This is my third and last post in a series about Millennials and money following El País’ event No Money this April, reflecting some of the topics that were raised.
Blockchain is the database system underpinning the cryptocurrency Bitcoin, but has started to draw attention on its own. The blockchain technology’s recent rise to fame is based on it being a distributed database that could alter the way we exchange value, contracts and information. Transactions are made using public ledgers that inform the other nodes in a distributed network. In every-day speak this means that there are technological foolproof ways of making peer-to-peer based transactions without external contracts. It basically removes the need for a third party since the ‘cryptographic hash’ functions act as a public notary. Network nodes in the system can in other words take over the traditional jobs of banks. The blockchain’s implications go way past economic transactions in that it is a smart contract system, which is particularly suited for the evolving age of the Internet of Things.
The Internet of Things
When the IoT and a new Smart City ecology rolls out around the world, can our current computer architecture keep track of all these billions of connections? Could a distributed system like the blockchain play a role here? One example of blockchain – IoT integration is IBM and Samsung’s ADEPT project, which runs on three protocols – Ethereum, which constitute the blockchain based smart contracts, BitTorrent (file sharing), and TeleHash (peer-to-peer messaging). It means that your appliances can talk to eachother and to other agents to restore, repair and maintain contracts. Since the blockchain allows for M2M transactions, blockchain baked into a city infrastructure could also make some sense. And it is already happening. For a smart city project in China the company Factom claims to run a distributed protocol on top of bitcoin’s blockchain. It uses its native cryptotokens, Factoids (isn’t the name ironic??), to effect transactions through its distributed ledger.
The EU’s “Right to be Forgotten” policies
But it’s not all Pollyanna yet. Although the blockchain allows transactions to be transparent and public, personally identifiable information is not accessible. This anonymity has allowed Bitcoin to become the single, common currency for cybercriminals within the EU. Consequently, a minimum level of personal record keeping could be demanded by policy makers. The recent FBI vs. Apple case is testimony to governments’ growing intervention into the world of bits. If blockchain transactions ever had to be de-anonymized, all aspects of your life that have been organized over the blockchain would become irreversibly visible. Ironically, such as legislation would in effect conflict with another EU law, the privacy regulation known as The Right to Be Forgotten. When I was speaking at El Pais’ Foro No Money last month, this potential problem was raised during one of the panel discussions. EU citizens have the right to have their digital footprints erased at their will, but the blockchain would make past traffic tickets and embarrassing purchases become as permanently public as Bitcoin exchanges among traders with rogue intentions. Ironically, for all its’ hyperencryption, the blockchain technology could be at odds with the same legislation that seeks to protect people’s privacy.
The Sharing Economy and New Distributed Business Models
It is interesting to see how the technological architecture of the blockchain is so reflective of the changing business models that we see with on-demand platforms like AirBnB and Uber. Both are distributed or peer-to-peer and transparent, and trust is generated by means of other disinterested mechanisms than traditional channels of authority such as official notaries, banks and certified industry agents. Blockchain transactions are validated by the network nodes, sharing platforms by human nodes in the form of public ratings. An entirely new configuration of services and products is emerging. This new economy is based on information value rather than asset value, which has given rise to platform companies that own neither assets nor legal responsibility for the agents operating via their networks. It is high time that our institutions adjust their business models and regulatory models around these new concepts.
While technology is enabling this whole new business environment, a much deeper social shift in how we generate, exchange and even define value is emerging. While public trust in institutions and other people has declined, sharing platforms work because of the transparency ingrained in the system and the decentralized validation methods mentioned above. PwC, who recently did a survey on this explains, “If trust in individuals and institutions is waning or at best holding steady, faith in the aggregate is growing.” From the Trust in Advertising Survey we learn that 92% of consumers in 56 different countries said they trusted word-of-mouth or recommendations from their friends and family above all other forms of advertising. And trust in average reviews by many strangers is not far behind.
But to look at the value exchange in the new economy as limited to cryptocurrency would be nearsighted. The original sharing economy was intended more as a form of a barter system. And while Adam Smith might have been wrong about bartering pre-dating the money economy, networking platforms will enable direct transactions unleashing the power of decentralized prosumers. Since technology allows people to exchange things with each other directly it can bypass cash altogether. The value exchanges can be traded or credited and debited within the exchange network. Too many travel miles about to expire, but too low on local artisan wine? Trade it with a local wine farmer who otherwise couldn’t afford the plane ticket to go to her grandmother’s funeral. As people are starting to take the procurement of their own basic need into their own hands, bartering and prosumerism could become more substantial, including direct exchanges of professional services, 3D printing craftsmanship and rooftop energy production. Only imagination puts a limit on what self-generated value that can be traded over such networks.
Distributed economics is Generation Z’s social security net
Generation Z is growing up in a time when 47% of existing jobs are projected to disappear. This includes high-skill positions, and alas, the human lawyers, arbitrators and bank folks who are obsolesced by the blockchain. In the gig-economy chronic income insecurity becomes a dreaded reality and a front-end developer in San Fransisco will suddenly have problems competing with a front-end developer in India where expenses and wages are incomparably lower. Just take a look at sites like Upwork.
So the new digital economy and the new business model it represents could actually be both the problem and the solution, removing the need for human intervention, but also adding dimensions to how value is created.
What do you think will come out of the blockchain technology and the new business models? Do these changes threaten or provide new opportunities for your business?