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The New Industrial Revolution(s)? Exploring blockchains and the future of value creation

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FinTech and Ecosystems
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The New Industrial Revolution(s)? Exploring blockchains and the future of value creation

  1. 1. The New Industrial Revolution(s)? --- Exploring blockchains and the future of value creation May 2018
  2. 2. People • “Net generation” • 24x7 “mobile” workforce • Gig economy • Learning via social media • Sharing not owning • Sustainability • Technology • Broadband/wifi • Smart phones • Cloud, fog • Internet of Things • AI/ML/NN • Autonomous vehicles • Smart robotics • VR/AR/Holography • 3D printing/ALM • Blockchains Open Source • Software • Hardware • Physibles Convergence of….. Finance • Microlending/microfinance • Crowdfunding/equity/P2P lending • Cryptocurrencies/tokens • Blockchains, smart contracts • Mobile money and payments • M2M/R2R payments
  3. 3. By 2020, 20% of trade finance will incorporate blockchain technology. (PwC) By 2027, 10% of global GDP will be stored on blockchains or blockchain-related technology. (World Economic Forum)
  4. 4. Only 9% active (n=3138) Q: What are your organization’s plans in terms of the blockchain? May 2018
  5. 5. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” - Bill Gates, The Road Ahead, 1996 Scenario Thinking
  6. 6. Blockchain = Combination of technologies Arranged in a novel way: • Distributed systems • Peer-to-peer networks • Hashing functions • Public-private key cryptography • Cryptographic signatures • Elliptic curve cryptography
  7. 7. What is the Blockchain? • Decentralized and distributed public digital ledger (P2P network) • Records and transaction data stored across network of computers • Chronology and integrity of transactions enforced by cryptography • Permanent record unless all subsequent blocks altered through network consensus Removes need for trusted third parties/intermediaries
  8. 8. The blockchain simplified
  9. 9. No single point of failure Centralized Decentralized
  10. 10. Revolutionary technologies fill a gap Richie Etwaru,
  11. 11. Revolutionary technologies fill a gap 2000s Trust Gap? Richie Etwaru,
  12. 12. A means to digitalize trust? Blockchain technology
  13. 13. Link in the first block of Bitcoin blockchain
  14. 14. Banking is essential, but banks are not. - Bill Gates
  15. 15. “…an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
  16. 16. Institutions EmergentCollective VS Central Bank ~ Long-standing financial institutions and regulations Bitcoin Community ~ Self-organizing community of strangers across globe connected through Internet Teigland, Yetis, Larsson 2013
  17. 17. Why does Bitcoin’s value increase? ● Network effects • Metcalfe’s law • More users ➡ more value ➡ more users ● Subjective valuation • Mises’ regression theorem 2 telephones (1 possible connection) 5 telephones (10 possible connections) 12 telephones (66 possible connections) (N*(N-1))/2 |
  18. 18. Currency transformation? Three eras of currencies 1. Commodity-based 2. Politically-based 3. Math-based - Chris Dixon 1000s of cryptocurrencies
  19. 19. ICO - Initial Coin Offering Fundraising mechanism based on a “cryptocurrency” Similar to crowdfunding & IPOs How do ICOs work? Cryptocurrency startup publishes whitepaper with details of project & ICO. Early backers buy cryptocurrency (or tokens) in exchange for legal tender or other cryptocurrencies. If fund’s requirements met, money raised is used to initiate/ complete new scheme. |
  20. 20. @sdwouters Cryptocurrency only the first app
  21. 21. A means to digitalize trust? Blockchain technology
  22. 22.
  23. 23. FIRM FOUNDED EMPLOYEES MKT CAP BMW 1916 125,000 $60B UBER 2009 11,000 $48B MARRIOTT 1927 227,000 $51B AIRBNB 2008 5,000 $31B WALT DISNEY 1923 195,000 $167B FACEBOOK 2004 21,000 $512B WALMART 1962 2,300,000 $298B ALIBABA 1999 50,000 $469B Adapted from Parker & Van Alstyne, with Choudary, 2016, updated January 2018 Something fundamental is changing
  24. 24. Platform-based business models and ecosystems Access to resources, not ownership Demand side economies of scale Network effects: Value rises as more use platform Metcalfe’s Law
  25. 25. Shifting market logics – Enabling one-off transactions between strangers globally Ericsson & Augur 2011
  26. 26. • Third parties and IOT devices on platform – Ownership and Fraud – Operational – Health & safety • Payment systems – Functionality – Fraud • Data – Cyberhacking and security breaches – Ownership – Integrity and ethical usage of personal data • Regulation & compliance – Upstream and downstream – National & international Increasing complexity of trust
  27. 27. Wide variety of blockchain development efforts ● Payment processing & money transfers (IBM with KlickEx and Stellar, McDonalds with Omise ) ● Efficiency in shipping/logistics (IBM with Maersk, EY with Schneider Logistics) ● Monitoring of supply chains (IBM with Walmar,t WWF) ● Enforcing contracts and human rights in global supply chains (Coca-Cola) ● Immutable data backup (Boeing) ● Asset management in farming (EY in Australia ) ● Safety/security of devices on IoT platform (Cisco) ● Food and drug safety (Merck) ● Real estate, land, auto title transfers (Swedish Land Registry) ● Verification of Digital IDs (Microsoft) ● Notarization of Open Government Data (EY with City of Vienna) ● E-government, digital voting, securing health records, grades (Estonia)
  28. 28. “All blockchains are not created equal” R3CEV
  29. 29. Drivers • Food fraud • Human rights • Contract breaches • Sustainability issues • Regulatory and legal demands • Stakeholder pressure Sea Quest Fiji
  30. 30. Converging technologies for a locally produced, self-sustaining, permissionless mobility ecosystem 3D printed Olli by Local Motors Solar generated power Power as loyalty discount Neighbor A sells energy to Neighbor B Autonomous bus buys energy from community Municipality chargers Neighbor A sells energy to Neighbor B Usage-based insurance Neighbor A sells energy to Neighbor B Automatic tolls Ridesharing
  31. 31. Blockchain-based government
  32. 32. In general, blockchains enable…
  33. 33. Interpersonal trust – people Institutional trust – platform Enabling trust between strangers 1st Rev 2nd Rev 3rd Rev Changing focus of trust Institutional trust - brand 4th Rev Procedural trust – computer network????
  34. 34. Transformation of economic activity Centralized, hierarchical organizations Decentralized, self-organizing, autonomous organizations
  35. 35. Decentralized “Ebay”
  36. 36. Decentralized “Uber” La’Zooz Arcade.City
  37. 37. Fully self-sufficient “states” ReGen Villages Seasteads
  38. 38.
  39. 39. From many blockchain solutions to a few global sector-specific solutions?
  40. 40. IOTA – Beyond the blockchain with Tangle • >USD 10 bln in transactions • Partnerships with Bosch, Volkswagen, Fujitsu, Orange, Microsoft
  41. 41. Numerous risks Technological • Technology and development still early stage with no standard or dominant design, difficult to scale • Scarcity of skills in labor market • Massive amounts of electricity required, threatening sustainability • Future security, e.g., effect of quantum computing Non-technological • Truly immutable? E.g., Ethereum • Criminal activity, e.g., illegal trafficking outside state control, fraud since irreversible transactions and no third party dispute mediator, tool for blackmail and hostage activities, e.g., via ransomware virus • Social acceptance and future regulation
  42. 42. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” - Bill Gates, The Road Ahead, 1996 Scenario Thinking
  43. 43. The future is already here - it’s just not very evenly distributed. - William Gibson Signals from the periphery…
  44. 44.
  45. 45. Robin Teigland @robin.teigland