Alex Tapscott:

ALEX TAPSCOTT: That was really cool I kind of want to try that out

Everybody, give me a big cheer [CHEERING] Wow That power is seductive Thanks for joining me today Great to see a standing-room-only crowd here

There must not be a lot going on this week I'm delighted to be here I've been reflecting on this whole Brexit issue and thinking about where to make sense of the disruption and turmoil that's going on And I think that there might be an answer in technology Because in addition of this political revolution that's kind of going on right now, we also have a technological revolution that's happening as well

And this is by far the most sophisticated crowd I think I've spoken to So everyone here is obviously familiar with all these big technological trends that are going on But it's our view that the technology likely to have the greatest impact on the world for the next 20 years is actually not the mobility, big data, cloud computing, machine learning, AI, et cetera It's the technology behind cryptocurrencies, like bitcoin, and it's called the blockchain And after a few years of research and the writing for this book, we've basically become convinced that this technology represents nothing short of the second generation of the internet

So when you use the internet today to send or move or share information, you're not actually sending an original You're sending a copy, and you're retaining an original And generally speaking, that's OK In fact, it's one of the great benefits of the internet is that we have this publishing platform for the democratization of information So all you need is an internet connection and some kind of internet-enabled device, and you can access Google and Wikipedia and all these wonderful resources

But when it comes to value, things like money, stocks, bonds, other financial assets, sending a copy is actually not a good idea You see, if I send you $20 in payment for something, it's really important that you know that you have that $20, and I don't Because if I could send the same $20 to every single person in this room, then that $20 becomes worthless, and the global economy collapses, and I go to jail And these are all really bad things So it's OK to have a printing press for information, but it's not OK to have a printing press for money

And this is something that cryptographers have been trying to figure out for a very long time It's called the double-payment problem or the double-spend problem And the first iterations of digital cash were actually developed 20, 22 years ago by Nick Szabo, a cryptographer There was another one too, developed by a guy named Adam [? Chom ?] And it was very close to being part of the initial integration into the Netscape Navigator, but they couldn't do it because they couldn't figure out this issue

So it turns out that we need help We need help establishing trust We need help verifying the identity of parties in a transaction We need help with the clearing and the settling of those transactions, and we need help with the record keeping And what we turn to for all of those important functions of commerce online are middlemen, basically– Intermediaries

And these intermediaries take different shapes and forms People are familiar, obviously, with banks But also increasingly, from the digital revolution, we've got big conglomerates, digital conglomerates, like Google, who act as arbiters in the middle of a lot of transactions online– Facebook, Uber, Apple, et cetera, but also governments too And generally speaking, these intermediaries do a pretty good job But they have certain limitations

For one, many of them are very centralized And anything that's centralized is vulnerable to hacking or to attack or to failure And we see this with regularity– Twitter, LinkedIn, Home Depot, Target, including financial services firms like Morgan Stanley, JP Morgan, and even governments, like the NSA and the State Department If the NSA can't secure its systems, then who can? They tax the system, especially in financial services In the case of sending money overseas, for example, it can cost anywhere between 9% and 18% just to make a cross-border transaction, a cross-border payment, which is crazy when you think about it, the idea of a cross-border payment

Nobody ever talks about a cross-border email And it's just data, really, when you think about value They exclude a whole bunch of people from the global economy There are 2 and /12 billion people in the world that don't have access to financial services of any kind, and there are lots of reasons for that And they slow things down

In the case of Google, not so much, actually They make things fast But in the case of the financial services industry, the technology systems that we run to manage things like payments and clearing and settling of transactions are actually like 30, 40 years old– the swift system, the automated clearinghouse system, and other types of settlement transaction layers run mainframes from the '70s and '80s and are older than most of the people in this room So you could argue that as a result of this issue of establishing trust and identity online, that intermediaries still capture an asymmetric amount of the value of commerce, perhaps even more so than they did in the pre-digital age So what if there were a vast global distributed platform that ran a ledger, basically like a spreadsheet, that everyone could see, that didn't run on one system– one bank system, one government system– but ran on every single computer around the world and wasn't only open to a few, but was open to everybody? Where not just information, like emails and PDFs and websites and voice over IP, but literally anything of value, so of course, money and stocks and bonds and financial assets, but also titles and deeds, intellectual property, scientific discoveries, even votes in an election could be moved, stored, and managed privately and securely, and where trust was not established by an intermediary but rather through mass collaboration, clever code, and cryptography

And I think that's what we've gotten with blockchain So in 2008, the global financial system was on the brink of collapse Everybody remembers that pretty well Some of you might been in high school But somewhat propitiously, right around that time, an anonymous person or group of people under the pseudonym Satoshi Nakamoto outlined in a white paper cash for the internet– digital cash, which is basically to say a way to make payments peer to peer without using an intermediary, kind of like the way you would go down to the coffee shop, and with a five quid note, pay for coffee and a donut

There's no intermediary in that transaction That didn't really exist for the internet We've always had to rely on intermediaries to make payments And they launched it shortly thereafter And since then, it's caught a spark

It's traveled like wildfire to the world of computing, financial services, which is the area that I've spent some of formative years of my career, but also into business generally, media, and including government So bitcoin is many things to different people Some people think of bitcoin as an asset It goes up It goes down

You can buy it You can sell it You can make money on it And that's certainly true And actually it's increasingly being viewed as sort of an uncorrelated asset and a safe harbor, in some respects

So Brexit referendum vote, bitcoin went up 20% When the Chinese People's Bank of China wants to devalue its currency, bitcoin usually rallies And that's interesting But more interestingly, it's a cryptocurrency, which is to say a currency that's not issued or controlled by a nation state or by a supernational organization, like the European Union And that's very interesting if you're in a part of the world where the local currency is very unreliable, where there are strict capital controls, if you're part of diasporas living abroad, and you send money home to your families, and you normally pay 10%

These are all opportunities for bitcoin as a cryptocurrency But most interestingly is it's based on this technology called the blockchain So for the first time in human history, two or more parties need not know nor trust one another to transact or do business You've got trust rather than being the domain of the intermediary The controlling role of the intermediary, it's actually native to this technology, which is why we call blockchain the trust protocol So people here, doubtless, are familiar with all of this stuff to some degree

And so you know full well that there's the bitcoin blockchain There are other types of blockchains Some are public, like Ethereum is another public blockchain And then there are others that are not– private blockchains that are being developed by banks and enterprise and government and these different things So not every blockchain looks like

But this is generally the way they work So it starts with a distributed ledger, which is not running on one computer or one system It's running on every single system that has access to it Transactions that are constantly happening on the network are validated by a community of participants In the case of the bitcoin blockchain, they're called miners, not like : "minors" miners, but like pick axe miners, who commit large computing resources to solve a difficult problem, after which they reach consensus, essentially, on what has occurred

And in reward for reaching consensus on what's occurred, they're rewarded with a new bitcoin And every so often these transactions on the network, kind of like the heartbeat, are captured into these things called blocks And then each block, once it's validated, must refer to the preceding block in the blockchain and every block all the way back to the beginning of time So what that means effectively is if I wanted to rewrite a transaction, like send the same $20 twice in the first example that I gave, I would not only have to go back and just move a number in a spreadsheet, hack one transaction, I'd have to go back basically and rewrite the entire history of commerce on the blockchain all the way back to the beginning of time on the blockchain, and do so in a very short window, fighting against one of the most powerful computing resources in the world One blockchain startup CEO, who also was a partner at Andresen Horowitz, estimates that the computing power that this network marshals to validate transactions is about 100 times as big as Google

So that's very big, because you guys know how big Google is Maybe you don't And of course, each block is time stamped, which means any attempt to change when a transaction's occurred, is sort of identified and stopped So that's the way bitcoin works But it's open source, so it's created this sort of Cambrian explosion of innovation, which has led to new types of blockchains

So just to show of hands, who here has heard of Ethereum? So most of the people here So I'm very proud of Ethereum because it's a little Canadian success story, and I'm from Toronto, Canada Any Canadians in the room? [CHEERING] Yes! Yeah, we're now worried about Quebexit So Ethereum was started by a Canadian college dropout named Vitalik Buterin, who was a big fan of bitcoin, but in it he saw certain limitations He wanted to build applications

He wanted to do smart contracts, complicated tasks that he thought bitcoin was limited in its ability to do And so he created this thing called Ethereum He wrote a white paper, put it on Reddit, put it on GitHub, and said, who wants to fund my project? And he ended up raising 19 million US dollars in a matter of four weeks to fund this project And they basically went down and got to work And 12 months later, Etherium launched

And it's now worth around a billion and a half US dollars, and it's being used by Microsoft, Deloitte, UPS, and a whole bunch of other very big firms One of the things that it does is, I mentioned, smart contracts, which is kind of what they sound like A software program that mimics the logic of a contract, but where the enforcement and the execution is done automatically, and where it also has a payment mechanism that assures everyone gets compensated regularly without the need for lawyers and escrow agents and bankers and all these other kind of friction points in traditional contracting And we kind of suggested in the book that this could create whole new kinds of business models, where a lot of the roles that we normally reserved for people, could be automated through these things called smart contracts Who here has heard of this thing the DAO– D-A-O? OK, so everyone

You know that it's all good No problems with the DAO It's all good No So in the book we said there's this thing called the distributed autonomous enterprises is what we call these companies that wouldn't have people doing normal roles

And we at the time we thought, god, this is a little bit far out there A company without people– people are going to think that we drank our own Kool-Aid or that we're toking up or something like that But we said, let's do it Let's put it into the book And we'll see where we get

The day the book launched this thing called the D-A-O came into existence And it looked a lot like the D-A-E that we had suggested could happen with the book It has no management It has no staff in the traditional sense

It has no board of governors It's an investment vehicle that was designed to make investments into the blockchain industry And its first task was to raise some money And in the first few weeks, it managed to raise at its peak 165 million US dollars, which, just for financial services, is a huge breakthrough So forget of the DAO works or not

What does it mean when an entrepreneur or a group of entrepreneurs can basically gain access to tens of thousands of individual investors and do a peer-to-peer crowd sale without the need for VC, without the need for an investment bank, without the need even for Kickstarter or an Indiegogo? $162 million is a lot of money I mean, that's like the bread and butter for late stage VC for a lot of IPO markets around the world So this is going to have a big disruptive force on finance Of course, the DAO, like any good blockchain startup, has problems, namely that there was a flaw in this contract that enabled someone to exploit it momentarily to siphon off some money into a separate account And that's an issue that's being resolved right now

We'll get back to that So going back to financial services, does everybody know what this thing is? It's called a Rube Goldberg machine It's the kind of thing I'd expect to find in a Google lobby, actually Guests wear like a boxing glove and hit something, and hilarity ensues This is kind of how the financial services industry works, actually, which is that a whole bunch of complicated things happen

And in the end, a very simple task is solved, like an egg is cracked or a door is closed London just introduced the TAP cards in the taxis, right? And you tap your card, and you feel like that's a seamless transaction, that the value might be going directly from you to the cabdriver But it's not It's going through a series of intermediaries– your bank, his bank, cab company's bank, a processing firm, the Visa network, if you're using Visa, the AMEX network if you're using AMEX, and usually, some kind of a clearinghouse or some kind of systems So you're talking about half a dozen different intermediaries

And the money doesn't land immediately It actually takes five to seven days And it's not free It costs usually anywhere between 2% and 10%, which is why cab drivers hate taking credit cards, right? And that's actually an efficient example of the way the financial services industry works In the book we identified sort of what are the eight things that this industry does in the economy to try and better understand how blockchain would impact it

And it turns out in each of these different functions, there's a big opportunity to fundamentally transform the nature of the industry So everything from how we fund and invest, which would be, say, the DAO, how we connect entrepreneurs with investors who are prepared to give growth capital, how we access credit, how we just store and move value, et cetera So given the potential of this technology, it's no small wonder why a lot of media outlets and big stakeholders are waking up to this So "The Economist" ran this cover story on blockchain in October of 2015, last year And they said blockchain is not one of the most important developments of the past 20 years

They said it's one of the most important innovations of the past 200 years, along with double-entry bookkeeping and the joint-stock corporation, which admittedly are not the sexiest things in the world– double entry, no, so boring But kind of important, because without double-entry bookkeeping and the joint-stock corporation, there'd be no Google There'd be no skyscraper There'd be no electricity There'd be none of these things

There the basis of the economic order So given all that, this is the conversation that's happening a lot of times in companies, increasingly, from financial services, but also in government, et cetera By the way, Dilbert is usually a pretty good harbinger of things to come And in 1993, they ran a cartoon about Unix, where the boss confused Unix with eunuchs, but anyway So what does this mean for you and for us, and why should you care? So in the book we identified sort of a half a dozen ways in which blockchain will be transformative

And the one I'd like to share with you today is this idea of prosperity, which is that the internet has been a great tool, and it's changed the way we live But on certain metrics it has a bit of a mixed track record On the report card for prosperity, this idea that the rising tide of technology lifts all boats, that some can succeed much more than others– you know, Larry Page, Sergey Brin, and all of you– but that generally everyone gets ahead Well, if you look at the big social issues in a lot of parts of the world, social inequality and income inequality is kind of number one in almost every OECD country, with the exception of the UK, where it's Brexit But actually, if you look at the origins of Brexit, you could argue that big social ills have exacerbated the tension which may have led to the vote

And it could also be the reason why you see this populist surge in places like France– Marie Le Pen– and in the US with Donald Trump, et cetera So could blockchain help us to build a more prosperous economy, more inclusive economy? We think so So in the book we identify eight transformations The first couple are really low-hanging fruit– inclusion 2 and 1/2 billion people the world don't have a bank account or any way to make payments or store money

And without that, their economic mobility is severely limited They really have no way to participate fully in the global economy And it turns out that the reason that banks can't really offer services to these people, in addition to them not really having a balance that would justify it, is that they don't have an identity If you don't have an identity, you can't prove who you are Then a bank's never going to service you

So they don't have a driver's license, birth certificate, et cetera Blockchain startups are trying to solve this problem by not looking at it as a banking question but looking at it as basic financial services So when you think about what retail banks actually do, they basically give people way to move money, which is to make payments and transfer funds, a way to store money, a way to reliably capture your savings somewhere, where it's not stored in a pig or a cow or something like that, and a way to get access to credit– so to get a loan to buy a house or get an education or to start a business And the barriers to entry for new startups in this space are dropping significantly There's a company in Kenya called M-Pesa, which I'm sure many of you are familiar with, which doesn't use blockchain

It just leverages a telecom network, which everyone's got a phone Nobody has a bank account Everyone has a phone And it's been able to push 40% of the GDP through this system Now, unfortunately, you want to talk too big to fail

If 40% of the GDP is moving through one company, that's a problem And also because it's localized to whatever their coverage is, it's inherently limited It's a Kenya-based thing So what if we could do that on a global scale? There's a very famous Peruvian economist named Hernando de Soto, who says the biggest barrier to upward mobility is not actually financial inclusion It's land titles

70% of people in the world who think they own land, actually have a very unforeseeable claim to it And this plays out all over the world The Rio Olymics– they basically evicted tens of thousands of people from favelas to build stadiums Some of them were squatters, who'd been there for 50 years Others actually had a title that said they owned the land

It didn't matter They said actually our government system says that we own the land, and we're evicting you from this piece of property It happens in places like Honduras, where the most recent president was actually ousted in a bloodless coup for doing this exact same thing He expropriated land from peasants and said that his friends in government and his other cronies owned it Well, now the government of Honduras is working with a blockchain company called Factum to try and solve these problems

And it's happening in other places too– in Georgia, in Europe, they're working with a company called Bitfury | has also announced a pilot The idea is pretty simple You need good data, to start, of who owns what Because if you put garbage in, you'll get garbage out

But if everyone can agree on who owns what property and it goes into the system, that means that no single entity can unilaterally change who owns what No dictator or tyrant can mess with it And it also means that the security of that information is much stronger I was at a blockchain conference with the former prime minister of Haiti And he said that after the earthquake they lost all of their records because everything was stored either in paper or in a central computer system in one single building in Port Au Prince, which collapsed

And the entire government's history of people and buildings were wiped out in one single blow Could we use blockchain to create a true sharing economy? Companies like Uber and Lyft and TaskRabbit are called part of this so-called sharing economy But we actually think they don't really have that much to do with sharing In fact, we think they're actually successful precisely because they don't share Uber is a $65 billion service aggregator

That is it acts as a centralized intermediary, aggregating drivers and cars through a centralized aggregator, and then pushing it out to an open market In the process, they capture a big chunk of the fee– 20%, 25% But they also capture all of the value $65 billion's the big prize, not the 20%, right? So there are new ways to distribute ownership across companies, kind of similar to the DAO, where anybody with as little as $1 can become a shareholder And instead of having a corporation, you could have a drive-around cooperative

Where many of the functions of what Uber does– identity, reputation, contracting, and payments basically, that's about 80% of what they do– can be automated using blockchain technology and smart contracting technology And we could actually create a true sharing economy, where the creators of value get to participate more fully $600 billion a year moves from developed countries into developing countries It's the biggest flow of funds into the developing world, more so than direct foreign investment or foreign aid And it costs around 10%, according to the World Bank

And it's something that directly affects some of the poorest people the world So in Haiti, 25% of the GDP, the whole country, is remittances In the Philippines, which is a big country with a diverse economy, it's still 13% of the GDP is remittances So there's a housekeeper in Toronto Her name's Annalee Domingo

And for 25 years, she's been sending money dutifully home to her mother in Manila And I joined her in one of these trips So she gets her paycheck– physical paycheck– from her boss Goes to the bank, deposits it, withdraws cash Gets on a bus, goes to the other side of town from where she lives to a Filipino supermarket, which also is a Western Union counter

It's payday, so 50 other people have the same idea We wait in line for an hour She gets to the front of the line, fills out a paper form– the same form she's filled out every month for 25 years– and hands over physical cash The money doesn't arrive the next day or even two days later It arrives five to seven days later, and it costs anywhere between 9% and 10%

Her mother, who's 70, in Manila, never knows when it's going to arrive, and this is a point of stress Will she go and pick it up? When does she have to go and pick it up? And there's a cottage industry in places like the Philippines, where stickup artists just hang around Western Union locations, waiting for people to get cash, and then they rob them So this is a very inefficient system and one that's unfair to vulnerable people Now Annalee uses an application called Abra, which is based out of Silicon Valley And what it does is allows her boss or her employer to pay her directly through her bank– she's banked

She's not unbanked– through her bank account into the Abra app She's able from there to send money to her mother in the Philippines What they do is they use the bitcoin blockchain, basically, as a payment rail to move the value from her to her mother But her mother's 70, and she's 50, and they're not tech savvy So what Abra's done to make it easier is that Annalee only sees Canadian dollars, and her mom only sees Filipino pesos

There's no bitcoin in this transaction, and it doesn't cost 10% It cost 1/4 of 1% Now, Mum's in the Philippines She wants cash She goes to the market in cash

She pays her rent in cash So what Abra's has done is put on top of it a teller network, sort of like Uber drivers, where someone will meet you in exchange for a fee, and swap for your virtual for your physical pesos And they set the price So 2%, they get a five out of five-star rating Her mom meets this person, and they swap the cash

The whole thing takes half an hour and costs 1 and 1/2% 2%, rather than taking seven days and costing 10% They didn't quite get the proportions right on this image I have a big head, but it's not that big One of the interesting things about the first generation of the internet is that the asset class, the most important asset class of this economy, is data, kind of like industrial plant in the industrial age, and land in the agrarian age But individuals don't own it

It's actually owned and controlled by powerful intermediaries– Google, Facebook, Apple, Uber, your banks, your governments And there are some issues with that, namely, that it prevents individuals, a lot of times, from using it to manage their affairs or to monetize that value and that data in some way, but also, in the most extreme cases, can lead to people's privacy being undermined So there are now companies that use blockchain to create a virtual you, like a personal black box, where in it, you've got different shades of your identity– me the citizen, me the employee, me the consumer, me the user of social media, me the customer of a bank And you decide how that data gets used in each individual situation, and you only relinquish what you need to relinquish to gain access to a certain service So you want to make a payment? You want buy something? Nobody really needs to know who you are, necessarily

If you go buy a hot dog downstairs– do they sell hot dogs in the UK? Yeah, you go down to get like a scone from the scone stand, the guy running the scone stands doesn't ask for your driver's license He just wants to know you've got the money for the scone and the jam and the clotted cream So there's an opportunity here to change the relationship that people have with who they interact with Now, it's actually not necessarily a negative for companies like Google You guys love data, big data

But maybe you could get even more data if you ensure that consumers kind of got a cut of the value Instead of being just passive recipients of your services, they were "prosumers," they were giving you information that was valuable to you, and in exchange getting some kind of value, other than the brilliant amazing, free, utility that is Google Could we ensure that artists get compensated fairly for the content that they create? Who know Imogen Heap here? She's English I'm very disappointed in the rest of you So artists have always had a bad deal, ever since the days of Medici, really

And during the record label era, they fought for a few percent royalties on every single song that they released And through the internet era, which was supposed to solve this to a certain degree, to put more power in the individual's hands and less reliance on intermediaries, it actually made things worse, because music, which was an asset turned into a free commodity which could be duplicated and shared with everyone And so a new set of intermediaries stepped in to try and solve this– Apple with digital downloads and now Spotify with streaming But it's only gotten worse for artists So if you were a songwriter on a hit single in the '80s, and it sold a million copies, you would get about $45,000

The same song today, if it's streamed a million times on Spotify, the songwriter can expect $36 So $45,000 to $36, which in London doesn't get you very far I've tried over the past couple of days So there's something's gotta give kind of feeling to it, right? So now artists are looking for a way to put more control into the hands of creators So Imogen Heap has a startup in London called Mycelia, which takes the song, which is normally just music, and gives it intelligence

So within the song are licensing rights and royalty rights built in So whatever the song's consumed, let's say it's streamed, and it's half of a cent That half of a cent will get split immediately amongst whoever has the royalties on that song– the artists, producers, et cetera But if it's downloaded for $1, the royalty regime might be the same, but the licensing is different So it's $1

And if it's played in a TV commercial, it's a different licensing regime If it's sampled for a ring tone, it's a different one But every time it's consumed, however it's consumed, the value moves directly from whoever's paying directly to the artist, rather than going through this system of intermediaries So that assures that artists get paid first It doesn't solve the you-can-duplicate-music issue

But if the pie is shrinking, it just makes sure that more of the smaller pie is going to people who actually deserve it So in the book that's an example of what we call the metering economy, which is that we have all this value– our data, maybe an autonomous vehicle not too far down the road, which we should be able to meter out to the world and receive value for it Maybe it's a solar panel on the roof of your house This is an example of what NASDAQ is doing NASDAQ, we think of as a market maker or a technology provider to the markets and stocks and bonds and other financial assets

They view themselves as a technology firm whose core competency is markets So what could blockchain do to expand the idea of markets to other types of asset classes? One of them is electricity So they're working right now with a distributed power company in Silicon Valley, where if you've got a panel on your roof and you generate power in excess of what you need, you can sell it not into the grid at a wholesale rate to the utility, but rather peer to peer, to your neighbor or someone on the other side of town at a market rate, a retail rate And you can create much more value for yourselves What NASDAQ's doing is allowing you to basically bundle kilowatt hours into assets that can be traded like stocks across a marketplace peer to peer, which I think is fascinating

This is a guy named Ronald Coase Among other things, I'd like to know what he ate for breakfast every day because he lived till he was 103 But he basically asked a very simple question He said, why do we have firms? Why are there corporations? If the best way to allocate resources and organize capability is using a market– you know Adam Smith, free market– then why isn't everyone an independent contractor? How come all of you work for Google and you're not all transacting with each other peer to peer in your respective roles? And he pointed to one specific thing He said, transaction costs

And he won a Nobel Prize for saying this So long as it's cheaper to do things inside the boundaries of the firm than outside, then firms will continue to grow And he pointed specifically to the cost of search, coordination, contracting, and establishing trust So Henry Ford knew this, which is why the Ford Motor Company had not just a car plant, but it had a rubber plantation, a timber mill, a steel plant, because he knew that keeping everything inside the firm would be cheaper through economies of scale The internet changed that somewhat– unbundling certain things from the firm

So we can rely increasingly on offshoring and outsourcing because we have communication tools that allow us to connect over long distances You know the motto "focus on what you do best, outsource the rest" came out the '90s, right around the internet era But now we think there are new models, where you can have radically distributed modes of production, where, as I mentioned, you can kind of begin to unbundle the vertically integrated firms Because everyone doesn't need to know each other to build value, because we've got a technology that establishes trust People don't need to do everything inside of firm, organize capabilities, we can contract pretty seamlessly for relatively little cost through smart contracts, And things like search, if you have a record of everything, and you know it's true because it's immutable, then you're able to find valuable information that you know is valid much more easily

And in the book we talk about new business models, specifically the distributed autonomous enterprise, which is highly automated and complex and uses this technology So to conclude on the transformations, let's talk about government, because I think this is a very topical thing right now These two books came out when I was a kid, in '92 and '93, "Reinventing Government" and "The Gore Report on Reinventing Government" And in it they said we can bring the tonic of the market to bear on government We can do government better, faster, cheaper

We can use digital technology to transform the relationship between government and citizens You look back on government, how it's changed, or how it is not change over the past 25 years, and I think at best, what we've done is just pave the cow path We've taken stuff that we did in the pre-digital age and made it digital, without actually changing the underlying nature of government And that, among other things, is causing a real rift, I think, between governments and citizens, where I think a lot of people don't feel like their government acts in their best interests, and where they feel like they're being left behind And this is playing out all over the world in various different forms

So what could blockchain do to A, restore legitimacy in government institutions, and B, just improve the way the government deliver services to people? Well, on the first point, right now, especially in the US, politicians are not beholden to citizens They're beholden to powerful interests that help to get them elected, basically 92% of people in the US believe there should be a background check on firearms, according to a poll that came out a week ago Congress cannot pass a law that reflects the will of the people because they are captured by these powerful forces So why would you have any faith in government when it can't do anything to reflect the will of the people? Well, imagine if a politician got elected with a smart contract that stipulated that they actually had to abide by their commitments, otherwise they wouldn't get paid? Or maybe a little less severe, they don't get the appropriations to pay for their projects they want to pay for unless they actually hit milestones that have been pre-determined based on the view of the electorate

The goal is not to create direct democracy The referendum last week sure told us that that's a bad idea But it is to help empower individuals to have more active role in government, which I think is healthy, within the context of democratic institutions In terms of delivering services, well, gee, it would be a lot easier if you could procure taxes and pay out benefits peer to peer, without having to rely on all the paper and intermediaries that we traditionally rely on That's kind of low-hanging fruit

And a lot of governments have said that– the Bank of England The Canadian Senate came out with a report saying that just the pure delivery of services could be done a lot easier So there's an opportunity for government as well So I'm bullish, obviously, on all this stuff But I don't believe that it's going to happen on its own

Technology is not a solution to the world's problems, and blockchain is certainly not a panacea In fact, in the book we identify there are so many things that have to go right for this to actually reach its potential We dedicated a whole chapter to the things that could go wrong– "The Showstoppers" chapter- everything from can this technology really meet the demands that we expect of it? Can it animate the internet of things or be the backbone of financial services or digital rights management? That's a big question Is the energy consumed unsustainable? It takes a lot energy to secure a network of that size Could that be its ultimate downfall? There are social issues, like what happens if vast automation causes structural unemployment and puts people out of work? What happens if governments try to control it or stifle it? That can happen anywhere really, but especially in places like China and Russia, and Iran

Could powerful forces end up just usurping it, controlling it, and preventing this peer-to-peer promise that we expect? And they're all significant challenges But in the book we asked ourselves, is it a reason that blockchain's a bad idea, or is it an implementation challenge that deserves to be addressed and overcome, because the opportunity is significant? And for each of these, we went with the latter It's an implementation challenge So it's one of those things where we're at the brink of a new era, we think The technology genie has been unleashed from the bottle

At our disposal, once again, to transform the economic power grid, the old order of human affairs and maybe if we get this right to build a more fair and inclusive and prosperous world, but it won't happen on its own We need leadership I don't need to tell you about leadership You know everyone's self-selected by being here You're all rock stars

You work at Google Leadership usually doesn't come from the CEO level or the president level or the prime minister level It comes from just about anywhere So I encourage you to read the book, to treat this is the first step on a long journey This technology, I think, will come to play a big part in a lot of your lives

So join the revolution, as we say So thank you very much [APPLAUSE] SPEAKER 2: So we have some time for questions What do you think will be the killer application that breaks through in kind of the Western world, do you think? Because we don't do the money transfer in the same way Do you think there's an application where my mom and dad will start using it, for example, even if it's in the background? ALEX TAPSCOTT: Well, I think the second point of the question is great, which is that in a lot of ways, I think people will use this technology without actually realizing that they're using the technology

So maybe your mom and dad listen to music or they read the newspaper online, right? And they might not know this, but what's happening in the background is that the articles that they're reading are creating microtransactions that directly compensate the journalist Rather than having to pay a subscriptioin model, they might pay a microfee model Same thing could apply for music When they go to the bank, maybe they use internet banking, for example, or mobile banking When they go to make a payment, they won't have to take a photograph of a check in order to send the money in

which they might do– the might not- because there's a way to do that transaction peer to peer Right now you take a picture of a check It has 130 touch points before it actually settles It goes through 130 different sort of systems | Within the government democracy, maybe they're deliberative polling

Maybe your mom and dad, prior to the Brexit vote, wanted to participate in a poll where the results were not just tabulated by some polling company, but rather accrued to a blockchain, which gave everyone a very accurate representation of what everyone thought, which could have maybe swayed the vote one way or the other So that's just a few of the top of my head SPEAKER 2: And you see a time scale when we might see that happening, two, five years, sooner? ALEX TAPSCOTT: Yeah Well, I view the future as not something to be predicted rather something to be achieved, which might sound like a cop out of the question But I think we'll start seeing big changes in the deep architecture of financial services within a year or two and then more broadly within the next five years

AUDIENCE: So I worked for a bank for 14 years And I always work like 10 years in the past How do you think this kind of revolution will come to banks, to big banks? Do you think they will lose to the small guy that will become bigger using this? And then when they see, oh, we don't have Chase anymore Then they break, and there's a new guy that came from this technology Do you think there is a chance that they start using this somehow? ALEX TAPSCOTT: It's a great question

When I started the research on this about 2 and 1/2 years ago, no bank had expressed any real interest in this And even big consulting firms, when I asked them, like what are your big bank clients saying, they're like, well, it's kind of interesting We're not really keen on it Now today, every single bank in the world has either made a pronouncement that they're doing stuff, or they're actually like heavily invested in this technology But not all banks are equal

And I think generally speaking they fit into three different categories So category one are the ones who don't really understand what it is or what it could mean But they know that it's a big deal And so they're kind of afraid of what it means to their business, and they're trying to learn more Increasingly, more banks fit into category tow, which is they're viewing this as a huge opportunity namely to cut costs out of the existing business

Because if you're a market maker in a kind of stock or a bond whatever it is and you can assure that settlement clearing happens instantly, you don't have to pay for clearinghouses and transfer agents and escrow agents and all these different intermediaries that add friction to your business So Santander, which is a big bank, said that just from public equity clearing and settling, banks could cut $20 billion of costs And obviously, banks to a lot more than just public equity, clearing, and settling So that's a logical perspective for a bank to have If you're a bank today, you're thinking global growth is slowing down

The regulatory cost of business is increasing, and there's more competition from fin-tech companies All of that combined basically means my revenue's probably not going to grow very much So how do I drive return on equity? How do I drive my share price? The only way is to cut costs So if they can cut costs from their business by using this technology, then they're happy And we're seeing lots of implementations that try and do that

R3 is a big consortium of 50 banks based out of the US Hyperledger a project being run by IBM that has a dozen or so banks as signed up There's a company Digital Asset Holdings, which was started by the former head of JP Morgan's investment bank, Blythe Masters, which is servicing stock exchanges and big banks and they're trying to capture that side of the market However, there is a third category

And this is where I think most banks and incumbents generally, whatever industry you're in, should be more focused on, which is to look at it strategically Because what good is cutting $20 billion from public equity trading when the process by which value moves and gets exchanged no longer becomes something that banks do at all? What if that market disappears? You can't have $20 billion from a market that doesn't exist, right? So to think about it strategically is to say maybe I might lose out in areas where I've traditionally acted as this intermediary, an arbiter, but could this technology create new opportunities? So like NASDAQ's move with this distributed power grid, I think is a good example of that Someone's got to go after 2 and 1/2 billion people in the world that don't have access to banking Someone's got to figure out this remittance rip off And right now the only companies really that I think are focused on big growth are actually, as you mentioned, startups– new companies that are trying to solve of these intractable problems that have nothing to do with cutting costs

They have everything to do with transforming the industry AUDIENCE: Hi there My name is Alfred Thanks very much It's really informative, and you've sold me

You You've sold it to me I'm happy with this I want to go to join the bandwagon ALEX TAPSCOTT: You're already wearing a red shirt, so join the revolution AUDIENCE: That's it

So the question is, me as a mere mortal, how do I contribute to this? How do I get involved? ALEX TAPSCOTT: Do you work at Google? AUDIENCE: I do, yes ALEX TAPSCOTT: You are not a mere mortal You're a superhero, right? How do you get involved in this? Well, I think the one thing that everybody can do is to go to the App Store, download a wallet, buy some bitcoin, and just start fiddling around with paying with bitcoin, moving bitcoin Because we can talk about how the technology works till the cows come home, but you just use it, do it You'll instantly get it, right? And that'll just help you with your understanding

More broadly, I would think about how this technology could apply to whatever business that you might be in, right? So Google, I don't want to get out of my depth because you guys are all experts But if you could target consumers better with advertising, that's something that you would explore, right? Maybe you can mine data that people volunteer, and you can sign people up as co-producers of Google content And you could solve some big issues in that way Another way, the one specific Google example that I actually think about is YouTube So the digital rights management for people who post content to YouTube is a total nightmare

There are accounts at Google where money just accrues because you run ads in front of a show or a song, but nobody knows who owns it And eventually, I think you just keep it for yourself So maybe don't want to change that But people who create content would be a lot happier with YouTube if they were able to get paid directly every time someone [INAUDIBLE] content, and if you had a DRM system that used this technology Now, a lot of labels and tech firms are working on this

But the place where people consume music the most in the world, it's not Spotify or Apple It's YouTube, right? So why not be a leader in figuring that out– something like that AUDIENCE: Thanks very much This is really interesting This is an old-world-meets-new-world question, and excuse my ignorance

But what is the impact on privacy and confidentiality as it relates to the original asset, or the original value of the asset or service and also as it relates to margin that's applied on that through added-value services? Like you mentioned the cash payment of 2% margin or the 025% So what's the impact if that is clear to us the whole chain of the transaction? ALEX TAPSCOTT: So the systems are transparent in that you can see that money is moving and that value is moving But you can't see who's moving that value So you can see with clarity whether or not a transaction occurred and whether or not someone got paid

But you don't necessarily know who that person is or who the sender is So that obfuscates the individual's identity, which in a lot of situations, is a very good thing The other question though that's really interesting that you mentioned is the origination right of the asset and how do you secure privacy for whatever that asset is And this is an interesting point for the financial services industry We have bitcoin

We have ether These are public blockchains But if all financial assets, like stocks and bonds, are going to move onto this platform, someone's got to issue them Maybe it's the Bank of England issues a digital pound, or Apple issues a digital share certificate using this technology But someone's got to issue them

So the interesting thing there is that intermediaries are not going away Maybe intermediaries just change their name to originators because someone's got to start building this platform– or rather moving assets into a native digital format And actually I think that's a big opportunity for big financial firms to do, essentially So they're not going away Banks are not going away SPEAKER 2: It just want to get two, three quick ones in

Maybe from the back ALEX TAPSCOTT: Yeah, so I'll do a lightning round AUDIENCE: You recently touched on the event that happened at the DAO– D-A-O I just wanted to kind of say I'm pro blockchain, and I just wondered how you think that event is going to change people's perceptions, especially when you refer to the technology that establishes trust? Is there an element that people are being a little bit too Utopian at this stage about what the blockchain is and how it works? ALEX TAPSCOTT: Yeah, so on the Utopian side, yes In terms of the hype cycle, we're starting to heat up quite a bit here

And now people are saying blockchain's the solution to all of whatever ails you And that's not a good thing, generally People eventually realize that it's not, and that causes disillusionment But on the question of the DAO specifically, this is a question of communication and perception Because Ethereum, which is the blockchain on which the DAO is built, was not hacked

So there's nothing about the immutability or security of the platform that's been put into question Basically, a company, an organization that uses the technology, was breached And new information is coming out on this every day, so we may actually find out that it was one of the original developers who built a loophole into this thing so that he could hack it We don't know But I think the DAO will be a great use case on how do you govern an asset that doesn't own by a company or controlled by a government

How do you resolve these issues when you're kind of outside of the court system and outside of the corporate world? And that'll be really interesting My view on whether or not it will impact growth and development in the industry is that it probably will not Things will continue to move along Stuff happens Lots of startups fail, let alone startups that have radically new business models, let alone startups that don't have people

So I think that in five years time, the mysterious case of the DAO will be a Harvard Business School case study on just how the hell you deal with something like this But I don't think it'll impact the growth of the industry AUDIENCE: So if I can come back to the privacy question from a different angle, I think might have different backgrounds on this An awful lot of sort of investigative work, in terms of the criminality, which you alluded to earlier, is following the money Are we just going to accept that we can't follow the money anymore in the new world? ALEX TAPSCOTT: Well, actually I think that it helps you to follow the money much better

$2 and 1/2 trillion a year of crime is done with cash And cash is the ultimate bear instrument You know, it's a paper bill You can't trace back cash It's harder to track payments made in bitcoin than it is to, say, Visa payments or something

But it's a lot easier than it is with cash And because you have this unbroken record of where money is moved, generally speaking, you combine that with other policing, and you can actually stop crime much easier than you can with cash, which is why like Mark Carney in his mansion house speech last two weeks ago said that this could help to reduce crime Because the less cash there is in the system, the less opportunities there are for criminals But also after the Mt Gox and the Silk Road issues, law enforcement agents in the US began to call bitcoin prosecution futures because you could actually kind of identify down the road when you could catch someone based on when the transaction occurred

So not to say that criminals won't use it Malware happens now increasingly with bitcoin more so than any other payment method And that'll be an issue, but it's actually a superior alternative And I think if law enforcement's engaged and intelligent on the issue, it could be a tool for them as well SPEAKER 2: So I was emailed a question ahead of time, which I promised I would ask, perhaps a more technical one

Can I ask about how bitcoin is decentralized versus distributed? My reading of it seems to show that it may be decentralized but isn't distributed in any meaningful way, and that that makes it a less scalable technology So how is bitcoin distributed versus decentralized, and what are the implications for that? ALEX TAPSCOTT: It's a great question, and it's at the heart of the governance issue that's happening in the bitcoin world right now, which is that there's a fight about how big the block size should be So that basically, the bigger the block size, the more transactions you can put in it, the more scalable the network is But the bigger the block size, the bigger the computer systems you need to manage the blockchain, which means increasingly power will concentrate into the hands of huge mining pools And it is a good question because I don't view bitcoin specifically as fully distributed because most of the compute power that helps to support this network are in the hands of a dozen or so big mining pools that control a lot of the validation on the network

There are all sorts of really interesting technical solutions that are being proposed and implemented that could try and resolve this There's a company in Silicon Valley called 21, Inc, which basically says if everybody's a node on this network, like your Android cell phone has a chip in it that also acts as a miner, then we can help to redistribute the computing power away from these mining pools Others are saying you can have a routing network in the bitcoin network that allows transactions to only use a few nodes rather than having to use every one And that could help with this issue as well

But they are questions that to this day remain unsolved And they go into the implementation challenge bucket SPEAKER 2: Please join me in a massive round of applause Thank you, Alex Tapscott [APPLAUSE] AUDIENCE: Thank you


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