How blockchain technology can prevent the next financial crisis, disrupt Uber, and give us control of our data

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Original Article Published on QZ.com

You’ve probably heard about “the blockchain” recently. A lot. The technology underpinning bitcoin has attracted billions in venture capital funding, the interest of almost every global bank, and the attention of governments around the world. Essentially a digital distributed ledger that anyone on the internet can access, the system has the ability to keep information secure, create a permanent record of transactions to avoid fraud, and instantly transfer assets. But for all the talk, it’s simply not that useful yet. For now, the technology is stuck in the back offices of financial firms, an area that the average person doesn’t care about or really benefit from.

A new book, Blockchain Revolution, envisions a future where the technology doesn’t just change finance, but bring more people into the global economy and disintermediate startups like Uber and Airbnb. Quartz spoke with Alex Tapscott, the founder and CEO of blockchain advisory firm Northwest Passage Venture, about some of the more novel ideas in the book he coauthored with his father Don, and how blockchain could shape our future. This interview has been condensed and edited for clarity.

Central banks—the People’s Back of China, for example—are interested in exploring the idea of using digital currency to cut down their own currency costs, etc. What kind of value do central banks get out of currency tied to the blockchain?

To answer that question you need to understand what central bankers do in the economy. Broadly speaking, they perform three roles: they manage monetary policy, which involves managing interest rates and the money supply in the system. So take monetary policy for example. If the yuan, or the dollar, or the euro were represented on a blockchain, you’d be able to know with much greater accuracy whether or not a decision to cut interest rates had any impact on the economy. So let’s say you cut interest rates because you want to increase spending, spur lending, increase consumer confidence, and see greater investments in non-yielding assets like stocks. Now, you have to rely on random samples from retailers and other lagging indicators to figure out whether or not the move had the desired effect. If your currency was represented on the blockchain, you could watch in real time as value moved through the system. You wouldn’t be able to see who was spending, but you’d be able to see how they spent. And that would enable you to manage your policy much more effectively.

When it comes to financial stability, if regulators like the Federal Reserve or the People’s Bank in China, could get a window into the dealings of large financial firms and see the same shared ledger that the banks did, they would know whether or not too much risk was being taken in the system, whether or not there were liquidity crunches in the system, whether or not there were troubled banks or shadow banks that needed support or a slap on the wrist. You’d be able to have more information and a much clearer picture to do your job better. That ties into financial stability. If you’re connected to the same records as everyone else, then you don’t need all of the resources to go into the individual banks and vet their siloed transaction records to determine whether or not they’re acting within the law. And that could allow you to cut costs and do your job better. So in each role of the central bank, there’s an opportunity to do that job better.

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