by Ben Wright and Joan Warner
A few weeks ago Joan reviewed the book Blockchain Revolution by father-son duo Don and Alex Tapscott. The book covers a lot of ground, showing the potential uses of this disruptive technology in diverse sectors including government, finance, corporate management, consumer retail, municipal infrastructure, and media.
Recently Oxford Economics’ Thought Leadership team caught up with the Tapscotts while they were on a country-hopping book tour, to get some answers straight from the horses’ mouths.
Oxford Economics: Blockchains are often described as incorruptible, because of their system of internal validations by trusted users. But is a blockchain really unhackable? Could it stop a "rogue trader" at a financial institution?
Don Tapscott: Nothing is unhackable, but blockchains are infinitely better than the current paradigm. Blockchains are harder to hack—they’re distributed. So you’d have to hack millions of computers simultaneously. You’re not just hacking a “record” in the traditional sense—you have to hack the whole chain, all under the highest level of encryption—[a database] five to 20 times bigger than all of Google. No one has even described how this could be done.
Alex Tapscott: Many functions like governance and compliance can be managed through software, not through people [who are frail and prone to temptation]. We’ve been musing that the killer app for blockchain technology is the elimination of moral hazard. Today an individual with asymmetrical information will take a huge risk because the upside will get [him] a big bonus, and the downside is someone else foots the bill. Imagine if instead you could manage risk through software.
OE: In some industries, like financial services, blockchain's big potential is for efficiency. In cases where blockchain streamlines the supply chain or the compliance function, do you think companies will be able to cut costs significantly?
AT: Blockchain will make many business processes more efficient and more secure, and as a result less costly. But the impact to the bottom line for firms is far from certain. Goldman Sachs estimates banks could cut $6 billion in back-office costs. But with this technology, trust is inherent. It could disrupt the entire business model and affect their market position.
OE: What do all these savings mean for consumers?
AT: In the not-too-distant future, the financial services industry will serve a much larger population. Fifteen percent of adults in the US aren’t served by banks. In less than a decade the industry will look unrecognizable. It will become more inclusive, more versatile, more secure, and less expensive. New business will be created by entrepreneurs and new firms. [And] if banks don’t give the cost savings to consumers, someone else will.
OE: In apps where virtual currencies aren’t used, how do you pay participants for validating private blockchains?
AT: Where digital currencies aren’t involved, a proof-of-stake model is used. In that model, banks already receive huge value for participating in the network. It remains to be seen whether that’s successful. Implementation so far has been in public blockchains. Private ones are only a year old.
DT: The banks can cooperate to create a common distributed ledger. Validators will be compensated through payroll—they’ll be employees of banks. You’re looking at tens of billions of dollars in savings. Banks can afford to pay a few people.
OE: The early big names in internet applications and browsers were mostly overtaken by powerful new players. How do you see the competition playing out with blockchain technology?
DT: Some of the earliest companies in the Internet did succeed—1994 saw Amazon and eBay created. For sure, when you have a new paradigm in technology, many of the early entrants are not successful. We’ll see lots of blockchains emerging. Some will succeed, some won’t. We’ll also see lots of software companies winning and also failing.
OE: What timeframe do you predict for the blockchain revolution? Is five years reasonable?
DT: Our view is that this is happening very quickly. Unlike the first era of the internet, where the preconditions for rapid adoption were not there, this time around, not only is the global technology infrastructure mature, but we have a burning platform for change. We have wealth creation but we don’t have prosperity. We have a crisis of legitimacy of our democratic institutions. This technology allows us to create a much more democratized economy. We need new approaches to democracy that ensure accountability and representation. The costs of staying where we are with many of our institutions are becoming so great that we need to move to something new, even though the new state is not fully comprehended or known.
Joanie Warner is the Thought Leadership team’s Managing Editor for financial services.
Ben Wright supports global research studies for the Thought Leadership group. He has developed and supported projects on subjects including cloud computing, workforce development, risk management, and the future of money.