Unless you have been living under a rock for a while, there is hardly a chance to have missed the buzz and events involving cryptocurrency. We have heard of overnight billionaires and overnight crash in value of Trillion dollars. Are we ready to adopt cryptocurrency in mainstream society? What do we need to consider besides many topics you can find if you search the internet?

Enormous amount of investment has gone into and continues to go into those efforts aimed at capitalizing (monetizing) the technological advances enabling cryptocurrency. Naturally the goal is to recover the investment with high reward. Here, we have to think of consequences – especially because it involves the central currency system (such as US dollars). As one of my favorite people in technological world who can raise lots of money for monetizing nearly any technological advancement aptly put it – we will certainly see immense advancements in computing and other information technology. I probably will add: we will see advances in many more fields than those (including policy) that will have immense impact on our everyday life.

The capitalistic pursuit (and the promise) of the cryptocurrency application has taken off in a big way with lofty goals that include building a safer future of economics (even replacing currency as we know today) with inherently built governance, which will have enormous impact on our everyday life.

The most important aspect to point out (as these posts in this Hi-Brow Perspectives are intended for broader audience) is that cryptocurrency uses the contemporary technological advancement the block chain. However, the way cryptocurrency efforts have taken off, block chain and cryptocurrency are used as synonyms.  Block chain is a major advance that can transform many aspects of security in ways different than practiced now as well as bring new dimensions to it. Simplistically, block chain is a distributed and decentralized digital ledger system stored on many (hundreds or thousands of) independent computers/nodes, with one of the goals of making it difficult to change records of activities or transactions (i.e., making them immutable). Consequently block chain offers immensely improved security through the integrity of transaction records and open up novel applications through transparent way to trace transactions and changes to records – e.g., access to user created/owned content, personal information etc.

*A brief introduction to conceptual aspects, the words in brown, is provided at the end of the post.

Block chain and cryptocurrency are topics too broad to cover here, excellent articles are easily accessible in the public domain for curious potential users, experts and in this case another essential group of people – the regulators. However, I have added enough context to help follow this post, trigger your thought process and to follow the breadth of applications that will impact the society at large.

The other use of block chain, besides cryptocurrency, that has gained visibility is NFT (non-fungible tokens). The dictionary meaning of fungible is “able to replace or be replaced by another identical item; mutually interchangeable”. NFT and this concept of verifiability (hence inherent safety in many ways) will become a major way many mid-value and large volume lower value everyday applications are privatized and will become a major part of our everyday life. NFT is currently popular for use with pictures and objects (often intended to be unique), as have traditionally been with art as a collector’s interest or as publicity for cryptocurrency – where the concept of block chain the verifiably of the objects is used. The use of NFT in items considered collector’s interest does not affect the society in a major way. However, such acts when not in context of previous statement and done as promotion of cryptocurrencies fall into dangerous territory.

To relate NFT to some practical uses – think of examples like safeguarding pictures and videos (probably including from deep fake efforts), safer drugs and vaccines (to prevent counterfeiting) as they move through supply chain or when you share personally identifiable information or documents with other parties to maintain the integrity and to track the use of them. Many types of organizations can become very effective by incorporating block chain into their current practices by keeping track of goods , documents and their access (at least within and as it pertains to their operation). Tracking  goods and activities in enterprise or societal activities incorporating block chain will become pervasive. Applications using the current tracking approaches using tech inside your phone or other objects using piece of hardware sold by that phone company (e.g., AirTags) will also become part of (or will be targets of) blockchain offerings seamlessly integrated into your everyday life – including for activities we probably haven’t yet imagined.

With the introduction that outlines the enormously improved security aspects and applications that can transform our society, my use of regulators right in the beginning of this post may seem counterintuitive. Strong regulation has traditionally proven to be detrimental to innovation and rapid development of commercial applications.  Despite that, my reasons for bringing up regulators very early in the post include (i) cryptocurrency efforts though built on the powerful concept of block chains that can provide immense security and traceability are fundamentally leveraged on central currency system and (ii) the major operating and delivery model of block chain based applications that I introduce in the next paragraph. We have seen the impact of both those reasons in the news, as creating overnight multi-billionaires and paupers utilizing genuine flaws or likely premeditated frauds.

A major approach to commercialize (and eventually commoditize) the use of block chain advantages will be as a decentralized autonomous organizations (DAOs), that are operated as private commercial entities. DAO happens to be on lists of the most popular buzzword and concept to know in 2021. Ways to think of business models here are creation of DAO frameworks and applications offered by other commercial entities adopting one of those DAOs (simplistically equivalent to white labeled items that are adapted for specific use and commercialized as branded items by other entities). Block chain already had the concept of decentralized in the context of the nodes of the distributed ledgers – but in DAOs that term decentralized is primarily used to convey governance without a central authority. However, adding the term autonomous to the other two key aspects of block chain distributed and decentralized and link it to a capitalistic use as cryptocurrency that is leveraged on central currency, will result in a confluence features that will rank among the top motivators of progress and crime, or possible errors that can lead to huge disasters – introducing the need for extreme caution. An very small example in the context of these applications and advances is the $150 MM (million) disaster in the case of the German company ‘The DAO’ that supposedly occurred due to exploitation of a genuine flaw in the use of Ethereum framework of cryptocurrency.

Additionally, the transparency principle behind the distributed ledger is to trace legitimacy of transactions but not to explicitly trace the users or nodes. That brings us to anonymity as another key aspect, as the previous statement implies the distributed participants (computers/nodes) can in principle be absolutely anonymous. One practical reason cited for need of anonymity of all participants (including those who transact and as part of the block chain nodes themselves) is to help prevent malign hacks like mass theft of identity. The concept of decentralized and distributed fundamental to block chain mixed with autonomous in DAO and anonymity now adds up as multiple layers that necessitate extreme caution.

Imagine the motivations and disaster that await when something that can give global control (where we cannot even afford to have such powers in smaller communities) when we combine all above features as cryptocurrency that is leveraging the central monetary system with eventual aim to replace it.

The last conceptual aspect used in this post is the smart contract which is a key part of execution of DAOs and is meant to safeguard from abuses or to prevent disasters from errors without strict hierarchical decision chain or a governing body. We can in principle take all these negative cases and build precautions into the smart contract as a set of algorithms that the system (not some entity or human) executes. However, the devil is in the details. One can only design the smart contract with as much information and imagination – but we always learn more in the future, sometimes as an after fact of some large negative event.

Together the central features of a powerful block chain technology and the major business models being built to leverage this technological advance has a mix of features that can be used by fraudsters, black marketers, as well as corporations who want to lurk in the background to gain lot of control over the system and over the society. To clarify the last category of the previous statement: anonymity of nodes will help a single organization to come out consolidate at an appropriate time to have dominant impact on the society catching many (and certainly the regulatory systems) unaware. With such capitalistic interests together with legal obligations and legal protection available for commercial entities there is little room for societal good as we have seen time and again historically and in contemporary times. The security advances in the contemporary times (including those currently in use) each of which made us even more secure also led to huge disasters such as massive hacks involving significant parts of a community to nearly whole communities (such as a country) like theft of personal information leading to misuse, ransom demands etc.

Also, immutability as defined in an earlier statement is an oversell –rather more tamper-resistant when operated within the bounds of the smart contract will be more realistic expectation. If you now read the earlier paragraph that introduced anonymity again, you will realize that the concerns raised there are far from adequately addressed by any of the mechanisms. Even more concerning will be someone whose primary intent is to destroy something rather than trying to directly gain from being part of the DAO, including the ‘customers’ they serve. This is a huge risk to society and another reason for the introduction of regulators early on.

Before we get to the final aspect of this post, I want to emphasize the fact that the positive aspects of block chain mentioned in this post can and will confer immense  progress to t our society – hence we focused on that topic. However, the goal of Hi-Brow Perspectives is to highlight underexplored themes in emerging innovations, applications and policies that can have major impact on the society. Here we highlighted some aspects of the evolution of cryptocurrency and business models of NFTs that can pose enormous negative impact to society.

Finally, what about the second part of the title of this post? With my mind constantly mulling the good and bad of the above progress (as with other innovations and societal events) a scene in the James Bond movie series ‘Tomorrow Never Dies’ exemplified one scenario resembling the worst case of the main line of cautionary thought in this post.

Were you planning to hedge all your resources into cryptocurrency? – Hopefully some thoughts and examples given above should help you with that. Good thought to aspects highlighted here will also help with design of delivery models and regulation of applications based on block chain technology – and of cryptocurrency, the most economically impactful application to emerge from this technology so far.

Consistent with the goals of ‘HiBrow Perspectives’ I am certain that this post helped stimulate thoughts on some important aspects that fall at the interface of innovation, regulation and business and have major societal impact. Please share your thoughts ideally as an open forum here (instructions at the end of this web page) – or continue to do so as personal communications as several of you have been doing in the past.

BELOW ARE SIMPLE DEFINITIONS OF THE CONCEPTUAL WORDS IN THIS POST IN BROWN

Distributed: refers to having many copies of the ledger of transactions by many (often hundreds to thousands) independent entities – as computers/nodes.

Decentralized: is used to emphasize the distributed entities in the execution framework are independent (and also independent from each other) and avoids control by one entity or authority (in cryptocurrency it is often used in the sense of not regulated by government). With distributed and decentralized aspects used a single sentence to describe block chain as we did above, it also allows immense privacy of entities involved.

Distributed Autonomous Organization (DAO): in addition direct meaning of the words in the phrase also refers to business models for execution of the technology in applications.  One emerging business model is enterprises making framework to implement the technology for the application and other entities (businesses) adapting it for their use (simplistically relate it to franchises or app stores).

Smart Contract: can be thought of as algorithmic ways for the ‘system’ to check capabilities, carry out transactions and agreements and resolve deviations the best possible way within the confines of the contract etc. Block chain being distributed lets participants be those decentralized nodes part of the distributed ledger that permits accountability and ability to trace all transactions and preserve the core principles like immutability or to deal with any (unforeseen?) deviations. Smart contract might stipulate to resolve deviations using approaches as simple as 51% majority voting of the nodes to lot more complex consensus approaches (naturally we should gravitate towards the latter).

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**language edits – 040222