Blockchain, Tech and Business

Exponential Technological Revolution #4: Digital Governance

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This post is part of the 6 paradigms shifts beyond digital series.


(En Español aquí)

With Digital Governance we move into 4 to 6, paradigm shifts that will impact our values and sense of meaning. Digital Governance means making trust digital. It substitutes human based adjudication and decision making, with a digital decision and adjudication system that implements laws and contracts in code. This means substituting our shared fiction of law and property with an actual implementation that will enforce it directly.

Some of the most wildly successful creations of the human mind have been surprisingly ethereal. Laws (Hammurabi Code 1754 BC), money (Lydian Lion 600BC), contracts (first stock company 1602AD). They are “shared fictions” that give incredible cooperating power to large groups if they are believed and enforced. They are fictions because their enforcement mechanisms are not tied to the physical world, but rather dependent on the shared belief on them. If people stop following a code of laws, lose faith in a joint stock company or stop believing in a given currency its magical potency banishes. Digital governance holds the promise to turn these shared fictions into digital realities which will enforce themselves, boosting belief and ensuring compliance.

Digital Governance has its roots in Digital technology and Intelligent Processes. Beyond that, Digital Governance builds on two critical technologies that give it its power. First, cybersecurity and cryptography which are two disciplines that are at the heart of how digital governance can be achieved. We need a wholly different level of security and reliability to transfer our governance to the digital realm. Second, is Blockchain or Distributed Ledger Technology (DLT). Blockchain Technology is a new way to store data and code that, through cryptography, allows decentralized and tamper-proof storage of information and execution of instructions. There are many different implementations of Blockchain technology, Bitcoin and Ethereum are the most well known. However, the relevant thing is how Blockchain technology allows solving effectively the problem of digital collaboration and information sharing even in a totally distributed scenario without trust between participants. We can expect Digital Governance to evolve to leverage Integrated Reality heavily, as it needs to implement its decisions in the real world.

Digital governance will allow us to fully digitize and automate our money, our institutions and our laws and contracts. This means that we will enter into contracts or enact laws that are defined by specific code, against a decentralized shared registry of assets, money or other information. This contracts or laws will be automatically checked and executed without the need of human intervention, and without the possibility of favoritism, corruption or adjustment to common sense. We can expect this to change money, property and contracts and finally laws and institutions.

Money will change because digital governance will allow the issuance of “gold standard” money which is algorithmically bound to obey certain rules. Throughout history, money has been limited by the trust its creators could generate. Will the US Federal Reserve stick to the gold standard? Algorithmic trust will ensure that issuers have to execute what they commit to. Increasing trust by reducing flexibility, and widening the number of potential issuers once this trust bottleneck is handled.

Contracts and property will change because they are based on the legal system of countries. These legal systems are complex and difficult to enforce. Legal texts also allow different interpretations while “coding a contract” forces to chose a specific interpretation, even if it can have unintended consequences. So-called smart contracts will allow completely predictable contracting arrangements that are independent of legal codes in specific countries and their enforcement systems.

Institutions will be built to deal with the new trustless property, contracts, and money. Institutions can become platforms for smart contracts, money issuance, smart property registries and more, that have substantially more trustworthy and predictable outcomes. This new Digital Governance institutions will be trusted because of their code and might be independent of nation states and even private.

Finally, laws and regulations themselves can become digital. Laws and regulations are notoriously complex and only getting more so. The capability of analog institutions like legislators, legal systems, and enforcement agencies to deal with this complexity is more and more in question. Transforming the legal system to digital governance would allow instantaneous adjudication and complete clarity for all citizens and actors. At the same time, the great risk is that digital governance can have “bugs” that can be exploited with no common sense being able to rein them in. So we can expect to have a human final court of adjudication to deal with this for a long time.

Once these changes are underway, we can expect Digital Governance to fundamentally reshape a number of industries. Financial Services and Insurance will be redefined along with money, contracts, and property. Wholesalers might see their roles significantly streamlined, as trust can be extended to unknown parties. The public sector will be transformed. This might take its time as the public sector can sometimes set its own pace of change, but combined with Intelligent Processes we can expect a radical reduction in the number of government workers dedicated to information processing and compliance. Lawyers will see their jobs change, programming lawyers will come at a premium, and they might be more needed than ever but in a completely different role.

There are at least eight use cases that we are seeing today which will already reshape our world:

  • Private cryptocurrencies offer a decentralized and pre-determined store of value and interchange mechanism.
  • Public cryptocurrencies are cryptocurrencies offered by national banks choosing to issue legal tender with a blockchain infrastructure backing.
  • Initial Coin Offerings are a new token-based funding mechanism for companies and organizations
  • Smart contracts and digital corporations represent perfectly defined and self-enforceable contracts and institutions.
  • Digital registries and markets create autonomous and reliable trusted institutions, both public and private.
  • Digital ownership and access allow taking the middle-person out of marketplaces.
  • Digital Law could be the greatest legislative step forward since the Code of Hammurabi.
  • Digital Government could bring democracy to the digital age and make it competitive in terms of speed and results.

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