The downside to the traditional rental business is the “rival” nature of physical goods. Rival means that there is a zero-sum game; only one rival prevails. If I am renting your boat, no one else can. If I rent a bag to you, I cannot rent the same bag to another. In order to grow a rental business of physical things, the owner has to keep buying more boats or bags. But, of course, intangible goods and services don’t work this way. They are “nonrival,” which means you can rent the same movie to as many people who want to rent it this hour. Sharing intangibles scales magnificently. This ability to share on a large scale without diminishing the satisfaction of the individual renter is transformative. The total cost of use drops precipitously (shared by millions instead of one). Suddenly, consumer ownership is not so important. Why own when you get the same real-time utility from renting, leasing, licensing, sharing?
For better or worse, our lives are accelerating, and the only speed fast enough is instant. The speed of electrons will be the speed of the future. Deliberate vacations from this speed will remain a choice, but on average communication technology is biased toward moving everything to on demand. And on demand is biased toward access over ownership.
Decentralization
We are at the midpoint in a hundred-year scramble toward greater decentralization. The glue that holds together institutions and processes as they undergo massive decentering is cheap, ubiquitous communication. Without the ability to remain connected as things spread wide into networks, firms would collapse. That’s true, but also slightly backward. It’s truer to say that the technological means of instant long-distance communications enabled this era of decentralization. That is, once we wrapped the globe in endless circles of wires crossing the deserts and beneath the oceans, decentralization was not only possible, but inevitable.
The consequence of moving away from centralized organization to the flatter worlds of networks is that everything—both tangible and intangible—must flow faster to keep the whole going together. Flows are hard to own; possession seems to just slip through your fingers. Access is a more appropriate stance for the fluid relations that govern a decentralized apparatus.
Nearly every aspect of modern civilization has been flattening down except one: money. Minting money is one of the last jobs left for a central government that most political parties agree is legitimate. It takes a central bank to battle the perennial scourges of counterfeit and fraud. Someone has to regulate the amount of money issued, keep track of the serial numbers, ensure that the money is trusted. A robust currency requires accuracy, coordination, security, enforcement—and an institution that takes responsibility for all those. Thus behind every currency stands a watchful central bank.
But what if you could decentralize money as well? What if you created a distributed currency that was secure, accurate, and trustworthy without centralization? Because if money could be decentralized, then anything can be decentralized. But even if you could, why would you?
Turns out you can decentralize money, and the technology to do this may be instrumental in decentralizing many other centralized institutions. The story of how the most centralized aspect of modern life is being decentralized holds lessons for many other unrelated industries.
To begin: I can pay you in cash, and that decentralized transaction is anonymous to a central bank. But moving physical cash around is not practical as our economy goes global. PayPal and other peer-to-peer electronic systems are able to bridge the vast geographical spans on a global economy, but each of its peer-to-peer payments must go through a central database to be sure a dollar is not spent twice or is not fraudulent. Mobile phone and internet companies devised very useful payment schemes for impoverished areas based on a phone app, such as M-Pesa. But until recently even the most advanced e-money system needed a central bank to keep the money honest. Six years ago some shady characters who wanted to sell drugs online with the anonymity of cash were looking for a currency without a government hand. And some admirable characters championing human rights were looking for a money system that would work outside of corrupt or repressive governments, or in places of no governance at all. What they together came up with is Bitcoin.
Bitcoin is a fully decentralized, distributed currency that does not need a central bank for its accuracy, enforcement, or regulation. Since it was launched in 2009, the currency has $3 billion in circulation and 100,000 vendors accepting the coins as payment. Bitcoin may be most famous for its anonymity and the black markets it fueled. But forget the anonymity; it’s a distraction. The most important innovation in Bitcoin is its “blockchain,” the mathematical technology that powers it. The blockchain is a radical invention that can decentralize many other systems beyond money.
When I send you one U.S. dollar via a credit card or PayPal account, a central bank has to verify that transaction; at the very least it must confirm I had a dollar to send you. When I send you one bitcoin, no central intermediary is involved. Our transaction is posted in a public ledger—called a blockchain—that is distributed to all other bitcoin owners in the world. This shared database contains a long “chain” of the transaction history of all existing bitcoins and who owns them. Every transaction is open to inspection by anyone. That completeness is pretty crazy; it’s like every person with a dollar having the complete history of all dollar bills as they move around the world. Six times an hour this open distributed database of coins is updated with all the new transactions of bitcoins; a new transaction like ours must be mathematically confirmed by multiple other owners before it is accepted as legitimate. In this way a blockchain creates trust by relying on mutual peer-to-peer accounting. The system itself—which is running on tens of thousands of citizen computers—secures the coin. Proponents like to say that with bitcoin you trust math instead of governments.
A number of startups and venture capitalists are dreaming up ways to use blockchain technology as a general purpose trust mechanism beyond money. For transactions that require a high degree of trust between strangers, such as real estate escrows and mortgage contracts, this validation was previously provided by a professional broker. But instead of paying a traditional title company a lot of money to verify a complex transaction such as a house sale, an online peer-to-peer blockchain system can execute the exchange for much less cost, or maybe for free. Some blockchain enthusiasts propose creating tools that perform a complicated cascade of transactions that depend on verification (like an import/export deal) using only decentralized automated blockchain technology, thereby disrupting many industries that rely on brokers. Whether Bitcoin itself succeeds, its blockchain innovation, which can generate extremely high levels of trust among strangers, will further decentralize institutions and industries.