The media has been buzzing with features on the big swings in the values of cryptocurrencies, especially bitcoin. For many, the advent of virtual currencies defines the future of the financial services. For others, it is just another speculative asset like tulips, pork bellies or dotcom stocks. But what is inspiring policymakers in public administration, business and finance is the underlying technology on which bitcoin is based: the distributed ledger technology, the umbrella term for blockchain systems.
Most economic, political and legal systems are structured on the use of contracts, transactions and the records of them, maintained by bureaucracies formed to manage them as efficiently as possible. The economy’s digital transformation has outpaced the traditional record-keeping systems that are looking increasingly inefficient, convincing many policymakers that, in a digital world, the way we regulate and maintain administrative control of a myriad of human activities has to change.
Blockchain offers a solution to this problem. It is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The announcement of the setting up of the Malta Digital Innovation Authority, with the promised accompanying legislation on its operations, is meant to promote the use of virtual currencies and the exploitation of the distributed ledger technology.
Parliamentary Secretary Silvio Schembri believes the promotion of Malta as a base for the development of this technology will enhance the island’s economic prospects by “providing necessary legal certainty to allow the industry to flourish”. Is this just wishful thinking or a realistic belief in the potential of blockchain to change the way business is conducted?
Few doubt that blockchain has the potential to revolutionise business and redefine companies and economies. Many believe it could bring about change similar to that caused by other revolutionary technologies in the last few decades. First conceived in 1972, the internet technology started off rather quietly but is now arguably the most popular means of written communication and a myriad of other uses.
Once the necessary infrastructure gained critical mass, internet services substituted existing businesses. Amazon offered more books for sale than any bookshop and eBay revolutionised the retail industry by providing online purchasing of new and used goods. Google made online searches for information so simple and Skype changed telecommunications. These developments took over 30 years to change the way most people handle new enabling technology.
It has rightly been said that block-chain has the potential to create new foundations for our economic and social systems. The impact will undoubtedly be dramatic and enormous. But it will take decades for blockchain to seep into our economic and social infrastructure.
The present hype about this new technology risks hiding the reality that the process of adoption will be gradual and steady and certainly not sudden. As technological and institutional change gains momentum, we can expect significant changes in the way business is conducted. But many technological, governance, organisational and even social barriers have to fall before society can benefit from this new technology.
Developing the required tools and standards for the application of this new technology for everyday use is the right approach. But it will require patience to realise such opportunities.
This is a Times of Malta print editorial