Bitcoin 1.0, 2.0, and 3.0: Currency, Contracts, and Applications, beyond Financial Markets

Bitcoin 1.0 is currency - the deployment of cryptocurrencies in applications related to cash such as currency transfer, remittance, and digital payment systems. Bitcoin 2.0 is contracts - the whole slate of economic, market, and financial applications using the blockchain that are more extensive than simple cash transactions like stocks, bonds, futures, loans, mortgages, titles, smart property, and smart contracts. Bitcoin 3.0 is blockchain applications beyond currency, finance, and markets, particularly in the areas of government, health, science, literacy, culture, and art. 

Bitcoin and blockchain technology is much more than a digital currency, the blockchain is an information technology, potentially on the order of the Internet (‘the next Internet’), but even more pervasive and quickly-configuring. 

Prevalence of Decentralized Models 
Even if the currently developing models of Bitcoin and blockchain technology are not the final paradigm (there are many problematic flaws), the bigger trend, decentralized models as a class, could have a pronounced impact. If not the blockchain industry, there would probably be something else, and in fact there probably will be other complements to the blockchain industry anyway. It is just that the blockchain industry is one of the first identifiable large-scale implementations of decentralization models, conceived and executed at a new and more complex level of human activity.

Decentralized models have the potential to reorganize all manner of human activity, and quickly, because they are trustless, the friction of the search and trust-establishment process in previous models of human interaction is eliminated. This could mean greatly accelerated rates and levels of activity, on a much greater humanity-level scale. The blockchain (decentralized network coordination technology) could emerge as a fundamental infrastructure element in the model to scale humanity to its next levels of orders-of-magnitude-larger progress.

Automatic Markets

At Singularity University, one of the most pervasive memes was the “routing packets” metaphor; that many current activities are just like routing packets on the Internet. This includes areas such as people in driverless cars, electrons in electric vehicle charging and power entry, load-balancing, routing and delivery on smartgrid electricity networks.

Fungible resources and quantized packet-routing
The packet-routing concept could be extended to neurons (routed in humans or AIs), clean water, clean air, food, disease management, health care system access and navigation, and in the farther future, information (neurally-summoned) and emotional support (automatically-summoned per human dopamine levels from nearby people or robots). It is all routing…directing quantized fungible resources to where they are needed and requested.

Automatic Markets
Since these various resources are not uniformly demanded, the idea of markets as a resource allocation mechanism is immediately obvious.

Further that automated, or automatic markets with pre-specified user preferences, analogous to limit orders, could be optimum. Markets could meet in equilibrium and transact, buying, selling, and adjusting automatically per evolving conditions and pre-programmed user profiles, permissions, and bidding functions.

Truly smart grids would have automatic bidding functions (as a precursor to more intelligence-like utility functions) that would indicate preferences and bid and equalize resource allocation, the truly invisible digital hand.

The key parameters of a working market, liquidity, price discovery and ease of exchange would seem to be present in these cases with large numbers of participants and market monitoring and bidding via web or SMS interfaces. The next layer, secondary markets and futures and options could also evolve as an improvement to market efficiency, if designed with appropriate incentives.

Automatic markets are not without flaw, they exist now in traditional financial markets, causing occasional but volatile disruptions in the form of quantitative program-trading (blamed for exacerbating the 1987 Black Monday stock market crash) and flash-trading. Speculative aspects are not trivial and would be a critical area for market designers to watch, particularly managing for high liquidity and equal access (e.g.; faster Internet connections do not matter).

Markets to grow as a digitized resource allocation tool
At present, markets are not pervasive in life. The most notable examples are traditional financial markets, eBay, peer-to-peer finance websites and prediction markets. Being in a global digital era with the ability to use resources in a more fungible and transferable way could further promulgate the use of markets as a resource allocation tool.

A focus on preference rather than monetary value, and other currencies such as attention, authority, trust, etc. could vastly extend the range of implementation of market principles.