5 Concepts arising from Distributed Ledger Technology: Economic Freedom or Limitation?

There is a hype around distributed ledger technologies (DLT) such as blockchain and how it fundamentally changes the financial service industry by reducing the costs and complexity of financial transactions [1]. Next to the well-known financial applications, other possibilities are arising from the basic concepts of this technology. The decentralized nature and immutable record-keeping have the potential to create new foundations for our economic and social system. Blockchain can be seen as a tool that helps to create a decentralized economy, bringing freedom, flexibility and choice.

Distributed Ledger Technology Systems:

53% of senior executives say that blockchain technology has become a critical priority for their organizations in 2019 [2]. Blockchain is one form of the distributed ledger technology that makes use of the immutability, fair access and transparency of transactions.

Economies based on distributed ledger design are capable of operating cross-border, without depending on political structures or legal third parties [3]. This is possible due to the distributed data structure whose entries are written after the participants of a DLT system reach consensus on the validity of the entries. Trust is established through mass collaboration and clever code eliminating the need for an intermediary. All the participants have access to a shared protocol. This means that individuals will, for example, control reputation systems such as the grant of a credit rather than credit rating services agencies [4].

1. The Right over Property

Individuals will gain back control over their intellectual property in a digital age. Imagine a journalist writing an article being able to watermark his work, create a certificate of authenticity and track his work in the ecosystem. In a distributed ledger system, the data is shared across a network where everyone has their identical copy. Therefore, a change in the database will be spotted immediately. DLT might become as crucial for transactions and record-keeping as the internet has been for communication and information.

Concept: The music sector consists of different intermediates that take a share of the artists’ work. PWC created a system assuring that everyone in the value chain such as writers, artists or publishers are paid appropriately. The paper published by PWC states that “with trust, Blockchain could become a powerful self-publishing channel for music makers and rights owners, allowing them to bypass a complex ecosystem and giving them more control over how their songs and associated data circulate among fans” [5]. This concept gives the creators their rightful ownership of intellectual property back and allows them to profit directly from any financial reimbursement.

2. Identity for all

Data is said to be the new gold. With this immense load of data, the challenges of data privacy and protection arise. With the internet expanding hugely and people using more and more services daily, congregated data silos arise. Since the internet can’t identify people, users must maintain identities for every site they interact with [6]. There is no privacy if the information is flowing through a centralized system. Even if the message is, for example, encrypted, it is still traceable who communicates with whom, when and how often [1]. Especially today, where the data ownership debate is raging high, the right to own your data is at stake. One can find the world’s biggest data breaches and hacks on www.informationisbeautiful.net/data and it is scary. The following three examples shall point out the severity of these breaches and hacks [7]:

- In September 2019, 419’000’000 phone numbers of Facebook users as well as in some cases name, gender and country were found online.

- In September 2019, 380’000 personal and financial data of British Airways customers were compromised.

- In July 2015, the data of 37’000’000 users with their personal details as well as financial records of the company Ashley Madison, an extramarital affair site, was stolen.

Concept: The project Soverin allows an individual, to create a digital identity and to control it. This gives the users the possibility, to determine the way they want to use their data [6]. To give an example: If I want to buy a bottle of alcohol in a store, I have to show my identity card. All they need is a simple yes or no to see if I am eligible to buy the bottle. Nevertheless, what they see instead is my name, birth date, birthplace and more. Digital identity means that I am the owner of my data and only share the necessary data. It is even possible to go one step further: I can allow third parties read-only access to my data. This means that I can revoke their right to read my information. A company never owns my data and it is not stored on the company’s servers.

3. Banking the Unbanked

The world bank estimates that roughly one billion people lack an official foundational identification and therefore have no official proof of identity. One in two women in low-income countries does not have an ID, limiting their access to critical services [8]. People who have no valid birth certificate will never be able to get a state-issued identity. Without a state-issued identity, you won’t get a bank account and are not able to participate in financial transactions. This results in economic exclusion. According to a GitHub source, there are over 138 projects and companies working on Digital Identity with Blockchain, showing the relevance of this topic [9].

Concept: On the contrary, the distribution of mobile phones and mobile internet in low-income countries is massive, meaning that they can interact with the internet and therefore distributed ledger technology. Everyone can get a digital bank account and transfer, for example, bitcoin. This enables new possibilities to own money and buy things, securely save money, send money to relatives and this means economic freedom. Putting these people on the financial map at little cost would only be positive for the global economy [10].

4. Freedom of Choice

Imagine buying lasagne in the grocery store where you have to trust the packaging, stating the source of meat. If you want to buy biologically farmed strawberries, you have to trust a label stating that fewer pesticides were used. The same goes for sustainable fishing labels where you want to be sure that they did not use illegal netting practices. There is also increased pressure from consumers and governments to produce more sustainable products [11]. Even if the products are certified, there is no secure and trusted history of events and the consumer can not be sure that the company meets the requirements. Sander states that consumers are overwhelmed by the amount and complexity of certification labels. A transparency and traceability system, such as it can be built by DLT, appeared to have a significant positive influence on consumer’s purchasing decisions [12]. It is very challenging for consumers to truly know the value of the product and it is extremely difficult to investigate supply chains. Current supply chains are complex and lack transparency [13].

Concept: Companies such as Walmart are laying the foundation for better management of our global food supply [14]. Mr. Yiannas, former vice president of food safety at Walmart, states that blockchain leverages transparency and creates a safer, smarter and more sustainable food system. He states that it will help customers to get rid of the existing anonymity and make better decisions. What if you have all the information about a product at hand and it is no longer just the packaging, marketing and position of the product influencing you. DLT systems provide an immutable and transparent record for inspection and enable a recorded chronology of events. Awaysheh & Klassen suggest that the customer’s purchase behavior and the supplier’s socially responsible practices can be influenced by supply chain transparency [15]. You would have all the significant information at hand to be truly free to choose.

5. Blockchain does not ultimately mean trust and liberty

A public, permissionless blockchain means that everyone can perform an action on the system and read the content of the transaction form the distributed ledger. A private chain requires permission, has restricted access rights, and the actors must fulfill requirements.

To make it short, the difference between a permissioned and a permissionless blockchain is in the validation of transactions. In a so-called permissionless blockchain, transactions can be validated by the public. Everyone who wants to validate a transaction is allowed to, no permissions are needed. In a permissioned blockchain, the owner of the blockchain chooses who is eligible to validate transactions. The difference between the two is, that permissioned blockchains are more scalable, faster, but also more centralized. Permissionless blockchains are the opposite, they are slower, but they are more decentralized [16].

Concept: The president of China announced in October 2019 that he wants his country to be leading in blockchain technology. In the Peoples Republic of China’s five-year plan AI and Blockchain technologies are referred to as the country’s strategic technological advantage. Usually, the technology is used to reduce centralized power, but in Xi’s anti-corruption campaign, the opposite is aspired. With the subsequent transparency and immutability of records, the practice of the officials must match the national policy. Xi’s motivation behind establishing a national blockchain infrastructure might be more to tighten party and government control. “Without full transparency and without democratic accountability, the risk of abuse in adopting such technologies are high [17].”

The Hype Cycle for Emerging Technologies:

The Gartner Hype Cycle shows that most blockchain technologies are still five to ten years away from their transformational impact. Mr. Litan an analyst at Gartner, predicts that by 2023, blockchain platforms will be scalable, interoperable and will support smart contract portability and cross-chain functionality [18].

The DLT is still in an early, underdeveloped phase and brings several challenges such as scalability, interoperability or the enormous amount of energy it consumes. Furthermore, there are many different networks but there is no standard yet. There were more than 1000 distributed ledger projects raising $600 billion in investment, and this just in 2016, pointing out the disruptive potential of the technology [19]. The different projects have different coding languages, protocols, consensus mechanisms and privacy measurement. Furthermore, there is no standard for design principles, and it is hard to classify these projects. The study of M. Ballandies & M. Dapp [3] works on a classification and taxonomy system for their different architectures to reduce the mentioned configuration space complexity of DLT systems.

In the meantime, research and the foundation of distributed ledger projects will continue. As the Swiss Crypto Valley Association, the world leading ecosystem for blockchain and cryptographic technologies, states: “We understand the value of trusted relationships at all levels of the society and the economy, and strive to earn and keep the trust of all those with whom we interact.” [20].

[1] Interview with Ricardo J. Méndez, Technical Director at Samsung NEXT, JAXenter.com, “Decentralization is about freedom, flexibility, and choice. Blockchain is just one more tool”

[2] Deloitte’s 2019 Global Blockchain Survey, 1’386 senior executives interviewed from a dozen countries at companies with US$500 million or more in annual revenue (for respondents outside the US over US$100 million or more)

[3] M. Balandies, M-Dapp, E.Pournaras, “Decrypting Distributed Ledger Design — taxonomy, Classification and Blockchain Community Evaluation”

[4] D. Tapscott, A. Tapscott, The Harward Business Review,” The Impact of the Blockchain Goes Beyond Financial Services”

[5] PWC, “Blockchain: Recording the music industry. How Blockchain technology could save the music industry billions“, https://www.pwc.co.uk/entertainment-media/publications/blockchain-recording-music-industry.pdf

[6] Sovrin.org, “The Inevitable Rise of Self-Sovereign Identity”, White paper from the Soverin Foundation

[7] “World’s biggest data breaches & hacks”,

https://www.informationisbeautiful.net/visualizations/worlds-biggest-data-breaches-hacks/, 01/2020

[8] World Bank Group, “The Global Findex Database 2019, Measuring Financial Inclusion and the Fintech Revolution”

[9] GitHub, “Blockchain and Identity”, https://github.com/peacekeeper/blockchain-identity, 01/2020

[10] M. Gulker, American Institute for Economic Research, “Blockchain: Innovating Our Way to Economic Freedom?”

[11] Jeppsson, André and Olsson, Oskar, “Blockchains as a solution for traceability and transparency”

[12] F. Sander, J. Semeijn, D. Mahr “The acceptance of blockchain technology in meat traceability and transparency”

[13] B. Marr, “How Blockchain Will Transform The Supply Chain And Logistics Industry”, Forbes

[14] 2018 IBM Annual Report, https://www.ibm.com/annualreport/2018/walmart.html

[15] 6. Awaysheh, A.; Klassen, R.D. “The Impact of Supply Chain Structure on the Use of Supplier Socially Responsible Practices”

[16] The next Web, “Here’s the difference between ‘permissioned’ and ‘permissionless’ blockchains”, https://thenextweb.com/hardfork/2018/11/05/permissioned-permissionless-blockchains/

[17] Focus, “Xi sees future of China in technology behind bitcoin”, 2019.

[18] Gartner, “Gartner 2019 Hype Cycle Shows Most Blockchain Technologies Are Still Five to 10 Years Away From Transformational Impact”

[19] A. Tapscott and D. Tapscott, “How blockchain is changing finance,” vol. 1. Harvard Business Review

[20] Crypto Walley, https://cryptovalley.swiss/crypto-valley-values/