Can fintech restore our trust in the financial system?
In a new report Intelligent Assets: Unlocking the circular economy potential , the World Economic Forum and Ellen MacArthur Foundation discuss the possibilities of the internet of things as an enabler of the circular economy. In this extract Nicolas Cary, Co-Founder of Blockchain, explores the financial technology that will bring the vision to life.
For the internet of things (IoT) to have a transformational effect on society, it needs to be backed up by a similarly cutting edge financial system. Thanks to the development of block chain (the technology behind the crypto currency bitcoin), we now have the opportunity to democratise the financial system and let people who do not know or trust each other complete an economic transaction without relying on an intermediary.
Let’s step into the future a little. Imagine a world in which a Berber guide in the Saharan desert can instantly send a payment, to anyone in the world, at near zero cost. Imagine a world where your intelligent refrigerator detects that you are running low on eggs and automatically orders them from Amazon with expedited drone shipping. Your fridge escrows the funds with a geolocational trigger, and when the drone arrives the payment is instantly done. Or better yet, imagine a world where you are running late for a flight and the Heathrow Express is severely delayed. Well, good news, you can order your self-driving, self-repairing, and materially refurbished car and pay it a surcharge fee to negotiate with all the other self-driving cars on the road to get out the way, automatically.
Unfortunately, before this can happen we have to completely reinvent the way payments work and leverage a recent, critical innovation in computer science known as the bitcoin block chain. Credit cards and other payment systems are inflexible channels for the age of the internet. For example, online fraud is widely reported to be outpacing growth in e-commerce. This should not be a surprise to anyone who has studied the security model.
Centralised data storage, combined with a 90-day settlement period for credit card payments, creates honey pots that attract hackers. Last year, hundreds of financial institutions were compromised in increasingly large breaches of personal and financial data. Traditional centralised security models no longer work. In addition, credit cards take a base fee and 2–3% of every transaction. Sadly, over four billion people can’t even get credit cards and legacy-banking systems simply cannot scale to support an intelligent asset development where micro transactions will dominate the vast majority of volume.
The future financial system will be designed differently, leveraging decentralisation as a core principle in risk mitigation. In this world, anyone on earth will be able to participate in creating economic value on the internet, using a financial protocol that allows individuals and machines to manage their own funds. The block chain is a game-changing innovation because now, for the first time in history, a bitcoin wallet holder can transact with any other bitcoin wallet holder on earth, without having to rely on an intermediary. A few thousand lines of computer code can now do what banks have done for thousands of years, not to mention forex markets, clearing houses and merchant processors (all of which drive friction and cost in transactions today).
The technology behind the block chain has the potential to reshape not just the flow of capital but also the efficiencies of supply chains. As a shared, secure record of exchange; the block chain can track not only the transaction but what went into a product and who handled it along the way. With block chain, all bitcoin transactions can include a small referenceable amount of data. This means in a world of internet-enabled devices, container ships, trains, and trucks can record and capture any relevant details like location and elemental conditions and ensure that supplies are properly managed along the way. This data can then get captured and broadcasted to the bitcoin block chain – the world’s largest and most secure distributed computing database. A system that can create true transparency helping everyone study the provenance of goods and raw materials – a spreadsheet in the sky.
For intelligent assets to create value in a the circular economy, we need frictionless payments as well as billions of internet devices negotiating with each other, unleashing market forces to bring down the costs of goods and services for all. Supply chains will be transparent and the quality of our food, healthcare, and products improves. As an industry, we have a lot of technical work to accomplish, specifically focused on scaling transaction capacity. We also need to build better software and experiences that allow people to more easily get used to interfacing with digital currency. On public awareness, we need to do a much better job of educating policymakers, influencers and general consumers about this groundbreaking technology.
Read Intelligent Assets: Unlocking the circular economy potential . This report was written under the umbrella of Project MainStream, a multi-industry, global initiative launched in 2014 by the World Economic Forum and the Ellen MacArthur Foundation, with McKinsey & Company as knowledge partner, and led by the Chief Executive Officers of nine global companies: Averda, BT, Desso, Royal DSM, Ecolab, Indorama Ventures, Philips, Suez and Veolia.
SOURCE: World Economic Forum