Originally posted on Our Purpose - Thomson Reuters
Are you ready to jump down the rabbit hole? Well, so begins one of the most transformative periods in human history. What began as a widely dismissed experiment unleashed on the world by an anonymous author became a phenomenon that will alter corporations, governments and your own personal finances. As a technologist and futurist in a company widely respected for its ability to inform the way forward for professionals in the legal, tax and accounting and government sectors, I’m frequently asked how these technologies will shape the world we live in. While some of the shifts are already underway, most are yet to come, Ultimately, these technologies will change commerce, law, taxes and wealth creation, and how we interact with each other. How is this possible? Let us start with the building blocks of our future infrastructure.
Bitcoin invented blockchain technology in 2009 with their white paper. Blockchain enables a decentralized ledger to run on thousands of computers globally. Through sophisticated consensus mechanisms, the machines confirm transactions between two entities. They accomplish these trades without banks or government oversight. The underlying technology Bitcoin uses is called blockchain, which is the secret sauce of this monumental infrastructural shift. So, while Bitcoin is neat, blockchain is our future tech.
Foundational infrastructural blocks
Our history starts with Web 1.0, the early internet in 1990, when we read content and clicked links to viewable information. In the early 2000s, along came “Web2,” allowing direct user interaction, for example “likes” or “voting up” content. That was a computational marvel of coding at the time. We are now entering “Web3.” It is the most significant paradigm shift since the internet began. Web3 ushers in the ability to tokenize assets. This means you can leverage blockchain, a trusted database, to create the internet of value and a web of digital asset ownership that is provable and verifiable without third parties. For simplicity, tokens represent digital shares or ownership of something.
As a result of blockchain, myriad cryptocurrencies were born leveraging this tech. Some will have real potential to compete against a national currency like the dollar. Sixteen thousand cryptocurrencies exist today. Eighty-three central banks around the world are now fast-tracking Central Bank Digital Currencies (CBDC) (to compete against this shift to cryptocurrency.) Regulators the world over are also attempting to keep up. Many of the 16,000 will falter, but the appeal of these cryptocurrencies is that they are building new use cases of the internet of value. Some have programmed into their code, scarcity, and some deflationary attributes. For people living in countries with high inflation, these cryptocurrencies act as a hedge. Importantly, people can hold assets individually, cryptographically, without a bank. The owner has a lock and key to their money and need only to interact with the blockchain via their digital wallet. As a result, the valuation of cryptocurrency reached 3 trillion dollars recently.
The next building block for this vision is transforming the financial industry. Decentralized Finance (DeFi) is reimagining what the industry could look like without intermediaries. By its nature, blockchain removes third parties because the code and underlying math does the verification. Currently, DeFi has hundreds of billions of dollars locked into various blockchains, using “smart contracts” and cryptocurrency. A smart contract is a few lines of computer code that creates an “if/then” statement, for example, if Amazon® stock is at $2,000 on January 1, 2019, then sell it.
What is special about smart contracts on the blockchain is that once an agreement has been reached by two parties, it is programmed onto the platform and becomes self-executing and immutable – without any human intervention, what a human or bank would have done to record something. For example, in DeFi, if I wanted to earn 20% interest on my cryptocurrency (my money), I could sign a smart contract within my digital wallet telling the blockchain to hold in custody the money for an agreed period, netting me 20%. Nearly every imaginable financial instrument is being ported over into DeFi.
NFTs and the Metaverse
The next stage of blockchain, cryptocurrency and DeFi are Non-Fungible Tokens (NFTs). They represent anything physical or digital registered to the blockchain. NTFs give an asset a unique code or hash or name that can be checked and is verifiable on that digital ledger. We will use this to prove ownership of assets, such as the deed to your car or house. Recently, NFTs have taken the art and music world by storm. Billions of dollars of digital art have been purchased in the last year. As we move into the Metaverse, an eventual virtual place for business and entertainment, those assets will have even more value in virtual homes or in a digital Times Square. It is surreal to contemplate, but this will happen in the next handful of years, all enabled by blockchain.
DAOs – The future of organizational structures
Going forward, the final building block to the blockchain stack are Decentralized Autonomous Organizations or DAOs. These are essentially entities built on code, leveraging smart contracts and tokens permitting token holders to vote on decisions that the organization is considering. In the next several years, I predict a major sports franchise will be owned by a DAO. Imagine being a token holder in that DAO and being able to vote on who is drafted. Recently, a copy of the Unites States Constitution was nearly won at auction by a DAO. This will be commonplace soon.
These are early days of blockchain and what it has birthed - cryptocurrency, DeFi, NFTs and DAOs. The emergence of these technologies will mean that professionals in the legal, tax and accounting and government sectors can expect to see significant changes in the years ahead. The abundance of new opportunities in nearly every field, including legal, tax, and government, is immense. The legal industry will see nearly every angle impacted for both the business and practice of law. Contracts will be automated and interactive leveraging blockchain. Litigation will rely on truth from transactions on the chain. In tax, applications will need to digest and interpret these ledgers, but will provide even more clarity about global transactions. Governments will likely need to regulate and help interpret how these amorphous systems are framed in our world. There is little doubt that this will transform both our personal and professional lives, especially as we move into the Metaverse.