Read this book, see the future

by Joan Warner

What if you could get a loan without a credit score? What if your apartment knew when you’d be traveling for a while, and automatically sublet itself to a solvent, clean-living tenant? What if a single, unhackable digital ID let you vote, pay your taxes, or sign up for government benefits from wherever you happened to be, without reams of tedious paperwork?

Behold blockchain, the technology poised to enable all this and more. In Blockchain Revolution, published this week by Penguin, authors Don and Alex Tapscott (père et fils) take us through scores of potential uses for what’s called a distributed ledger — a shared database whose “blocks” of data are linked into a “chain” by cryptographic software. A blockchain creates a permanent record of transactions that’s transparent to all its users; no transaction can be completed or altered without validation from a majority of those users. Blockchain first made headlines as the technology behind virtual currencies like Bitcoin. But as this book shows, Bitcoin is a mere prologue to the blockchain story.

Tapscott BookThe Tapscotts are tech experts: Don (dad) has written several books about emerging technologies, and Alex advises blockchain startups. In clear, engaging prose, they make blockchain intelligible to the rest of us, sketching the concept’s possible applications in government, finance, corporate management, consumer retail, municipal infrastructure, and media. Their richly sourced book overflows with entertaining examples of how blockchain could enhance our lives. In some parts the authors get rather technical, and I, for one, found a chapter or two hard to digest. Still, I wound up feeling pretty open to the Tapscotts’ thesis that there are few civic and commercial activities blockchain couldn’t improve.

Take the first “what-if” above. Instead of basing lending decisions purely on payment history, banks could consider a borrower’s broad reputation for reliability and ethics, as documented on one or more blockchains. When you apply for a mortgage, for instance, your charitable activities might outweigh the fact that you paid your April 2013 phone bill a couple days late. Blockchain could also bring the unbanked into the financial system by using local reputation instead of official IDs like Social Security cards, drivers’ licenses, passports, and other documents that many people lack.

Indeed, the Tapscotts write, the great gift of blockchain technology is trust. “This is the distributed trust network that the Internet always needed and never had,” Netscape co-founder Marc Andreessen is quoted as saying. The authors continue: “Today thoughtful people everywhere are trying to understand the implications of a protocol that enables mere mortals to manufacture trust through clever code.”

And thoughtful finance professionals everywhere are pouring money into blockchain research. That’s because, the Tapscotts report, while the technology promises to save the financial services industry billions in compliance and auditing costs, it could also disintermediate payments systems and the capital markets. If the blockchain “bakes integrity into the system,” for example, entrepreneurs won’t need expensive third parties (an investment bank, a VC firm, a lawyer) to help them raise funds. People won’t need fee-hungry banks or credit-card issuers to settle money transfers. The blockchain’s algorithms will do it all.

Besides finance, the Tapscotts describe how blockchain will lubricate the Internet of Things by providing “a Ledger of Things.” Digital sensors will combine with blockchain’s immutable, real-time memory to make amazing things happen. For example, a package of meat in the supermarket might automatically lower its price tag as its sell-by date approaches. “Smart drugs” could make it impossible to tamper with clinical trials. A diamond necklace could tell insurance companies how much coverage to provide, because the blockchain will know where it’s being worn, and by whom.

The Tapscotts devote a chapter to addressing the blockchain’s risks. Yes, privacy is a problem, and yes, blockchains are hackable. Mathematically validating trillions of transactions on thousands of computers eats up vast amounts of energy, creating a big carbon footprint. And while the blockchain supporting Bitcoin is “permissionless” — open to everyone on the planet, and anonymous — it’s unrealistic to expect global banks and pharmaceutical companies, let alone governments, to set up permissionless blockchains. In other words, in most areas of human commerce, there will always be somebody in charge of our data, and that somebody will want to monetize it.

Stephen B. Shepard, my former editor-in-chief at Business Week, got his start in journalism as an engineering reporter. One day, he told me about what it was like to cover a new technology that was just starting to capture the public imagination: the laser. “Everybody knew it was going to change a lot of things, maybe everything,” Steve said. “We just didn’t know exactly how.”

I think blockchain is like that.