20 March 2018

Blockchain technology: Rethinking property rights

by Daniel Evans

Free trade relies on the existence and effective enforcement of property rights.

Blockchain technology prompts some important questions about property rights, and as the technology and its applications develop it will raise even more.

Two of the biggest questions relate to where property rights come from and how far they extend.

Let’s consider the first question – where do property rights come from?

The three previous pieces of this short series discussed how cryptocurrencies are beyond state control, are functionally versatile, and how regulators are adapting.

A lot of political theory assumes that the state is integral to defining and defending property, that property cannot exist without the state, or that property itself is nonsensical. Blockchain technology challenges all of these ideas.

Blockchains are used for currencies and other financial instruments which do not rely on and cannot be controlled or stopped by third parties. Blockchains can also be used to secure and pass on ownership of physical objects.

Cars are a good example. Electronic car keys are already beginning to replace physical ones. Some people are already working on ways to link engine ignition to the blockchain. The idea is that a car could only start if you had the right cryptographic, private key to match the car’s public key. If you wanted to sell the car you would, in short, sell the right to access it to the buyer.

There are other projects which are working on extending that kind of access (sort of like creating a blockchain-based mobile phone SIM card) to phones, laptops, televisions and other household electronic appliances.

The above kinds of applications are still in their early stages, but technology is always improving. It’s also likelier to spread as more and more objects begin to contain computers and connect to the internet.

It also means that theoretical questions about where property comes from and how it’s maintained are finding practical answers.

This leads us well onto the next question – how far do property rights extend?

Blockchain technology is transformative in and of itself. It may become even more so when paired with (even modest) artificial intelligence.

Imagine something simple like a vending machine with its own diagnostic system, which could do the following things: keep track of its own stock; call for replenishment and repairs; analyse consumer demand; predict consumer trends; accept cryptocurrency payments. And imagine that no human knew the private key which controlled its wallet.

On the face of it, that vending machine would be in business for itself, run its own finances and, because it used cryptocurrencies, would be immune from a lot of third party interference.

What happens when we extend the above idea to a driverless taxi car? What about a computer designed to trade the stock market?

Blockchain technology could allow these machines to exercise complete control over themselves, their finances and physical assets.

Does this mean that they own property? Perhaps not. The above is very speculative and it is likely to be some time until we start to see these kinds of machines. But the basic technology necessary to make all of them exists today.

It may be twenty years, it may be a hundred, but we might have to radically rethink our ideas about property rights and what this means for free trade.

This is the last of four short pieces explaining blockchain technology: cryptocurrencies explained; smart contracts explained; the role of regulators; rethinking property rights.

Daniel Evans

Daniel Evans is part of the team that started the Gibraltar Stock Exchange (GSX). He has owned bitcoins since 2010. The GSX is starting a crypto-asset market, the Gibraltar Blockchain Exchange. This article does not necessarily reflect the opinion of the Gibraltar Stock Exchange.