There was a distinct unease during the World Economic Forum in Davos, Switzerland, two weeks ago.
An annual event since 1981, the small mountain village was inundated with 3,000 delegates and several thousand innovators, do-gooders, investors and the inevitable sycophants. They assembled to learn of global trends, both good and bad. The forum and its parallel programs are like Burning Man for rich and powerful people.
While a snowstorm left the town isolated and traffic snarled, the global elite were less fearful of the snow drifts and white-out conditions than the emergence of a new technology that will disrupt everything they do and perhaps their very existence: the blockchain.
Blockchain technology provides a universally transparent ledger to distribute trade and services without the need for the usual trusted intermediaries of the past.
The old world order of centralized services monopoly-controlling all the data and mechanisms of business like the largest financial services entities, auction houses and social media are gone.
Instead, marketplaces and services are disintermediated, empowering purchasers and vendors to conduct business directly with greater efficiency and transparency.
While the original Internet was massively disruptive to society by connecting the offline to the digital and Internet 2.0 furthered connectivity and multimodal interaction by providing social networks and mobile technology, blockchain technology represents the new Internet 3.0.
This new technology is providing and provoking a tidal wave of market potential of new distributed business models that pose challenges for multinational firms and the states that incorporate, tax and allegedly regulate them.
Using blockchain technology, consumers can limit the amount of data that companies can sell to one another, enhancing data protection and providing mechanisms for citizens to seek micro-payments.
In short, blockchain provides a form of digital sovereignty, empowering private actors to take control of the seemingly unwieldy encroachment on our privacy that social media magnates and other data firms have undertaken to date.
Blockchain, then, is a threat to large multinational corporations’ hold on global finance, corporate information sharing and social intermediation.
Blockchain technology is leading to a new era of digital sovereignty, one that empowers people no matter their social station or economic condition.
Multinational corporations are not happy, but they are also getting involved in the deployment of this leading edge technology. The most infamous use of blockchain is bitcoin, as the system works without a central bank or single administrator.
Operating in a gray zone of legality, the volatility of this financial tool has been in the news, but blockchain is so much bigger than cryptocurrency, and its potential was the main story at Davos.
Various firms were demonstrating the power that blockchain technology can provide — from a fairer and more efficient remittance system for foreign workers to micropayments for the use of intellectual property of artists and cultural workers.
Blockchain can help with portability of educational qualifications and even passports and other identification documents. For the unbanked, a majority of the world’s citizens, it provides access to financial services. For those with questionable land title, it provides mechanisms by which title can be registered and loans provided.
Blockchain technology is also a threat to states. As the international actor with the traditional control of people, territory and resources, states have been the principal subjects of international law. States have had the monopoly of violence, the power to tax and raise armies and the right to self-defense.
By contrast, individuals and non-governmental organizations have been the objects of international law and international relations, most often without a seat at the rule-making tables of multilateral institutions. Blockchain technology can undo much of the control that states have traditionally exercised.
Most pressing in the news, blockchain has also led to the rise of cryptocurrencies, posing a major challenge to the future of state currencies.
No country is taking much leadership concerning the “smart” regulation of fintech. China has banned cryptocurrency mining and trading outright. South Korea just released some regulations after much to-ing and fro-ing, forcing huge devaluations of bitcoin three weeks ago. Japan, in contrast, has a crypto-friendly approach.
The world is still awaiting the US Securities and Exchange Commission to release its rules. Regulations have to be as inventive as the technologies that they are seeking to monitor. This is a brave new world and it is vital for governments not to stifle innovation while still protecting the general public from fraudsters, investors from pump and dump no-goodniks, and civil society from mobsters attempting to launder ill-gotten gains.
The important thing will be for blockchain companies to continue to ply their trade, expanding the true reach of distributed ledger technology, allowing for a more decentralized Internet and growing the Internet into what it has always been meant to be.
We must not let media companies, large banks or governments get in the way of humanity’s potential. The technology is far more important for future use than just underpinning the creation and trade in cryptocurrencies.
Blockchain technology is rewriting the social contract, providing new kinds of relationships between the governors and the governed.
However, the traditional state, which provides a basket of public goods like safe streets, an independent judiciary, education, healthcare and basic utilities, has shown that it can no longer do this. Blockchain technology can provide solutions to the pressing problems of energy use, access to administration of justice and government entitlement programs.
World Economic Forum attendees representing states and multinational firms who so summarily dismissed blockchain technology only two years in Davos are now starting to take note.
James Cooper is a professor of law at California Western School of Law and cofounder of the One World Blockchain Alliance.
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