
Today value of almost all kind is defined, quantified and regulated by centralized organizations, whether this is a national government creating their own currencies or one’s role within a hierarchy defining one’s economic status or the branded clothing that people wear to signal to each other their social status and value. However, the move into the network society shifts the locus of organization from closed institutions to individuals and networks. Blockchain technology is a key element enabling this process, by creating a shared ledger where people can own their own data it also enables a shift in the locus of value within economy to the individual and networks. In a world of limited connectivity, limited transparency and limited peer-to-peer trust it was necessary to have third-party institutions to define, quantify and authenticate sources of value within society and economy. But in a world of pervasive peer-to-peer connectivity, transparency and trusted networks value can be defined through a negotiation between peers within distributed networks.
The rise of digital currencies is but one such example of this. The surprising thing for a lot of people is that most major currencies like the Dollar, Yen, and Euro aren’t backed by anything they are just pieces of metal, paper and electronic entries in a bank account that get their value from everyone believing that they have value and accepts them as a medium of exchange. Currency or money works a little like a language, they are subject to network effects to give them value, the more people who agree to and understand a language the more value that that specific language has as a form of communication. Dollars, Euros, and Bitcoin have no intrinsic value they are all social protocols and they merely represent a way of supporting value flow between individuals. In the past because of low levels of trusted peer connectivity we required centralized institutions like governments and banks to get these value exchange networks started, to support, regulate and maintain them and this gave them a lot of power. This is a critical aspect that the internet and the blockchain are changing, the blockchain enables us to create trusted and automated peer networks of exchange which greatly strengthens the capacities of people to negotiate and defined value via direct peer-to-peer exchanges. People can now set up their own currencies with the value of the currency dependent simply on what others are willing to pay for it via an automated peer network exchange.
But the internet of value is more than just currencies because value is, of course, a much broader concept than just pure economic utility. In talking about the internet of value it is important to recognize that on a societal level we are moving into a post-industrial services economy, the traditional conception of what society values is being revisited as a new set of societal and environmental factors reenter the equation. People are less and less content with the traditional conception of GDP as a metric for how well they are doing and more and more demanding actual quality of life, which of course engenders a broader spectrum of values. Over the past decades, we have increasingly begun the process of tracking and accounting for different forms of value, whether that is green bonds, social impact bonds, company loyalty schemes, carbon accounting or a multiplicity of other forms. Put simply the erosion and loss of social and environmental capital that occurred during the industrial age is generating a recognition and growing awareness to their value. Metrics for how well a society is doing increasingly take account of may more environmental and social parameters in combination with GDP.
Along with this recognition to the importance of different forms of value comes also the technical means to quantify and exchange them. Through the process of datafication information technology lets us measure, track, and exchange ever more types of value at ever smaller increments, likes on Facebook, peoples attention, carbon emissions etc. with the rise of big data and IoT we will be quantifying and ascribing value to almost everything and the blockchain will provide the networked infrastructure for tracking and exchanging all these micro and macro quanta of value. This shift from the narrow form of economic value that dominated in the industrial age to a broader spectrum of value that emerges within a post-industrial society is enabled by the distributed ledger system that support what we call token economies wherein we can define a token as a measure of any form of value and then build an economy around that.
Token economies and the internet of value build upon the current expansion of digital markets brought about by the rise of the platform economy. Over the past decades with web 2.0 we have begun the process of expanding markets to more and more spheres of life that were previously organized via centralized organizations. After only ten years of this process the biggest accommodation service in the world is no longer a centralized organization like the Hilton it is now an online marketplace, the same is true for the taxi industry, the same is true for commerce, with 10 million merchants and 440 million active users the Alibaba network is now reported as the largest retailer. Markets are complex, they required the aggregation of large amounts of information and peer-to-peer interactions, without the technology it is much more viable to achieve coordination via a centralized hierarchical model. But as we come to quantify and account for more and more areas of life blockchain based networks will extend the capacities of plug and play markets to all spheres of life, social, economic, technological and environmental.
This internet of value will function as the infrastructure to the emergence of the services economy which is currently taking place within post-industrial economies. With such capacities we will expand market systems to almost all areas of activity, closed organizations will be converted into peer networks, dynamically allocating resources as needed through market exchanges. The move into a services economy results in the conversion of industrial age products into services, whereas the product based economic paradigm was about the production and consumption of more products as measured by GDP, a service economy is about value delivered, a service is an exchange of value, you don’t get the product you just get its function and the value that it delivers. As such all spheres of the economy become redefined away from the static conception of units of products towards the more fluid exchanges of value. You don’t by a lift to put in your office building you get it as a service paying only for the functional value it delivers, in some offices now they don’t even buy the carpets on the floor, these are delivered as-a-service.
The blockchain is a key infrastructure enabling this new services economy as it requires a very fluid, dynamic and automatic tracking and exchange of value. Smart property and smart contracts will form the technological infrastructure powering the services economy as they operate within large peer networks automatically allocating resources and processing financial debits and credits for value exchanges. This huge shift in our economy lets us re-conceptualize every industry to really question what the actual value it delivers is and then reconstruct it by building token markets around that value where anyone can participate in the delivery of the service.
With web 2.0 and the platform economy, we extended the capacities of markets so that many more people could participate as exemplified by Uber enabling anyone to operate as a driver. However, these markets were centralized around the platform operators and they were dependent upon traditional currency systems. In Web 3.0, blockchain applications will function as distributed automatic plug and play markets where extremely small increments of value can be exchanged directly peer-to-peer with very high levels of fluidity. When this is coupled with IoT and data analytics we will be able to track the real value that things deliver which will help us to make the much-needed move from a product based economy to an outcomes economy that better reflects the underlying value being created and exchanged.