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Think blockchain is all about Bitcoin? Think again

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  • Picture of Benedict Dellot
    Benedict Dellot
    Former Head of the RSA Future Work Centre and Associate Director
  • Creative economy
  • Economics and Finance
  • Enterprise
  • Social enterprise

Blockchain has become synonymous with Bitcoin – but its potential extends well beyond cryptocurrencies. As Don and Alex Tapscott argue in their new book, blockchain could be the great economic leveller – a tool to strip out the middlemen from our economy and reward the makers and doers who truly create value.

Blockchain is having something of a moment. Silicon Valley investor Marc Andreessen calls it “one of the most fundamental inventions in the history of computer science”, while the World Economic Forum’s Klaus Schwab describes it as “being at the heart of the fourth industrial revolution.” Last year, almost half a billion dollars was invested in VC-backed blockchain companies – up from 3 million dollars in 2011. Little wonder that it stole the show at Ouishare's European gathering of social innovators earlier this year.

But what is blockchain? In essence, it is a tool for maintaining transparent and distributed ledgers that can verify transactions (including financial ones) with minimal third party involvement. Blockchain is distributed in the sense that the ledger is not held in a central location but rather spread across a network of computers. And it is transparent in the sense that every transaction is made public for all to see.

Blockchain’s claim to fame is that it solves the problem of trust. If Person A wants to send money to Person B, how do we know that Person A has the necessary funds? Typically, we would need a third party, say a bank, to verify the exchange. But the advantage of blockchain is that it stores an indelible ledger of all previous transactions in a string of ‘blocks’, meaning we know who owns what and who can send what to whom. The Economist describes it as “the great chain of being sure about things”. 

Bitcoin is the most popular application of blockchain to date. Created at the height of the economic crash in 2008, this cryptocurrency was designed as an alternative to the fiat currencies of sovereign states – the Pound, Dollar, Euro and so on. Fast forward to 2016 and Bitcoin has gone from an outlandish concept to a well-established currency. Microsoft, Expedia, Home Depot, Dell and several leading brands now accept payments in Bitcoin, and a constellation of trading platforms like Coinbase have emerged to help people buy, sell and use it.

Yet blockchain’s potential extends well beyond digital currencies. In their new book, The Blockchain Revolution, Don and Alex Tapscott argue that blockchain technology will disrupt every industry where trust and transactions are central, just as the Internet upended industries based on communication and information flows. Blockchain ledgers could one day be used to codify property ownership in the developing world, store and manage our online identities in personal ‘avatars’, and track foreign aid to ensure it bypasses corrupt regimes.

Most significantly, blockchain has the potential to democratise entrepreneurship. Think of sharing economy platforms like Uber and Airbnb, which have grown into global behemoths on the back of the wealth created by hundreds of thousands of individuals. The Tapscotts imagine an alternative co-operative platform called bAirbnb, where all listings and a history of previous transactions are recorded on a blockchain. Reputations are codified and financial transactions are automatically verified, diminishing the need for an overarching intermediary.

Vitalik Buterin, founder of blockchain platform Ethereum, is unforgiving on the potential consequences for sharing economy middlemen. “Whereas most technologies tend to automate workers on the periphery doing menial tasks”, he says, “blockchains automate away at the centre. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer.” Note that Uber reportedly takes a cut of 20 percent on every car journey.

The music industry is cited as another case in point. Artists today are lucky to receive 15-20 percent of music royalties once all the intermediaries have had their cut – record labels, studios, retailers, streaming services, among others. It can also take months for royalty cheques to arrive, and there is little transparency in the way payments are calculated. This is because different players in the supply chain often have their own contract, accounting and reporting systems. The result is that artists – the true value creators – are often left out of pocket and stymied by opaque bureaucracy.

Could blockchain technology be the answer? The Tapscotts point to the development of ‘smart contracts’ – agreements that can be attached to blockchains in order to bring clarity to deal making. Artists could load up their content on a blockchain and invite the likes of record labels to access it by agreeing to their terms of use. The benefit is that all parties concerned would see how much content is being used and when, reducing confusion, paperwork and allowing for near instantaneous royalty payments. The artist Imogen Heap is already working on a blockchain-enabled music application.

So far, so grounded. Where the Tapscotts stretch our imagination is in their concept of the ‘metering economy’, which fuses together the best of blockchain with developments in internet-connected devices and artificial intelligence. The father and son duo argue that blockchain technology, steered by smart contracts, could allow us to rent out our spare assets en masse – including computing power and storage, Wi-Fi hotspots and home-generated energy. Storj is a new platform that allows people to sell their extra hard drive space via a blockchain application.

Why do we need blockchain to do this? After all, people already rent out rooms on Airbnb and car parking spaces on JustPark. The short answer is that the involvement of a third party comes with additional costs, meaning it is often not worth people’s while to monetise latent assets. But by removing middlemen, creating trustless deals and indelible reputation systems, blockchain could finally make micro transactions and micro payments feasible. As the Tapscotts put it, “No talent or resource is too small to monetise on the blockchain.”

To be sure, blockchain is no panacea. Any start-up or platform using this technology will still need a polished interface, slick branding and a hefty marketing budget. Moreover, many of the innovations heralded by the Tapscotts, such as the micro metering of spare assets, are just as dependent on the continued evolution as AI as they are on the development of blockchain technology. There are also concerns about the security of blockchain platforms, as well as the environmental consequences of ‘mining’ blocks, which consumes gigantic sums of energy.

Still, none of this should diminish our appetite for at least exploring the possibilities. The Tapscotts may indeed turn out to be wrong: blockchain could be a flash in the pan – at best an incremental innovation that reinforces the status quo, or at worst a tool that facilitates illicit activities (as per Silk Road). But the point is that we don’t yet know what will happen, and at this early stage in blockchain’s evolution, everything is up for grabs. As the Tapscott’s wisely put it, “Rather than predicting a blockchain future, we’re advocating for it” – a strategy that all champions of entrepreneurship should heed.

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business and the World (28 May, 2016) is published by Portfolio Penguin UK.

 

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  • I can now confirm that Olinga Taeed, chair of the CCEG and former FRSA, has kindly agreed to present on the CCEG's latest innovation, the Seratio Token, the first UK-regulated Initial Coin Offering (ICO) that explicitly supports non-financial values.

    If you want to want to know more about this bold Blockchain cryptocurrency experiment and its potential role in capturing and making social value as tangible as financial, then register for this 1-hour online Zoom session hosted by the Fellows' Forum via Eventbrite at

  • Coming from the days of the gold standard these are very exciting times in what are potentially very dangerous times. Since Brendan drew my intention to this exciting topic I have discussed this with a wide range of learned institutions and working out how this can be used for the UN 17sdg 2030 program we must give hope for the future for the young and remember we all get old if we make it.

  • I think this project to commercially launch crypto currencies with optional embedded values by Seratio in the UK is highly relevant to the RSA and a great example of an experiment in 21 Century enlightenment - http://ow.ly/zLPE50dioUf

    • Hi Brendan you dont know what you have started trevor

      • I am sure it will end well Trevor! I am arranging a Zoom session for interested Fellows early Septemeber and will advise as soon as confirmed.

  • Thnx for your thoughts on this book.  There is also an excellent review in the July-August, 2016 issue of the Literary Review of Canada, under the title "Coin Toss".  That review can be found at http://reviewcanada.ca/magazine/2016/07/coin-toss/

    • Thanks for the tip, George. I'll take a look shortly.

    • Thanks for the tip, George. I'll take a look shortly.

  • The 'Blockchain for Creative Industries' group at Middlesex University (http://www.mdx.ac.uk/our-research/research-groups/blockchain-for-creative-industries) is carrying out research on the likely impact of blockchain on unlocking economic value from creative rights and creative production. Well worth expanding the debate about the potential for it to do more than 'ungum gummed up capitalism' and unleash potential GDP growth through new channels to value creation and provision.

    • Excellent, thanks Mark. Let me know if you're passing through central London anytime soon, and perhaps we can have a coffee to discuss.

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