First it was the internet, and now blockchain is the latest technology to challenge how the traditional economy works.
In this Q&A, UBC Sauder associate professor Marc-David Seidel – who recently explored some of the issues related to distributed trust technologies such as blockchain in the Journal of Management Inquiry – explains why distributed trust has the ability to reduce the need for third-party institutions and what this means for both local and global economies.
Who are the early adopters of this technology and why?
In Canada, we’re lucky because we have a stable banking system and, therefore, many people trust it. But, in other regions of the world, banks and currencies are not necessarily as trusted. I think these places, where institutional trust is low, will be the fastest adopters of blockchain.
In fact, there’s a project by the Bill & Melinda Gates Foundation—called the Financial Services for the Poor program—which aims to create a blockchain to help the world “unbank.” Currently, there are two billion people around the globe who don’t have bank accounts, and they’re often located in poorer regions. The Foundation is looking at blockchain to bring financial services to these people, allowing them to access their money and send funds over their phones without going through their local institution and avoiding banking fees.
How will blockchain disrupt the current online economy?
Many of Silicon Valley’s biggest success stories are basically matching platforms. Blockchain has the potential to transform the shared economy by decentralizing many of the current for-profit matching platforms. Ride sharing companies like Uber and Lyft make money by creating trust outside the traditional system by matching riders and drivers. The only reason a person is willing to step into that random car is because Uber or Lyft says this person is a 4.8 out of 5 driver. If you move that kind of matching system to a blockchain you no longer need Uber or Lyft to instill that trust. You have control over reputation reporting and the transfer of funds, so they become totally irrelevant.
The same goes for Airbnb, since blockchain allows the user to set up a contract to rent their house and receive the money automatically from the renter without a third-party platform like Airbnb.
Companies like Facebook and Google are platforms that make their money by selling individual user demographic data to advertisers through an ad matching service. A blockchain system could allow the user to capture the full value of their demographic data, instead of having a middleman such as Facebook or Google profit from it.
How will this impact Vancouver’s tech hubs?
This type of technology is a major threat to Silicon Valley. Although it’s touted as the world’s best ecosystem for innovation, it’s been built, in large part, around these centralized platform organizations like Facebook and Google.
When you start looking at distributed trust, the whole economic organizational system changes and venture capital changes (which is what Silicon Valley is built on). So there’s a good chance that as this technology takes hold, the decline of Silicon Valley will result. That means other areas, like Vancouver, could become the technology and innovation centres of the world – as long as they design their innovation ecosystem around newer technologies instead of trying to replicate the Silicon Valley model.
Vancouver is actually one of the worldwide hubs for blockchain right now and I would tell people in the city’s technology ecosystem to avoid the Silicon Valley path and think, instead, about designing around what comes next and distributed trust in one of those things.