Because the blockchain is a secure system that enables a trusted network, it’s often described as a value-exchange protocol. In this respect, people often say that what the web did to exchange 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, the blockchain is set to do the same for the recording and exchange of all forms of quantifiable value. This 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 the blockchain.
The vision of the internet of value is for any quantum of value to be exchanged as quickly and as fluidly as multimedia is today on the web. Although multimedia can move around the world almost instantaneously, a single payment from one country to another is slow, expensive, and unreliable, often taking days and involving numerous intermediary third parties to validate and process transactions at a high cost. It is no accident that the first widespread use of the blockchain was for currencies because it is the most immediate and obvious source for quantified value within society; however, to truly understand the revolutionary potential of this technology is to appreciate how valuable and its exchange influences and regulates almost all aspects of human affairs. Consequently, the control of how value gets defined, measured, and exchanged is the key source of power and control within society and has been since the origins of civilization.
Today value of almost any kind is defined, quantified, and regulated by centralized organizations, whether it is a national government creating their own currency or one’s role within a hierarchy defining one’s economic status, or the branded clothing that we wear to signal to others our social status and value in society. However, the move into the networked society shifts the locus of an 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 the economy to the individual in networks. In a world of limited connectivity, limited transparency, and limited peer-to-peer trust, it was necessary to have third-party institutions define, quantify and authenticate sources of value within society and the economy. However, in a world of pervasive peer-to-peer connectivity, transparency, and trusted low-cost automated networks, value can be defined through negotiation between peers within distributed networks. The rise of digital currencies is but one such example of this.
The surprising thing for many 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 entries in a bank account that get their value from everyone simply believing that they value and accept them as a medium of exchange, and that’s all that is necessary. Currencies and money work a little bit like languages; they are subject to network effects to give them value. The more people who agree to and understand the language, the more valuable that that specific language has as a form of communication. Dollars, Euros, and bitcoins have no intrinsic value; they are all social protocols that merely represent a way of supporting the value flows 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, support them, regulate them, and maintain them. This gave those organizations 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 people’s capacities to negotiate and define value via direct peer-to-peer exchanges. People can now set up their own currencies with the currency’s value depending simply on what others are willing to pay for it via automated peer-to-peer network exchange.
But the internet of value is more than just currencies because the value is, of course, a much broader concept than just pure economic utility. In talking about the internet of value, it’s important to recognize that on a societal level were moving into a post-industrial services economy. The traditional concept of society’s values is being revisited, and a new set of societal and environmental factors re-enter the equation. People are less and less content with the traditional concept of GDP as the sole 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 beyond economic utility. Over the past decades, we’ve increasingly begun the process of tracking and accounting for different forms of value, whether this is green bonds, social impact bonds, company loyalty schemes, carbon accounting, or a multiplicity of other forms.
But simply, the erosion and loss of social and environmental capital that occurred during the Industrial Age are generating recognition and growing awareness of their value. Metrics for how well a society is doing increasingly take account of many more environmental and social parameters combined with GDP. Along with this recognition of the importance of different forms of value comes the technical means to quantify and exchange them. The process of datafication of information technology lets us measure, track and exchange even more types of value at even smaller increments—likes on Facebook, people’s attention, carbon emissions, etc. The rise of big data and IoT will be quantifying an ascribed value to almost everything, and the blockchain will provide the network infrastructure for tracking and exchanging all these micro and macro quantities of value. This shift from the narrow form of economic value that dominated the Industrial Age to a broader spectrum of values that emerge within a post-industrial society is enabled by the distributed ledger system that supports what we call token economies.
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 are built 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 expanding markets to more and more spheres of life previously organized via centralized coordination. After only ten years or so of this process, the biggest accommodation service in the world is no longer a centralized organization like the Hilton, and it’s now an online market. 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 in the world after just 19 years of existence.
Markets are complex; they typically require the aggregation of large amounts of information and peer-to-peer interactions; without the technology, it is much more viable to achieve coordination very centralized hierarchical model. But, blockchain has begun to quantify an account for more and more areas of life. Blockchain-based networks will expand the capacities of plug-and-play markets to all spheres of activity—social, economic, technological, and environmental. The Internet of Value will function as the infrastructure to the emergence of the services economy, which is currently taking place within post-industrial economies. The move into a services economy results in the conversion of Industrial Age products into services. In contrast, the product-based economic paradigm was about producing and consuming more products as measured by GDP.
A services economy is about value delivered. A service is an exchange of value—you don’t get the product. You get its function and the value it delivers. All spheres of the economy become redefined away from the static conception of units of products towards the more fluid exchange of value. You don’t buy an elevator to put in your office building, and 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. The function of the carpet is delivered as a service, and they pay only for the value that’s exchanged. The blockchain is a key infrastructure enabling this 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. They operate within large peer networks, automatically allocating resources and processing the financial debits and credits of value exchanges behind the scenes. This huge shift in our economy lets us reconceptualize every industry to really question the actual value that it delivers and then reconstruct it by building token markets around that value, where anyone can participate in the service delivery. 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 on traditional currency systems and the financial system for processing transactions.
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 fluidity levels. When this is coupled with IoT and data analytics, we will track the real value that things deliver, which will help us make the much-needed move from our product-based economies to an outcomes economy that better reflects the underlying value being created and created exchanged.