Cryptocurrency may or may not represent the future of money. But blockchain may spell the end of capitalism as we know it.
How can something as mundane-sounding as a distributed record of transactions that is maintained by a network of computers on the Internet and secured through advanced cryptography have such an outsized impact?
With decentralization technology, the owner of an asset has direct control via a password, which is directly linked to the asset. No one can touch it without your consent and no one can stop you when you want to transfer the asset.
Placing trust in a network rather than a single entity like a government, a bank, or a multinational company, means that the types of assets that can be stored are limitless: intellectual property, identity information, land titles, financial assets, genetic information, social graphs, and supply chain information, to name only a few, says Bruce Pon, the founder and CEO of Ascribe.io, a Berlin-based startup that is a product of BigchainDB and is using the blockchain to provide a trackable, verifiable record of ownership between artists and their work.
Bypassing central authorities such as banks, energy providers and other types of large corporations, stock markets and even governments, is a change with big consequences not just for business models but power structures.
A large part of our economy is based around these intermediaries of trust, but in this new era of distributed trust we won’t need them or the armies of accountants and controllers that handle reconciliation processes.
Historically, trust has been added to products or transactions as they flowed through a value chain for physical goods or services. Physical, or electronic, records trail every object to prove its origin, destination, quantity and history.
Producing, tracking and verifying all this information requires time and manual effort on the part of banks, accountants, lawyers, auditors and quality inspectors. Important information is often inaccessible or lost, sometimes intentionally. And of of course these intermediaries take a cut of the action, each and every time a transaction is made.
When combined with cryptographically secure machine identities, blockchain- the technology underpinning cryptocurrencies- is expected to create reliable, immutable records to make it easier and less expensive for suppliers and customers to transact with one another in a direct, verifiable way.
The same interoperable transaction layer permits people who don’t know each other to dynamically start exchanging financial and physical values on the fly and be confident they won’t be cheated. And it permits machines to transact with each other in an automated way.
Already the blockchain is being used for the trading of currencies, diamonds, medical marijuana and guns. Central banks, hospitals, shipping companies and ports, insurance companies, automakers, charities and government and public record services are testing the technology, as are musicians and artists.
You can even now apply for e-residency in the South Pacific island of Vanuatu on the blockchain and pay the fee in Bitcoin, a kind of cryptocurrency.
While blockchain and its use cases are evolving very fast, the technology has a number of limitations, including scalability and computing-resource requirements.
Still, some believe the digital ledger technology is a vast improvement over the double-entry accounting first invented in Italy about 500 years ago, helping give rise to capitalism.
Think of blockchain as a triple-entry system, a ledger that records every single transaction, to give us an accounting of everything happening in our world, creating — at least in theory — a common shared truth. If it is as secure and transparent as advertised it will eliminate fraud and corruption, changing the way corporates and governments are run.
“There is a reason Florence, Milan and Vienna grew to be so wealthy, it was because they were masters at double entry accounting,” says Pon.
“Whichever jurisdiction or company masters blockchain and extracts value will be able to jump leaps and bounds ahead of competitors,” he adds.
New Business Models and Revenue Streams
There are huge productivity gains to be reaped from the efficiencies that blockchain will bring: between $90 billion and $110 billion just from global payments and trade finance, says Oliver T. Bussmann, a blockchain expert and former CIO at UBS.
But blockchain could have an even greater impact on other sectors.
The research firm CBInsights estimates that there are some 30 sectors that will be massively disrupted by blockchain. They include insurance, healthcare, energy management, transportation, real estate, stock trading, government and public records and supply chain management.
Dole, Nestlé, Tyson Foods, Unilever and Walmart are among companies exploring blockchain’s use in food safety and tracability.
Energy companies are testing it to see if the same the digital ledger technology that threatens to put them out of business will help them adapt and survive.
Power To The People
But blockchain is not just about efficiencies and new business models and new revenue streams — it is about the distribution of power, including the ability of people to exert their rights and values, ownership and leadership.
Blockchain is being tapped to help the stateless and the voiceless. The United Nations is using it to deliver money for food to refugees in camps and to establish digital identities for everyone on the planet, including the 1.1 billion people who don’t have any kind of government papers.
“The blockchain is the only technology that employs transparency and independence in a manageable and sustainable way,” says Marloes Pomp, blockchain ambassador for the Dutch government, which is trialing some 25 different uses for blockchain.
“Until now technology has mostly helped businesses to achieve more for less. It never had a big impact on how people protect and exercise their rights and values,” says Pomp. “Suddenly, blockchain technology opens the opportunity for creating a new class of systems that are fueled by the principles of independence, truth and transparency of operation.”
That’s why, she says, “blockchain is here to stay and will change the way people and businesses interact.”
In a post-capitalist economy, knowledge rather than capital or labor is the foundation of wealth, and traditional drivers such as supply and demand and the need for profits are supplemented by more collaborative, communal models that prioritize social good alongside shareholder profits, notes the blockchain expert Carsten Stöcker, a senior manager in the Machine Economy Innovation Program at the German energy company Innogy.
Take the case of the SingularityNET, a new blockchain-based exchange that will allow its users to create, combine and monetize artificial intelligence at scale.
One of the reasons it is being launched is that the founders say they do not want the future of artificial intelligence to rest in the hands of companies that are driven only by profits.
The founders have agreed that they will use a portion of the evolved form of the AI the network generates to solve some of the world’s most pressing problems, a challenge they believe companies reporting to traditional shareholders are less likely to tackle.
As with other blockchain-based exchanges, participation in SingularityNET requires people to buy network-specific cryto-tokens and use these to buy services. This enforces a system in which the people who use the exchange are the people who own it.
Others working in the blockchain sector agree that this concept could be used to bring about positive change.
“We have no incentive to solve big problems because there is zero price put on things like clean air,” says Pon, Ascribe.io’s CEO. “But what if we could tokenize new ideas? What happens if we could open source the Bill & Melinda Gates Foundation and everybody could buy tokens? Why not tokenize exploration to Mars? Governments have budget constraints but what if we could marshal resources by getting supporters to put their money into tokens? This is a really hopeful and powerful vision. We all feel helpless in the face of the misuse of funds but we have the possibility to create proper governance through blockchain and tokenism.”
The Token Economy
In this new token economy the people starting blockchain ventures don’t need to go to venture capitalists or raise money on the stock market anymore. They just organize initial coin offerings (ICOs), an unregulated means of crowdsourcing funds.
More than a billion dollars in funding has been raised this way in 2017. In fact, one report estimates that more than $1 billion was raised in ICOs in the third quarter alone.
The Bancor Foundation made headlines in June when it raised $153 million worth of ether (the coin of the cryptocurrency Ethereum) in just three hours.
The same month the former Mozilla CEO Brendan Eich raised $35 million in an ICO — and did it in less than 30 seconds,.
“Think of all the value that is currently captured by centralized authorities — from the banking industry to music rights holder networks to the court system,” Nathana Sharma, Program Director for Faculty Affairs at Singularity University, writes in a blog post. “If that value can be shared among participants in the dominant blockchain, then how much might the tokens that underlie the dominant blockchain be worth?
For that reason and others, don’t expect the transition to be an easy one.
While blockchain looks poised to distribute power away from centralized authorities, such powerful institutions do not let go of their influence easily, Marc-David Seidel, RBC Financial Group Professor of Entrepreneurship and Associate Professor at the University of British Columbia, notes in a blog post.
“I view this as one of the most interesting cultural and political challenges of this century,” says the blockchain expert Philippe Dewost, who recently took on a job as head of Leonard, the innovation structure at Vinci Group, a French concessions and construction company.
“The reason is the following: decentralized token currencies are questioning notions that have been at the very heart of the management system that has been around since corporations have existed.”
One of those notions is, who gets to be a leader? Until now leadership in many companies has been related to established, recognized personas who are widely accepted and respected by society.
Think about the leader or leadership behind Bitcoin. Despite much speculation and detective work the people behind it are still unknown. “So now we have a faceless leadership,” notes Dewost.
The inventor of Ethereum, who was born in Russia and grew up in Canada, was 19 when he invented Ethereum, a flavor of blockchain that is now being used to build smart contracts. So now, there is this kid who came from nowhere and is leading a whole community of developers across the world, and he is doing it virtually.
This brings up questions about how leadership is nurtured and formed in cooperation with others.
The second impact of blockchain that current leaders need to think about is permissions, says Dewost. No one asked permission to write the first white paper explaining Bitcoin. No one asked permission to start mining them. And, he says, when blockchain startups launch ICOs, they don’t have to ask the permission of regulators or courts. They don’t need lawyers. They just launch it.
Dewost says: “This is where the blockchain revolution is — young people who are extremely far from traditional education, leadership and controls, using cryptocurrencies to launch ICOs” — a distribution of trust and power that businesses and governments can not afford to ignore.