Article

A day in 2040: where blockchain could take us

September 25, 2017

Richard Magrann-Wells, Fintech Leader, Financial Institutions Group, Willis Towers Watson

Blockchain is more than science fiction. While you may not need to understand the mechanics behind this surprising technology, you need to understand that it is likely to drastically change our lives over the next 20 years. While that may sound bold, remember, 20 years ago, we were browsing the internet on Netscape, using our state of the art Motorola flip-phones and buying our first DVD players.

Two short decades ago the idea that we would hold a computer in our hands that could order a car, pay our bills, while playing a movie would have sounded absurd. While blockchain’s impact may not be as perceptible as the internet or as tangible as cell phones – the blockchain will succeed by removing the underlying impediments that have long created delays and annoyances in our daily lives.

What impediments will be removed? Middlemen and processing delays. It is easy to overlook the impact of these meddlesome obstacles until we envision a world without them. Middlemen are everywhere and, like processing delays, we tend to assume that they are simply a part of life. Visualising a day in the life of a business person in the year 2040 might allow us to understand how distributed ledgers could alleviate some of these tedious activities – and to understand what impact that could have on the business landscape as well as on our daily lives.

Assuming our business person is at a reasonably advanced financial institution – say a bank – their day might go something like this:

Morning at home

Lee always starts her day with coffee and a quick glance at the daily news and financial articles. Fortunately her flexible screen tablet is updated with articles from an incentivised block-chain based social media platform. Lee only pays for the articles she reads. Sometimes the cost per article is merely a fraction of a cent. This is only possible because the payments are made via a blockchain-based system that cost virtual nothing to utilise1.  After checking the headlines and business news, Lee picks up her phone to summon a ride-share service. Lee has long been a devoted user of Uber but now prefers the new self-driving cars from Toyota2. Both services offer clean, energy-efficient, autonomous vehicles, but the Toyota service is run via blockchain and that means any fees and transactions are completely transparent3. Lee likes that.

At the office

Wire transfers and international payments

Once at the office Lee needs to manage a number of transactions. First priority is to initiate an international wire to pay a counterparty in Australia for their services as a loan underwriter. She remembers when such a purchase of foreign currency in the spot market meant a two-day delay. Banks would charge anywhere from 1 to 3 % of the notional amount of the transfer for retail customers. Then there was the tedious input of wiring instructions for both the sending and receiving institutions. With just a few strokes on the keypad, Lee keys in the simple details into her new wire system. Her bank still uses the, now 20-year old, blockchain system for sending such wires. The system uses the proprietary cryptocurrency called Ripple, or simply abbreviated as XRP, as a go-between method of converting currencies4. There are other competitors and newer products: ethereum–based and SWIFT have rolled out their own blockchain-based product some years ago5. However, her bank has stayed with Ripple.

Loans

Last week Lee’s bank closed a syndicated loan transaction. The loan was to a Sydney-based fine arts auction house. It has taken three days to finalise the terms and have the dozen or so banks commit. While Lee has to admit it was stressful, she still remembers when such transactions took three weeks of shuttling documents back and forth by email, with messy marked-up versions, trying to figure out what was the latest position on each clause as well as the overall agreement, and getting all the parties to agree on a time for formal signing. The logistics were a nightmare. The new blockchain-based syndicated loan system radically improved that process and, most importantly, created an immutable record of every alteration in real time. It has also allowed everyone to commit remotely simultaneously. She finds it hard to imagine how they ever got deals done before.

Collateral

For Lee the interesting part of this transaction is dealing with an auction house. Much of the collateral for this transaction is unusual, including fine art and rare commodities like vintage wines. It is much easier to use such things as collateral now that they can all be easily tracked using the distributed ledgers for such items. The blockchain’s ledger stores the provenance of bottle of wine or a masterpiece in a way that is beyond question – publicly. Building on the success of Everledger6 for diamonds back in the 2010s, there are now ledgers for all types of precious jewels, art and other kinds of collectibles. It makes it possible to buy, insure or lend against such collectibles without concern about the authenticity of the object.

Back home

With her workday done, Lee heads home and listens to streaming music. She likes the new bands out of Korea. She registered for a blockchain service that allows her to pay less than a cent (using Bitcoin) every time she listens to a particular song. She likes this system because she knows it encourages specific bands to create the kind of music she likes.

Lee still has chores to complete, including paying her property taxes, voting in local elections and paying her home insurance. These used to be time-consuming tasks, but in recent years, property titles, voting records and even insurance policies have been put on distributed ledgers to simplify payments and tracking. Lee completes all three tasks in a matter of minutes.

Property

Lee’s  bank  used  to  hold  substantial  balances  for large escrow companies. However, as all major cities began putting property titles on distributed ledgers, the process of transferring title no longer required complicated escrow processes. There was now no need for money to sit idle in escrow accounts. Titles, mortgages and tax payments become much simpler with transparency. If all the relevant (or permissioned) parties can see the title, all transfers and tax  and mortgage payments – in real time – property becomes  a relatively uncomplicated business. A trusted intermediary (such as an escrow) is no longer required.

Voting

Lee used to hate going to vote. It meant finding some odd polling place in the back of a school or someone’s smelly garage – it always seemed absurd. (Although postal voting was an option in the past, there was still the hassle of getting the voting papers in the post.) The new nationwide online voting system only went live last year, but it has made a huge difference in voting participation. Virtually no one has an excuse not to vote when it is a simple matter of logging on. This method of voting is now accepted in all local and national elections. Lee read on her personalised news feed that the SEC will be requiring online voting for shareholder meetings as well. She wonders if boards would act differently if all shareholders voted instead of usual one-quarter4.

Insurance

The way Lee now insures her condominium may represent the greatest blockchain effect. Twenty years ago companies were starting to introduce the concept of peer-to-peer (P2P) insurance – a form of mutual insurance. This year her college alumni association introduced P2P insurance for alumni. All of the alumni’s car information (VIN, maintenance records, accident reports) are available on the Department of Motor Vehicle’s Auto Record Ledger. The association’s AI reviews alumni driving and car records and an underwriting algorithm quickly determines the best rate for the insured. Even small claims are evaluated and, if approved, automatically paid by the association’s AI, employing ‘smart contracts’ (self-executing programs embedded in the underwriting software). All records associated with the insurance program are permanently stored on a blockchain that makes tracking the history of a claim easy for both insured and insurer.

Lee has read that the permanent blockchain records have also helped to reduce insurance fraud. She’s learnt that all legal suits will soon be recorded on a digital ledger – creating an immutable record of every filing, every deposition and every legal matter worth tracking. All that data will be recorded (it is public record in any case) on a single distributed database. The data can be recalled and used as needed.

Lee tells her phone to turn off all the lights, reduce the heating and lock the house. She goes to bed.

It is easy to envision a blockchain-driven utopia and the truth is that, like most new technologies, blockchain will almost certainly fail to live up to its potential. It was Peter Thiel who said, “We wanted flying cars, instead we got 140 characters”5. However, the concept of blockchain is irrefutably valuable.

Kevin Kelly, the author of The Inevitable puts it most succinctly, “An important aspect of blockchain is that it is a public commons. No one really owns it because, well, everyone owns it”6. The Web is now a common public utility and the idea of distributed ledger and blockchain has just created a means whereby we can recreate the (lost) trust across that utility.

Blockchain’s ability to create distributed immutable records, reduce hacking and create trust over remote distances will make it a valuable tool for banking, insurance and many other fields. Even if we are not building the blockchain tools, it will be important for all of us wanting to use them to understand the risks and opportunities that distributed ledgers offer.


1 While there are other incentivised news platforms, cryptocurrency seems ideal for this purpose because of the low transaction costs and ease of payment. Steem is one company offering such services.
2 Toyota, ‘Toyota Research Institute Explores Blockchain Technology for Development of New Mobility Ecosystem’, May 2017
3 A number of car manufacturers are investing in competing rideshare services. Toyota has specifically noted that DLT (distributed ledger technology) could revolutionise ridesharing, presumably eliminating dispatching services that charge additional fees.
4 CNN, ‘Just 27% of investors bother to vote’, June 2014
5 http://som.yale.edu/peter-thiel-yale-we-wanted-flying-cars-instead-we-got-140-characters
6 Kevin Kelly, The Inevitable, Penguin 2016