DAOs Are Not Scary, Part 2: Reducing Barriers

inside The last episode of this seriesSo let’s talk about what “smart contracts” (or, perhaps more accurately, “self-enforcing contracts”) are, and talk about the two main mechanisms by which these contracts can have “enforcement”: smart properties and “factoms.” ” Explained the currency in detail. . We also discussed the limitations of smart contracts and how smart contract-enabled legal systems can combine human judgment and automated execution to achieve the best results. But what do these contracts mean? Why automate them? Why is it better to have our relationships regulated and controlled by algorithms rather than humans? That’s a tough question that I plan to tackle in my next article.

A tale of two industries

The first and most obvious benefit of using internet-driven technology to automate everything is exactly what the internet and Bitcoin already offer in the areas of communications and commerce. This means greater efficiency and lower barriers to entry. One very good example of this effect bringing meaningful benefits to the traditional world is the publishing industry. In the 1970s, if you wanted to write a book, your book had to go through a number of opaque and centralized intermediaries before it reached the consumer. First, you need a publisher who will handle editorial and marketing duties and provide quality control functions for consumers. Next, you need to distribute your book, and it will eventually be sold in bookstores. Each part of the chain will require a large cut. In the end, you’ll be lucky if you receive at least 10 percent of the revenue from each copy as royalties. Notice the use of the term “royalty.” This implies that you, the author of the book, are just an unrelated part of the book’s authorship, deserving of a few percentage points. of He is the most important person without whom this book would not even exist in the first place. The situation has now improved significantly. Currently, we have separate printing companies, marketing companies, and bookstores, each with clearly defined roles, and a lot of competition in each industry. If you don’t mind staying purely digital, you can earn $70 just by publishing on Kindle. %.

Now consider a very similar example. However, the industry is completely different. Consumer protection, more specifically escrow. Escrow is a very important feature in commercial transactions, especially online transactions. When you buy items from small online stores or his Ebay sellers, you’re participating in a transaction where neither side has enough reputation, so how to be sure you’re sending money when it defaults to there is no. Get anything that actually shows that. Escrow provides that solution. Instead of sending money directly to the seller, you first send it to an escrow agent, who then waits for confirmation that you have received the item. If you confirm, the escrow agent will send the money, and if the seller confirms that the item cannot be sent, the escrow agent will return the money to you. If a dispute arises, an adjudication process will begin and the escrow agent will decide which side of the case is in favor.

However, the way it is implemented today, escrow is handled by a centralized entity and is included along with a number of other functions.in the online marketplace ebay, for example, Ebay serves as a server for sellers to host product pages, product search and price comparison facilities, and a rating system for buyers and sellers. Ebay also owns Paypal, which actually moves the funds from the seller to the buyer and acts as an escrow agent. Essentially, this is exactly the same situation that book publishing found itself in in the 1970s, but to be fair, the Ebay seller was earning far more than his 10% of the funds. Masu. So how can you use cryptocurrencies and smart contracts to create the ideal marketplace? If you want to go to the extreme, you can use a diaspora-like model to decentralize the market and allow sellers to We can also allow you to host your product on a dedicated site, on your own server, or on a server. Decentralized Dropbox implementation, merchants use systems like Namecoin to store identities and maintain a web of trust on the blockchain. However, what we are currently considering is a milder, simpler goal: separating the functionality of the escrow agent from the payment system. Fortunately, Bitcoin offers a solution: multi-signature transactions.

Introduction to multisig

Multi-signature transactions allow users to send funds to an address that has three private keys, so two of those keys are required to unlock the funds (multisig is 1-of-3 , 6-of-9, or something else, but 2-of-3 is actually most useful). Applying this to escrow is simple. He creates a 2/3 escrow between the buyer, seller, and escrow agent, has the buyer transfer the funds, and once the transaction is completed, the buyer and seller sign the transaction. Complete escrow. If a dispute arises, the escrow agent chooses which side’s case is more convincing and signs a transaction to send the funds.On a technical level, this is a bit complicated, but fortunately Bit rate conversion has devised a site that makes the process very easy for the average user.

Of course, Bitrated in its current form is not perfect, and we don’t see much Bitcoin commerce using it. This interface is probably not that easy. Especially since most people aren’t used to the idea of ​​storing links for each specific transaction for several weeks. It would be even more powerful if this were integrated into a full-fledged interface. Seller’s package. One design is: crypto kit– Something like a web app, showing each user a list of “open” buys and sells, and providing “confirm”, “accept”, “cancel”, and “dispute” buttons for each. Users will be able to interact with the multisig system as if they were a standard payment processor, but will receive a notification a few weeks later to complete or dispute their purchase.

But if Bitrated gets its interface right and begins to see mass adoption, what will it accomplish? Again, the answer is to lower the barrier to entry. It’s difficult to get into the consumer escrow and arbitration business today. To become an escrow service, you basically have to build an entire platform and ecosystem for consumers and sellers to operate through escrow. You also need to be the person who sends the money in the first place, not just the person who escrows it. For Ebay to have half of its consumer protections work, it needs to own Paypal and control Paypal. With Bitrated, this all changes.Anyone can be an escrow agent, arbitrator, and marketplace like Ebay (possibly crypto recycling or future Egora) can provide a rating system not only for buyers and sellers, but also for arbitrators. Alternatively, the system could handle arbitration in the background, similar to how Uber handles taxi drivers. Anyone can become an arbitrator after going through a screening process, and the system automatically rewards arbitrators with good ratings and fires arbitrators with bad ratings. Fees will be lower, likely significantly lower than the 2.9% charged by Paypal alone.

smart contract

Smart contracts generally take this same basic idea and push it further. Instead of relying on platforms like Bitfinex to hedge your Bitcoin holdings or speculate in either direction with high leverage, use blockchain-based financial derivatives contracts with decentralized order books. This eliminates the need for the central party to charge fees. The ongoing costs of maintaining an exchange, including operational security, server management, DDoS protection, marketing and legal costs, are likely to be much more than the one-time effort of creating a contract in less than 100 lines of code. can be replaced by the task of creating a contract. – Take time to create a clean interface. From that point on, the entire system will be free except for network charges. File storage platforms like Dropbox could be replaced as well. However, hard disk space costs money, so the system won’t be free, but it will probably be significantly cheaper than it is now. It also helps level the market by making it easier to participate on the supply side. Whether you have a large hard drive or a small hard drive with some free space, you can simply install the app and start making money by renting out your unused space. .

Instead of relying on legal contracts using expensive (and inefficient, especially in international situations and in poor countries) court systems or on moderately expensive private arbitration services, the necessary parts of contracts can be implemented in business relationships through smart contracts. can be managed. Human interpretation can be separated into many specialized parts. A judge who specializes in determining whether a product has shipped (ideally the postal system itself), a judge who specializes in determining whether a web application design meets specifications, and a specific class with a $0.75 fee. There may be judges who specialize in adjudicating insurance claims. By examining satellite images, there are contract drafters who are skilled at integrating each image intelligently. While specialization has its benefits, and is why societies have moved on from chasing bears with stone clubs and picking berries, one of its weaknesses has always been the lack of intermediaries in management and function. The fact was that it was necessary. intermediaries. Smart contracts can almost completely eliminate the latter category, lowering the barrier to entry within each reduced category and allowing even greater specialization.

However, this efficiency increase is only part of the puzzle. The other part, and perhaps the more important part, has to do with a theme that many cryptocurrency proponents hold dear: the decline of trust. We will discuss this in the next article in this series.

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