On controlling the negative externalities of Blockchains.
On 26th January, In India we celebrated republic day, which denoted that India as a country adopted one of the basic / initial forms of consensus known as the republic. But over the internet, a new form of republic is being born called " Blockchains" wherein individual nodes form a consensus over transactions and holds the possibility of being the new form of law- "The law of code."
Code is law and law is code.
In recent times, the blockchains have gained the attention of many regulators. Upon referring to all the reports published by regulators on blockchain technology (i.e. - IMF reports, BIS reports, RBI etc). One thing is very evident that blockchain is an amazing technology and use of which can solve multitude of our problems, but there seem's to be a very straight remark on cautious use of blockchain technology. That's where the negative externality factor comes to play. The negative externalities with blockchains can be both intrinsic as well as systemic.
Intrinsic negative externalities relate to controlling the behaviour of the participants within a blockchain and what type of behaviour would be considered as rogue behaviour. To put it in simple words its like when the initial stock exchange was formed by Dutch (The Joint stock company) in 1600's, at that time the definition of insider trading did not exist, as the intrinsic negative behaviour was not identified. Similar is the case with blockchain wherein a negative behaviour can't be foreseen right now but can be controlled by enforcing stringent rules on the players to participate in the blockchains, either technically or by definition of boundaries but not limited to these controls.
Systemic negative externalities relate to how the system reacts to the change introduced by blockchains. The introduction of blockchains within any ecosystem would lead to the fundamental shift the way in which business is done. Thereby makes it a mandatory to understand the system dynamics of blockchain application before rushing into applying blockchain and how the core object of business is affected by the use of blockchains.
To conclude finding the use cases for blockchains is really simple but getting it to work actually would require a deeper understanding of the ecosystem and detailed definition of rules for players. :)
<Image by John Langdon>
The resilient resists shocks and stays the same; the anti-fragile gets better - Nassim Taleb I totally agree on the point that current system fallacies can't be foreseen, but events like DAO attack would definitely strengthen the system, like we saw enhanced bitcoin security and risk management after Mt. Gox. It's part of the process, just make sure one doesn't become the scapegoat by moving too fast.
One piece of advise to all young and ambitious blockchain entrepreneurs. You can't neglect and underestimate sound sw engineering practices and processes. Rush to release any sw including blockchain smart contracts without proper specifications, peer reviews and extensive testing is a recipe for disaster. It keeps being proven time and time again, including the latest DAO fiasco.