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.
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.