People don't trust blockchain systems – is regulation a way to help?Kevin Werbach, University of Pennsylvania
Blockchain technology isn’t as widely used as it could be, largely because blockchain users don’t trust each other, as research shows. Business leaders and regular people are also slow to adopt blockchain-based systems because they fear potential government regulations might require them to make expensive or difficult changes in the future.
Mistrust and regulatory uncertainty are strange problems for blockchain technology to have, though. The first widely adopted blockchain, bitcoin, was expressly created to allow financial transactions “without relying on trust” or on governments overseeing the currency. Users who don’t trust a bank or other intermediary to accurately track transactions can instead rely on unchangeable mathematical algorithms. Further, the system is decentralized, with data stored on thousands – or more – of internet-connected computers around the world, preventing regulators from shutting down the network as a whole.
As I discuss in my recent book, “The Blockchain and the New Architecture of Trust,” the contradiction between blockchain’s allegedly trust-less technology and its trust-needing users arises from a misunderstanding about human nature. Economists often view trust as a cost, because it takes effort to establish. But people actually want to use systems they can trust. They intuitively understand that cultures and companies with strong trust avoid the hidden costs that stem from everyone constantly trying to both cheat the system and avoid being cheated by others.
Blockchain, as it turns out, doesn’t herald the end of the need for trust. Most people will want laws and regulations to help make blockchain-based systems trustworthy.
Problems arise without trust
Bitcoin’s creator wrote in 2009 that “The root problem with conventional currency is all the trust that’s required to make it work.” With government-issued money, the public must trust central bankers and commercial banks to preserve economic stability and protect users’ privacy. The blockchain framework that bitcoin introduced was supposed to be a “trustless” alternative. Sometimes, though, it shouldn’t be trusted.
In 2016, for instance, someone exploited a flaw in the DAO, a decentralized application using the Ethereum blockchain, to withdraw about US$60 million worth of cryptocurrency. Fortunately, members of the Ethereum community trusted each other enough to adopt a radical solution: They created a new copy of the entire blockchain to reverse the theft. The process was slow and awkward, though, and almost failed.
A new type of investment, called initial coin offerings, further illustrates why blockchain-based activity still requires trust. Since 2017, blockchain-based startups have raised more than $20 billion by selling cryptocurrency tokens to supporters around the world. However, a substantial percentage of those companies were out-and-out frauds. In other cases, investors simply had no idea what they were investing in. The blockchain itself doesn’t provide the kind of disclosure that regulators require for traditional securities.
The initial coin offering faucet slowed to a trickle in the second half of 2018 as the predictable abuses of a “wild west” environment became clear. As regulators stepped in, the market shifted toward selling digital tokens under the same rules as stocks or other securities, despite the limits those rules impose.
The myth of decentralization
The other reason that regulators have a role to play is security. Blockchain networks themselves are typically very secure, and they eliminate the vulnerability of a single company controlling transactions. However, blockchains identify the owner of an account based on its cryptographic private key, a random-seeming string of numbers and letters. Steal the key, and you’ve got the money. Ten percent of initial coin offerings proceeds has already been stolen.
Most users acquire their cryptocurrency through an exchange such as Coinbase, which trades it for dollars or other traditional currencies. They also let the exchanges hold their private keys, because that makes transactions easier and more efficient. However, it also creates a point of vulnerability: If the exchange’s records are breached, the private keys aren’t secret anymore.
Some users hold their own keys, and there are new exchanges being developed that don’t require users to give them up. These will never be as convenient, though, because the burden of managing keys and keeping them safe falls on users. Regulation will be needed to protect consumers.
Government authorities will also have a role in restricting money laundering, terrorist financing and other criminal uses of cryptocurrencies. The more decentralized a system is, the harder it will be to identify a responsible party to police illicit conduct. Some users may not care, or may see that as a necessary cost of freedom. But networks optimized for criminals won’t ever achieve mainstream success among law-abiding citizens. Ordinary users will be scared off, regulated banks and financial services firms will be prohibited from interacting with them, and law enforcement will find ways to disrupt their activities.
Regulators around the world are working to balance the flexibility to transact in new ways through cryptocurrencies with appropriate safeguards. They aren’t all taking the same route, but that’s good. When the state of New York adopted rigid registration requirements called the BitLicense that few companies could meet, other jurisdictions saw the implementation problems and took different paths. Wyoming, for example, adopted a series of bills that clarify the legal status of cryptocurrencies while imposing reasonable protections. New York is now reevaluating the BitLicense, to avoid losing business activity.
If people trust blockchain systems, they’ll use them. That’s the only way they’ll see mass-market adoption. The jurisdictions with the best regulation – not the ones with the least – will attract activity. Like any technological system, blockchains combine software code and human activity. It’s not enough to trust the computers – which, after all, are built and programmed by people. For the technology to be used widely and wisely, there must be mechanisms to hold the humans accountable, too.
The energy industry is being disrupted – and traditional firms can't keep upAntony Froggatt, University of Exeter
The electricity sector is experiencing a profound disruptive shock. This is due to technological innovation including the falling costs of renewables and energy storage, along with tougher environmental policies and regulatory reform.
These changes are most apparent in Australia, the EU and parts of North America, where once-powerful utility companies are struggling or restructuring to survive. But, as I’ve looked at in a recent report, decision-makers elsewhere are asking whether these power markets are outliers or if they herald a global shift.
Global investment in renewable energy – excluding large hydropower – was just under US$279 billion in 2017, a rise of 2% on the previous year. Wind and solar account for most of this. In fact, as technology and installation becomes cheaper, non-hydro renewables accounted for 61% of all the new installed power capacity (that’s including all fossil fuel, nuclear and hydro) across the world in 2017.
If we are to address climate change, such changes must continue. While the construction of wind and solar was initially stimulated by decarbonisation policy, now it is driven by economics. As renewables continue to be deployed, they become ever cheaper to build and install. Solar is already at least as cheap as coal in Germany, Australia, the US, Spain and Italy. By 2021, it is also expected to be cheaper than coal in China.
Integrating all this new power may become costly. National power systems have been designed for centralised coal or gas power stations, after all, which can more easily be switched on and off to ensure supply meets demand. Things are much more challenging when renewables are involved, as the sun doesn’t always shine, and the wind doesn’t always blow.
A new energy system is emerging
Innovations in energy storage and digital technology promise to keep these costs down, but the big traditional utilities are failing to keep pace. This has left new actors free to provide new technologies and business models.
Storage is a key technological element of the new system. Fortunately, the development of electric vehicles (EV), to address climate change and localised pollution, is being seen as a key driver of change for transport and power sectors. EV sales are set to increase dramatically, stimulated by recent government targets and policy support, while the prices of lithium-ion batteries decline sharply.
A plethora of large and powerful car manufacturers are getting into electric vehicles, prompted by government sales targets and the speed at which the total cost of owning an EV is approaching that of a traditional petrol car. Honda wants two-thirds of its sales to be electric or hybrid by 2030, BMW is aiming for 15–25% by 2025, while both Volvo and Jaguar Land Rover are targeting 100% by 2020.
Many of these companies are now making use of their manufacturing capabilities and moving into selling home storage units for electricity, which aren’t too different from an electric car’s battery. These storage units mean that people with solar panels will be able to consume more of their own electricity. This is further reducing the market for traditional firms and creating new competitors as some of the world’s largest manufacturing companies enter the power sector for the first time.
As in many other sectors, digitalisation is another disruptive change. Smart meters in particular mean energy firms can better monitor and understand their customers, which enables even more flexibility – imagine energy supplies tailored to individual households and times of day.
These increasingly complex electricity systems will rely on machine learning algorithms to know when and where energy will be needed. Internet giants like Google and Amazon are already piloting and exploring the opportunities. Who would bet against Amazon becoming a major power supplier in the next decade? Blockchain technology could also enable a peer to peer energy market, allowing neighbours to sell excess power to one another and potentially further reducing the role of traditional firms.
Over the past few years, there have been significant changes in the power sector, resulting in declining profits and the restructuring of traditional utilities. However, looking forward, the electrification of the transport and eventually heat sectors, and increasing digitalisation is likely to lead to far more significant disruption than we have seen to date. This will bring in a whole new set of companies and potentially engage consumers like never before.
Bitcoin's wild ride and what's ahead for the cryptocurrencyThanasis Stengos, University of Guelph
Bitcoin has been on a volatile ride in recent times, its value rising and falling like a kite caught in variable winds.
Its future will likely be as unpredictable as its past given that it’s a currency propped up by risk-takers, a target of lawmakers and tied to nothing more substantial than an algorithm.
But there are certain variables and concurrent conditions that are signals worth watching when considering Bitcoin’s future.
An international research team comprised of me, Theodore Panagiotidis at the University of Macedonia in Greece and Orestis Vravosinos at the Barcelona Graduate School of Economics in Spain recently analyzed a broad spectrum of data representing several years in the life of Bitcoin.
It was our attempt to reach a deeper understanding of what drives the cryptocurrency’s value.
Can you really predict how investors will behave around something with so many layers of complexity — around what is essentially a black box system and the subject of so much hype?
It’s not an easy task. We set out to bring a measure of predictability to the path the cryptocurrency will take.
Online buzz, gold impact Bitcoin
We looked closely at 21 variables that could potentially affect Bitcoin returns. Vital market determinants like gold and oil prices, various currency exchange rates and stock market indexes from around the world were part of the mix.
Government policy-related economic uncertainty, along with the internet search intensity of Bitcoin, were crucial areas of our research.
We took more than 2,500 observations of variables spanning a seven-year period and filtered it through what’s known as a LASSO — a “least absolute shrinkage and selection operator.” It’s an analytical model to determine what the possible predictors, or covariates, might be.
We found that of all the many variables, the amount of online chatter about Bitcoin, along with gold returns, and uncertainty over government policy stand out as possible predictors.
Having said that, Bitcoin is a moving target that appears not to conform to any logical patterns.
In relationship to gold, Bitcoin’s value tends to rise as gold rises. But will that remain consistent if the economy stumbles? In those circumstances, investors seek the safer haven of gold, American dollars and euros, entities they know to have value supported by governments and central banks. The riskier currencies, like the crypto ones, might be abandoned.
There are many cryptocurrencies in circulation, but Bitcoin has outstripped them all in popularity, mostly because it is cloaked in mystery and because of the media attention surrounding its dramatic value fluxes.
There is a fascination with something that is new, that is technologically created and that’s hard to hack. The idea of having a Bitcoin network that can evade governments is alluring to people.
We found that the general chatter and interest surrounding Bitcoin, positive and negative alike, is a main determinant of its value. We used Google and Wikipedia analytics to measure the hype.
Bitcoin as a means of exchange has been running under the radar of regulation over the entirety of its nine-year lifespan. But we cannot see that scenario continuing for long. And it seems that investors are also mindful of the looming possibility of regulatory oversight since Bitcoin’s value tends to respond negatively when there is speculation about government action.
With Bitcoin and other cryptocurrencies, transactions are conducted free of taxation. We can’t be sure what the nature of those transactions are, but often cryptocurrencies are used to avoid taxes or duties, or to engage in illicit commerce, which makes them even more shadowy, darkly appealing currencies.
Governments will want in on the action
It’s not clear how governments will ultimately respond to this tax-free commerce, but we can be certain that they’ll eventually act. Wherever there are goods and services changing hands and money is being made, government is eager to get a piece of the action.
If cryptocurrencies continue to grow and position themselves as systems that are beyond the influence of banks and the reach of government regulation, we can be sure that governments will enact national laws and take their share of the proceeds.
Many people believe that Bitcoin is going to replace the money we currently use, but we doubt it.
That’s because big government will never allow it. Governments want the tax revenues, and they want control.
Once governments begin to demand access to Bitcoin transaction records, especially those carried out with mainstream businesses, it is likely that regulations will follow. Once that happens, the black box will be opened and Bitcoin’s appeal as an underground tax avoidance scheme will be lost.
Bitcoin’s fate is therefore highly unpredictable and dependent on what governments will do in the future. Once the crytocurrency was taken seriously by gamblers and techies, it became volatile, and that volatility is showing no signs of abating.
What our research has shown is that with something as erratic as Bitcoin, with online chatter its main driving force rather than economic fundamentals, it would be best for investors to fasten their seatbelts and hold on tight.
Now that bitcoins are worth more than their weight in gold, is it time for central banks to make their own?
Now that bitcoins are worth more than their weight in gold, is it time for central banks to make their own?Nafis Alam, Sunway University and Graham Kendall, University of Nottingham
The history of gold trading can be traced back hundreds of years while bitcoin, a digital currency that uses encryption and works independently of central banks, has been around for less than ten.
But the cryptocurrency is now starting to challenge gold as the investment of choice. Its meteoric rise is such that on March 3 2017, bitcoin overtook gold for the first time, trading at US$1,290 compared to US$1,228 for an ounce of gold.
All the gold that has ever been mined would easily fit under the legs of the Eiffel Tower – in fact, multiple times. Gold’s scarcity is one reason for its value. Another reason is that it’s a very nonreactive metal so it doesn’t tarnish, which is important if you’ve invested millions and don’t want it to slowly deteriorate.
Most governments keep some of their funds in gold (as the video below explains). But although gold is seen as a safe haven in times of crisis, it is still subject to the usual market fluctuations of any commodity. Once the bitcoin reaches its full potential (all bitcoins are mined) the value will be much more stable.
What is bitcoin?
Bitcoin is a virtual currency used for electronic purchases and transfers. It has recently been gaining popularity and a growing number of businesses, including WordPress, Overstock.com, and Reddit, now accept it as a form of payment. Microsoft already accepts bitcoin payments through its Windows 10 and Windows 10 Mobile platforms, while those shopping online at Shopify may use bitcoin as payment.
Bitcoin is also moving outside the virtual space; what may be the world’s first bitcoin store, House of Nakamoto, opened early this year in Vienna. There, people can buy bitcoins for euros, and vice versa, from a dedicated bitcoin ATM. Drinkers in Cambridge can pay for beers at a pub called The Haymakers.
The number of bitcoins is capped at 21 million. As of March 2017, there were almost 16.2 million circulating. The supply of coins grows steadily because of the way bitcoin is programmed. Each “miner” (“mining” is lingo for the discovery of new bitcoins – anyone with computer knowledge and access to blockchain software can act as a miner) introduces new coins to the supply at a rate of around 12.5 coins every ten minutes.
Mining is the process of adding transaction records to bitcoin’s public ledger of past transactions (blockchain). The blockchain confirms transactions as having taken place to the rest of the network.
A good investment opportunity?
Investment in digital currencies, such as bitcoin, has emerged as an alternative to traditional forms of money and created a niche that’s driving major innovations in the financial sector, such as peer-to-peer lending, and digital wallets. As traders gain confidence in alternative forms of money and payment mechanisms, bitcoin is seen as a possible investment alternative.
In fact, bitcoin exhibits similar features to gold – limited global supply, maintaining value and hedging against global market volatility. Such is the exuberance in bitcoin investment that it actually outperforms the precious metal, generating an annual return of 155% compared to gold’s annual loss of 6% during the same time period.
Even though Bitcoin seems a profitable investment tool, its value can be as volatile as the value of the gold, depending on the perceived risk of owning bitcoin as a commodity. Bitcoins are encrypted for security purposes, but while the coding identifies the currency itself, it does not identify its owner. If someone hacks the miner system and gets a secret bitcoin code they will eventually become the rightful owner.
What, then, is pushing the investment value of bitcoin? One driver is increasing demand from developing countries, especially Brazil, Russia, India, China, and South Africa. These countries are experiencing economic distress and weakening currencies, making their local currencies unpredictable and volatile. As a result, it’s becoming increasingly popular to use bitcoin as a natural hedge against paper currency.
Another contributing factor to the rise of bitcoin is the possibility of a trade war between US and China. US President Donald Trump has indicated that he may impose 45% tariff on Chinese imports. This may lead to a weakening yuan, and capital outflow from China as investors will resort to more stable currencies such as euros.
The hike in bitcoin’s price during financial troubles is also a testament to its increasing attraction as a hedging tool.
When Cyprus’s economy crashed in 2013, the price of bitcoins spiked as people resorted to other forms of payment than the national currency. In 2015, when the Chinese currency was in free fall, people in the country turned to bitcoin alongside gold.
And after the Brexit vote in the UK, when global currencies and stock markets tanked, bitcoin’s value rose more than US$100 compared to the previous day. This was mainly due to some of the speculative money flowing out of the pound and yuan making its way to bitcoin.
Increased government support
Bitcoin is not just getting increased interest from tech-savvy individuals and banks such as Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS. Governments are also lending support to the cryptocurrency.
The Australian government plans to reduce tax on bitcoin transactions. Current treatment of the digital currency under the goods and services tax (GST) law means that consumers are “double taxed” when using it to buy anything already subject to GST. The government plans to change this.
Meanwhile, the UK’s chief scientific adviser has said that governments should use bitcoin’s underlying technology – blockchains – to help with taxes, benefits and passports.
Taking its cue from bitcoin, the US government is planning to launch a legalised cryptocurency called Fedcoin, which can be exchanged for a physical dollar. Bitcoin is not considered legal tender because it is not backed by any government.
Bitcoin pricing is also motivating the much anticipated establishment of the first bitcoin exchange-traded fund (ETF) in the United States. An ETF is an investment company that has no restrictions on the amount of shares it can issue.
The approval of a bitcoin ETF would make the cryptocurrency more attractive to risk-averse institutional investors as it would allow an easier way to gain access to bitcoin than buying it directly.
Such is the dominance of bitcoin that the Bank of England issued a white paper on the subject, investigating the possibility of central banks minting their own cryptocurrencies.
Bitcoin’s appeal, compared to gold, comes from two factors. First, it can be used as a easy medium for payments (for a limited but growing number of transactions), which gold cannot replicate. And with their limited supply of 21 million, bitcoins are likely to attract higher demand compared to gold.
The debate over the supremacy of gold versus bitcoin will continue. What we can say with certainty is that we cannot use gold to buy bitcoin directly but bitcoin can be used to buy gold. You can decide which you prefer.
Beyond hashtags: how a new wave of digital activists is changing societyAthina Karatzogianni, University of Leicester
Digital activism has transformed political protest in the last two decades. Smartphones and the internet have changed the way political events, protests and movements are organised, helping to mobilise thousands of new supporters to a diverse range of causes. With such activity becoming an everyday occurrence, new forms of digital activism are now emerging. These often bypass the existing world of politics, social movements and campaigning. Instead, they take advantage of new technologies to provide an alternative way of organising society and the economy.
We’ve become used to the idea of digital activism and social media being used to publicise and grow political movements, such as the Arab Spring uprisings in the Middle East and the anti-austerity movement Occupy. Activists, such as those in recent French labour protests, can now live stream videos of their actions using apps such as Periscope while online users contribute to the debate. In Barcelona, the party of new mayor Ada Colau drew up its electoral programme with the help of over 5,000 people, in public assemblies and online, including the formation of network of cyberactivists, SomComuns.
So-called hacktivist organisations such as Anonymous regularly attack the computer networks of the rich and powerful, and even terrorist organisations such as Islamic State . The recent Panama Papers follow similar revelations by Wikileaks and Edward Snowden as examples of “leaktivism”. Here, the internet is used to obtain, leak and spread confidential documents with political ramifications. The Panama leaks have led to protests forcing Iceland’s prime minister to step aside and calls for similar action in the UK.
All these forms of online activism are essentially designed to force change by putting political pressure on leaders and other powerful groups in the real world. But new kinds of digital activity are also attempting to change society more directly by giving individuals the ability to work and collaborate without government or corporate-run infrastructures.
First, there are quieter forms of digital activism that, rather than protesting against specific problems, provide alternative ways to access digital networks in order to avoid censorship and internet shutdowns in authoritarian regimes. This includes bringing internet access to minority and marginalised groups and poverty-stricken rural areas, such as a recent project in Sarantaporo in northern Greece.
But it also involves more unusual technological solutions. Qual.net links your phone or computer to an ad-hoc network of devices, allowing people to share information without central servers or conventional internet access. In Angola, activists have started hiding pirated movies and music in Wikipedia articles and linking to them on closed Facebook groups to create a secret, free file-sharing network.
Second, there are digital platforms set up as citizen, consumer or worker-run cooperatives to compete with giant technology companies. For example, Goteo is a a non-profit organisation designed to raise money for community projects. Like other crowdfunding platforms, it generates funding by encouraging lots of people to make small investments. But the rights to the projects have been made available to the community through open-source and Creative Commons licensing.
The example of the Transactive Grid in Brooklyn, New York, shows how blockchain – the technology that underpins online currencies such as Bitcoin – can be used to benefit a community. The Transactive blockchain system allows residents to sell renewable energy to each other using secure transactions without the involvement of a central energy firm, just as Bitcoin doesn’t need a central bank.
These platforms also include organisations that help people to share goods, services and ideas, often so that they can design and make things in peer-to-peer networks – known as commons-based peer production. For example, fablabs are workshops that provide the knowledge and hardware to help members make products using digital manufacturing equipment.
Greater democracy and co-operation
What links these new forms of digital activism is an effort to make digital platforms more democratic, so that they are run and owned by the people that use and work for them to improve their social security and welfare. Similarly, the goods and services these platforms produce are shared for the benefit of the communities that use them. Because the platforms are built using open-source software that is freely available to anyone, they can be further shared and rebuilt to adapt to different purposes.
In this way, they may potentially provide an alternative form of production that tries to address some of the failures and inequalities of capitalism. Using open tools, currencies and contracts gives digital activists a way to push back beyond the louder activity of aggressive cyberattacks and opportunistic social media campaigns that often don’t lead to real reform.
The internet has always allowed people to form new communities and share resources. But more and more groups are now turning to a different set of ideological and practical tools, creating cooperative platforms to bring about social change.
Web 3.0: the decentralised web promises to make the internet free againEdina Harbinja, Aston University and Vasileios Karagiannopoulos, University of Portsmouth
Have you recently considered deleting your Facebook account, boycotting Amazon or trying to find an alternative to Google? You wouldn’t be alone. The tech giants are invading our privacy, misusing our data, strangling economic growth and helping governments spy on us. Yet because these few companies own so many of the internet’s key services, it seems there is little people can do to avoid having to interact with them if they want to stay online.
However, 30 years after the world wide web was created, a third generation of web technology might offer a way to change things. The DWeb, a new decentralised version of cyberspace, promises to enable better user control, more competition between internet firms and less dominance by the large corporations. But there are still serious questions over whether it’s possible – or even desirable.
The first generation of the web lasted from its creation by Sir Tim Berners Lee in 1989 to roughly 2005. It was mostly a passive, “read-only” web with minimal interaction between users. Most of us were merely recipients of information. Then came Web 2.0, a “read-write web” based on social networks, wikis and blogs that let users create and share more of their own content, which increased their participation and collaboration.
Web 3.0 is the next step. In part it will be a “semantic web” or a “web of data” that can understand, combine and automatically interpret information to provide users with a much more enhanced and interactive experience. But it could also be a decentralised web that challenges the dominance of the tech giants by moving us away from relying so heavily on a few companies, technologies and a relatively small amount of internet infrastructure
When we currently access the web, our computers use the HTTP protocol in the form of web addresses to find information stored at a fixed location, usually on a single server. In contrast, the DWeb would find information based on its content, meaning it could be stored in multiple places at once. As a result, this form of the web also involves all computers providing services as well as accessing them, known as peer-to-peer connectivity.
This system would enable us to break down the immense databases that are currently held centrally by internet companies rather than users (hence the decentralised web). In principle, this would also better protect users from private and government surveillance as data would no longer be stored in a way that was easy for third parties to access. This actually harks back to the the original philosophy behind the internet, which was first created to decentralise US communications during the Cold War to make them less vulnerable to attack.
Some of the technologies that could make the DWeb possible are already being developed. For example, the Databox Project aims to create an open-source device that stores and controls a user’s personal data locally instead of letting tech companies gather and do whatever they like with it. Zeronet is an alternative to the existing web, where websites are hosted by a network of participating computers instead of a centralised server, protected by the same cryptography that’s used for Bitcoin. There’s even a DWeb version of YouTube, called DTube that hosts videos across a decentralised network of computers using a “blockchain” public ledger as its database and payment system.
However, this technology is still in its early stages. And even once it’s ready, it will be difficult to get users to use new, DWeb-based applications. Whereas Web 2.0 provided an obviously more attractive and easy-to-navigate experience to all users in an open marketplace, the DWeb offers something with less obvious benefits, and requires more user responsibility. Yet enough people would have to be tempted to adopt the technology for it to break down the established oligopoly and succeed.
Risks and regulation
The DWeb also comes with some significant legal and regulatory risks. It would make policing cybercrime, including online harassment, hate speech and child abuse images, even more difficult because of its lack of central control and access to data. A centralised web helps governments make large corporations enforce rules and laws. In a decentralised web, it wouldn’t even necessarily be clear which country’s laws applied to a particular website, if its content was hosted all around the world.
This concern brings us back to debates from the 1990s, when legal scholars were arguing for and against the influence national laws could have on internet regulation. The DWeb essentially reflects the cyber-libertarian views and hopes of the past that the internet can empower ordinary people by breaking down existing power structures.
But this relies on users taking more initiative and responsibility for their data and their online interactions. We’ve seen that large numbers of people are willing to take action when their day-to-day experience of the internet is threatened. However, it’s not yet clear whether the current push for more regulation will align with the DWeb’s principles of responsibility or place internet freedoms at risk.
Decentralised systems also don’t necessarily abolish unequal power structures, but can instead replace one with an another. For instance, Bitcoin works by saving records of financial transactions on a network of computers and is designed to bypass traditional financial institutions and give people greater control over their money. But its critics argue that it has turned into an oligopoly, since a large percentage of Bitcoin wealth is owned by a very small number of people.
The DWeb certainly has its benefits and the potential to give ordinary internet users more power. But it would require some major shifts in how we perceive the web and our place in it. Whether its benefits will be sufficient to drive enough users away from the tech giants to make it viable remains to be seen. However, with governments becoming keen to increase regulation of the internet, the DWeb might actually offer a more liberal alternative in the long run.
The future of blockchain according to experts in the energy sectorFakher Omezzine, Grenoble École de Management (GEM) and Joachim Schleich, Grenoble École de Management (GEM)
Blockchain technology is a decentralised digital ledger that keeps public but encrypted records of peer-to-peer transactions. All members of a blockchain network can verify whether a transaction occurred or not, rendering clearinghouses or other intermediaries obsolete. The technology originally served as the backbone of bitcoin, the well-known crypto-currency, and later made its way to other industries. In France, blockchain represents a vibrant industry as the nation trailblazes the way for the technology in the hope of becoming a blockchain hub in the European Union. The French minister of finance, Bruno Le Maire, believes that:
In December 2018, two French members of Parliament, Jean-Michel Mis and Laure de La Raudière, submitted a report recommending that the French Government invest 500 million euros on public blockchain endeavors over the next three years in order to build a “blockhain nation”.
The unique characteristics of blockchain technology (lower transaction costs, increased transparency and enhanced security) are creating new opportunities for the French electricity sector. A few start-ups such as Sunchain or Evolution Energy are currently establishing blockchain-based projects with the main aim of further decentralizing existing energy systems. Several barriers to the wide adoption of blockchain however are yet to be overcome.
Where is the blockchain headed?
In this context, the Energy Market Barometers conducted by Grenoble Ecole de Management (GEM) in December 2018 asked experts for their opinion on where blockchain is headed in the French energy sector. As a first finding, the experts were almost equally split in their opinion on whether blockchain will play a rather important or a rather unimportant role in the French electricity system of tomorrow. To understand the importance of blockchain technology in the energy sector and the challenges that it faces, the experts were asked for their opinion on the viability of specific blockchain applications and the potential benefits, as well as the barriers currently limiting a wider diffusion of the technology in France.
According to the experts, the most promising applications of blockchain technology in the electricity sector in the next five years, are “peer-to-peer energy trading” and “electric vehicle charging and sharing”. The blockchain promises to create a system whereby energy prosumers from the commercial sector or private homes can trade electricity without the interference of a central authority. With the continuous growth of electric vehicles, blockchain promises to provide an adequate, publicly available charging infrastructure that tackles the “lack of range” challenge, by enabling individuals to make their private EV charging stations available for public use for a fee.
Currently, the majority of players in the blockchain for energy market are trying to enact some form of peer-to-peer energy trading. In 2017, Enedis, working with the French start-up Sunchain and the Departmental Council of Pyrénées-Orientales, launched one of the first P2P energy sharing projects in France. The project, DIGISOL, explored the use of blockchain technology to share solar energy between individuals within the same building (collective auto-consumption). A large-scale deployment of the technology for P2P energy trading however is still inexistent in France.
Which blockchain use case do you see as most viable for applying the technology within the energy sector in France in the next five years?
Blockchain technology is interesting for its potential to decentralise energy markets and improve flexibility. blockchain enables real-time coordination of electricity supply and demand data that can improve demand-side energy efficiency. blockchain solutions can also be used to accurately monitor and control energy performance in real-time, which will ultimately increase supply side efficiency. In effect, blockchain provides companies with ways to efficiently track energy usage and generation, and to identify network anomalies, which can improve response time in case of a failure or a blackout. In France, ENGIE is exploring the use of blockchain technology to monitor water, natural gas and energy flows. The company has also partnered with different blockchain players, such as LEDGER, which specializes in security and infrastructure solutions for cryptocurrencies and blockchain applications, to develop blockchain for energy market solutions.
What potential benefits can blockchain bring to the energy sector in France?
However, the experts also identified key barriers that limit the widespread diffusion of blockchain technology.
Unclear regulatory and legal framework
Blockchain solutions are rapidly growing and innovating far ahead of existing regulations. Clear legal definitions and regulatory frameworks are needed in order to clear up the current level of uncertainty that is associated with blockchain. The French government, along with players in the blockchain ecosystem, is still working on establishing favorable regulations and legal frameworks for the technology. In December 2018, the French Accounting Standards Authority established a regulation that defines the accounting rules applicable to Initial Coin Offerings (ICO; a highly popular approach to raise capital in the blockchain space) issuers, ICO investors, and organizations that hold any type of crypto currency or crypto-asset. However, several issues such as intellectual-property, data privacy, and enforceability of contracts remain to be addressed.
Current blockchain designs run on algorithms that can consume up to 215 kWh per transaction (i.e., the equivalent of letting an incandescent light bulb of 25W burn for a full year). This is mainly because validating and securing transactions on the blockchain requires huge computing power. For example, the servers that run bitcoin’s software are estimated to use at least 22 terawatt-hours (TWh) per year, which is almost the level of Ireland’s annual electricity consumption. An expansion of blockchain will require additional “data mining” and consequently additional energy consumption. A number of green-mining solutions that use renewable energy sources and more energy-efficient hardware are currently being tested. The green-energy startup Hydrominer, which operates two hydropower mining farms in the Austrian Alps is one example.
What are the main barriers that are currently limiting a wider diffusion of blockchain technology within the energy sector in France?
Current blockchain designs are extremely difficult to develop, deploy and maintain. For the novice user, making a transaction on the blockchain can be challenging, as it requires technical knowledge and several sophisticated steps. A number of big IT players are currently providing cloud-based blockchain services intended to automate the setup of blockchain infrastructures. Future blockchain applications may need to adopt a plug-and-play infrastructure that is much more user-friendly in order to attain wider diffusion.
The energy market barometers conducted in December 2018 among 112 experts from industry, science and public administration in France asked about the role of blockchain technology in the French energy sector. The results can be found here._
Is blockchain all hype? A financier and supply chain expert discussCarlos Cordon, IMD Business School and Arturo Bris, IMD Business School
This is an article from Head to Head, a series in which academics from different disciplines chew over current debates. Let us know what else you’d like covered – all questions are welcome. Details of how to contact us are at the end of the article.
Arturo Bris: Have you ever watched footage from the early 1980s of people trying to explain the internet? They’re sceptical and confused and have no idea how to say “@”, which is comical given what we now take for granted. But that’s where we are with blockchain now. People don’t believe in it because they don’t understand it.
Blockchain is a technology with two ingredients: the first is a distributed ledger, meaning a database with identical copies held by everyone in a network. There is no intermediary, no central data depository. The second is a consensus algorithm (and this is the true innovation in the technology): the ability to digitally agree on any change in the data. It is the set of decision rules by which any new entry in the database is accepted and then shared by everyone.
The consensus algorithm will be different for every blockchain – some work on a simple majority rule, some (such as Bitcoin) have a subset of members paid to fulfil that role, and others have much more complicated arrangements. The structure of the database is also particular, because it is structure as a sequence of entries (a ledger), not a deposit.
If you don’t understand blockchain, get educated, because it’s an amazing new technology that’s going to revolutionise the world. It’s going to monetise and unlock value that today is hidden. The social impact is going to be massive. It’s going to permit new avenues for human interaction that didn’t exist before.
Carlos Cordon: I’m not sure about that, Arturo. I, for instance, understand what blockchain is, but I don’t believe that it’s going to have the impact you describe.
Blockchain requires having a lot of copies of the same data. This means that you are required to multiply the data storage by, let’s say, 100 times. The same data is stored in 100 places. That might work for something as standard and simple as money: Bitcoin works, for example, because there is just one Bitcoin, not thousands of different products.
But if you think about supply chains, for example, you’re talking about thousands of products. For each product, a lot of information is required, like weight, format, expiry date, composition, etc. This means that blockchain is extremely impractical for many of the applications that its evangelists are proposing.
Amazon isn’t using blockchain. Google isn’t. In fact, none of the top digital giants are, although Amazon has said it’s happy to provide cloud storage for it. The Nobel prize-winning economist Paul Krugman has said that Bitcoin will “set the monetary system back 300 years”.
AB: Krugman also said in 2011 that the Euro would soon disappear, and look where we are today. And, with respect to Google and Amazon, that’s exactly what disruptive technologies are: they are not usually adopted by the established players, because they disrupt their own – established – business models.
And by the way, more and more companies are using blockchain for applications beyond cryptocurrencies. These include music streaming, social networking, commodities trading, property registries – the list goes on. Blockchain is a technology that guarantees full security (it cannot be hacked) because data are already shared by the members of the network, so there is nothing to hack. We are already seeing the transformation moving extremely fast, and that’s why you need to embrace it.
CC: The way blockchain works makes it secure and trustworthy, that much is true. But if we introduce blockchain into supply chains, for example, we’re firstly trying to solve a problem that isn’t there – and, secondly, we’re possibly creating further problems for ourselves.
This is because trust in supply chains generally isn’t an issue. Let’s imagine I’m Unilever or Procter & Gamble. Am I going to try to cheat Walmart or Carrefour? No. We have a certain level of trust. We may disagree, but we don’t cheat. But with blockchain comes complete transparency. And we don’t want that. Not because we don’t trust the other partner, but because we use information to negotiate. Besides, in supply chains we’ve been working on sharing information and data for years. We don’t need new data technologies. It’s already complicated enough.
AB: I have no problem with that. If trust does not need to be formalised, there is no need for blockchain. I don’t think we will use blockchain to manufacture cookware or to design new means of transportation either. But what makes blockchain revolutionary is the transformation of physical assets into digital ones. This is known as tokenization. Cryptocurrencies, for example, are the tokenization of money, but that is only one example. You can tokenize stocks and financial assets, property, music, services – the list goes on. By replicating assets with a digital token, we can facilitate transactions without physical delivery.
CC: Then there’s the challenge of a potential mismatch between the virtual value chain and the physical value chain. You can tokenize assets, but what happens if someone changes the physical product? Blockchain couldn’t have prevented the UK horsemeat scandal, for example, where horsemeat was found in products that supposedly contained only beef.
Meanwhile, the need for storage is going to multiply by an order of magnitude as copies of all these ledgers are held by each individual in a blockchain. And the only people who are going to benefit from that are companies like Amazon, selling cloud storage.
AB: This is a fallacy. In fact, the structure of a blockchain allows us to store the whole database by storing just a small part of it. I know this is difficult to understand. In fact what happens is that, through encryption, we will be able to drastically reduce the size of the entries. Second, because of the sequential nature of the database, and since all entries are linked both to the previous and the next one, we will need to store just the last block(s) of the database.
Overall, I think that we need to think beyond the storage of data and contracts as the main uses of blockchain. Tokenization will transform our transactions. Besides, the lack of need for intermediaries will also transform organisations. We can develop a new type of organisation that is democratic, not in the sense that it doesn’t need a CEO but in the sense of a decentralised autonomous organisation that is super efficient. This is going to be the future.
By monetising assets that we currently do not monetise – such as our social capital, our fitness data, our attention to advertisers – we will add value. And that is only possible through a technology so new and complex that we’re still struggling to explain to each other how it works.
CC: OK. But so far, I have seen no evidence of blockchain being used for truly revolutionary purposes. Walmart is using it to track vegetables. I saw a headline recently: “IBM joins efforts to create the blockchain equivalent of Yellow Pages” – Yellow Pages died 20 years ago, why are they trying to resuscitate that concept? Blockchain is certainly one of the top strategic tech trends at the moment but from looking at what companies are actually doing with it, I don’t think it’s going to change the world.
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