If we are to believe author and technology guru Don Tapscott, the technology behind Bitcoin is about to unleash a revolution as big — or bigger — than the Internet itself.
Executives in the financial services industry or any business served by it had better bone up on a new buzzword: blockchain. You’ll be hearing a lot about this because on Thursday evening Tapscott and his son Alex launched their co-authored new book, Blockchain Revolution, to a standing-room only audience at Toronto’s Rotman School of Management.
It was the first stop in a 10-city book tour that will probably launch the book into bestsellerdom, a status Tapscott, author of Growing Up Digital and Wikinomics, has achieved several times before.
If you’ve not yet heard of the Blockchain Revolution, let me make an introduction: Alex Tapscott, a former investment banker, kicked off the launch by reminding the audience that the financial industry largely relies on middlemen or intermediaries to clear and settle transactions, store records and perform other tasks.
“Overall they do a good job, but with some limitations,” he said.
The existing financial system supports a $100-trillion economy that serves billions of people. However, Tapscott likened it to a Rube Goldberg contraption based on a “byzantine system of intermediaries,” some still running on 1970s-era mainframe computers.
Apart from time delays (international money transfers often take days to settle, for example) and high friction costs imposed by these intermediaries, two billion “unbanked” people are excluded from the financial world.
The financial industry has been “ripe for disruption” and things started to change with the 2008 financial crisis, around the time Bitcoin — a crypto currency that exists outside formal monetary control — was created.
Bitcoin is based on blockchain, which meant that, for the first time in history, two or more parties don’t need to know or trust each other in order to transact or do business online. They don’t need powerful intermediaries because, as Alex explained, “Trust is programmed into the essence of the technology, so blockchain is the trust code.”
The Tapscott’s book explains that big banks and some governments are implementing blockchain as distributed ledgers to speed transactions, improve security and lower costs. These ledgers reside on millions of computers provided by volunteers, so there is no central database that can be hacked. Using heavy cryptography, transactions are time-stamped and validated by a community of “miners” who are rewarded with Bitcoins. Every time a new block is added to the chain, it must refer to a previous block to be valid: hence the term blockchain.
In an interview, I asked Alex whether the other popular buzzword — “fintech,” or financial technology — is synonomous with blockchain.
“I’d say real fintech is based on blockchain,” he said. “Any other kind of fintech is just a way to put an exciting interface on top of a service, or a good marketing buzzword. It’s not changing the deep architecture of how financial markets work, while blockchain does.”
Canadians just elected a government where the plan is to tax the rich in order to fix problems, Don said, adding in an interview that he is talking to the federal government about how the technology can foster innovation.
“Maybe instead of redistributing wealth, we can change the way wealth is created in the first place,” he said, adding that major corporations like Procter & Gamble are starting to move to blockchain.
Alex said he has been “talking to lots of banks in Canada and the U.S.” about the application of blockchain. Some fear the business implications and want to figure out what’s happening next; others look at it opportunistically, as a way to grow earnings by cutting costs in a slow-growth world.
While valid, Alex says the banks need to think more strategically about how to create value, because the new technology backend is transforming many segments of financial services from “fee-generating businesses to free commodities” for consumers.
That, after all, is the disruptive nature of fintech and blockchain. And we’ve barely even begun.