Alex Tapscott: Blockchain is Eating Wall Street at TEDxSanFrancisco (Transcript)

Here is the full transcript of Blockchain Revolution author Alex Tapscott’s TEDx Talk: Blockchain is Eating Wall Street at TEDxSanFrancisco conference. This event occurred in October 2016. To learn more about the speaker, read the full bio here.


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Alex Tapscott – Author, advisor and public speaker

It’s been over eight years since Lehman Brothers went bankrupt. But the financial crisis still continues to cast a long shadow over all of our lives.

What began as an economic calamity has morphed into something that’s more corrosive and arguably more dangerous — a crisis of legitimacy, not just in banks but in many of our institutions, including governments. We’re feeling now that globalization, capitalism, even democracy are in retreat while populism, nativism, protectionism are on the rise.

And really who is to blame the people who support these kinds of ideologies? Europe has lost an entire generation to economic stagnation. Social and economic inequality is at the highest level it’s been since the Great Depression. In October, this month, Spain’s youth unemployment rate is at 45%, eight years after the crisis.

Now there is no silver bullet to fix the many problems that ail society. But why not start with where it all began? We have an opportunity — arguably once in a generation opportunity, to reinvent financial services for a new era of trust and legitimacy.

Now the leaders of the industry today, many of the banks and others have a choice to make. They can either do it themselves or have it done to them, because we are entering a new era of technology. You’ve heard the expression “software is eating the world”. Well, software is finally eating Wall Street.

And the technology likely to have the greatest impact on the world of financial services for the next 20 years has arrived. But it’s not big data, the cloud, Robo-advisors, collaborative finance or new entrants like Tencent and Apple Pay. It’s actually the technology behind crypto currencies like Bitcoin and it’s called the Blockchain. This technology will transform the industry, but it also represents nothing short of the second generation of the Internet.

So when you use the Internet today to send and move and share information, you’re not actually sending an original; you’re sending a copy and you’re retaining an original. And generally speaking, that’s okay. In fact, one of the great advantages of the Internet is that we have this publishing platform that allows us to democratize information. Except when it comes to things that have value like, say, money, sending a copy is a bad idea. If I give you $20 in payment for something, it’s really important that you know you have it and I don’t still have it, because if I could send the same $20 to every single person in this room, the $20 becomes worthless.

So it turns out, it’s great to have a printing press for information but it’s not so great to have a printing press for money. And this is a problem that cryptographers and technologists have been trying to resolve for years: How do you prevent this digital trail of breadcrumbs from accumulating every time you move information? Turns out it’s difficult. And as a result, we rely on middlemen, intermediaries, to perform a whole bunch of important roles in business and society. And these intermediaries would be well known to many of you banks but also governments and big technology firms.

And these intermediaries perform essential roles. They establish the identity of parties in a transaction. They create trust. They perform what’s called the business logic, the clearing and the settling. And they keep records that can be validated by the counterparties in the transaction, by auditors, regulators, and other stakeholders. And they do an okay job but they have some very serious limitations.

The first is that they’re all centralized. Anything centralized is vulnerable to hacking or to attack or to failure. This happens in the financial service industry as well as other industries. They slow things down. The settlement times for all sorts of transactions can last into the days or the weeks to send money overseas from one country to another can take five to seven days. They’re also costly. To make that same transaction can sometimes cost 8% to 10%.

Another big issue is that they exclude big parts of the population. There are 2.5 billion people in the world who don’t have access to any form of financial services. They’re part of the world’s unbanked who don’t really benefit at all, from globalization, internationalism, because they’re trapped and they’re not upwardly mobile.

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They capture data about us which prevents us from using it to organize our affairs but also could potentially undermine our privacy. So you can argue in some that intermediaries capture an asymmetric benefit from the digital age, and banks are certainly no exception.

So what if the internet was entering a second era — from an Internet of information to an Internet of value? Well, right around the same time that Lehman Brothers went bankrupt, November of 2008, an anonymous person or group of persons named Satoshi Nakamoto outlined a new thing called the Bitcoin protocol, a way for people to make — to do transactions and move money peer-to-peer online without an intermediary to establish trust.

And the interesting thing about Bitcoin was that it worked. And it worked so well that it set off a spark that’s traveled like wildfire and captured the imagination of people in many different industries, not just in financial services but in music and film, in supply chain management and other areas.

Underpinning Bitcoin is this revolutionary technology called the Blockchain, a vast global distributed database, a single source of truth, that doesn’t run on one computer; it runs on all computers. And it’s not accessible to a few but it’s accessible to all, where not just information but potentially anything of value, Bitcoin to be sure but also money, financial assets, intellectual properties, carbon credits, energy, even votes in an election, can be moved, stored, and managed securely and privately, and where trust is not established by a third party but rather through mass collaboration, cryptography, and clever code.

And it turns out that Bitcoin is just the start. Ethereum is a relatively new Blockchain platform that’s pioneered a technology called Smart Contracts, which is basically what it sounds like, software that mimics the logic of a contract with guaranteed execution, enforcement, and payments without relying on banks, escrow agents, lawyers, courts and the other intermediaries that add friction and cost to contracting.

If you think about what impact this could have on financial services, it’s nothing short of profound. Every single asset basically is a contract. It’s a piece of paper that gives you a promissory note entitling you to something: a dividend payment, a coupon, equity in a company et cetera.

The Linux Foundation, no stranger to massive open source projects, has also gotten on board, launching the Hyperledger project which now accounts amongst its members thousands of technologists and hundreds of companies. So this technology has the ability to create a more prosperous world and in our book Blockchain Revolution, we outline how that might work and the opportunities here are significant — everything from enabling creators of content, like musicians and journalists and filmmakers to get fairly compensated for the value that they create, to improving on the land titling that exists in the developing world.

70% of people in developing world who think they own property actually have a very flaky title to that property. What that means is that when push comes to shove, there might be a duplicate claim; there might be a missing record or there might be a lack of enforcement that prevents them from using that as a source of income, as a way to access credit to pay for education, to start a business. So there are some very interesting applications.

I’d like to discuss financial services, though, with you today. So the financial services industry can be a complicated thing to understand. It is one of the world’s most important industries. It is the linchpin of our modern economic system. Its leaders are known as Masters of the Universe.

But when you really drill down, it actually performs eight essential functions in business and society. Everything from enabling people to get access to a mortgage, to allowing businesses and individuals to move money around the world, to insuring against catastrophic risk to enabling companies to access growth capital to start their business, something familiar to all of you; I’m sure.

What about accounting? Silence. Who gives a TED talk on accounting, honestly? It’s like, bring out the guy who talks about flying cars. But there’s a real opportunity here to fix accounting, because accounting is basically broken. And there are four big problems with it.