Part 1 of 4
This is the first installment in a four-part series I am providing exclusively to CryptoDaily, the world premiere of a series of excerpts from my new book, Basic Blockchain, that seeks to answer the question not only what blockchain is, but why it matters to business and society.
I am writing these words from the middle of a retreat run by the Commonwealth of Nations about fintech and how it can facilitate commerce and benefit society, in conjunction with the Fintech Toolkit I have been developing with them. Interestingly enough, some Caribbean countries are exploring Central Bank Digital Currencies, CBDCs, as a direct result of 2019’s Hurricane Dorian destroying individual consumer paper-cash reserves.
Without further ado…
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Adapted from Basic Blockchain © 2020 Visionary Future LLC, published by Robinson, an imprint of Little, Brown Book Group
A revolution is under way in every continent on the planet save Antarctica. It isn’t led by gun-toting insurrectionists looking to profit from poppy fields. It isn’t governed by a handful of Silicon Valley elites who think that asset value creation is impossible outside of a fifteen-minute drive of Sand Hill Road. It isn’t controlled by dusty bureaucrats in the back offices of governments. It isn’t a shiny new widget from a global consumer packaged goods company that will add pounds to your hips in mere minutes. All of these parties would like to control, own, influence or use this revolutionary force, yet not one has exclusively taken the driver’s seat in this nitrous-powered rally car barrelling down the midnight highway of innovation.
I write, of course, of blockchain. Born of an obscure body of government-funded research on game theory called Byzantine Consensus; championed by drug dealers and other criminals seeking to launder ill-gotten gains, and by libertarians disillusioned with the broken promises of the establishment; accelerated by entrepreneurs seeking to improve financial access for the poor; funded by giant corporate interests attracted to the potential for billions of dollars of cost savings, blockchain heralds a new era of financial inclusion, legal inclusion for the dispossessed, lower prices for consumers and higher anxiety for enforcement professionals all over the world.
A number of challenges are present in the blockchain world, with more on the horizon. In the immediate term, critical issues include scaling (it doesn’t scale very well), computational power and speed (it uses a great deal of energy and computer cycles, and is relatively slow), and it’s governed by a fractious group of individuals. Longer term, a number of questions arise from the fact that the integrity of the system is controlled by half a dozen companies primarily located in China, which runs counter to the stated ethos of bitcoin as a currency that isn’t subject to a small number of control points. More ‘corporate’ blockchains like Ripple could potentially be subject to governmental pressure for the introduction of so-called ‘backdoors’ that enable snooping on the contents of data flowing over these corporation-managed networks. Emergent technologies such as quantum computing hold the potential to break the core cryptography on which blockchain is built. Blockchain, in combination with AI, creates potential for tremendous employment disruption in financial services – perhaps as much as 30 to 50 per cent of current employees at banks could be surplus to requirements. In short, the advent of blockchain technologies brings with it profound ethical and societal implications.
The question of ‘responsible innovation’ arises; when we throw large numbers of people out of work by adopting a new technology, should we adopt it?
Regulators are grappling with how to manage this radical movement – and movement it most certainly is, with its advocates espousing an ideological passion that goes beyond mere technofetishism. Some countries, such as South Korea, have moved to clamp down on many interesting applications. Others, like Switzerland and Singapore, have opened their doors and rolled out the welcome mat. The U.S. federal government has offered a more measured response. Individual U.S. states such as Wyoming and Vermont have offered friendlier regimens, contrasting with the innovation-destroying BitLicense applied in America’s financial capital, New York. Europe has gladly stepped into the breech thus opened by New York’s reluctance, with the EU parliament proposing new blockchain regulation to foster innovation and launching the EU Blockchain Observatory and Forum to accelerate experimentation.
A curious trend is emerging. The way we typically fund innovative new companies, once tightly concentrated in a handful of investment firms mostly found on a few miles of road in northern California, has now been democratised to an extent not seen since the coffee houses of Amsterdam during the Age of Exploration. Termed ‘initial coin offerings’ (ICOs), a new financing vehicle has sprung forth, anchored in the principals of crowd capital and syndicated through Telegram and Instagram. In some countries these fund-raising exercises have been labelled ‘securities offerings’ with the rules, reporting and investor protections associated with a more traditional, regulated financial function such as a stock or bond offering. Other countries, perhaps seeing a new economic value opportunity that could generate tax without adverse environmental or social impacts to the host country, choose a looser regulatory approach.
All the while, entrepreneurs are building ambitious new platforms that seek to change the way we work, live and play – on this planet and beyond (yes, there are several ‘space coins’ under development). Unlikely places like San Juan, Puerto Rico; Tallinn, Estonia; and Port Moresby, Papau New Guinea host digitally connected, wired up pioneers attempting to reshape the way people relate to the businesses and societies around them.
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Next week, Part 2 will delve into the Blockchain Hype Train