Mikhai Ivascu, CEO at Modex considers as the key signs of the growth of decentralized economies with smart contracts being used in the huge number of investors and entrepreneurs who have abandoned venture capital in favor of disrupted markets.
Can the Blockchain revolution be identified as a next 3-5 years trend?
The blockchain revolution has undoubtedly started. And a revolution you know should not be called a trend. We are talking about a transformative moment in the history of global economics. I’ve always identified my generation as the kids of the blockchain revolution, the first generation of a new economic era where decentralized systems and smart contracts will redefine the way we make commitments. Over the next three to five years blockchain will extend into everything, from healthcare to voting in elections, from data exchange to environmental tracking. Blockchain is the solution to real world problems, but it will require time to take form and be implemented. We are at the very beginning of a decentralized global economy. The shift has started and from an entrepreneur’s perspective it’s impossible not to see it staring us in the face.
How do you define the decentralized economy and the economy of smart contracts?
A decentralized economy is an economic system that no longer is based on a centralized structure. In other words, no single entity, agency, bank, government or boardroom has control over all the processes and movement of capital and influence. Capitalism at its core is based on a voluntary decentralized free market. In the case of blockchain technology, you can argue that it is politically decentralized in the sense that no individual controls the system. The architectural of the system is decentralized, hence a chain of blocks replace a single point of authority. This means that there is no infrastructural center point of potential failure. The whole network it can be argued adheres to a set of core principles to which every user in the system has agreed. Smart contracts are computer codes written and shared within a blockchain network and which are self-executing. This is the basis of a new economic model, where untrusted parties are able to perform transactions without the need of a third trusted party. Trust is no longer a matter of confidence in the honesty of a person. Risk is thus limited, which brings down the cost of fraud which had traditionally been factored into the cost of doing business. This revolutionary radically reduces the cost of transactions and instantly enables us to grow all sorts of new businesses profitably.
What are the key principles of this new economic model?
It will all be based on DLT technology. Blockchain technology has slowly begun to disrupt industries such as banking and the fintech industry because it nurtures the core principle of business, trust. All money-related processes require a pre-existing level of trust between the participants involved, be it payments, investments, loans, debt, and so on. The new digitized economy based on blockchain and smart contracts creates a secure and transparent environment. Transaction data is stored within blocks which we all can easily access and the self-enforcing smart contracts assure a cohesive process where neither party can commit abuses. It’s pretty amazing when you come to think about it.
How will the global economy ultimately benefit from this new model?
The new economic model based on blockchain technology has a series of inherent advantages the substantially reduced costs I already mentioned. Such as increased processing speed for transactions. Beyond that, information stored within a blockchain network cannot be tampered with. Security levels are reaching unheard of heights and data transfer and storage processing are entering a completely new era. Global economies from the financial system to government administrations everywhere will benefit from these solutions. The question is who will be the early adopters and who will take more time to come onboard. Everyone will, but not at once.
How do consumers and the mass market benefit?
Blockchain will completely reshape the way in which consumers make transactions. The idea behind the innovation was to see how we can better handle personal data. At the moment, blockchain provides our highest levels of security and transparency while smart contracts can provide contractual-like structures that are fully automated that are time efficient and less costly. Responsible developers of course are helpful in the process. We thus are only limited by own imaginations. The new system will not be limited to transactions. Everything that needs a secure database will ultimately benefit from blockchain solutions. I’m thinking about healthcare, elections and voter registration, identity management, supply chain, the list is growing. Consumers, of course, are really at the center of it all. They get to reap the benefits and with time they will seamlessly embrace this new economy as an integral part of daily life.
Are there an existing legal framework for the development of this type of economy or does it need to be developed from scratch?
Blockchain is in its incipient stage and governments have not yet had sufficient time to formulate clear legislative and legal frameworks for this technology. We have quite a long and interesting road ahead of us concerning legislation and law concerning blockchain. One thing is certain, though, blockchain has the attention of international leaders. Blockchain was a hot topic of discussion at the World Economic Forum in Davos, Switzerland in January and the ISITC Europe.
Can existing powers (states, governments) adequately develop blockchain or do we need total disruption and the creation of new authorities?
In theory, we need full disruption, and let’s say that some individuals wish this. But if you look at a nation like Estonia we see the world’s first digital country with blockchain technology employed in its administrative and political systems. State authorities in my mind can and will benefit from the new decentralized economy. There’s no need today for anarchy, and we are not about to witness a new French Revolution. Eventually, every democratic regime will embrace blockchain solutions. This will come naturally because all countries aim to increase socio-economic cohesion, increase efficiency, and reduce cost.
What are the key signs of the growth of decentralized economies with smart contracts being used?
The first sign is the huge number of investors and entrepreneurs who have abandoned venture capital in favor of disrupted markets. Smart Contracts offer innovative solutions to real world issues and their inherent flexibility means that they can be implemented across various domains in creative ways. The user cases are growing daily.
What are the most challenging barriers to setting up the decentralized economic model?
People. There are two types: those who are afraid of change and those who bring the change. It’s understandable to show reserve and caution towards a new ecosystem. It takes time to shape and build a conformable relationship with a new economic model. And there will be new regulations to get accustomed to. All economic models need rules. Decentralized doesn’t mean there will no longer be the need for rules. I’m pretty sure that 95% of ICOs will not last, and many will go bankrupt. Why? Mostly because they were not conceived to really solve anything new. It’s the 5% that is exciting. They will not only survive; they will change the world.