9 months ago

Diplomatic World_nummer 56.


SOCIAL AND ECONOMIC PROSPECTS OF BLOCKCHAIN APPLICATIONS BY PRINCE MICHAEL OF LIECHTENSTEIN “A blockchain is a digital and distributed ledger of transactions, recorded and replicated in real time across a network of computers or nodes. Every transaction must be cryptographically validated via a consensus mechanism executed by the nodes before being permanently added as a new “block” at the end of the “chain”. There is no need for a central authority to approve the transaction, which is why blockchain is sometimes referred to as a peer-to-peer trustless mechanism.” (Deloitte; February 06, 2018 in Blockchain: A technical primer). 72 Blockchain revolutionizes the way we store and exchange values. Will it be a major game changer? Will the combination of internet and blockchain have similar effects on society, political structures and economy as the invention of book printing had in the 16th century? The following essay is going to point out arguments in advantage or against the use of blockchain. Blockchain is in the perception enormously linked to cryptocurrencies. Furthermore, there is a debate arising whether the cryptocurrencies will become a real currency in the economy. The role of money is to be a means of exchange in transactions of goods and services and giving them a price. It has as well the function to store values between two transactions. The big question will be whether cryptocurrencies could replace fiat money, which is created by the central banks and the credit business of commercial banks. This debate started and became also emotional, but there are no clear results yet. One of the raised arguments is the lack of regulation of cryptocurrencies. We can be sure that bank supervisors and financial service authorities will try to regulate it. What effect it will have on cryptocurrencies is still open. On the one hand, it can give credibility, on the other hand, it can frustrate innovation, flexibility, efficiency and competitiveness. A major advantage of cryptocurrencies is the increasingly new competition created for fiat money. Today’s monetary system is enormously based on institutions and as well the government. The only reason that there has not happened a larger crisis yet, is that the society still trusts in institutions. Cryptocurrencies can certainly not heal these huge dependencies, but they can support in creating competition and due to that forcing solutions. Ironically, the expansion of fiat money to cover financial deficits are also creating bubbles which could again lead to crisis. The low to zero interest rates in this context is destroying savings and pension reserves. Irrelevant of the development of the present monetary system, cryptocurrencies will be part of the future economy. Blockchain and its revolutionary transaction system is the basis. But financial services only part of the possible users of blockchain technology. Blockchain will cause an elimination of intermediaries which leads to reducing costs, increasing efficiency and speed. You can use smart contracts which would mean, that not only the contract is confirmed and is stored, but it can also trigger consequences of the contract immediately, such as payment. In case of a lease

contract — for instance for an apartment — no lawyers, no notaries would be needed any more. It could be directly agreed, in an undeletable way between the person renting and the landlord. But it is even more efficient for centralized business models, which are important in a world of a sharing economy. These models need large aggregators at present that control systems and information and which risk to unequally or even arbitrary redistribute value among all contributors. Blockchain can easily replace these aggregators and the value chain in a shared economy becomes a lot more efficient. Some other examples could be improvements in the supply chain management. Products can be traced from manufacturing (including raw material, semi-finished goods, manufacturing process) to the final usage by consumers or customers. In the energy sector, the different participants in the value chain can speed up the processes. In trade, blockchain can link all different participants but it can also offer platforms to improve, accelerate and enforce the security of the financing of international trade. Especially here blockchain will facilitate verification and confirmation. There are also a lot of applications in the health care area and as mentioned before in the public sector. All sectors of business are now suffering from a high density of red tape, excessive regulatory framework and as well lots of controls. Furthermore, legal costs are skyrocketing. Blockchain can help a lot to facilitate and will make several regulations and controls obsolete. However, there are not only advantages but also risks and today’s society is still suspicious of new technologies, especially the anonymity of blockchain which increases criminal misuse. Even though, there is an enormous and fast development. We should acknowledge one thing, that any system can be misused by criminals. However, the undeletable inscriptions can also help prosecution. Regulations and restrictions of the government can reduce the risk but allow an undue violation of the right to privacy by authorities. The most important part to secure yourself is your digital key. The skill will be how to store and protect this key, so that nobody else can misuse it. In the balancing mechanism, damaging and corrupt monopolies can theoretically be created, with the objective to manipulate blockchain in favor of some third party. In our society one of the biggest drivers of progress and common good were the property rights. In theory, blockchain should have the capacity to strengthen property rights and to reduce the costs of owning and exchanging property. During transactions, legal costs can be reduced drastically, legal security increased and in consequence there should be much less room for litigation. Excessive litigation has become a basic problem for property rights, but it also adds unnecessary costs and lack of planning security for the economy. As it is a good incorruptible system to record transactions and values, it will also reduce corruption in public life. People will become a lot less dependent of public agencies for registration and other public services. The less public agencies are needed in the economic life, the less corruption exists. Prince Michael of Liechtenstein, Founder and Chairman of Geopolitical Intelligence Services AG, Vaduz Blockchain as well as other technological development, e.g. robotics and artificial intelligence, will not replace the human factor in the economic value chain. It will certainly change jobs, but it will also make jobs a lot more productive and a lot more efficient. GEOPOLITICAL INTELLIGENCE SERVICES 73