15 MAR 16 FAST COMPANY
Perhaps it’s hard to imagine bitcoin making the world a better place. For the general public, the cryptocurrency is mostly associated with felons like Ross William Ulbricht, of Silk Road darknet fame, and failures like the Mt. Gox exchange, which closed in 2014 having misplaced thousands of bitcoin units. Bitcoin is used to buy illegal drugs, traffic in arms and people, and to hide criminal gains. And it hasn’t been stable: The price has shuffled around a lot, invoking something more like a casino, rather than something to build a prosperous, steady future on.
This, though, is to underestimate the significance of bitcoin technology. According to many smart and knowledgeable people, this underlying system, known as the blockchain, is an idea of historical importance, with the potential to solve big social problems. In fact, it could be what makes the Internet what it was supposed to be before it was overrun by Facebook, the NSA, and countless scam artists. If blockchain believers are right, the technology will enable an era of radical transparency, frictionless commerce, and genuine economic abundance.
“We believe that blockchain technology is a powerful tool for creating global prosperity,” says Alex Tapscott, who co-authored the forthcoming book Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World with his father, Don Tapscott. “We’re seeing a big problem where the world economy is growing unabated, but fewer and fewer people are benefiting, and we think blockchain could hold solutions to that.”
A blockchain is a ledger of digital events with no central database. It runs simultaneously across thousands of computers, distributing the record across the world. The blockchain is like a collective brain that no one controls and everyone can view. It’s both public and private. As a user, you encrypt your personal information, only allowing that data to be revealed when you make a transaction, such as when you transfer bitcoin to another person. But currency isn’t the only thing you can deal in. You can also store and transfer digital assets such as stocks, bonds, and airline miles. You can create digital IDs, allowing you to access secure web sites or sign documents.
That’s because the blockchain allows peer-to-peer relationships without “trusted intermediaries” and not only in human-to-human relations. It can also automate exchanges between machines. “The new platform enables a reconciliation of digital records regarding just about everything in real time,” the Tapscotts write. “In fact, soon billions of smart things in the physical world will be sensing, responding, communicating, buying their own electricity, and sharing important data, doing everything from protecting our environment to managing our health. This Internet of Everything needs a Ledger of Everything.”
The most important upgrade from today’s Internet is an increase in trust. When two parties transact through the blockchain, both sides can be sure that what took place just took place, and that the record of the transaction will be stored in perpetuity. The transaction, as the Tapscotts write, is “authenticated by mass collaboration and powered by collective self-interests, rather than large corporations motivated by profit.” And because changing anything in the ledger requires a majority of users agreeing to the change, to hack one block, you would have to hack all the other blocks that refer to it. So, it’s theoretically incorruptible (“immutable” is a favorite word among blockchainiacs).
Like the Internet itself, blockchain technology started as a niche pursuit of computer programmers. To be involved, you needed to download some obscure bitcoin program from some dodgy website. But, today, the blockchain is going mainstream, and it’s losing its mysteriousness.
“People won’t necessarily know they’re using blockchain technology, or they won’t need to understand the technical aspects of it,” Alex Tapscott says in an interview. “It’s the same as when the commercial Internet came into existence, and people could log on to web browsers or email. Blockchain companies don’t think of themselves as blockchain companies, in the same way that Google or Amazon aren’t HTTP or HTML companies.”
Tapscott sees blockchain technology helping out with two big issues in the world today: economic rights and economic inclusion. An estimated 5.5 billion people, mostly in the developing world, have difficulty proving they own land, businesses, or cars. The blockchain can help prove ownership by creating an inviolable record of the initial transfer, the Tapscotts say.
At the same time, 2.5 billion people lack access to basic financial tools, like bank accounts. (At least 10% of Americans and 60% of Mexicans don’t have checking account services). The blockchain can store and transfer value in a frictionless and cheaper way than today’s financial networks because it doesn’t require a bank that needs to make money on your account. “All you need is a smartphone and an Internet connection to access global commerce,” Tapscott says. “But you need a reliable mechanism to save and move value, and we think applications that are built on blockchain lower the barriers significantly for people.”
Many countries struggle to maintain accurate records of land and business ownership. Their systems are incomplete or easily doctored by the people controlling them. In Honduras, this allowed officials to steal beachfront properties and to buy election votes using land titles.
Recently, the new government in Tegucigalpa started working with Factom, a blockchain developer from Austin. It’s now building a backup to the main titling record, so any changes can be reviewed retroactively.
“We’re taking all the title information and securing it on the blockchain, creating this dynamic audit trail,” says Abhi Dobhal, Factom’s VP of business development. “Every time there’s a discrepancy, you can check if the data have been changed. It’s like the proof is on the Internet.”
When citizens don’t have formal property rights, they live in fear that it could be appropriated at any time. They also can’t approach a bank to get a loan to improve the home, and thus up its value. The blockchain won’t actually enforce rights if someone comes to door with a gun in their hands. But it could create useful records, making expropriation more difficult.
The blockchain could reduce the cost of sending “remittances” from people living in rich countries to relatives who live in poorer ones. These payments, totaling $440 billion in 2015, are worth more than foreign aid. And yet, they currently come with high transaction costs. For example, to send $100 in cash from the U.S. to India using Western Union incurs $11 in fees.
Abra, which received $12 million in venture capital funding last year, uses the blockchain to enable person-to-person payments without going through a conventional agent network. Instead, it employs its own users as tellers, like Uber aggregates car drivers. To send money, you deposit funds into an account, using either a debit card, or by meeting up with another user and handing them cash. The money is converted to bitcoin and transferred to a mobile phone overseas (sidestepping normal regulations).
The recipient finds another local teller, either a person or a participating business, who converts the digital cash back into local currency. Both tellers set their own rates for helping out, with Abra also taking a small cut. Crucially, using the service requires no technical knowledge of bitcoin or blockchain architectures. Indeed, Abra is a good example of how bitcoin/blockchain is now being made consumer-friendly.
“It took Western Union 150 years to get to 500,000 agents worldwide. Abra will have as many tellers in its first six months,” the Tapscotts say.
From wood furniture to cotton T-shirts, many products these days claim to be responsibly sourced. But sometimes it’s hard to trust these claims are true. Did that organic cotton really come from that farm in Turkey? And was that meat really raised on such-and-such farm and brought to the city on Monday last week? At the moment, we just have to trust the supplier and the retailer that what they’re saying is accurate.
Here’s where the blockchain comes in, says Provenance, a London-based social enterprise. It allows suppliers and merchants to map and track supply chains, creating open and inviolable records of product development and delivery. And, importantly, it also lets certification bodies—like, say, the Forest Stewardship Council—assert that what happened in the chain actually took place.
“The problem we’re trying to solve is ‘why at the point of sale do I not know anything about the people who created the product, or the places that were involved, and the materials that were used, yet I know all about the brand?’” says Jessi Baker, Provenance’s founder.
“Blockchain fosters trust through the whole system without relying on a third party. That is a far more powerful idea [than a conventional back-end-based system]. It means we can have certifications registered in an open database that’s fully transparent and trusted, because it’s impossible to change it.”
Meanwhile, there are several other uses of blockchain that are either on the drawing board or strong possibilities going forward:
Billions of dollars in foreign aid flow to developing countries each year, but often this money doesn’t deliver full value. Either it goes missing—U.N. Secretary-General Ban Ki-moon has said 30% of foreign aid never reaches its destination—or it’s misspent on the wrong things. This is especially true after natural disasters, like the Haiti earthquake, when large amounts are sent in lump sums and local systems aren’t equipped to cope.
The blockchain could be used to transfer digital cash, thus bypassing middlemen who are either expensive or outright corrupt. There would be a ledger offering an ongoing accounting of transfer, and the money could go directly to recipients’ phones, so they could make their own decisions about how to spend the donations (donor agencies wouldn’t send in-kind products that may not be suitable). Moreover, using “smart contracts,” donors could tie money to pre-agreed milestones on the ground.
“Individuals in poor countries could sign up for certain benefits through a distributed ledger managed by a network of different aid groups acting as nodes on the network,” the Tapscotts write. “When particular aid is delivered—say, vaccinations from the Red Cross or school supplies by UNICEF—those ‘transactions’ can be timestamped on the ledger. This would reduce or perhaps prevent aid groups accidentally double spending on particular people or communities, thus spreading the benefits of aid more equitably.”
Aid groups are interested in blockchain’s potential to build identities for disenfranchised people. The lack of IDs currently limits access to education, health, and other social services. In sub-Saharan Africa, for example, 55% of people have no official identification record, meaning, in a sense, they don’t exist for official purposes.
“We know there’s an ability for technology to build up identity platforms in a more articulated and quick away than maybe sovereign states,” says Christopher Fabian, coleader of UNICEF’s innovation unit. “We think the blockchain might provide new ways of looking at identity. It can create a unique but anonymous identity that can persist over time, which may be useful for a refugee child who may have lost it.”
UNICEF recently announced a $9 million fund to invest in tech startups, including those working on blockchain applications. Bitnation, a “decentralized governance” initiative, already offers BlockchainIDs, letting anyone become “world citizens” beyond their normal passport status. Syrian refugees, for instance, can also claim “emergency IDs” if they’ve lost their conventional papers.
Uber and Airbnb are part of the “sharing economy.” But, in reality, they don’t really share anything. They’re really aggregators of unused assets—your house, my car—which they sell at a profit. Uber, for example, keeps 20% of the fee you pay when you exit a participating vehicle. All the while, these sharing companies keep the data behind the transactions on their platform, even though this information is arguably an important social good.
The blockchain could allow us to share goods and services in a less intermediary-centric way, thus enabling cheaper and more frictionless transactions. The Tapscotts talk about “blockchain cooperatives” where assets, like cars, are programmed to be shared, according to “smart contracts” set up on the network. So, for example, you might drive your Tesla to work, then put it into autonomous “sharing” mode. It would then leave the parking lot and make its way onto the road, where it could be hailed by anyone on the blockchain network.
Blockchain cooperatives would require several leaps, including someone to build and maintain the system and good machine-to-machine communication. So, it may be a while before we see them in action. But such systems are already technically feasible, and Wikipedia proves that commons-based enterprises are possible.
“If someone [like Uber] builds a platform that allows people to connect to cities and rooms based on a whole bunch of criteria, that adds value,” Alex Tapscott says. “But you don’t need that intermediary to process payments, enforce contracts and rate users, because that can happen on the blockchain.”