As the free market encourages advances in technology that bring widespread benefits, some industries are negatively impacted as the demand for their products diminish. Remember when people took photos on an actual camera, before smartphones changed how photos were taken and shared? The camera industry was forced to change when digital photography was developed. Economist Joseph Schumpeter referred to market changes due to advancements and innovations as “creative destruction,” a process which ultimately improves productivity and the quality of life broadly, even if at first the advancements seem mysterious or unorthodox.
Everyday innovations and advancements are taking place in the market that could significantly alter and improve the way we do seemingly everyday tasks. Perhaps there is no better example than Blockchain technologies.
While some Americans might be unfamiliar with Blockchain technologies, it could change the way financial transactions take place, how legal contracts are shaped and executed, and overhaul the way personal and national cybersecurity works. Blockchain could become one of the most positively impactful technologies in society for everybody across the social and economic spectrum and a modern example of “creative destruction,” but only if government and legislators do not try to regulate it to oblivion.
Currently, most digital financial transactions start with a person requesting a transaction, like withdrawing funds from an ATM or wiring money to a loved one overseas. These request are then funneled through a few banks and institutions, and their servers to verify that the sender has the funds available before transactions are completed. However, this current transaction process involves significant cumulative costs in time, fees, and security risk. According the to Economist, processing payments and transactions reaped in $1.7 trillion for these trusted banks in 2014.
Additionally, when requests must go through these centralized, designated institutions, it essentially tells nefarious hackers or rogue administrators that “X marks the spot”: if they can break past the cybersecurity walls of businesses like J.P.Morgan or the Society for Worldwide Interbank Financial Telecommunication, they can steal what they want. This means that the banking and personal information of consumers are only as protected as that individual companies’ cybersecurity.
New technologies like Blockchain provide a means of overcoming many of the risks and cost in the current system. Blockchain would allow for transactions to move directly from the sender to the intended receiver without having to move through a centralized source. According to Blockchain experts Don and Alex Tapscott, Blockchain works “kind of like a global spreadsheet or ledger, which leverages the resources of a large peer-to-peer ... network to verify and approve each ... transaction.” It is essentially a shared, public, electronic ledger that records transactions and records the individual data of the transactions in inalterable blocks. These blocks of transactions are chained to other blocks of transactions to create an encrypted Blockchain. Hacking into a single transaction block would be nearly impossible since the only way to access the block is to hack all the blocks on that chain at the exact same time without anybody noticing or protesting the changes. That is the equivalent of a baseball player stealing second, third, and home base in one attempt without anybody moving a muscle or batting an eye.
All in all, this means that Blockchain technology has the potential to reduce cost, speed up financial transactions, provide better privacy, and moderately decentralize the banking system.
Some experts have even considered that Blockchain could be used to establish self-executing legal contracts, fortifying property rights in volatile regions in the world, and allowing protection for intellectual property. Don and Alex Tapscott have claimed that this technology has the potential to impact “everything from protecting our environment to managing our health.” This includes how governments function and interact with citizens.
Governments around the world have also seen the benefits of Blockchain technology and have begun to implement Blockchain to solve some pressing issues:
The Republic of Georgia, a country pinched between Northeastern Turkey and Russia, has utilized Blockchain technology to compile and maintain a land registry to prevent property theft and corruption. Ghana in West Africa has also developed Blockchain for similar reasons.
Estonia, one of the Baltic States, has adopted Blockchain to track medical records to ensure security for individuals and transparency in the healthcare market. Estonia has also used Blockchain to handle citizens concerns, better track residents, and provide information and services to their residents.
Other countries such as the United Kingdom are using Blockchain to monitor government services, for example, to ensure that grants are delivered to the correct person and used for the intended purpose.
In the United States, consumers and taxpayers could greatly benefit from Blockchain technology in similar ways as other countries. For example, if a transaction between the Internal Revenue Service and a taxpayer could all be recorded on a Blockchain transaction, then any dispute about timeliness of a payment or the payment itself could be settled swiftly and accurately without litigation, saving time and money on both sides of the dispute.
There is a tremendous amount of upside to Blockchain technology, but legislators and Congress should resist the itch to regulate Blockchain. Just like when the Internet was first developed and nobody was sure of the services it could provide, the number of ways in which Blockchain could benefit society is unknown and the only way to find out how useful it can be is to allow individuals, governments, organizations, and businesses to experiment. Moody's Investors Service has identified over 120 projects in the financial industry that are already researching and utilizing Blockchain technologies.
Time must be allowed for trial and error to take place with Blockchain in the market in order to better see the benefits and hindrances that it can provide and overcome. Regulating Blockchain while it is in its infancy will only hinder its ability to mature and solve problems. Congress should embrace the creative destruction that Blockchain offers and look for ways to use the new technology to help taxpayers and constituents.