When will the internet become the Internet of Value?
By Andrei Povarov
Blockchain is often associated with cryptocurrencies, and not without reason. Introduced in 2008 as the technical concept underlying bitcoin, blockchain now powers hundreds of virtual currencies.
In doing so, blockchain has built a firm proof of concept for its functionality, which goes far beyond cryptocurrency-based financial transactions.
When the internet started its broad expansion years ago, it created exciting new challenges and opportunities for computer scientists, financial services providers and end-users. Active R&D in the late 1990s and early 2000s brought with it valuable, but unlinked, developments.
The challenge for financial providers was to create within the internet an independent electronic money system that could solve the main obstacle for these developments — the double-spend problem.
This was done by developing within the internet a new "cut-and-paste" functionality that could be used to send anything of value and that differed fundamentally from "copy-and-paste" operations (which is to say, a message sent over the internet via email can exist in two places but a dollar can't follow the same scenario).
The final solution of the double spend problem, blockchain, was the contribution of the mysterious "Satoshi Nakomoto."
Blockchain combined results of earlier disparate discoveries like pieces of a puzzle to create a single elegant concept and workable solution. The masterpiece Bitcoin Whitepaper explains this solution to the world.
The broader value-transfer blockchain functionality involves sending not only money, but also company shares, loyalty points, votes, intellectual property, rights of ownership, images, music and any other digitally represented assets.
Most importantly all of this can be sent quickly, cheaply and directly to anyplace in the world, similarly to the way an email can be send over the "conventional" internet. As these use cases are increasingly applied, they will become what we call the Internet-of-Value.
This concept is currently the subject of ongoing discussions about the future of internet, however the term "IoV" is not yet broadly used in presenting specific practical cases. One instance where it is actively used, though, is with Ripple and its cryptocurrency XRP.
In the Ripple ecosystem, IoV refers mostly to cross-border money transfer between banks. Ripple is doing very well today: With a high XRP market capitalization (due largely to banks' bulk cryptocurrency purchases to fuel their daily operations) and targeted incentives, it continues to attract more and more banks.
Easing banks' fears of blockchain (i.e., that it will put them out of business) by giving them a practical way to make money from it presents a strong business case and great potential range of application, since as the cross-border money transfer volume is estimated to $155 trillion per year.
Ripple today is a good IoV example, however one can argue that its trusted-nodes voting consensus could be the fatal obstacle to Ripple's success the true Internet of Value in the future.
This is because Ripple lacks one feature that IoV can't do without. That feature, as it was aptly and elegantly called in the recent article, Signal or noise?: Deciphering the value of cryptocurrencies, is "censorship resistance."
What are other examples? There are thousands of them around us; any smart contract running on blockchain today is paving the way to the Internet of Value. But how long a way is it?
As is typical with emerging technologies, the lack of common standards and compatibility between various implementations naturally prohibits expansion. In a world where many blockchain implementations exist, each largely incompatible with the other, the value transfer is limited to the domain in which a particular blockchain system is used.
So, for the IoV to become a reality, at least the relevant industry standards and inter-blockchain gateways should be adopted to make various blockchain infrastructures interoperable.
If we look at the Gartner Hype Cycle in its latest update, blockchain is starting its descent from the Peak of Inflated Expectations to the Trough of Disillusionment.
According to Gartner analysts, this signals that blockchain should mature fully within five to 10 years, driving with it IoV applications.
Despite being in the early phases of the IoV adoption, surprisingly enough, we seem to be psychologically ready for it. Imagine your favorite email program where next to the "send email" button there is another "send assets" button. Given our well-established habits of paying invoices and transferring money online, pushing this button would not represent any cognitive difficulty.
The only difference between today's online banking and tomorrow's Internet-of-Value operations will be "under the hood" in the way that the value transfer will technically be performed — via instructions to a third party, or as a P2P transaction in a fully decentralized environment.
One can ask about another internet transformation scenario — the already existing and quickly growing Internet of Things — in which the physical world and the world of information meet. Are these two different directions in internet development? Not really; they go very well together, as we discussed in Blockchain in the economy of self-sustaining devices.
So, how will the internet ultimately become the Internet of Value? It will happen gradually and, for most of us, rather imperceptibly. However, it is important to understand that the Internet of Value is not just an upgrade to the internet, but a powerful driver, one that can change our future by re-architecting financial and social systems and, too, by reinventing the ways we interact with them.
|Andrei Povarov works on the adoption of emerging technologies for a large Switzerland-based IT company. He also leads digital management and disruptive technologies programs at the Russian Presidential Academy. Andrei holds a PhD and an MBA and has many years of experience in the IT and payments industry.|