If you went back to 1995 and told people that the internet is the future people would think you’re crazy. Tell anyone that it will allow you to shop and do many things online and most people would have told you its a problem that doesn’t need to be solved. The internet was a clunky, immature and awkward thing. Why would anyone shop online if you can walk into a store and buy the item? Who would do that? Why would anyone do banking online when they could readily walk in to a teller or call their bank? It sounded like a technologist’s pipe dream in the age where most web pages were barely readable due to horrendous backgrounds and annoying, blinking and scrolling content.
From a 1995 viewpoint it was hard to see the problem to be solved. The friction of using the internet was substantially higher than the friction of existing processes. Over time, people started seeing the vision of what was possible and buying into it. Unfortunately, it drove hype. The hype created a mania where people vastly over estimated the amount of time it would take for the paradigm to shift. Today, we see many of those visions of the dot com boom having actually come to fruition. The trouble was that it didn’t take 1-2 years to occur like too many came to believe, it took 10-20. It required a significant amount of infrastructure development, revisions and friction reductions to occur. Today the advantages of shopping or banking online is obvious in a way that just wasn’t in 1995.
At the root of it there isn’t anything terribly special about blockchain or more accurately, distributed ledger technology. Really, it’s a glorified distributed database, little more than combining the basic computing concepts of a linked list and a cryptographic hashing algorithm. However, there is elegance and brilliance in its simplicity. Sure distributed computing and storage technologies already exist. The trouble is that they are like the internet in 1995, they’re very difficult to work with and represent a great deal of friction. Building a global distributed multi-party database whose history can’t be changed but can be verified near instantaneously is no easy challenge and is accessible to few. This is why distributed ledger technologies hold so much promise. Distributed ledger technologies provide a substantial leap in making these concepts and techniques accessible and commoditized for many.
There are a variety of challenging scenarios that that could be outlined that a distributed ledger is well placed to solve. Global payments processing is a tremendous point of friction that serves as one. Charging a credit card may seem like an instantaneous and pain free process from the perspective of a consumer. However it is fraught with problems, complexity and delays as many different parties are involved. One of the big challenges of global payments is fraud prevention. It is very difficult to verify the identity of a buyer so the system relies on trust of the intermediaries and a complex dispute resolution process. What if you could address this pain point and provide a better and instantaneous means to verify a purchaser, authorize a charge and settle the transfer of money. A process that today takes days and is fraught with problems could in the future take seconds to occur. That efficiency and reduction of friction has tremendous value but it is hard to see in the current implementation of distributed ledgers like bitcoin that are akin to flashing, scrolling websites like once existed on geocities.com.
Don’t confuse bitcoin hype for the larger scope of what is possible and eventually arriving. Bitcoin is just one implementation of blockchain and the blockchain is just one form of distributed ledger technology. Bitcoin and its associated technology are like the Napster of the early days of the internet. Brilliant in theory but not terribly workable in practice. The simple truth too few can see through the hype is that Bitcoin is a sledgehammer solution for a problem a hammer can solve. The vast majority of transactions or processes have no real need for anonymity and the complex and costly processes used to achieve it. In the grand scheme of things, I place far more value on being able to purchase things cheaply than whether or not my bank knows what I’m buying or where. It’s the same with music, Spotify today makes music so accessible and cheap the hassle of using Napster to download music seems like less hassle than its worth. The real innovation with distributed ledger technology won’t be wholesale reinvention of existing processes and practices but instead augmentation. All in the name of reducing friction.
We live in an increasingly globalized world with the advent of the internet. It is no longer rare for a company to be a global citizen. Instead, it is increasingly common that a company is less tied to a single nation and must balance the challenges of global trade, commerce and investment. The challenges of providing product, services and investments in one nation from another is complex and cumbersome and Bermuda has evolved a position where it can act as a free port to reduce the friction of global commerce.
Acting as a free port, an intermediary to reduce the friction of commerce between countries, is our key value proposition. We have an established history of it. We have helped one country or region insure against disaster by hedging their risks against that of another region. Without our involvement, costs would be considerably higher and the prospects of whole regions being devastated by disaster and unable to recover would be far more likely. Bermuda has achieved this by offering the right pairing of infrastructure, location, regulatory support, adaptivity, timing and frankly luck.
What competitive advantage does Bermuda bring to the table when it comes to distributed ledger technology? We’re small enough to readily adapt our regulations to provide the right environment for reputable firms to incubate their innovations built on this technology. We have great infrastructure, a strong location and a need to build a new industry. The timing is right and most of all, we’re well positioned to leverage our place in the world as a free port of global commerce and our strong reputation. As the world becomes more globalized and interconnected through the innovations technologies like the internet and distributed ledgers can provide, the need for intermediaries of global commerce will grow.
It is easy to get confused by the whole debate and not see the forest for the trees. Are cryptocurrencies and the blockchain risky? Yes, I wouldn’t advise anyone to gamble with them without wholly understanding that the vast majority of cases you are gambling, not investing. Be willing to lose everything you put in. Are regions cracking down on shady investment schemes and banning cryptocurrencies? Yes, and they should. Is there an opportunity for countries who can react quickly and provide the right environment for the right kind of reputable businesses and an industry to thrive? Absolutely. Bermuda is well positioned to be that environment.