Malta made an important step on Friday when Parliamentary Secretary Silvio Schembri presented the new legislative package that will pioneer the island into a blockchain hub.
The business opportunities surrounding this technology is envisaged to grow as large as the current iGaming sector within five years. While this might seem a bit excessively optimistic, few understand what blockchain really means for the future.
The hype has so far mostly attracted the interest of bedroom speculators trying to make a quick buck. However, in the long run, the utility of blockchains will eventually amaze even the most stubborn technophobes.
Put simply, blockchain, also called Digital Ledger Technology (DLT), is a digital distributed public ledger system. It can be used for recording groups of transactions, the so-called “blocks”, by linking them together into a cryptographic linear chain. Thus making every former transaction known throughout the chain.
One of the key properties following from this structure is its immutability. It is not possible to tamper with a blockchain, which results in trust being built into the very system.
A study commissioned by the World Bank has suggested that DLT can partially or entirely replace government as the authority of identity authentication, issuing certificates, land titles, storing health records, disseminating social benefits, and managing democratic votes.
While this sounds enticing, its economic role is likely to extend even further. Practically it could mean that the ‘Middle Ages’ of our current internet will slowly come to an end.
Internet as we know it is organised in a fairly similar economic structure as the feudal economic system that predates capitalism in Europe. More specifically, it resembles the feature of feudalism known as manorialism.
Manorialism was a system characterised by legal and economic power vested in the lord of the manor. These lords owned the land of various manors and made a living out of obligatory contributions from legally subject peasants, who worked the open common lands.
The peasants could pay their obligations in labour, in kind, or more rarely, in coin. This was a system based on interest rate rather than profit, therefore it was not capitalist.
Internet as we know it is organised in a fairly similar economic structure as the feudal economic system that predates capitalism in Europe
Internet, since its early days, operates on similar lines as manorialism. Much like the medieval supreme powers controlling the access to nobility – the king and the Church – there is a supreme organisation keeping record of Top Level Domains (TLDs), such as .com or .org.
This organisation is known as the Internet Corporation for Assigned Names and Numbers (ICANN). Their motto is “One World. One Internet”. The TLDs are owned by companies and various organisations exclusively authorised by the ICANN.
The famous TLD .com for instance is operated by Verisign, one of our digital lords of the manors. Obviously, this is not the entire ownership structure, but it is the basis of it.
The internet as such is owned by no one and everyone, much like the offline world prior to capitalism. When ownership is fuzzy, it means that we, as users, are never in full ownership of our own value creation online.
We can use it, but we cannot really own it. Much of the value that can be derived from our activities is acquired by the lords of the internet, who we generally pay in labour, kind, or more rarely, in coin.
Take Google as an example. In exchange for free web searches and free webmail, Google is acquiring our data and sells it to companies across the web. There is no way for a user to get ownership of his or her own data.
This idea was first outlined by the computer scientist Jaron Lanier. Much like peasants under manorialism, we are free to work on the Internet Common as long as we pay the lord back in kind.
Manorialism in Europe gradually disappeared when the process known as the enclosure movement started to enclose and privatise the formerly open field system. The enclosure movement was the main force behind the birth of private property of land, and the beginning of capitalism.
The thing with blockchain which makes this into a reasonable parable, is that it also, similarly to the enclosure movement, provides the basis for immutable property rights on the condition that the system is also enclosed.
Blockchain can therefore be envisioned like an enclosure movement of the internet, where business-minded users will eventually enclose areas of the online world in DLT systems – where private property is guaranteed by the very code.
This technological disruption might potentially give rise to an online economy hard to even imagine in our current paradigm. Users will be able to monetise everything from their cat videos to their very consumer data in ways that are impossible today.
It will effectively reinstate the scarcity principle in the digital economy and make it impossible to infinitely copy various kinds of immaterial assets. It is exciting, in lack of other words, to see that Malta is at the frontier of this economic revolution.
Dennis Avorin is a Malta-based professional policy analyst passionate about the digital economy.