Some of the most frequent questions we get relate to what the future will bring. “Is Bitcoin the real thing?” “Will Bitcoin be regulated?” “Which digital currency will win out in the long run?” All interesting conversations, to be sure, but largely subjective. Increasingly, when people ask me to speculate about the future of any digital currency, I find myself asking them “have your heard about Blockchain 2.0?”
Blockchain 2.0 is, at least in some circles, the catchphrase of the moment. The terms refers to the rising wave of new technologies (and startups) looking to leverage the blockchain technology that lies at the core of Bitcoin. The key thing to realize here is that they are looking to leverage that technology in ways that often unrelated (or at least not directly related) to Bitcoin itself. This, to me, is the more interesting issue. I’m interested to see how the technology behind Bitcoin can be used for other purposes.
By way of refresher: The blockchain is a distributed consensus technology that uses a peer-to-peer network to codify and cryptographically verify transactions. The ability of the blockchain to execute authentication and verification tasks has a very high utility value that can extend beyond merely confirming Bitcoin transactions. The underlying design can be used for any transaction requiring some degree of verification.
One of the most widely known applications is Codius, from the good people at Ripple Labs. Codius is an open source protocol intended to spur growth of so-called “smart contracts.” Basically, a “smart contract” is an agreement between parties that uses computer code to handle settlement autonomously. By encoding the rules and conditional outcomes into a computer program, you no longer need to rely on another party to enforce the arrangement. The rules for the contract can be written in any programming language and can interact with any service that accepts cryptographically signed commands. Simple applications would be a car rental agreement, or an employment contract, or even a will. Indeed, many of the mundane commercial matters currently dealt with by traditional contracts could be automated, thereby realizing efficiencies.
A smart contract uses the blockchain methodology of independent verification to determine whether the targets have been met and therefore the obligation has been discharged. The system removes the need for trust, or for the intervention of a third party. It essentially turns the blockchain into an automated escrow agent. For the developers in the crowd, there’s a simple implementation example on Github.
Smart contracts are but one example of how the blockchain can power things-not-purely-Bitcoin. It’s been said that the most interesting uses of Bitcoin haven’t been invented yet. I think a better statement might be: The most interesting uses of the technology behind Bitcoin have yet to be invented.
If you liked this post, you may want to take our course called Introduction to Digital Currencies; the last lesson of that course looks at blockchain 2.0 and the future of digital currencies.