Digital Economy and Blockchain: How to Grasp The Full Potential of The Internet?
In 1971, Intel built the first microprocessor, the 4004. It was the birth of what Don Tapscott called in 1995 the ‘Digital Economy’, and it has transformed the world irrevocably.
The digital economy is driven by the internet. Today, 54.4% of the world’s population is online, 42% use at least one social network and 68% are on mobile. The internet provides an unlimited supply of knowledge and intuitive devices and it brings together a vast community. It enables greater connectivity and easier transactions between consumers and business. It has wrought the demise of many traditional industries, replacing them with new ones now integral to our daily lives.
We are now set to see the digital economy take a new direction, one possibly even more transformative than anything that has come before it. This is because of blockchain.
The Digital Economy Has Reached Epic Proportions
The digital economy refers to a broad range of activities which include: the use of knowledge and information as factors in production, information networks as a platform for action and how the information and communication technology (ICT) sector spurs economic growth. It is worth almost 30% of the S&P 500, six times the U.S.’ annual trade deficit or more than the GDP of the United Kingdom.
Currently, 90% of revenue created in the digital economy is done so by nine companies. These are Apple, Google, Facebook, Amazon, Microsoft, China, Baidu, Alibaba, Tencent and Xiaomi. They are entirely unlike any businesses we have seen before.
[The digital economy] is worth almost 30% of the S&P 500, six times the U.S.’ annual trade deficit or more than the GDP of the United Kingdom.
As TechCrunch notes, “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”
The Importance of Connectivity
The internet is the Gutenberg printing press of the 21st century. It gives everyone access to information, carrying innovations and new ideas around the globe.
This has caused humans to become more connected on a international level. This was evidenced in a recent study that showed millennials, the generation born between the early 1980s and early 2000s, have more in common among themselves than with other age groups from their respective countries.
The internet has already transformed the society we live in as a result of the shift in our habits that this has caused, and it continues to do so. One recent example is grocery shopping, where you can now shop in-store without having to queue or paying at the till. At Amazon Go, sensors and cameras register what the customer takes off the shelf. The rest is regulated by an app.
In the future, the whole process could be digitalised so that refrigerators at home could automatically inform retailers that they are running out of food and they will file the order automatically and most likely will do so using robots.
The digital economy has also given rise to megacities like London, Singapore, Hong Kong and New York that drive the global economy. A recent McKinsey study indicates that over 60% of global GDP is being created in 600 cities around the world. 136 new cities are expected to enter the top 600 by 2025 - all of them from the developing world and 100 new cities from China.
These cities are becoming smarter. Amsterdam is one example. Its digital infrastructure creates good connectivity between companies and people through extensive fibre connectivity and internet exchange points.
The rest of Europe has also made a great effort to become more digitalised. The Finnish government, for example, has invested heavily in the C-Lion 1 cable system between Finland and Germany, which securely connects natural data centers in the Nordics with both businesses and people in continental Europe. Estonia has introduced the idea of digital citizenship. Germany, with its strong economic performance and experience in creating industrial growth, will also benefit from the fourth industrial revolution.
Ultimately, this will mean Europe improves its competitiveness in the world market and creates new jobs. For example, according to the European Commission’s Digital Single Market strategy, removing existing online barriers could contribute €415 billion per year to the European economy and create hundreds of thousands of new jobs.
Removing existing online barriers could contribute €415 billion per year to the European economy and create hundreds of thousands of new jobs.
Central to the EU’s digital strategy is the Digital Economy and Society Index (DESI), a composite index that summarises relevant indicators on Europe’s digital performance and tracks the evolution of EU member states in digital competitiveness. It is made up of five principal policy areas:
Connectivity – Fixed broadband, mobile broadband, fast and ultrafast broadband
Human capital – Basic skills and internet use, advanced skills and development
Use of internet service – Citizens’ use of content, communication and online transactions
Integration of digital technology – Business digitisation and e-commerce
Digital public services – eGovernment and eHealth
Is Blockchain the Future?
The key to the future of the digital economy is providing a secure, low-latency digital infrastructure. It has been said that whatever can be digitalised, will be digitalised. Many of the activities we are performing today will be performed between interacting machines tomorrow, taking the digital economy to the next level. This won’t be easy.
Although still in its embryonic stage, blockchain technology already seems set to play a major role in making it easier.
If society wants to grasp the full potential of the internet, the fundamental structure needs to be blockchain technology.
The Internet of Things (IoT), in particular, is set to be vital, removing many barriers for consumers. The risks for these interactions are unthinkable. Security is crucial for allowing widespread digital transformation at this level of confidentiality.
For example, 6.4 billion online devices are in use worldwide, with 25.5 million new things connected every day. In a recent survey from Bain & Company, 45% of Internet of Things (IoT) buyers say “concerns about security remain a significant barrier and are hindering the adoption of IoT devices.”
This is making security even more important. Blockchain could be a solution. It picks up where cloud technology breaks off. If society wants to grasp the full potential of the internet, the fundamental structure needs to be blockchain technology.
Blockchain will be needed if sectors such as healthcare, finance and commerce to realise their full digital potential. Without the infrastructure of blockchain technology to enable efficient networking, some enterprises might not be able to fully monetise their digital opportunities. However, there are challenges inherent in full adoption.
Technological transformation processes typically take time to be adopted by the masses. The adoption of TCP/IP (transmission control protocol/internet protocol), which laid the groundwork for the development of the internet, is the most recent example.
It took more than 30 years for TCP/IP to move from having a single use to reshaping the economy. Today, more than half the world’s most valuable public companies have internet-driven, platform-based business models. TCP/IP was a foundational change.
What about blockchain? TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarly, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions.
In that case, the global economy could once again undergo a profound shift. Blockchain-based sources of influence and control could emerge. Crucially, though, it is not a ‘disruptive’ technology – it is a foundational technology. Blockchain has the potential to create new foundations for our economic and social systems.
Blockchain is not a ‘disruptive’ technology – it is a foundational technology. Blockchain has the potential to create new foundations for our economic and social systems.
Any blockchain revolution could bring down many technological barriers. However, it would be wrong to rush into blockchain-based solutions without the appropriate critical understanding of the software.
True blockchain-led transformation of business and government could be centuries away. The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum.
The Fundamental Areas of Digital Transformation
There are four fundamental areas of digital transformation central to business success and adoption in the digital economy: work space, customer experience, supply networks and internet applications.
Today, people work from different places all around the world: offices, their homes, or even a local coffee shop. The way we work has changed and we need to be more connected than ever before. Enterprises need to move from a fixed ecosystem into a dynamic one, where the next generation of employees can work remotely anywhere in the world while being globally interconnected.
The way customers interact with enterprises has also changed. Today, they can do so at any time during the day. Convenience is a major factor when it comes to interconnectivity. Customers also want engagement with brands through experiences that are personalised.
Another area of focus for enterprises is securely sharing data rapidly while creating new intelligent digital networks. This could be achieved through devices that can be linked to one another. As sensor prices continue to drop, the digital world will be more and more lucrative and easy to use.
Blockchain for Governments
Governments all over the world are realising the powerful potential usability of blockchain. Countries such as Estonia have started testing blockchain-based applications or are at least studying the technology.
The potential use cases of blockchain technology in government include healthcare, national identity management systems, tax and internal revenue monitoring, voting and secure banking services.
“Blockchain is Good – Cryptocurrencies are Bad”
Blockchain technology supports the operation of cryptocurrencies. The extraordinary rise in the price of different cryptocurrencies, such as Bitcoin, but also Ethereum, Ripple, Bitcoin Cash, is a byproduct of blockchain. This has bred the opinion among many of the nations of the world that “blockchain technology is good while cryptocurrencies are bad.”
However, cryptocurrency is just one of the many applications for blockchain technology. Bizarrely, the countries with the strictest regulations or even bans on cryptocurrencies are the technology’s most avidly supportive governments: China, India, and France. Although they are largely against cryptocurrencies, they still realise blockchain’s huge potential for governmental uses.
With recent political events around the globe, trust in government is near an all-time low. The reasons for that are complex and diverse. In the US, for example, only 18% of the population say they trust the government to do what is right most of the time. There is, however, the potential for blockchain to reverse that trend.
One of blockchain’s main features is transparency through decentralisation. Blockchain-based solutions could help different parties to verify government data independently while mitigating security issues.
Governments hold information such as full names, social security numbers, birth dates, addresses and much more, and thus are large targets for hackers. Single-point-of-failure-risk could be avoided and reduced to a minimum through blockchain technology.
Blockchain-based solutions could help parties to verify government data independently while mitigating security issues.
Additionally, DLT could increase security and ensure data integrity. Its many possibilities for government will ultimately increase trust, security and efficiency for citizens and governments alike. The economy could once again undergo a radical shift as new, blockchain-based sources of influence and control emerge – regardless of the magnitude of the shift.
A massive influx of new technologies disrupts society and transforms the markets and governments around the globe. They, in turn, need to react and become more digitised, embracing digital innovations to improve their bureaucratic processes and update their relations with their citizens.
This sparks a new expectation in how governments should face their citizens’ problems. Quality management, speed and integrity play a major role in the digital economy of a government. Right now it seems, most governments have struggled to keep up. Though not all.
Governments That are Already Adopting Blockchain Technology
Dubai is already dreaming big. They envision flying taxis, self-driving vehicles, and literal “Robocops.” To realize this, the government has introduced a ministry dedicated to the adoption and implementation of artificial intelligence.
The city’s government also hopes to become the first-ever blockchain-powered government by the year 2020. Visa applications, bills and license renewals are among the top goals of Dubai’s blockchain agenda.
[Dubai’s] government hopes to become the first-ever blockchain-powered government by the year 2020.
As an emerging holiday destination with millions of tourists and visitors every year, an estimated 100 million documents are processed manually. Blockchain technology could save an enormous percentage of those manhours. This translates into potential government savings of up to $1.5 billion per year.
Estonia’s government was one of the first to adopt blockchain technology for government use. It has actively been trying to develop sustainable blockchain-based solutions since 2008.
The first implementation in 2012 happened in the registry database, including areas such as security, legislation, health and the judiciary. The government created ID-kaarts, a blockchain-based national identity management system. ID-kaarts has reduced bureaucratic red-tape and improve the timeliness and quality of government services.
Unicorns for the Masses
So how can blockchain help the people? The backbone of the digital economy is being online through interconnectivity. Without people, the whole economy will collapse. But how do you convince the public to leverage blockchain technology?
One of the biggest friction points between governments and its people is the lack of timely deliverance of public services. Often, day-to-day transactions are the most painful. People need government services, for example, getting proof of your identity or proof that a car or real estate title was exchanged. In order for the transaction to happen, people have to show up in person to get their relevant documents stamped by a government official. This feels quite archaic and mistake-prone in our digital age.
Citizens would welcome the potential of better delivery of government services. Blockchain could validate and prove the exact time an action took place, like the birth or death of a person.
Blockchain could validate and prove the exact time an action took place, like the birth or death of a person… [It] shows enormous potential for governments to deliver its services more effectively.
Once the right people understand the foundation of blockchain technology, interest in it will rise. The right people need to get excited and engaged, and education is key. Developers and entrepreneurs will be able to build interfaces that make it so much easier for users to be able to interact with the government.
For citizens, this will be incredibly empowering. This additional layer of transparency can only nurture people’s trust in the government’s services, as they are still struggling to catch up with modern technology. Blockchain technology has enormous potential for governments to deliver their services more effectively.
Many governments of third-world-countries are open to the emerging technology and are betting on blockchain-based solutions to help them achieve their policy goals.
Welcoming environments for blockchain startups could help them to reach their full potential. The public and private sector need to collaborate and find effective methods to develop smart regulations, such as tax incentives or grants. Local strategies could be highly beneficial for their standing in the international market.
Once this level of education and excitement is established, the challenge is to attract the right partners to help think through, build and deliver those solutions. It is a long process. However, some showcases from countries from the developing world already show their efficiency.
Technology can help people increase standards in emerging markets. Cryptocurrencies and blockchain could be a leapfrogging technology in those parts of the world. Accordingly, many governments of third-world-countries are open to the emerging technology and are betting on blockchain-based solutions to help them achieve their policy goals.
We are back in 1995 again. Bill Gates is at a conference. Unbeknownst to most people around the world, a new technology is emerging: the World Wide Web.
At the time, there was not much to do online. However, Gates returns to Microsoft headquarters and shifts the company’s strategic plan to focus on the new technology. He recognises the internet’s potential. It could disrupt the whole market and, with that, society.
Probably not even Gates could have really predicted the revolution of the internet. But he well understood the potential that this emerging technology had and the innovation that the first generation of the Internet could enable.
Almost 30 years after the inception of the World Wide Web, Facebook's recent massive data compromise shows that, more than ever, a more diversified and democratic digital economy is imperative.
With blockchain technology, data is embedded cryptically and stored in transparent, shared databases, where they are protected from deletion, tampering and revision. Every agreement, every process, every task and every payment would have a digital record and signature that could be identified, validated, stored and shared. Third-party services, such as lawyers, brokers and bankers might become superfluous. People, governments, enterprises and machines would freely transact and interact with one another with little friction. This is the immense potential of blockchain.
It is unlikely that the pseudonymous Satoshi Nakamoto, who created Bitcoin and with it, the first inception of the blockchain, would have grasped the scope of its potential applications to wider society.
However, as a devout cypherpunk, who believes in strong libertarianism by way of cryptography, it is very likely that he would approve of blockchain being used to increase government transparency and accountability. Now we just have to wait and see if it’s only potential, or if there’s actually anything to it.
This article has been created by Jonas Ajubi of The Research Institute. The field of emerging technologies is by no means bereft of ideas or inspiration; however, these alone do not equate to innovation neither do they drive technological advancement — quality Research and Development does. The Research Institute takes a practical approach to technological development and seeks to redress the balance between ideas and viable solutions.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story: Margarita Khartanovich at [email protected]