Learn and apply the rules of a new distributed economy.

This text is an approximate transcription of the speech I gave on February 27, 2019, at the expert seminar The blockchain economy, at Cuatrecasas, organized by RMIT Europe. https://www.rmit.edu.au/events/all-events/public-lectures/2019/expert-seminar--the-blockchain-economy

Some people repeat that blockchain technology is the most significant invention after the internet. I think it is still too soon for saying something like that. What we can say is that the blockchain evolution is part of the uncertainty that distinguishes our time.

Lessons from the past

There are some lessons we can learn from the past, from the development of the internet. The first one is that, as in the case of the internet, the blockchain is not a disruption, but a foundational and general-purpose technology. Instead of attacking the traditional business model of incumbents through a lower-cost solution ready to jump to the mainstream when evolving (Christensen, Raynor and McDonald 2015), the blockchain has the potential to create new foundations for economic and social systems. We can quickly agree that the process of doing so is going to take a long time, and there are substantial barriers to go through. Some of them are technological. Other ones are societal, economic, and political.

So ignore all these voices that try to inoculate a sense of urgency.

The process of adoption of a foundational technology is a mix of novelty and complexity (Iansiti and Lakhani 2017). Novelty refers to the degree of an application that is new to the world. Complexity refers to the level of the coordination of the ecosystem. The process begins with low novelty and low complexity — the email in the case of the internet, the bitcoin in the case of the blockchain. The next step increases novelty but not complexity. We built VPNs in the case of the Internet, or consortiums for sharing the saving costs of processes through DLTs in the case of the blockchain. The third step, substitution, consists of low novelty but high complexity. Barriers to adoption are huge here, partly because we need that users change their behavior. We reverse the way of doing business. E-commerce, beginning in 1995, is the example from the Internet. The current fragmented universe of incipient blockchain dapps are examples of this stage. That is one of the reasons we state that the blockchain today is the Internet in the 90s. The last step, transformation, involves considerable novelty and high complexity. The Internet has seen the transformation of business models in such a different industry as the music or the publishing one. On the blockchain, the potential of the change is enormous. This change is part of the future, and we need to be aware that the transformation is going to take decades to happen.

Social impact and public policies

As you can see, the third and fourth stages have a significant social impact. Substitution and transformation involve change, and the position of the public sector is unique for promoting this change. Governments don’t have to see this transformation as a threat, but as an opportunity for the development of citizenship into a more equal and empowered society.

How can the public sector boost social impact?

The first thing to recall is that the blockchain is a general-purpose technology. Research and experience show how these technologies flourish when governments deploy large-scale and long-term investments. The second one is that this century is as a century of complexity, uncertainty, and rapid change. This environment implies new ways of governing, far ahead of the receipts that were useful during the 20th century.

Otherwise, if we consider the blockchain as an innovation, there are a couple of myths I would like to take apart (Mazzucato 2015).

The first one refers to the myth that the development of innovations is about risk. It has a lot to do with uncertainty. In high-risk situations, you don’t know the winning outcome. Uncertainty has to do with not knowing the different potential consequences you have. Under this scenario, we need a public sector able to invest money where the venture capital and the private sector are never going to do it. The public sector needs to think big. It needs to experiment, learn, and also fail and lose money.

We need a public sector that creates markets and not only fixes them.

The second myth is that innovation is on research and development. R&D not always leads to fast-growing industries. This connection is only valid in those industry life-cycles involving fierce competition. As the blockchain industry is not in a very competitive stage of development, what we need is a public sector capable of lighting the fire of a positive-sum game.

A third idea has to do with the role of Europe. Michael Porter states that we achieve competitive advantage either from cost leadership or from differentiation (Porter 2008). The way we see things in Europe gives us a tremendous opportunity for the public sector helping the blockchain European ecosystem to lead the adoption of the technology through differentiation. The snowball starts rolling now.

Finally, let me finish with a final remark.

I think this is the first time that I am giving a speech on the blockchain and I don’t have to explain what the blockchain is.

Thank you very much for your attention!

References:

Christensen, Clayton M., Michael E. Raynor, and Rory McDonald (2015). "What is disruptive innovation." Harvard Business Review 93, (12) (2015), 44-53.

Iansiti, Marco and Karim R Lakhani (2017), “It Will Take Years to Transform Business, but the Journey Begins Now,” Harvard Business Review, 95(1), 172.

Mazzucato, Mariana (2015), The entrepreneurial state: Debunking public vs. private sector myths. Vol. 1. Anthem Press.

Porter, Michael E (2008), Competitive advantage: Creating and sustaining superior performance, Simon and Schuster.