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Smart Contracts and Prediction Markets

Prediction markets are a way of “betting” that a particular event will happen. Wall St. uses prediction markets extensively. QBaans, combined with smart contracts, make prediction markets so ridiculously easy that you can create a prediction market for almost anything. Here’s an example.

Internally, the search megagiant Google uses semi-anonymous prediction markets to determine when it will release software. On software projects, like many other types of production projects, managers say they will have their work done by a particular date but what they say and what actually happens is routinely different. So Google gives participants money to “bet” on when the software will actually be released. Google management has found that employees who might win some money will often be more accurate about predicting the release dates of its software than its managers are.

This same principle applies across many industries and in many business situations. If people can make money, they will put in the effort needed to accurately predict an event. The event might be who gets elected President of the United States in the next election. Or it might be a foreign policy issue. Or it could be whether oil will be found in a particular location.

Whatever you want predicted can be predicted if you are willing to stake some money on it. QBaans and smart contracts make this a nearly trivial exercise.

Smart Contracts and Ad Hoc Resource Contributions

With smart contracts, you can sell resources in an ad hoc manner. 

For example, imagine a company that provides cars that you can rent for short trips by simply paying with your digital wallet. Once you have paid, you can start the car and drive where you want to. The company leaves these cars all over town and tracks them with GPS units. They may provide financial incentives for renters to return the cars to specific locations where the company can fill them with gas and check the cars for damage. But the point is that renting a car becomes a trivial effort compared to what happens today. And because you don’t have to spend lots of money to rent a car, you can rent one for very short trips instead of taking a cab.

A similar scenario might apply to shared batteries. Suppose we implemented the smart roads that were presented previously. This creates a world where wind and solar power providers can easily make money by selling their electricity into the power grid under the roads. But what about the times when there is no wind? Well, wind generators don’t work. And for solar power producers, nighttime is a time when they don’t produce power. How can we balance the availability of electricity across time?

The answer might be shared batteries. Suppose I am a retired navy engineer who has worked on the giant batteries used in nuclear submarines. Imagine that I take my life savings and buy a disused building in a city. Inside the building, I place several of the giant batteries that nuclear submarines use. I then connect a computer to them and connect them to the power grid in the street. 

Note: Nuclear submarines use their nuclear power plant to charge huge batteries that are often bigger than the average garden shed. Special care must be taken around these batteries because of the electrical fields they emit. For example, you can’t have anything metal on your person when you get near them or you could be seriously injured. Working on these batteries safely requires special knowledge and training.

During the day, when there is cheap power from solar and wind generators available, my computer automatically buys electricity from the grid and recharges my giant batteries. During the night, when people are home watching TV, taking showers, and doing other things that require electricity, my computer does the opposite. It sells power stored in my batteries back to the electrical grid at a higher price. Smart contracts and digital currencies make this relatively straightforward to implement.

Part 15

Smart Contracts, Transparency, and Anonymity

Smart contracts provide for full anonymity or full transparency . Companies and organizations can use smart contracts and side chains to provide full transparency for all of their activities and thereby gain the trust of investors, customers, and the public.

Note: The balance between anonymity and transparency is an either/or proposition. You can have full anonymity or full transparency but not both. However, if you want to mix the two, you can. If you want less than full anonymity and full transparency, then you can find the balance in between those two that is right for you. It’s like a slider with full anonymity at one end and full transparency at the other. You can set the slider anywhere you want to between the two extremes.

Blockchain IPOs

For instance, a company can use digital currencies and smart contracts to provide full transparency into the sale of its stock. You would be able to see how many shares of stock have been issued, how many have been sold, what price they are selling at, and what rate they are selling at. And you would see this 24x7. 

In other words, it’s possible to build a direct competitor to Wall St. and have companies do their IPOs on digital currency blockchains rather than through traditional means.

In addition, as companies put their transactions, IPOs, and so forth into the blockchain to provide greater transparency, you’ll be able to see for yourself exactly how you should invest. The blockchain can provide real, truly perfect data about how a stock is doing in the market at any instance of time because its entire history is available on a second-by-second basis.

The essence of the free market is having accurate information. Putting that information into the blockchain means that everyone has a more level playing field for competing in the marketplace.

Your Personal Transaction History

Another nice feature of blockchains and smart contracts is that you can have anonymity in the marketplace while having all of your transactions available to you transparently. Because your computer can see all of the transactions and investments you’ve ever done in your entire life, it can analyze your spending habits, help you invest, and help you save. 

Because your QBaan wallet tracks all of your transactions, you can literally hit a single button and generate all of the information you need for your annual tax returns. The blockchain essentially provides you with a fully automatic, free accountant.

Of course, most individuals will want their transaction history to be private. But many companies may want to provide a fully transparent transaction history for their investors, customers, and so forth. With the blockchain and smart contracts, they are free to do this if they choose. And it’s all available for free.

Part 14

Using Smart Contracts to Build Economic Infrastructure

Most of what we consider to be economic infrastructure is just a fancy form of betting.

It’s true. We call investments like this “financial instruments” but they’re really just bets.

Smart Contracts and Escrow

For instance, if you buy pork belly futures, you’re betting on the price of pork bellies six months or a year from now. Smart contracts are the perfect tool for creating this type of financial instrument. You don’t need Wall Street firms to do this at all. A smart contract can monitor the price of pork bellies on the various exchanges. It can manage a single investor or a million investors. It doesn’t make any difference.

Smart Contracts and Financial Instruments

Virtually every form of financial instrument that we have now can be implemented as a smart contract. As a result, anyone can look at available contracts, read them, forward them to their lawyers or investment counselors, and decide if they want to invest based on the terms of the contract written in normal legal terms. They can then sign the contract and invest their money. It’s all done without any third party such as a broker.

This idea has huge impacts on Wall Street, which has clearly become disconnected with Main Street. The Federal Reserve Bank has used Quantitative Easing to prop up the markets on Wall Street. Billions upon billions of dollars have been poured into those companies to keep the market at artificial levels.

But what if most people don’t use Wall Street for investing? What if they can do it all on their own? Then suddenly, funneling money to Wall Street doesn’t seem like such a good thing for the government to do.

Other financial instruments that could be implemented through smart contracts include, but are not limited to, the following.

Private equities

Public equities

Bonds

Derivatives

Voting rights associated with any of the above

Commodities

Virtually every type of financial instrument can be added to this list.

Part 13

Smart Contracts, Microlending, and Venture Capital

Microlending can also profoundly affect the venture capital industry. Currently, venture capitalists are big money players who stack the deck in their own favor. Microlending enables anyone to invest in new companies through smart contracts. Again, you can spread your risk over many investments so that the ones that go south don’t impact you that much. 

But microlending means that more people will be investing in the venture capital space. More investors means that it will be easier for small companies to get the startup funds which they need to succeed. Right now, that’s excruciatingly difficult for them. This one change can have a profoundly positive effect on the small business sector of our economy, which has been the hardest hit since the 2008-2009 meltdown.

In addition, microlending and microinvesting through smart contracts also means that lenders can now be located all over the world. We no longer have to be limited to investing in our own country. If we feel that a new service in a developing country is a worthwhile investment, we can invest our money there and help advance countries that are currently struggling to modernize.

Note: Digital currencies and smart contracts also make automatic reputation systems possible. An automatic reputation system would enable more people across the world to do business with each other because the reputations of the buyer, lender, or insurer would follow them into future transactions. This vastly lowers the cost and the risk of doing business and rewards those who are trustworthy while pushing the flakes, frauds, thieves, con artists, and liars out of the system.

Part 12

Smart Contracts and the Democratization of Insurance

Now you’re looking for homeowner’s insurance. Well guess what? The investment group also offers that. And my Granny sees their smart contract for your insurance policy. She decides to invest. Her 1 QBaan sits in an escrow account controlled by the contract. No one can do anything with that money until the policy is either paid out or cancelled. You are guaranteed that your money is there when you need it. Until then, a small portion of each of your monthly payments will go to my Granny. If something happens, there is a payout. But Granny has only invested 1 QBaan in your policy, so it’s not a great loss. She can spread her risk across many insurance policies and probably make money with the majority of them.

Or you can take the opposite approach to microinvesting. If you need $150,000 of homeowner’s insurance, you can post 150,000 smart contracts on the Internet that are each worth $1. 

What good is that?

Many people have had the experience of trying to file an insurance claim and having the insurance company find a technicality that lets them not pay. They have a vested financial interest in not paying you that is large enough for them to hire lawyers to defend themselves against you.

Instead of doing that, you could have 150,000 insurers that insure for $1. Most of them would pay because the payout is small for each insurer. Some might not, but your loss wouldn’t be significant because none of your insurers have a large enough investment to want to defend themselves in court for non-payment if you sue them. In other words, microinvesting can lead to fairer agreements.

The point here is that microlending, microinvesting, and microinsurance are possible and profitable with digital currencies and smart contracts. They enable a more democratic lending structure because far more people can participate in the lending process. And microlending means that far more investments are available to the average person, so the money that is currently concentrated in the hands of big bankers gets spread out across the economy.

Part 11

Smart Contracts and the Democratization of Lending

Ok, you’re buying a house. Instead of going to a bank, you go to a private investment group for a 15-year mortgage. The investment group vets you just like the bank does. That is, they look at your financial situation like a bank does to determine whether or not you’re a good risk.

Imagine that the investment group sees you as a good risk. Instead of having a big pile of cash on hand to lend you, the investment group posts a smart contract on its server. Anyone at all can look at the contract and determine whether or not they want to invest. Suppose my grandmother in Poughkeepsie, New York has just Q1 (1 QBaan) to invest every month. She has invested with this investment group before, so she trusts them.

Granny signs the contract and invests her 1 Qbit. So do 15,000 other people. Everyone invests just 1 QBaan. Now you have the Q15,000 you need to buy your house. You make your monthly payments to the contract and the contract automatically distributes a small portion of your payment to every one of the investors, including Granny.

Neither Granny nor any of the other investors is going to make much money on that investment. Over the life of the 15-year mortgage, Granny is probably going to make only about 2.5-3 QBaans. Doesn’t sound like much, does it? But let’s say that Granny has been investing 1 QBaan per month this way since my Dad was in diapers. All of that adds up. Suddenly, Granny has a very comfortable retirement.

Part 10

Smart Contracts, Microlending, and Microinvesting

In previous parts of this series, we saw how smart contracts could revolutionize how we build and finance roads, how we provide electrical power, and how we provide internet access. But let’s change direction a bit. Let’s take a look at how smart contracts could impact the world of high finance.

What if everyone could become a lender and give the banks competition?

That’s not an idle question in the world of digital currencies and smart contracts.

Suppose that I want a mortgage to buy my house. Digital currencies and smart contracts can alter this process and make it something that is more democratic and more profitable than it is now.

Right now, if you want to buy a house you go to a bank to get your loan. Because the banks have no real competition, they can dictate the terms of the loan to be very favorable to themselves. But digital currencies and smart contracts can change that.

Also, as it currently stands, you can only be a lender if you have a lot of money to lend. This limits the possible investments available to small investors. Digital currencies and smart contracts can democratize this situation by making it possible for even very small investors to participate in the lending process. Let’s see how it works.

Part 9

Smart Roads Pave the Way to Clean Energy

The smart road scenarios we’ve been discussing in parts 3, 4, 5, and 6 of this series also make it possible and profitable for us to move to alternate sources of energy that are not now profitable. 

Currently, the government heavily regulates the production and sale of electrical power. And the power companies are powerful  government-granted monopolies  that use their status to keep things regulated in their favor. The current fee structures which are imposed by these onerous regulations make it nearly impossible for small electrical producers to exist.

But what if our roads enabled us to connect to any one of a dozen power companies? And what if there were virtually no regulations governing the production and sale of power? In such an environment, small solar and wind producers could thrive.

If the system we’re proposing existed, all along the southern section of the US, property owners could easily install solar panels to produce electricity and sell it to the highest bidding power cable in the roadway that connects to the property. For property owners, it would simply be a matter of installing the right equipment and plugging it into the road. The rest would be automatic.

If the system we’re proposing existed, most of the northern US could be a source of wind-generated power. Again, it would simply be a matter of plugging the right equipment into the road. The power would be sold to the highest bidder and the property owner would make money.

While it’s unlikely that property owners would get rich this way, the opportunity to easily make a profit would create a boom in wind and solar power. By enabling innovation that is impossible now due to the heavy hand of government control, we could profoundly impact our environment for the better and make money doing it. This would also make our power grid much more resilient and more resistant to natural disasters and terrorist attacks.

Part 8

Smart Roads and the Free Market

In Part 3, we showed how anyone can use smart contracts to provide Wi-Fi access along city streets cheaply and make money at it. This lets any building owner who wants to make money with fairly inexpensive MANET equipment.

We continued this idea of making money through MANETs in Part 4 where discussed how to extend W-Fi access along highways between the cities. In this way, state governments could defray the expense of building and maintaining highways.

Part 5 began the process of reimagining what a road is. We discussed the future possibility of roads with several power and fiberoptic cables in them. If such a road system were implemented, we could easily see many power companies and many telecommunications companies all competing to provide customers with electricity and internet access. Let’s continue our thought exercise and see how this scenario might affect the free market.

To really make this a mind-blowing scenario, let’s say that each section of the road is owned by a different leaseholder. In other words, if I’m an ISP with a fiberoptic cable in one section of the road, my cable  can automatically negotiate with all twelve of the cables in the next section to find the lowest price for passing along its network traffic. Literally thousands of small companies may own cables installed along a long section of a roadway. Each cable makes money and each cable negotiates for the best price for passing along its network traffic or electrical power.

Digital currencies and smart contracts make this all possible.

It’s even possible that government would have no more involvement in roads other than to plan them and buy the land for them. They could then lease the land to companies that build and maintain roads. Those companies would build and maintain the roads at their own expense. They would make money by leasing the conduits under the road to the highest bidder.

This scenario essentially breaks the government-granted monopoly that power companies have had over the American public for about a century. It’s perfectly doable by extending today’s technology. But it’s revolutionary. It explodes the free market and enables competition on a scale America has never seen before.

Recall that the very reason we have such limited options when it comes to power and telecommunications is precisely because they are government-granted and government-controlled monopolies. These monopolies give us higher prices, a more brittle infrastructure, fewer price plans, and fewer product offerings. Breaking these monopolies will create a boom in both the power and telecommunications industries.

And lest you think that big companies would just come in and buy up the rights to every cable in a city, recall that there are legal precedents for stopping such monopolistic behavior. Right now, the government does not let a single person, company, or other entity come into an area and buy up all the newspaper, radio, and TV stations. In the communications industry, the government protects diversity. This is exactly the opposite of what the government does in telecommunications and power.

But if we implement smart roads, we can prevent monopolies from forming in the same way we prevent them in the newspaper, radio, and TV industries. We simple pass laws that prevent any single owner from owning too many cables in a given area. In this way, government can actually aid and support the free market rather than destroying it as it so often does.

Part 7


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