[Note: below is the glossary to Great Chain of Numbers]
Because of the dynamic nature of this new ecosystem, the data and statistics cited here will quickly become outdated. This is not making excuses for the manuscript but rather illustrates to you the rapid pace of change relating to innovations and opportunities in this new space.
Before embarking on reading this book, below are commonly used definitions for several important terms used throughout the guide:
Smart contracts1 are computer protocols that facilitate, verify, execute and enforce the terms of a commercial agreement.2 Current proto-examples include some digital financial instruments used on electronic securities exchanges.
Smart property is property whose ownership is controlled via smart contracts that may or may not reside on a cryptoledger.
Cryptocurrency3 is a virtual token (e.g., a bitcoin, a litecoin) having at least one moneyness attribute, such as serving as a medium of exchange.4 It is transported and tracked on an encrypted, decentralized ledger called a cryptoledger.5
Trustless asset management refers to the ability to manage an asset such as a virtual token in a trustless manner – relying on mathematics, rather than a trusted 3rd party like a payment processor or a bank through the use of a cryptoledger.
Decentralized autonomous organization (DAO), also known as a decentralized autonomous consensus platform (DACP), is a virtual entity that interfaces with a cryptoledger and performs a specific, preprogrammed task. In its simplest form it is merely an agent programmed to do a specific task like acting as a multisignature wallet that sits on the ledger waiting for outside instructions. In order to modify or fulfill its task, it must receive a certain threshold of digital signatures from keyholders (e.g., voters, shareholders) and perhaps with a 67% majority, have the right to release the entity’s funds and modify its code.6 It can fulfill the functions of an organization, corporation, or agent by conducting operations such as payroll management, issuance of dividends, stock, or debt, or otherwise executing repetitive, mechanical, quantifiable actions from a cryptoledger.7
When spelled with an uppercase “B” Bitcoin (or uppercase “L” Litecoin) refers to a peer-to-peer network, open-source software, decentralized accounting ledger, software development platform, computing infrastructure, transaction platform and financial services marketplace.8 When spelled with a lowercase “b” bitcoin (or “l” for litecoin) is a digital cryptocurrency and unit of account. As of this writing one bitcoin is equivalent to $600 USD and one litecoin is worth approximately $15 USD. In addition, the acronym “BTC” is often used to represent a bitcoin (and “LTC” for a litecoin).
- Contracts in legal terminology are required to have ‘offer,’ ‘acceptance’ and ‘mutual acceptance’ – this is called ‘meeting of the minds.’ Whether the ‘smart contracts ‘used in cryptoledgers will be recognized or stand legal scrutiny is an on-going area of discussion and speculation. [↩]
- The task of trying to encode all the possible legal subtleties that underlie even the most basic contract could potentially be difficult from a designing perspective and will likely run into hurdles with mainstream commerce. [↩]
- While several state legislatures (California, Washington) recognize cryptocurrencies as alternative currencies and it may technically be used as a ‘currency’ in the economic sense, as of this writing, no United States court has categorized ‘bitcoin’ as a currency yet; rather in legal terminology it could be treated like a commodity. Furthermore, in the United States it is currently not categorized as a stock or bond or an investment contract (a security). These issues are being debated by policy makers and it may be some time before a consensus builds within each jurisdiction. One source I spoke with used the analogy that trying to pigeon-hole cryptocurrencies under existing laws is equivalent to how regulators at the turn of the 20th century applied cruiseline laws to the nascent airline industry. Similarly, it took a decade to build up regulatory framework surrounding credit cards – which are essentially, preapproved electronic loans (e.g., a line of credit). Perhaps a ‘BitLicense’ will become integrated with the New York Uniform Commercial Code Article 4-A: Funds Transfers. See New York considers creating a ‘BitLicense’ for Bitcoin businesses from The Verge [↩]
- All assets have at least one form of ‘moneyness’ including: medium of exchange, store of value or unit of account. The question over whether or not a virtual asset can have all three is an ongoing debate. See Bitcoin now ‘unit of account’ in Germany from The Guardian, Bitcoin More Speculative Than Real Currency, Study Finds from Bloomberg, Economics of Bitcoin: Is Bitcoin an Alternative to Fiat Currencies and Gold? by Peter Šurda as well as the writings of JP Koning [↩]
- Stylistically many other writers use hyphenated words (e.g., crypto-currency, crypto-ledger). I use a hyphenless style throughout strictly for aesthetic purposes. [↩]
- There are multiple different ways to describe a Decentralized Autonomous Organization. Some call it an Agency, an Application, a Corporation or even Consensus. A thorough explanation can be found in “Application Specific, Autonomous, Self Boot-Strapping Consensus Platforms (And the DACs that live on them)” forthcoming by Adam Levine. [↩]
- There is also no standard, consistent definition for what a DAO is and is not. Mike Hearn describes it differently than Vitalik Buterin (see chapter 3). Perhaps, speculatively, as time goes on, developers can build more complicated features creating more robust functionality beyond that of what a contract can execute. [↩]
- The 8 identities of Bitcoin by William Mouyagar [↩]