The next technology breakthrough to drive Malta’s growth
Trust is the foundation of nearly all commerce in the world and though we don’t’ think about it much, it is actually very expensive.
Businesses and people invest heavily and constantly to create and build trust. Whether it is conducting a title search for a land purchase, having an experienced lawyer draft a contract to be enforced under British law or earning a low interest rate from a conservative bank, we are constantly investing in trust.
Historically, the only way to build trust has been with time and a proven track record. Banks and stock exchanges nurtured reputations over the course of decades, and earned handsome profits for acting as trusted intermediaries.
The simple credit card transactions we make every day are a miracle of technology and legal infrastructure that make it possible for retailers to trust a small square of plastic with numbers on it so reliably that they agree not to charge customers extra when using it.
While small transactions have become fast and cheap, bigger, more complex transactions remain astonishingly expensive and the cost of constantly redoing diligence and verification is a major impediment to global trade and finance.
In the past few years, the emergence of a new type of software called Blockchains offers the possibility to build networks of highly trusted commercial relationships quickly and cheaply and the result could be a revolution in how commerce is conducted worldwide.
Blockchains, of which Bitcoin was the first popular example, are a breakthrough because they allow a group of participants in a network to work together even if they do not all know or fully trust each other.
This is accomplished by having each participant in the network check on the other’s results. The more participants there are, the more trustworthy the network becomes. This consensus algorithm, as it is known, is especially impressive because it automatically isolates and ignores any participant who tries to cheat the system.
Today it’s not uncommon to spend thousands of euros to close a small real estate deal, tens of thousands of euros on a large commercial shipping contract or letter of credit, even hundreds of euros on a simple car loan.
Blockchains have the ability to reduce those costs dramatically, in some cases by 90 per cent or more. Not only will blockchains make trustworthy transactions cheaper, they will also enable dramatically more participants to easily join a marketplace.
What if you could instantly get a quote on a loan from every major bank in the world without filling in a single credit application? Blockchains make this kind of instant, reliable information sharing possible. Instead of spending time to verify if you are who you say you are, or your credit history is what it appears to be, we can trust the information we receive – and much more quickly.
Blockchains didn’t exist until a few years ago. Today, nearly every major bank in the world is in the process of testing or implementing this technology to help reduce their costs and improve security.
Bitcoin is living proof of how quickly trusted digital systems can be built with this technology: the total value of Bitcoin itself is in the billions of dollars and though people have stolen Bitcoins, nobody has yet figured out how to counterfeit them.
We are at the beginning of revolution in business that will be driven by this technology. As with all big economic and technological transformations, those nations that adapt first and fastest are the ones that will find themselves at the centre of new, emerging economic ecosystems. While the whole world gets benefits from the amazing technology of smartphones and apps, it is Silicon Valley that has enjoyed the most enduring economic boom as a result of this new industry.
Last week, we had the opportunity to host a meeting of representatives from a number of industries from finance to telecoms at the EY office in Malta. We came up with more than 20 ideas for how Malta could put itself at the forefront of this economic transformation and we’re in the process of reviewing and picking the best ones now.
One that emerged clearly from this meeting was that concerted cooperation between government and industry will be helpful, no matter which ideas are chosen. Simple things like having the government act as a trail-blazing customer or giving digital signatures and contracts on blockchains the force of law will be needed.
Malta has all the ingredients necessary to become a hub for this new ecosystem – with collaborative regulators, educated workers and mature local expertise in multiple industries – but it is not alone in this race. Abu Dhabi, Singapore and Hong Kong (to name a few) all want to compete with San Francisco, New York and London to be one of this industry’s emerging global hubs.
We hope EY can work with the Maltese government and industry here to create a whole new industry.
Paul Brady and Ronald Attard are global Blockchains leader and country managing partner, respectively, at EY Malta.