Modern commerce enables a trader in Mexico to buy gold from South Africa and get it delivered to China without leaving his office in Mexico City. Each of the three parties involved in the transaction makes a big profit without meeting each other, involving their respective bankers or even having to rely on laws of government for protection. The transaction above represents how much blockchain and smart contract has changed the world and also why the combination of the two concepts will revolutionize the world from a commercial perspective (Bharadwaj, 2016). Blockchain and smart contracts are not just going to improve trade and cut cost but will instead absolutely change the world in a kind of trade based revolution. As a part of the revolution, the nature and extent of governmental control over trade and finance will be exponentially diminished. By extension, the level of control that governments have over their citizens will also diminish since finance is an important avenue for the prosecution of this control. The revolution will also involve the blurring of international boundaries, first from a perspective of trade and then from a general perspective. Currently, political boundaries, including state boundaries in federations like the USA and national boundaries, in general, are an important point of trade control and smart contracts will change all that. Finally, smart contracts, buoyed by blockchain technology will make trade faster, better, easier, and increasingly global, leading to a powerful global economy that engenders a higher level of equality. Blockchain and smart contracts eliminate the need for due diligence, mutual trust, back guarantees and government superintendence in commercial transactions thus, completely transforming global commerce and the world itself.
Blockchain and smart contracts, when considered together, can be defined as a means to safely and effectively carry out commerce without the need for mutual trust or governmental superintendence or control. Smart contract is a computer protocol that enables contracts to have the capability to enforce themselves. The protocol enables the creation of a computer platform where individuals who are interested in getting into business with one another can negotiate contracts and agree to the terms (Luu et al., 2016). Upon consensus, the terms set in the system will enable the enforcement of the contract between the two parties based on the agreement made. Based on the gold transaction example used above, the Mexican purchaser and South African vendor neither need to know one another nor trust one another at all. Basically, the South African is only interested in money while the Mexican is only interested in having the gold delivered to China. Based on the protocols set in the contract, the money will be delivered to the South African contemporaneously with the gold being delivered. The system itself will superintend over the performance of the two sets of activities with no room for each of the parties taking advantage of the other (Bharadwaj, 2016). However, such a platform is extremely dangerous as it can be used for undertaking illegal activities and this is where blockchain comes in. Blockchain can be defined as a kind of a record for all transactions carried out through the different smart contract platforms. Every transaction that takes place through smart contracts gets recorded in real time and in chronological order in an almost indelible manner (Luu et al., 2016). These records are open to anyone wishing to access them by being part of the blockchain system. The presence of the records has the ability to give smart contracts a level of transparency that makes the legality of smart contracts possible. The combination of blockchain and smart contracts will create a whole new world, beginning with commerce then extending to social and political aspects.
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The traditional mode of commerce created an exponential difference between transactions under commercial law and those under the law of contract but blockchain and smart contracts are blurring that line (Levy, 2017). Anyone can walk into a convenience store anywhere in the world and buy a packed of tic-tac using either cash or electronic means with little or no questions asked. Such small transactions fall under the commercial law that exponentially reduces the rules and regulations under which transactions are made. The earliest form of trade was based on bartering and adhered to this simple rule and this is part of the reason why the history of trade makes the largest part of the history of the world. Through trade routes that stretched for thousands of kilometers, a trader would move from post to post trading one item for another, or a measure of precious metals such as gold or silver for items. There were no deeds of the agreement , due diligence, bank guarantees or waits for transaction periods to mature. Two goats would be exchanged for a cow or a measure of gold for a mule in real time, ending the transaction as soon as there was an agreement.
As commerce grew on the global arena, barter trade became insufficient hence politicians invented money. Instead of exchanging two goats for a cow, the two goats would be exchanged for a piece of paper that was guaranteed by a bank that it could also be accepted by the owner of the cow. Initially, transactions were based on a pile of coins made of precious metals which were later replaced with a pile of bank notes. Eventually, a piece of paper commonly referred to as a check would dominate the monetary economy before it started being replaced with online money. The primary basis for the modern monetary economy is that the two parties transacting must either trust each other absolutely, trust in a set of laws enforced by the government or trust in a financial institution or a set of financial institution absolutely. Trust was the primary currency in the monetary system, and because trust is a variable factor, a lot would be done to develop the trust to avoid fraud and trickery hence the development of the law of contract. When a large amount of money is involved or a high-value item or chattel is being exchanged, the law of contract rules come into play creating a variety of complications. Each of the parties, for example, need to undertake due diligence in each other to ensure that they are not being swindled. After that, a complex process involving delays, lawyers, banks, and the government will begin. The monetary economy based on central banks, one of the greatest inventions of all times changed all this by making global politics more important to global commerce. The modern history of the world has been written by politicians rather than merchants like the traditional history of the world. Blockchain and smart contracts are going to fix this problem by combining the lack of need for trust that existed in barter trade and the massiveness of contracts that came with the monetary economies.
Delay is one of the greatest enemies in commerce and the exponential reduction of delay to the extent of almost eliminating it is one of the means that blockchain and smart contracts will change the world of commerce and the world in general. Using blockchain and smart contracts goes a long way in eliminating delays involved in large and complex transactions (Luu et al., 2016). The primary concept of entrepreneurship is creating more money out of the available money over a definitive period of time. For example, making another million dollars out of an investment of a million dollars can either be a profit or a loss, with the determinant factor being time. The longer it takes to make the second million, the more the making of that million changes from being a profit to being a loss. The current monetary economy is based on the ambiguous factor of trust which keeps on shifting. Buying a piece of land in most places around the world may take over 30 days, yet both parties are in agreement about the land and the money. Two or more sets of lawyers undertake due diligence and write several correspondences. Authorities have to confirm land ownership while a bank needs to confirm if the potential buyer has the money. In some cases, the money will then be handed over from a bank to one lawyer, from that lawyer to yet another lawyer, then to a bank and finally to the vendor of the land. As the delay continues, the money to be used in the transaction is not benefiting either of the two parties in the transaction which results in great pecuniary losses, based on the concept of time factor in commerce. Further, the vendor of the land could be seeking money to invest in another transaction and the delays also affect that secondary transaction. Similarly, the buyer could be in urgent need of the land for another transaction which is only getting delayed. Blockchain and smart contracts eliminate all these middlemen thus enabling the vendor and the purchaser to complete their transaction on day one (Luu et al., 2016) . A faster means of transacting that avoids the need for trust and due diligence would result in as many as 30 transactions within the 30 days instead of the one transaction. The economy would explode due to the influx of trade and money thus practically revolutionizing the entire world.
Another major barrier to success in modern trade is the cost of doing business in itself and it is by eliminating or exponentially reducing this cost that blockchain and smart contracts will revolutionize the world. The use of blockchain and smart contracts will exponentially reduce the cost of undertaking transactions inter alia through the removal of all middlemen (Luu et al., 2016). The middlemen problem is exacerbated by the global nature of modern trade. In some cases, convenience is more important to the choice of where to buy goods or services than price. In global trade, convenience will most likely double or triple the prices of the commodities with the purchaser and the vendor of the products being the least beneficiaries if not the victims of the system. A transaction between two willing and judicious entities end up costing a substantive cross-section of the value of the commodity being exchanged due to the secondary parties involved (Luu et al., 2016). Banks, lawyers, and arms of government make trillions of dollars for acting as facilitators of commercial transactions. The use of smart contracts based on blockchain technology eliminates over 90% of these costs for the parties involved in a contract. For example, most Americans pay premium prices for the high-quality coffee grown in the Eastern African highlands. Most of the coffee growers in the Eastern African highlands live in abject poverty because they sell their coffee at throwaway prices to private or government based middlemen. It is these middlemen and their bankers, lawyers, and consultants that make the highest amount of money out of the coffee trade to which they all add little value if any. If a means was developed to connect the coffee drinker in Little Rock Arkansas with the coffee farmer’s union several kilometers outside Addis Ababa, the coffee industry would change forever. The coffee consumer in Arkansas would get better coffee at a lower price and be able to use the rest of the money in other ways. The coffee farmer in Ethiopia would get more money to invest in a better life, perhaps in a commercial activity. Most importantly, the banker, lawyers, consultants and middlemen of this world will find something productive to do that does not involve exploitation. If the same concept was applied to each of the hundreds of global sectors where this kind of exploitation takes place, it is the world itself, not just commerce that will change. The place of government as a superintending party in commercial contracts will be reduced by this new technology, so will the impact of political borders. In the gold contract between a Mexican in Mexico City, a South African in Cape Town and a Chinese on Beijing, each of the three parties will not need to involve their respective governments in the transaction. Whatever goodwill or ill will that may exist between the three governments will not interfere with the transaction at all. Commerce under smart contracts will be freed from governmental control and political influence thus creating a more robust international market (Levy, 2017)
The greatest beneficially of the current monetary system and, therefore, the party that stands to lose the most when blockchain and smart contracts take over the world is the political governments of almost all the countries around the world (Nair & Sutter, 2018). Indeed, from a political perspective, the impending revolution caused by the combination of blockchain and smart contracts is as literal as the proverbial French Revolution where the populace became the government in themselves, only more successful. Central bank based monetary systems will be among the greatest casualties of the new commercial world that will be created by smart contracts. Central bank systems issue money whose value is mainly determined by the issuing bank from a local perspective. However, when considered from an international perspective, the value might change depending on several factors many of which have little to do with commerce. Yet the value of money has a major effect on actual commerce within different countries. For example, the values given to the Zimbabwean dollar by the Central Bank of Zimbabwe has such a negative impact on local trade that the US dollar is the common means of exchange in that country (Quist-Arcton, 2016). This begs the question of why currency should have a nationality when it is supposed to be a means of exchange and a measure of value. What is the need for money when it does not really measure value, and thus cannot effectively operate as a means for exchange?
The primary difference between the representation of different currencies above and the representation of the bitcoin below is a nationality . The bitcoin is all about money and commerce with national, political and geographical issues kept out of it.
The only logical explanation for giving money a nationality is control. Governments use the money to control their respective populaces and cause them to live based on the intents of the governments rather than their means and capacity. Further, the US government has been accusing the Chinese government of interfering with global trade through inter alia, currency manipulation (Porter, 2017). This accusation by itself defines the American government’s understanding of how powerful a government is when it comes to commerce control. The combination of blockchain and smart contracts will move most of the global commerce, both local and international from the nationalized money reflected at the pot of the picture above to the globalized money reflected at the bottom. The active control of governments over commerce locally, nationally and globally will plummet. A group of technocrats and policymakers will no longer be capable of manipulating the economy and determining the value of goods and services. Instead, market dynamics of demand and supply will be the primary determinants of trade (Nair & Sutter, 2018). Further, most governments in the world get the bulk of revenue on taxes, a key example being value added tax where a part of the monies paid for products go to the governments. In most cases, the governments have absolute control over how much taxes they collect and how they are going to utilize it. In the new economic dispensation premised on blockchain and smart contracts, the government will no longer be able to dictate the terms of its financing as it will have lost active control over finances. Instead, governments will be funded by the populace based on merit and they will also be called to account for the monies they have spent before they can get more. The changes that blockchain and smart contracts are bringing to the world can only be termed as a revolution.
Finally, from the perspective of government, many trading opportunities are lost because of government policies and the relationships between governments that have little to do with commerce. A good example is the current international spat between Russia and NATO countries over the poisoning of a former Russian spy somewhere in the United Kingdom. The unfortunate incident had nothing to do with commerce nor had it an economic causation. In retaliation, however, the US government closes an entire consulate in Seattle, Washington inconveniencing American and Russians who had commercial dealings with each other (Bernton, 2018). The Russian governments respond in kind exacerbating the problem for entrepreneurs who are already struggling with the vagaries of demand and supply. After blockchain and smart contracts take over the commercial world, political leaders will have to find other means for prosecuting their power games that do not involve interfering with global commerce. The friendliness and level of cooperation between two countries will not be a bearing factor on commercial decisions. Even with consulates closed and diplomats expelled, the trade will continue seamlessly.
The monetary commercial dispensation dominated by governments through central banks will eventually be phased out through the dominance of blockchain and smart contracts resulting in a global revolution. Within the revolution, demand and supply will be the primary determinants of commercial decisions for the sale and purchase of small and large transactions alike. Commerce will know no political boundaries neither will it be impacted upon by the decisions of politicians and policymakers. Indeed, the control of government over the populace, which is mainly predicated on the economic control will be broken. Decisions by presidents and central bank governors will not suddenly tilt the marketplace in favor of one party against another inactive or potential contracts. Governments will also not make money out of commercial transactions that it has nothing to do with all in the name of taxes. In this regard, blockchain and smart contracts will already have created a global revolution. Further to the same, more transactions will be made per unit time leading to a higher level of commerce and more money for all. The monies lost to middlemen will also be saved as the new dispensation will create a direct link between consumers and producers. Developing countries will be among the major beneficiaries and its citizenry will be able to enjoy good prices for their products in the absence of middlemen. Commerce will thrive while governments fade in significance thus accomplishing a real revolution.
References
Bernton, H. (2018, March 27). With closure of Russia consulate in Seattle, hopes for Pacific 'partnership' fade. Retrieved from https://www.seattletimes.com/seattle-news/with-closure-of-russia-consulate-in-seattle-hopes-for-pacific-partnership-fade/
Bharadwaj, K. (2016). Blockchain 2.0: Smart Contracts. Retrieved from
http://www.linkdapps.com/Blockchain2.0-SmartContracts.pdf
Levy, K. E. (2017). Book-smart, not street-smart: blockchain-based smart contracts and the social workings of law . Engaging Science, Technology, and Society , 3 , 1-15
Luu, L., Chu, D. H., Olickel, H., Saxena, P., & Hobor, A. (2016, October). Making smart contracts smarter. In Proceedings of the 2016 ACM SIGSAC Conference on Computer and Communications Security (pp. 254-269). ACM
Nair, M., & Sutter, D. (2018). The Blockchain and Increasing Cooperative Efficacy. Independent Review , 22 (4) 529-550.
Porter, E. (2017, April 11). Trump isn't wrong on China currency manipulation, just late. Retrieved from https://www.nytimes.com/2017/04/11/business/economy/trump-china-currency-manipulation-trade.html
Quist-Arcton, O. (2016, October 11). The U.S. dollar is Zimbabwe's main currency, and it's disappearing fast. Retrieved from https://www.npr.org/sections/parallels/2016/10/11/497487307/the-u-s-dollar-is-zimbabwes-main-currency-and-its-disapperaing-fast
