Fans of the HBO show Silicon Valley will know that the core of every tech start-up's message is "We're making the world a better place." And even casual readers of business and technology news will have read something about blockchain or distributed ledger technology over the past year. Blockchain will certainly be a transformative technology, but much of that transformation or "disruption" will not be readily apparent to most people, at least initially. But, the changes driven by blockchain are coming, affecting long-established marketplaces, consumer choice, and the role of a regulator in a digital age. The world may indeed become a better place.
Current state of blockchain
Most commentary about the impact of blockchain has focused on financial services. Today, financial transactions require a number of steps and organizations to verify the identities and information involved in the transaction. Each of these steps carries with it additional time and cost. The nature of blockchain means that anything of value (e.g. information, money) can be moved between two people securely and privately, without the need for a chain of trusted intermediaries, because trust is established by the technology. In turn, direct, secure transactions translates into significant cost savings - it's estimated that blockchain could save the banking industry $20 billion a year in reduced infrastructure costs. This type of transformation, however, has yet to have any meaningful impact on our day-to-day lives.
There has also been a lot of discussion about how blockchain will transform the healthcare, auditing, insurance, and securities industries. But, again, there have yet to be any notable changes in the market place, despite the proliferation of start-ups and the commitment of significant resources by industry incumbents.
Blockchain technology is most readily available to the public in the form of cryptocurrencies - an entirely digital asset or currency-the best-know of which is Bitcoin. There are number of online exchanges on which these currencies can be sold and purchased, and cryptocurrencies are slowly becoming an accepted method of payment (a Bitcoin is currently worth about CAD $980.). For example, EY Switzerland recently announced that its clients may now settle their accounts using Bitcoin, although there are no current plans to expand this program globally. In Venezuela, many people are turning to Bitcoin in order to avoid the drastic devaluation of the bolívar, and the significant regulatory restrictions and costs of sending and receiving money from abroad. There are even Bitcoin ATMs popping up across the world, and you can download a Bitcoin "wallet" onto your mobile phone.
However, despite the hype and evidence that its use is increasing, blockchain has yet to really affect our daily lives. This is primarily because blockchain is a new technology, in the same way that the Internet was new technology in the late 1980s and early 1990s. Despite the promise of the Internet at that time, you couldn't bank online and "Cyber Monday" was not yet part of our holiday shopping vernacular. In the same way, blockchain has challenges it must address.
For example, on a technical level, there remain issues about verification processes, security, and data limits. In addition, the computer power required to "mine" blockchain transactions is significant, posing a problem to the scaling (mass application) of a blockchain. On a business level, blockchain applications often require significant changes to, or complete replacement of, existing IT systems, requiring significant initial capital investment.
Finally, as a new technology, blockchain faces a certain amount of regulatory uncertainty. Indeed, a driving motivation of blockchain developers is to avoid the "burden" of regulation. A timely example of a regulatory "grey area" is the concept of an "Initial Coin Offering"- the initial sale of a cryptocurrency, which has become a popular way to fund a cryptocurrency project. Most ICOs are marketed as "software presale tokens", akin to giving early access to supporters of the project. In order to try to avoid legal requirements that come with the sale of securities, many ICOs use language such as "crowdsale" or "donation". They also use legal disclaimers to assert that no securities are being sold. But, it remains to be seen whether securities regulators are buying what these companies are selling.
Making the world a better place?
Blockchain is one of a number of technological advances that people are trying to wrap their heads around - the internet of things, mobile payments, wearable devices, artificial intelligence, and automated transport. Indeed, many of these have a much more tangible impact on our lives than blockchain: I can pay for my Starbucks using my Apple Wallet, I can turn down the thermostat at home using an app, and an automated truck will soon drive down Ohio's Route 33 in regular traffic. So how then is blockchain "disrupting" our lives?
The short answer is that, like the Internet in the early 1990s, the real effects of blockchain are likely someway off, and in many cases unknown. Cryptocurrencies are the most advanced application of blockchain technologies, and they are readily available to anyone with an Internet connection. Investing in Bitcoins may in fact be a wise choice in this market, and paying for your coffee using Bitcoin is probably not that far off.
The real changes are currently happening behind the scenes - for example, changes being made by banks to their IT systems. The effects of these changes will likely be significant operational efficiencies and huge costs savings. This in turn will hopefully lead to greater price competition in the market, and more choice for consumers. In addition, in the case of banks and other financial institutions, competition will also come from new entrants into the market, who do not need to engage the traditional clearing system in order to reliably and securely make transactions. Therefore, in the medium term, consumers are likely to be the primary beneficiaries. On the flip side, blockchain is also likely to make many human tasks redundant, putting further pressure on the unskilled job market.
Making long term predictions is always a difficult task, and in that regard blockchain is no different. However, the nature of blockchain is such that there will have to be a fairly substantial shift in policy-making, legislation, and the role of regulators. If blockchain allows people to participate in the marketplace outside of today's legal landscape, regulators and legislators will have to catch up. And in doing so, they will have to be cognizant of balancing the benefits that blockchain may bring with the potential harms it may cause, if left to its own devices. In an immutable system, harm, financial or otherwise, is permanent. In addition, if we can interact with each other without institutional or governmental interference, there are likely to be changes in social norms. Twenty years ago, you would not have found the words "selfie" or "sexting" on the pages of any newspaper.
Will the world be a better place? Only time (and perspective) will tell.