When we look ahead and try to envisage what the future global economy will look like, there’s no doubt that we can learn a lot from the innovation on blockchain and digital economies.
Decentralized Finance, or DeFi, is a good example. This increasingly important trend within the blockchain community is demonstrating how decentralized applications, or DApps, can automate interactions and value transfers that could be replicated across entire economies. For this to occur, blockchain technology needs to be adopted en masse. This seems a long way off right now but I believe Central Bank Digital Currencies or CBDC will be the catalyst for change.
With these digital currencies in place, governments can drive the mass adoption of blockchain technology for the benefit of society as a whole. However, for this to happen, we must first recognize that existing blockchains were not designed for governments and realize that an entirely new blockchain consensus operating system is needed to power digital economies. So, it’s a decentralized finance (defi).
Blockchain’s progress shows what is possible
Over a decade ago, Bitcoin introduced us to the possibility of exchanging value in a totally decentralized and peer to peer manner. This technological innovation not only solved the double-spend problem that had plagued the exchange of digital assets but also opened up the potential disintermediation of middlemen in all manner of transactions.
This progress was then built upon by Ethereum and other second-generation networks, which wanted to extend the power of blockchain beyond Bitcoin into a whole range of programmable applications. These dApps would utilize smart contracts to enable peer to peer interactions between individuals across all manner of transactions. The world envisioned by advocates of this second wave is one where any entity could transact on an open, public blockchain with any other entity and neither party would need to know who the other one was, as the code would act as the law governing their relationship.
Digital Economies Blockchain: Growing DeFi
To some extent, this vision has been realized, and the most obvious example of how is in the growing DeFi movement. Now, developers have built a whole host of dApps, mainly on the Ethereum network, to replicate traditional, centralized financial services. As a result, DeFi enthusiasts are combining innovative new saving, lending, and trading services to generate returns on their income via ‘yield farming’.
This is certainly an interesting trend to follow and it may be true that some of the hottest DeFi services right now will establish themselves as household names in the future. But before I go too far with the hyperbole, it’s worth asking – are you a yield farmer? Are your friends and family? So, great usage of digital economies and blockchain.
What I’m getting at is the question of whether these innovations are a widespread social phenomenon or just the fancy of a few financial and technology enthusiasts. It seems clear to me that the latter is true and that the only realistic assessment of the current situation is that blockchain has failed to achieve mass adoption.
Governments and businesses already use blockchain
Before going into the detail about what must occur to really spark mass adoption though. It would be remiss of me to ignore that blockchain is in use by governments and businesses.
In fact, while CBDC is a relatively new phenomenon. Some governments have deployed blockchain technology in production since as far back as 2012. The standout example of this is Estonia. A small Baltic state that has the digital state secured by the blockchain. The Estonian government receives a string of cyber attacks in 2007. In addition, ever since has become a leading light for the digital government. With 99% of government services available as e-services. In terms of blockchain, the government has the technology to power healthcare. Business, property, courts, and other types of registries.
Digital Economies Blockchain Business Usage
As well as governments, many businesses have also chosen to utilize blockchain technology. A recent report from Deloitte stated that nearly 40% of respondents have blockchain in production, while 55% said they see it as a top strategic priority. These adoption levels are up by a handful of standout examples too. JP Morgan has developed the Quorum platform in conjunction with Microsoft. So, shipping giant Maersk has collaborated with IBM on the TradeLens platform.
As with the earlier DeFi examples though, government and business involvement in blockchain still have a long way to go. Furthermore, you only have to ask around your friends and family to see that blockchain technology. More generally hasn’t really entered our daily lives.
The reality is that people don’t understand the power of this technology. Or the benefits it can bring to society as a whole. I believe that part of the reason for this is that the existing systems do not reflect the societal structures. So, we all recognize. For mass adoption to occur, this will need to change.
Blockchain will power CBDC in digital economies
One of the most important things to understand about the CBDC trend is that it will appear. By governments and central bankers. Who wants the CBDC to be used within regulated, digital economies.
For this to happen though, blockchain technology will need to adapt to allow governments to have more control. The L3COS system does exactly this. It utilizes a unique triple layer consensus mechanism that allows governments to operate supernodes at the top layer. While businesses and individuals interact within the second and third layers in a decentralized manner.
Many proponents of existing public blockchains will reject this out of hand. Because it goes against the permissionless and anonymous ideals they uphold above all else. However, a blockchain consensus operating system that is by governments is actually. So, what most people will recognize as reflecting societal norms. After all, when we elect our governments to protect us and help us prosper. Finally, why shouldn’t we have a single blockchain consensus operating system? That allows them to do the same for a digital economy?