You've probably heard about distributed ledger, which some refer to as "blockchain" or the rails on which bitcoin is exchanged. Distributed ledger technology, while in its early stages, has demonstrated positive outcomes and strong possibilities for banking. But, did you know distributed ledger systems in the future may also be the foundation for a new economy?
Think about this: our devices are talking to each other more and more every day. For example, you may have a gauge in your yard that measures the temperature and whether it’s raining, sunny or cloudy. Some of those gauges will turn your irrigation on, if it thinks your plants or grass need water. The data may be interesting and useful to you, but it could be of even greater value to climatologists or companies that produce weather instruments.
Now imagine this: what if those companies were able to pay you, directly, for those data points?
Welcome to a new world where the Internet of Things and distributed ledger technology come together to create a whole new way of conducting commerce – a new economy.
The bulk of work in distributed ledger today is taking place in financial services. In our case at U.S. Bank, we’re learning through pilots with complex financial transactions that have multiple parties with varied responsibilities and interests, and we’re seeing positive results.
Interestingly though, today’s work in distributed ledger will be a bit like dial-up email and chat rooms in the 90s – awesome and totally different at the time, but looking back on it in a few years it will seem pretty vanilla.
Distributed ledger technology applied in other industries, however, will be anything but vanilla. It will be a disruptive catalyst for a new economy. The reason is, distributed ledger technology has the ability to track ownership of data across time on distributed ledgers without the need for a third-party intermediary.
Over the next 10 years, analysts predict the Internet of Things will encompass 50 billion devices. Providing connectivity to the internet will be a standard feature in everything we buy: cars, thermostats, fitness trackers, even piggy banks. These devices will be generating data all day.
Today, that data is collected by the device manufacturers or data aggregators and presented to users for their consumption. This is handy for users, but comes at the cost of allowing manufacturers and aggregators to make money off of the data at no cost, and has privacy implications.
As we scale up over the next decade, under the current model, users will be providing a lot of value to others for no financial benefit. With distributed ledger technology, users of devices may be more empowered to monetize the data they’re generating, if they chose to do so.
Going back to our garden analogy, a garden thermometer would be registered to an owner and provide the data it generates to a ledger account managed by the user. The user would have the option to sell this data to a third party or keep it private. Each unit of data sold wouldn’t be worth much – fractions of a cent – but if users own dozens of devices constantly producing data, this has the potential to be a new market with considerable value to the device owners.
Digital rights management is another example of how distributed ledger could be transformative. Tracking ownership of digital assets, such as music and video files, is notoriously difficult. Once downloaded, it's pretty easy to share a file with as many people as one wants. If the download, say a movie, was purchased, sharing deprives the artist of income from those who would have otherwise purchased the movie.
In today's world, this is mitigated by digital media companies, which secure the rights on behalf of the creator. This service is not free to the artist, however, these intermediaries charge the artist for rights management, among other things.
Distributed ledger technology addresses this by systematically attaching one piece of data (the movie file) to another piece of data (the purchaser's digital signature). It's like a digital fingerprint, something unique to the purchaser. The movie is not accessible until payment has been made and will not play unless the purchaser's digital signature is provided. The creator is thus assured they will be paid for use of their content and can do so without sharing profits with intermediaries.
There’s another way banks' involvement in distributed ledger in the early years will pay off in the future: through security and privacy. Banks are in the business of trust and protecting customer data. Our work in distributed ledger will go a long way in using the unique characteristics of distributed ledger to work so security and privacy protections are strong – much stronger than the Internet of Things is today.
Understanding how emerging technology will affect our customers and potentially create new markets is a core function of the innovation team at U.S. Bank. We'll continue to experiment within the distributed ledger space to keep us and our customers a step ahead – while maintaining security – in a changing digital world and, someday, a new economy.
Chris Swanson, vice president on the innovation team at U.S. Bank, is a recognized voice on distributed ledger technology, speaking most recently on a panel at South by Southwest.