Tapping into a technology-enabled system of trust
Cryptocurrency is seen as a tool for advancing a decentralized financial system. istock.com
Information is literally at our fingertips – and more readily accessible than ever before, but how do we tell truth from fiction?
At the time when the incidence of Trump-era “alternative facts,” anti-science rhetoric and contentious political debates has eroded trust in public and private entities, can technology like blockchain offer an alternative?
It’s no coincidence that blockchain and bitcoin were created in 2008 after the financial crisis, when trust in financial institutions was very low. And today, economic systems have been disrupted again, this time by the coronavirus pandemic, says Marc Lijour, VP, Capacity and Innovation Readiness, Information and Communications Technology Council (ICTC).
“We’re living in a world where truth has become questionable,” he explains. “For example, the value of a dollar or euro is coming into question, because of the gap between the real economy and the one propped up by the financial system.”
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Cryptocurrencies appear to be filling this gap by making the financial system more democratic, more accessible to everyone and more fair in terms of participation and reaping rewards.
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Quantitative easing has increased public debt, and signs of inflation are sending investors to look for options that are independent from the banking system, according to Mr. Lijour.
“Cryptocurrencies appear to be filling this gap by making the financial system more democratic, more accessible to everyone and more fair in terms of participation and reaping rewards,” he says. “However, the opportunities are complex and require careful analysis. You need to equip yourself with the tools for navigating the open sea of crypto.”
Understanding crypto starts with blockchain – the technology underpinning cryptocurrencies. Also referred to as ledger technology, blockchains store data in blocks that are chained together, making them useful for providing and conserving proof of transactions. Mr. Lijour compares them to “a huge sticker board where anyone can put up a sticker, have it verified and be assured that no one can take it off.”
This process can be helpful for a variety of applications, such as establishing supply chain integrity in the field of minerals, for example. “From extraction and transportation to distribution, etc., there are multiple actors involved across a supply chain,” he says. “A single actor can’t necessarily see what’s happening before or after his contribution, and there is typically no centralized point of reference.”
Lack of oversight might leave the supply chain vulnerable to tampering or “oddities,” and Mr. Lijour suggests that rather than turning control over to a single entity, blockchain can provide a decentralized mechanism for tracking and storing data.
“That’s what blockchain does well, and this makes it very useful for co-ordination,” he says. Having access to concrete facts, which can be validated, can be helpful for enterprises as well as for consumers looking for answers to questions like, “When I’m giving money to charity, is it actually going to the people I’m aiming to help? Is that company I’m buying from behaving ethically? Where are the trees that the organization says it’s planting to offset its carbon footprint?”
At a time when many consumers look for transparency, for example, on ESG performance metrics, blockchain can offer verification that goes beyond “the old system of truth,” says Mr. Lijour. “In the legacy model, we would have to trust the statements of the government or a company, but the appetite to trust one big entity, whether it is private or public, is arguably lower these days.
“Blockchain provides a different model for achieving truth – through consensus,” he adds. “With that, you don’t have to trust a single actor, who may be compromised. You trust a consensus that involves multiple actors.”
And, as a means to advance a decentralized financial system, cryptocurrencies can provide alternatives that are not linked to central banks and their policies, says Mr. Lijour. “The market capitalization of cryptocurrencies has grown at an exponential rate in recent months. Since October, major institutional investors – including PayPal, BlackRock, Tesla and Mastercard – have started to add cryptocurrencies to their balance sheets.”
This sends a strong signal for potential retail investors, who may also be inspired by a recent announcement of Purpose Investments launching the world’s first direct custody bitcoin ETF, he adds. “Cryptocurrencies are some of the alternatives Canadians are currently exploring to diversify their investments.”
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