The Quantum Leap of Decentralization

As is often the case throughout history, the intentions behind major revolutions may not always align precisely with their consequences. Alexander Fleming stumbled upon the mold that would be used to produce antibiotics, inadvertently extending the lives of billions, just as the internet itself was born in 1969 with the limited goal of connecting the computers at UCLA and Stanford via telephone lines. Similarly, when Haber and Stornetta proposed the method (which they did not even exploit for their own gain) for timestamping emails and their attachments, they could not have anticipated the rise of the crypto world we know today. Yet, what has followed, particularly after the eruption of the first and still largest blockchain on the planet, Bitcoin, over fifteen years ago, confirms that with digital decentralization, history has once again repeated itself.

The original impetus behind the revolutionary framework initiated by Satoshi Nakamoto, dating back to 2008 (also as a response to the failings of traditional finance during the Subprime Mortgage Crisis and later the Sovereign Debt Crisis), has naturally been further developed by skilled and ready “prosecutors” like Vitalik Buterin. His Ethereum blockchain (second in size only to Bitcoin) enabled the development of smart contracts and associated digital royalties, or Kevin McCoy and his first artistic NFT, “Quantum,” which was minted thanks to the germination of these innovations. Today, the manifestations of this phenomenon are diverse and increasingly widespread, particularly among younger generations and populations worldwide that still have limited access to centralized institutions (financial, administrative, insurance, healthcare).

Furthermore, metaverses, initially conceived as virtual spaces for social interaction and entertainment, have now become increasingly multifunctional environments, capitalized (Roblox and Fortnite boast valuations in the tens of billions of dollars), frequented by hundreds of millions of users, some of whom are developers, and attracting investments from top-level brands (Nike, Gucci, Adidas, Dolce & Gabbana, Sotheby’s…) as well as private investors. This is evident in the billions of dollars worth of transactions for buying and selling digital land or properties on platforms like Decentraland or The Sandbox.

The automotive industry itself is focusing on generating non-fungible tokens (NFTs) that can be paired with each vehicle produced. Similarly, food products, especially those from a “noble supply chain” that require precise traceability (such as collectible wines), are increasingly adopting an immutable digital identity linked to their physical counterparts, just as has long been the case for many works of art, whether they are native digital creations or tokenized starting from analog art pieces.

In this New Digital World, it’s not just about cryptocurrencies, though these, especially the “originals” (Bitcoin and, we can include Ether), the most stable stablecoins (like Tether), and the Central Bank Digital Currencies (CBDCs) issued by central banks in an attempt to “recentralize” at least part of what is being decentralized in finance, represent and will continue to represent significant volumes in terms of business turnover. However, the most intriguing prospect of decentralized finance lies in the near future ability to tokenize vast amounts of securities (including listed stocks, which have a global market capitalization exceeding $109 trillion, and bonds, which total another $100 trillion globally). This will enable unmediated trading, even in very small amounts, allowing billions of new participants (for example, young people or residents of developing geopolitical regions) to enter the markets with immense collective power.

Paolo Turati (for Affidaty Blog)
Economist
Director of the Decentralized Finance and Blockchain Lab at Saa-School of Management, University of Turin
Turin, May 12, 2024