7.5 Beyond a payment system
What we have almost entirely omitted to mention so far, is the actual process of how exactly in payment transactionswithin the Networkthe correctness of digital signatures is established by validating miners. This is done using an intentionally non-touring complete script language71 that provides the possibility to create multiple different conditions that have to be met, until the outputtransaction pointscan be used as inputs of subsequenttransactionsor, more colloquially speaking, until thebitcoins can be spent again.72 Out of the possibilities that the script offers can be created what is called a ‘contract’.73 These contracts allow - so far mostly theoretically - for additional use cases that go far beyond the use of Bitcoin and its core innovation, the blockchain, as a merepayment systemand might potentially relief some of the hindrances that currently inhibit further use and acceptance ofbitcoinas money.
7.5.1 Some preliminary use cases
This is the section that is briefly touching on some use cases that are mostly not yet available forBitcoinusers, but go beyond the payments and payment related use cases we have covered in this section so far. The analysis is going to comprise use cases that might potentially be covering parts of what we described in section6.6 as being theMMI.
Potential for providing collateral for cryptocurrency credit agreements?
Virtual property is an item that can be owned by one entity only, but that is not centrally managed by one trusted authority (e.g. the servers of an online gaming company)
Manage virtual property Supposed to provide
'Banking, but without banks' Alread extensively analysed in section 7.3
The Credit System is supposed to be able to provide credit
Open is the question whether this credit: - is a mere lending out of currently dormant bitcoins without changes to the supply of bitcoins
- or an actual credit agreement, that creates inside money with bitcoin as money of account?
Provide credit
Provide access to physical (smart) property that is equipped with locks, (e.g. engine immobilizer of smart car) that understand sufficient parts of the cryptocurrency protocol to verify rightful owner
Rate solvency of nodes by analysing former cash flow and other measures
Manage smart property Rate solvency
Property Management System Credit System
CPS
Network
Figure 29: Diagram showing just some use cases that go beyondBitcoinas a mere CPS.
Dispute Mediation The script intransactionscan be designed in way that allows for rudimen-
tary dispute mediation. The form of dispute mediation that is currently available for Bitcoin users is what are called ‘multisignature transactions’.74 The 2-of-3 multisignature transaction is designed in a way that the third party to thetransaction, called the mediator, can decide who gets the money. Whatever happens, the mediator can never get access to thebitcoinshimself.
71
The imperative Script is similar to FORTH and is stack based, see https://en.bitcoin.it/wiki/Script - accessed July 28th 2014.
72
This subsection is greatly inspired by a talk of Mike Hearn at the Bitcoin conference 2012 in London. The slides of the presentation can be accessed athttps://docs.google.com- accessed July 28th 2014.
73
seehttps://en.bitcoin.it/wiki/Contracts- accessed July 28th 2014.
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7.5 Beyond a payment system 7 BITCOIN
This form of ‘dispute mediation’ must be considered still rather incomplete and will for exam- ple hardly replace what is currently achieved by employing arbitration courts in conflicts that can emerge from general business transactions within day-to-day life using theBPS.
In any case, dispute mediation should not be available only, if a very special type of transaction is chosen. Dispute mediation should be possible in any type of transaction for any party, as it arguably is in business transactions (at least in western countries) by employing procedures offered by arbitration courts or other legal remedies provided for by national governments. The lack of proper dispute mediation (as a part of what we call the MMI) is most likely one of the key issues that have so far greatly inhibited further seamless use and therefore dissemination of cryptocurrencytechnology.
Assurance contracts With assurance contracts a funding model can be realized that releases
the funds pledged only if the targeted amount is hit in total. Otherwise all the funds are returned (at a predefined date). This resembles what is currently realized outside of thecryptocurrency world by projects like ‘Kickstarter’.75
A potential use case would be the translation of a website. Interested readers of an article in a foreign language could pledge a certain (rather small) amount each and the translator is paid in full after successful (had to be defined) publication of the translated article. If no translator would be interested, the funds pledged would return after a certain amount of time.
Virtual property The design of ‘contracts’ in the cryptocurrency sense might allow for what
could be called ‘virtual property’. Now, property, as a right, is always ‘virtual’ in a sense. Property is never a physical thing, it is a right to own, operate, pledge etc. a thing, it is not the thing itself. ‘Virtual property’ in thecryptocurrencysense can be thought of virtual tokens, e.g. an item in an online game that is owned and controlled not by a central third party (like the servers of an online gaming website), but by the individual owner, managed by what could be called a Property Management System that is operated by theNetwork.
Smart Property The idea of having smart property in the future is based on the fact that
more and more physical appliances will be equipped with programmable hardware in a way that allows for this hardware to understand and carry out sufficient parts of the cryptographic protocol. In this way physical ownership of physical things can be cryptographically controlled. An example given by Hearn76is a car that is equipped with an engine immobilizer that allows for the engine to be started only by the rightful owner with a private key that fits the public key that the car was signed over to using the cryptographic protocol. The car could in this way be repossessed (not physically in the sense that it would be towed, but by access management).
7.5.2 Resembling (parts of ) the MMI
If the implementation of so called ‘contracts’ within cryptocurrenciesis very successful, maybe they are helpful in creating what has been termed by Hearn “banking, but no banks”. The most significant part of banking is probably the ability to create collateralized credit agreements.
Collateralized credit agreements If smart property and virtual property can be established it
could potentially be used as collateral in credit agreements. As we have noted in section 6.6, credit agreements heavily depend on the ability of the debtor to produce enough collateral, and the ability for the creditor to get access to the collateral in the case of a breach of contract by the debtor.
75
seehttps://www.kickstarter.com/- accessed July 28th 2014.
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