How blockchain technology can prevent the next financial crisis, disrupt Uber, and give us control of our data

By Ian Karr for

You’ve probably heard about “the blockchain” recently. A lot. The technology underpinning bitcoin has attracted billions in venture capital funding, the interest of almost every global bank, and the attention of governments around the world.

Essentially a digital distributed ledger that anyone on the internet can access, the system has the ability to keep information secure, create a permanent record of transactions to avoid fraud, and instantly transfer assets. But for all the talk, it’s simply not that useful yet. For now, the technology is stuck in the back offices of financial firms, an area that the average person doesn’t care about or really benefit from.
A new book, Blockchain Revolution, envisions a future where the technology doesn’t just change finance, but bring more people into the global economy and disintermediate startups like Uber and Airbnb. Quartz spoke with Alex Tapscott, the founder and CEO of blockchain advisory firm Northwest Passage Venture, about some of the more novel ideas in the book he coauthored with his father Don, and how blockchain could shape our future. This interview has been condensed and edited for clarity.

Central banks—the People’s Back of China, for example—are interested in exploring the idea of using digital currency to cut down their own currency costs, etc. What kind of value do central banks get out of currency tied to the blockchain?

To answer that question you need to understand what central bankers do in the economy. Broadly speaking, they perform three roles: they manage monetary policy, which involves managing interest rates and the money supply in the system. So take monetary policy for example. If the yuan, or the dollar, or the euro were represented on a blockchain, you’d be able to know with much greater accuracy whether or not a decision to cut interest rates had any impact on the economy. So let’s say you cut interest rates because you want to increase spending, spur lending, increase consumer confidence, and see greater investments in non-yielding assets like stocks. Now, you have to rely on random samples from retailers and other lagging indicators to figure out whether or not the move had the desired effect. If your currency was represented on the blockchain, you could watch in real time as value moved through the system. You wouldn’t be able to see who was spending, but you’d be able to see how they spent. And that would enable you to manage your policy much more effectively.

When it comes to financial stability, if regulators like the Federal Reserve or the People’s Bank in China, could get a window into the dealings of large financial firms and see the same shared ledger that the banks did, they would know whether or not too much risk was being taken in the system, whether or not there were liquidity crunches in the system, whether or not there were troubled banks or shadow banks that needed support or a slap on the wrist. You’d be able to have more information and a much clearer picture to do your job better. That ties into financial stability. If you’re connected to the same records as everyone else, then you don’t need all of the resources to go into the individual banks and vet their siloed transaction records to determine whether or not they’re acting within the law. And that could allow you to cut costs and do your job better. So in each role of the central bank, there’s an opportunity to do that job better.

Let’s talk a bit about the non-financial uses of blockchain. Can blockchain spur the creation of new industries or does it more reinvent existing industries?

I think one of the biggest opportunities here is to solve the parity paradox in the world. We’ve had wealth creation, but we haven’t had prosperity. And despite all the value that was created in the first generation of the internet, it’s been captured asymmetrically by powerful forces like big corporations. Could this technology give us another kick at the can? To create the conditions for prosperity to happen rather than focusing on redistributing wealth, we can focus on pre-distributing wealth, or pre-distributing the conditions to create wealth.

So what does that mean in concrete terms? Well 2.5 billion people in the world don’t have access to financial services. Reason being, they don’t have an identity to prove to a bank or a financial institutions they are in fact who they say they are, and they don’t have the balance to justify an account. Could blockchain technology enable us to create new forms of identity and lower the barriers of people getting access to financial services? Anybody who’s out of the system is basically prohibited from participating in the global economy and this could change that equation dramatically.

So it’s a lot about democratizing things that are traditionally very complex, opaque, and out of reach for everyone but wealthy people.

Consider land title registries. So, 70% of the people in the world who own land have a flakey title to that land. So if you’re living in Honduras and you have a piece of paper that says you own land, the government could say oops, sorry, our computer servers say I own the land or their friend owns the land, and you are getting kicked off your property to build a beach mansion. This actually happened in Honduras, which led to the former president being ousted in a coup. It’s happened in Rio de Janeiro, where people living outside of Rio were evicted without notice from their land. Some of them even had pieces of paper claiming they own the title, but the government said, sorry, that title’s not enforceable. Without having an enforceable title to your land, you lack the preconditions for any sort of meaningful wealth creation.

The home is more than just a shelter. It’s a source of savings, the way they access credit to pay for education or to start a business, and without one it’s very hard for people to move up in the world. If you had a land title registry built using the blockchain, then what people owned would be available for all to see and couldn’t be altered by a single person or a corrupt government. It would act as a source of truth that would be more easily enforced. And that’s happening today in Honduras, where the government is working with a company called Factom, and it’s happening in Georgia, where they are working with Bitfury to build land registries. Imagine if a country like India were able to get their act together and build something like this. It could create the preconditions for India to finally fulfill its promise as an emerging economy and make them much more prosperous.

In the book, you say that companies like Uber and Airbnb can get disrupted by blockchain. Can you run through that scenario?

So Uber, Airbnb, Lyft, Taskrabbit, these companies are part of the so-called sharing economy, which is a word that is incredibly misleading. They have nothing to do with sharing. Sharing is about the free exchange of information and value. What these multibillion dollar corporations do is that they’re service aggregators. They aggregate excess capacity. In Uber’s example, they aggregate cars and drivers to a centralized platform and resell them to people who are looking for a ride. And they perform a really good service. But it has its limitations. Drivers have been known to be erratic or abusive. Everyone’s subject to surge pricing. The driver’s have no collective bargaining power. Uber captures an asymmetric value of what’s created, they take 20%. In the process, they also capture all this data on people—who they are, where they’re going—and that’s stuff that can undermine privacy in future commercial exploitation.

So you don’t need Uber to build Uber on the blockchain. You can have an app that’s built on the blockchain, let’s call its Super Uber, or SUber. And everyone can get a copy of SUber like they have Uber, they log into SUber just like they do with Uber. SUber knows what kind of car you want, where you’re going, how fast you want to get there. And it matches you automatically with a car that matches that criteria. SUber has a native payment system built into it, like Ethereum and Ether or bitcoin in the Bitcoin network, so you don’t need a centralized intermediary to process payments. You also don’t need a centralized intermediary to organize capabilities because the distributed application can do it instead. And even things like paying for fuel, negotiating liabilities, buying insurance, and automating itself is all something that the cars and drivers can do on their own. In the not-too-distant future, this could just be autonomous vehicles not owned by anyone but existing in a common app that performs this service.

So that’s a big risk to Uber. The disruptors are going to be disrupted, we think. But it also has a lot of positive social implications. The obvious one is that drivers get to keep more of the value, and maybe that translates in lower fares for individuals. But also in a lot of parts of the world, transportation is a big civic issue. Cities like Toronto, where I live, are looking to build new subway lines that cost billions of dollars a mile. It could also mean that people’s data isn’t stored in central repositories like at Uber, but rather encrypted and controlled by them.

That brings up an interesting point. A really compelling part of blockchain to me is that it puts the power back into the user’s hands. So instead of everyone asking me for my information and then doing whatever they want with it, I give the information whenever I feel like it. Can you talk a little about the effect blockchain has on data and how it’s shared?

This asset class that’s been created from the past 25 years, called data, has become the most important asset in the modern economy. Just like industrial equipment was the most important asset in the industrial age, and land was the most important asset in the agrarian age. And the funny thing about this asset is that we all create it. Individuals create the data that’s used to build lots of value. But we don’t get to participate in that value. What that means is that there’s a virtual Ian out there. It’s not owned by you. It’s owned by Facebook, your government, your bank, Visa, PayPal, Venmo. And the virtual you knows you better than you know you. You might not know that two years ago, you got in an Uber and drove somewhere and liked a post on Facebook or searched for something.

Yeah, I like a lot of things on Facebook. I probably forgot about them all by now.

Yeah, I forgot what I did yesterday! But the virtual you knows. This is a tradeoff that we’ve made. And we’ve made these tradeoffs to receive services like the ability to search on Google, or access social media sites, but I don’t think that that’s a tradeoff we need to make anymore. These services can be built on blockchain and rather than the intermediary owning the data, you own the data in your own personal avatar. And you decide what data you want to release in certain situations. So when you go to the store to make a purchase, the store doesn’t care who you are, where you live, what you do for a living. All they care is that you have the money to satisfy the payment.

When you go buy a hot dog from a stand, the guy doesn’t ask you for your driver’s license. There are lots of situations where you only need to provide a small sliver of evidence of who you are to satisfy the basic requirement. And that could mean that you want to provide more information to receive more services, like getting a loan. Right now the bank uses a FICO score, which you don’t control and is lagging and full of errors. But what if you could use all of the previous experience you have making payments, using blockchain, or your own social capital from Facebook to prove you’re a worthy investment for a bank to make. That could help you get access to a lower interest loan. But the key thing is that you would control that information and decide how it got used.

First appeared at QZ