Here is a key Covid-era takeaway: “Everything that can be represented digitally will be digitized, and our lives will become increasingly digital.”
A digital revolution has thus begun even in the staid world of finance, with Bitcoin leading the charge and no end in sight. Home-bound by Covid-19 lockdowns, investors, large and small, are buying and selling Bitcoins and other cryptocurrencies at a frenetic pace. Although still highly speculative, these digital assets are evolving into significant financial instruments with as yet unclear implications for global finance.
Mainstream payment platforms such as PayPal have begun to accept cryptocurrency transactions. Big companies such as TESLA have bought significant amounts of Bitcoins as part of their cash reserves. Central Banks around the world are paying close attention to these developments.
China has announced that it will develop a digital eYuan, taking the lead toward introducing a digital currency as a legitimate part of its financial system. The US Federal Reserve and the Treasury have also indicated that they are studying the evolution of cryptocurrencies and its implications for the dollar and for the banking system.
The success of the recent IPO of Coinbase as a digital exchange for cryptocurrencies and the thriving trading on other platforms such as Binance also point to the growing mainstream acceptance of cryptocurrencies as financial assets and a store of value.
Still, very high day-to-day volatility in the prices of cryptocurrencies and other digital assets such as NFTs (non-fungible tokens) suggests that some regulatory measures will be needed to ensure stability and predictability in their value before they could become fully accepted as part of the world financial system.
Although the total value of Bitcoins has sky-rocketed to almost two trillion dollars in just a few years since its launch in 2009, the dream of its inventor and promoters to upend the entire global financial system may well remain a dream until many of the complex issues and uncertainties surrounding their use are resolved. The role of cryptocurrencies in global finance may thus remain an open question for the foreseeable future.
The main allure of cryptocurrencies is their democratic, decentralized, and distributed yet immutable character: no central authority or intermediary, such as a bank, is needed to validate and complete crypto transactions. These characteristics are directly derived from the blockchain technology that underpins cryptocurrencies and digital assets such as NFTs.
Blockchain technology was first described by Stuart Haber and W. Scott Stornetta in 1991-92 for research purposes as a digital ledger created and used by a network containing a decentralized and distributed database of chronologically connected blocks of data of equal length that are stamped and signed, forming a digital chain so that no one could alter any part of it without the prior consent of those in the network.
The technology came into its own only in 2008 with the publication of a White Paper by a group under the pseudonym Satoshi Nakamoto, followed by its use in 2009 as the public ledger for transactions using Bitcoin as a digital token of value for those who were contributing to the blockchain network. Ever since in the public mind, blockchain has been associated with Bitcoin.
But, Blockchain 2.0, developed independently of Bitcoin in 2014, has vast actual and potential applications that go far beyond cryptocurrencies with major implications for almost every sector of the world economy. Many experts have argued that the potential long-term impact of the blockchain will be as profound and disruptive as that of the internet itself.
In the context of urban development, blockchain has been called “the secret sauce” that can help build smart and sustainable cities of the future by enabling city governments to lower costs, improve efficiency and effectiveness, enhance transparency, and provide a framework for innovation, accountability and access in public management.
Blockchain can be used by cities to create a public, distributed, digital ledger for transactions, built through inputs from independent sources that contribute data into a single, shared database that is transparent, incorruptible, and accessible from anywhere. Cities can also use blockchain to link together and coordinate key city functions on an unprecedented scale through an immutable urban digital ledger that contains key data points from different sectors, including procurement and financial management, housing, health, education, business and services, transportation, energy, water, and sustainable environment.
In the blockchain-powered smart city of the future, city operations are knit together in a well-integrated system of sourcing and delivery of services. Blockchain provides smart cities with the framework for advanced urban planning and opens new ways of addressing the major urban challenges of sustainability, efficiency, accountability, public access and civic engagement.
Blockchain can also provide the framework for the application of new and emerging digital technologies such as Big Data, AI, distributed cloud, IoT, 5G, and 3D Printing in city operations and services. The more these technologies are connected using blockchain as the framework, the greater the opportunities for cities to grow smarter and more sustainable.
Many cities around the world are actively developing blockchain-powered innovations for creating digital registries of their housing stock and local businesses, for the inventory of jobs and employment opportunities, for their procurement and financial management, for smart contracts, for voting and election processes, for digital inclusion and civic engagement and for fighting fraud.
Dubai is reinventing itself as the smart city of the future powered by blockchain. New York has recently launched a blockchain-based initiative to provide banking access to the homeless through free smartphones. Estonia has a national project for digitizing all its operations and services. India has launched a project for creating 500 smart cities.
According to Mckinsey, some 600 smart cities worldwide are currently pursuing a digital transformation. And this is just the beginning. As the movement toward smart and sustainable cities gathers pace using Blockchain as a framework, it has the potential to improve the lives of citizens in countless, often unforeseen ways.
However, as is the case with all technologies, some challenges will need to be addressed by cities in adopting blockchain on a large scale. The technology is highly energy intensive due to its very large computational requirements. It also needs significant initial capital investment and high-skilled networks for its operation and management. Regulatory issues relating to privacy will also need to be addressed. But, it is likely that as applications grow in scale, innovations will help meet these challenges and the costs, in terms of energy use and investment, are likely to come down, making it more affordable and accessible to less affluent and smaller cities as well.