In 1999, economist Paul Krugman said, ‘By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.’ Krugman’s error was not underestimating the potential of the Internet, it was conflating that technology’s potential with the dot-com bubble. Many are making a similar mistake today. While cryptocurrency markets possess all the hallmarks of a bubble, the underlying technology – the blockchain – could still have the power to transform our world. Cryptocurrencies are a monetisation of blockchain and just one potential use for this technology.
Blockchain technology relies on peer-to-peer networks which means that transactions can take place between directly parties without an intermediary. Even on the Internet today, most of transactions require a middleman, in the form of a bank or other financial body. Using blockchain, people can interact directly because each transaction is verified by users around the world and recorded digitally on a public ledger. New transactions can be appended to the ledger, but older transactions cannot be erased. The fact that this ledger is distributed across the network and because it is effectively unhackable means that it is impossible to defraud or retroactively alter.
At present, information can be transferred around the world instantaneously because when you send a file to someone, you are sending a digital copy. A value transaction, such as payment between banks on different continents, is still slow and expensive as you cannot send a duplicate, so intermediaries handle the transaction.
Using blockchain, people will have the capacity to conduct value transactions, such as trading stocks, intellectual property, or music, with the same fluidity with which information transactions like sending emails and sharing images are conducted today. Someone can send you an asset and the fact that you are now the owner is written to the public ledger. Such value transfers are permanent, and instantaneous. This versatility will allow us to move from our current Internet of information to what is known as the Internet of value.
Value will move around the world as information does and it has potential for a wide range of industries. The Government of India is trailing the use of a blockchain to combat land fraud. Several companies are attempting to apply blockchain technology to voting as it is more secure than current electronic voting systems. Health records for over a million citizens of Estonia are stored on distributed databases.
Another rich possibility is that of smart contracts, which utilise blockchain to self-execute automatically when certain conditions are met. For example, you can arrange to sell a laptop using a smart contract stored on a public ledger. It will automatically pay you when the laptop arrives at the buyer, providing efficiency and transparency while doing away with the need for a middleman such as eBay.
The decentralised nature of blockchains can empower people too. Regarding music, Spotify have been criticised for unfairly compensating artists hosted on the platform. This could be addressed by new artist-friendly business models based on blockchain where a musician is paid directly every time you listen to their song anywhere. From songs to films, blockchain can result in more direct and transparent royalty payments.
Like all new technologies, blockchain is not without its flaws. Since its use is not widespread today, there could be scalability challenges ahead. Secondly, an uneditable ledger is both a blessing and a curse as errors are impossible to amend. Smart, self-executing contracts are efficient but real-world contracts often have some flexibility. For example, you could have to pay your car tax before your smart-contract with the government executes, thereby unlocking your electric car over the Internet. This sounds fair until you are presented with an emergency. Issues such as these, however, are implementation challenges as opposed to unsolvable problems. Overall, the decentralised nature of blockchain means it will not be going anywhere. The World Economic Forum agree, predicting that 10% of global GDP will be stored on blockchain technology by 2025. For blockchain, there is no bubble to pop.
Sean Mooney – Science Writer