Blockchain Revolution: The Next Stages

The Empire Club Presents

Don Tapscott and Alex Tapscott

With:

Blockchain Revolution: The Next Stages

Welcome Address, by Barbara Jesson, President of Jesson + Company Communications Inc. and President of the Empire Club of Canada

June 19, 2018

From the Westin Harbour Castle Hotel in downtown Toronto, welcome, to the Empire Club of Canada. For those of you just joining us through either our webcast or our podcast, welcome, to the meeting. Before our distinguished speakers are introduced as part of the formal program, it gives me great pleasure to introduce our Head Table Guests. I would ask each guest to rise for a brief moment and be seated as your name is called. I would ask the audience to refrain from applauding until all of the Head Table Guests have been introduced.

Head Table

Distinguished Guest Speakers:

Mr. Alex Tapscott, Co-Founder, Blockchain Research Institute, Co-Author, Blockchain Revolution

Mr. Don Tapscott, Co-Founder and Executive Chairman, Blockchain Research Institute; Co-Author, Blockchain Revolution

Guests:

Ms. Georgina Blanas, Executive Director, Private Capital Markets Association of Canada; Director, Empire Club of Canada

Mr. Richard Carleton, Chief Executive Officer, Canadian Securities Exchange; Director, Empire Club of Canada

Mr. Kent Emerson, Associate Vice President, Municipal and Stakeholder Relations, Municipal Property Assessment Corporation (MPAC); Incoming President 2018–2019, the Empire Club of Canada

Mr. Paritosh Gambhir, Partner of Financial Services and Head of Blockchain, KPMG

Dr. Gordon McIvor, Past President, Empire Club of Canada

Mr. Tim Patriquin, Board Member, Treble Victor Group; Investment Advisor, RBC Dominion Securities

Dr. Samuel Peralta, Co-Founder and Director, Cobalt Blockchain Inc.

Mr. Matthew Spoke, Chief Executive Officer and Founder, Aion Foundation

Mr. Sanjay Tugnait, Chief Executive Officer, Capgemini Canada; Chairman, Blockchain Research Institute Advisory Board

Mr. Mike White, President and Chief Executive Officer, IBK Capital Corp.

Mr. William White, Chairman, IBK Capital Corp.; Director, Empire Club of Canada

My name is Barbara Jesson. I am the President of Jesson + Company Communications and the President of the Empire Club of Canada. Ladies and gentlemen, your Head Table.

It is hard to believe that almost five years ago, my agency signed a new client, Canada’s first and largest full-scale bitcoin exchange. It seems very difficult for me to believe now, but, at the time, the whole concept of a digital currency was quite new. I remember trying to wrap my head around it to assess if there was any there.

I do not make a habit of walking away from new business opportunities, but I do at least try to ensure the agency’s integrity in helping to build awareness for any client. I thought I got it. As a student of medieval history, I understood the widespread emergence of bank notes in 14th century Italy, but bank notes were backed by precious metals. I confess, I really struggled to grasp this idea of mining for bitcoins.

I do not think I really got it until last year when I had an aha moment. I was reading Yuval Noah Harari’s Sapiens. For the first time, I understood that implicitly that anything—even shiny metals—only hold value because, as a society, we have agreed that they do. Sometimes it takes me a little while to get things.

Just when I thought I was coming to grips with it all, blockchain took over the headlines. I guess it was there running in the background as the whole cryptocurrency phenomena emerged, but, for me, at least, it had fallen below the radar until suddenly every news outlet was writing about it as the ultimate security answer.

Digital innovations increasingly leave physical metaphors behind. There is no useful or no accurate analogue or simile for blockchain like there is for electronic mail. When people cannot really understand, they often dismiss a phenomenon. You can try it for yourself if you share today’s discussion with our friends over dinner tonight.

Despite the great democratization of knowledge brought about by the Internet, we are once again at risk of further segregating those who understand and those who merely use. It seems to me that this trend will only further exacerbate the polarization and declining social mobility plaguing our society today. That is why I think our next guests today are so important in this dialogue.

Don Tapscott has demonstrated the rare ability to take complex ideas and make them accessible to the rest of us. He seems to grasp their significance long before the rest of us do, and he puts them into a context that makes them comprehensible.

Don Tapscott, the Executive Chairman of the Blockchain Research Institute, is one of the world’s leading authorities on the impact of technology on business and society. He has authored 16 books, including Wikinomics: How Mass Collaboration Changes Everything, which has been translated into over 25 languages.

In 2017, Don and his son, Alex, co-founded the Blockchain Research Institute, to provide a definitive investigation into blockchain strategy.

Don is a member of the Order of Canada and is ranked the 2nd most influential Management Thinker and the top Digital Thinker in the world by Thinkers50. It is hard to imagine anyone who is more prolific and profound and influential in explaining today’s technological revolutions and their impact on the world. Alex Tapscott is a startup CEO and bitcoin governance expert. He is a globally recognized writer, speaker, investor and advisor focused on the impact of emerging technologies, such as blockchain and cryptocurrencies in business, society and government. Alex currently sits on the Advisory Board to Elections Canada, the independent, non-partisan agency responsible for conducting federal elections and referendums. In November of 2017, Alex and Don Tapscott were recognized with the Digital Thinking Award from Thinkers50, as part of the latter’s Distinguished Achievement Awards.

Together, Don and Alex have co-authored their very ambitious Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money Business and the World, published in May 2016.

According to Harvard Business School’s Clayton Christensen, it is the book, literally, on how to survive and thrive in this next wave of technology-driven disruption. It is a clarion call to all of us.

Ladies and gentlemen, please, join me in welcoming Alex Tapscott to our podium, who will be followed by Don Tapscott.

Alex Tapscott

Thank you, Barbara, for that rousing introduction. Thank you to the Empire Club of Canada for hosting this event. This is not an official book launch, though I am very pleased to say that the book did ship last week, so this is our big event for Canada. The Empire Club is so kind as to get every single one of you a copy of the book, which you should have received by now. They have the right idea, which is that the best way to buy this book is, of course, in massive volume. When you leave here, today, think about your employees, your friends. Beach reading is right around the corner.

In the book, we said that blockchain represented the second era of the Internet. Over the past two years, with the development of this industry, I think that prognostication has been proven largely correct. What we said in the book, basically, is that if you look at the Internet today—the Internet that we have known for the past 25 years—when you send and move and share information on this Internet, you are not actually sending an original, unique thing; you are sending a copy, and you are retaining an original. For most kinds of information, that is okay. If I send an email to one person, I can send it to someone else, or I can send it to many people. If I host a website, it is available for all to see. If I put in an entry into Wikipedia, the whole world can access it. It is actually a very powerful tool. It is like we all have our own printing press for information. Except, when it comes to things that have value: Assets, like, say, money. Being able to send a copy is actually a terrible idea. If I owe you $20 for something, it is important that when I send it, that you are the only person who can receive that money, that I cannot send a copy to someone else in the same way that I can send the same email. If I can copy money the way I can copy information, then that money becomes worthless. That also happens to be illegal, so that is a secondary problem.

It is great to have a printing press for information. It is not so good to have a printing press for money. This is a specific problem that computer scientists have been trying to figure out, basically, for 20 years. As a result of this problem, even though the Internet has created a lot of value and transformed many industries, we still rely largely on intermediaries, middlemen, who sit in the centre and perform a bunch of important roles. They validate the identity of parties; they establish trust; and they perform business logic—clearing, settling, record-keeping, contracting that basically makes the economy work.

Overall, these intermediaries, banks, brokers, governments, but, increasingly, big technology companies—social media firms like Facebook—do a pretty good job, but they have some specific limitations. The first is that they are all centralized. Anything that is centralized is vulnerable to hacking or to attack or to failure. We see this in every single industry, and we also see it in government.

The second issue is that they add costs, and they slow things down. In the case of sending money overseas, it can take days to move value between two parties on opposite sides of the border, and it can cost upwards of 10%, which is an odd thing when you really think about it. We talk about the market for cross-border payments. When was the last time anybody here sent a cross-border email? It does not really exist. One form of information flows instantly, whereas the other, when it comes to value, takes time and adds cost.

The third big issue is that they exclude large parts of the population. There are billions that do not have access to financial services, and about the same number cannot prove who they are through identity systems.

The final issue is that they capture data. This is the one that I think is most relevant, today, which is that every time you interact on the Internet, you are leaving behind a part of yourself. That is problematic because it means you cannot use that information to organize your life. It means you cannot monetize it, yet it is worth something: Look at the market cap of Facebook. And it can potentially be used to undermine your privacy.

What if the Internet were entering a second era, from an Internet of information to an Internet of value based on this new technology platform called a blockchain? We are not going to get too technical, but, for those who do not know, a blockchain is basically a vast, global distributed ledger database, except instead of existing inside of one computer system, inside of a third party, like a bank or a government or large corporation, it is replicated across every single entity that is connected to that network. No single entity can alter the truth without everybody reaching consensus. It gives everyone basically a perfect record of the truth, upon which they can do trusted transactions. On this platform, you do not need a bank or a broker to transact and move value and create businesses; you can do it all peer to peer, which is why we call blockchain the ‘trust protocol’.

Not everyone is as bullish as we are. I did not take math in university, but I really like to know how you square a rat poison. I do not know. We have seen this before where leaders of old paradigms react to the new with hostility and derision, anger. This has been true throughout history of every single major transformation. This is certainly nothing new here. This is not to say anything about Mr. Buffett—Warren Buffett is a legendary investor, and his track record speaks for itself, but he is also the first person to tell you that he missed the Internet wave and that, at least with this technology, he may come at it with a bit more hostility, but he also admits that he is lacking in some knowledge. That is okay, because this revolution is not going to be driven by the Warren Buffets of the world; it is going to be driven by the Warren Buffets of the future.

Blockchain is a funny thing in that it is not hard to define, but everybody sees it slightly differently. Some people look at the cryptocurrencies, and they say this is a new asset class. Others look at the underlying ledger, and they say it is a system for record keeping. Others, still, look at it, and say we can use this technology for contracts and other business processes. It is a little bit like this old parable, the parable of the elephant, where we have five blind men who are standing around this elephant. Everybody is touching a different part. One person is touching the body of the elephant and says it feels like the trunk of a tree. The other one is touching the ear and says it is a palm frond. The other one touches the trunk and says it is a snake. That is kind of the way it is with blockchain. What we tried to do in the book, and what we have done with the updated version is try and basically remove the blindfold to try and demystify what this is and to explain in a very simple-to-understand fashion.

The one area that I am going to speak to you about, today, is around this new emerging asset class called ‘crypto assets’. Blockchain, to me, represents a new technology infrastructure for the Internet of value. With it, we are seeing the emergence of an entirely new asset class. This asset class is going to eventually become the largest in the world. We are about to experience the biggest transfer of wealth from the analog to the digital world.

I think a lot of people who are close to this industry look at all these cryptocurrencies, and they ask, quite rightly, “What are all these things? What do they do? Why are there a thousand of them? Why do you need a thousand currencies? Surely, one currency to rule them all would make a lot more sense. If we end up with thousands of currencies, will it not just end up the way it is today where we have fiat currencies for different national governments and tons of friction?” It is a fair point. If you look beyond this, you actually see that most of these things are not currencies in the traditional sense. They are not designed to be a medium of exchange in stored value in a unit of account, which is what a currency is. They actually make up this rich tapestry of new assets. I am going to walk through them all today.

Number one, cryptocurrency is bitcoin, the mother of them all. As a network, it stores almost $100 billion in value. It is used by tens of millions of people every day to move and store money, and it is the cryptocurrency that launched a thousand ships. It is the first one. Although it was the most important, it is increasingly becoming less so. It spawned a few other examples of cryptocurrencies, things like Monero, ZCash and others. We will not get into too much detail, but to say that these are cryptocurrencies that try to do what bitcoin does but add different, new features: Faster transaction times, more privacy—or it may even be full anonymity. There are lots of important use cases for bitcoin. I think it is very likely that in ten years’ time, we will be looking back, and bitcoin and other cryptocurrencies will rank in the top ten mediums of exchange that we use globally. As a result, they are creating all sorts of problems for banks and other incumbents.

Depending on who you are, you might view this as a risk, or you might view it as an opportunity. JP Morgan or Bank of America have put bitcoin and other cryptocurrencies into their risk assessment for the first time ever this year—though, it is also worth pointing out that the Bank of America currently has 15 patents outstanding in the blockchain space and that JP Morgan spends more money than any other company in the world on this technology.

Goldman Sachs sees a whole new asset class, one with massive global liquidity and also tons of volatility, and anybody who works in capital markets knows it creates opportunities to make money. They have obviously made big investments into exchanges and other platforms that trade in these assets. The second category are platform technologies. These are not currencies in the traditional sense. These are general purpose platforms that are designed to build and run different kinds of applications. The biggest one and the most well known is a thing called Ethereum. Before I go on, who has heard of this thing, Ethereum? Just raise your hand. Good, the Queen would be proud. Ethereum is a Canadian success story. It was started by a 19-year-old University of Waterloo drop-out named Vitalik Buterin and his merry gang of friends. They wanted to create a platform that could allow you to do more than just currencies. The analogy—a helpful analogy—is to think of it this way: Bitcoin is a single-purpose device. It is like a pocket calculator. You pull it out; you press power; you can do calculations, and you can do it pretty well. Ethereum is like the first PC. It is a computer, an operating system that allows you to run many different kinds of applications. Ethereum also has launched a whole group of other platform technologies: Aion, Cosmos—also started by Canadians—Polkadot, NEO, ICON and others.

The question now is “Ethereum going to be the iPhone, or is it the BlackBerry?” Is it the in-between stage before we get to perfecting these final blockchain technologies? Either way, the emergence of these new platforms has disrupted the whole asset class, and, I think, for the better.

When we wrote the book, when the book came out in May of 2016, bitcoin was 85% of the market. Most of this other stuff we were talking about was basically just a science experiment. Today, bitcoin, depending on the day, is only about one-third of the market, and these new protocols are emerging.

One of the big reasons for that is that they have become the foundation for a completely new form of fundraising called the ICO, which stands for Initial Coin Offering. In the first edition of Blockchain Revolution, we actually talked about this. We called it a ‘global blockchain IPO’, which I guess was not as snappy as ICO because it never caught on. We talked about a project called Augur, which had raised $4.5 billion in one of these sales, which at the time was really impressive to us. Of course, fast forward to today, and $4.5 million does not really get you in the door in the ICO space. In the past year, we have seen the value of money raised through these token issuances go from $165 million in 2016 to $6 billion in 2017 to somewhere between $5 billion and $10 billion through the first two quarters of this year. It is almost impossible to know. The way it works is that in order to issue one of these tokens, a lot of times they are on top of platforms like Ethereum. The more companies that get built on Ethereum, the more valuable Ethereum becomes. The more transactions that are happening in the applications on Ethereum, the more valuable Ethereum becomes. The same is true, by the way, of any of these other protocols, which are launching.

Most of the companies that are issuing tokens on these networks are doing this thing called a ‘utility token’. A utility token is basically a native digital asset that allows you to access services or some kind of preferred access within an application. There is an interesting analogy: It is kind of like if a rollercoaster operator created a brand new, innovative rollercoaster and pre-sold rides on that rollercoaster, and then used the funds to build the rollercoaster, and then anybody who participated in that pre-sale got to ride the rollercoaster for free for the first few years. It is basically like your investors are also your users. It is kind of a different concept that we are accustomed to in the traditional financial services world.

There have been lots of different kinds of projects that have emerged over the past little while. I will not get into too many of them, but if you look at this second one to the right, the ‘G’, Golem, this is a distributed cloud company, essentially. Their argument is that there is more computing power in all of our smartphones than there are in all the big server farms that actually make up the cloud owned by Amazon, Google and others. How do we connect all of these devices into a distributed cloud storage and computational system? You would need an incentive. The incentive is their token. If you connect your device and somebody uses it to store fragments of their data, you would get paid. If you connect your device, and you use the system, then you would have to pay it. It creates an economy within the application. It has become basically the way in which projects have raised money over the past little while. ICOs have become such a hot topic that they made it into a Dilbert cartoon, which is how you know you have really made it in life.

There is one problem with all this, which is that most of the projects that did utility token offerings last year were not actually selling utility tokens. They were selling, I think, something else. I think that they were raising money for their startups, and they were giving people economic rights. Those people were buying it because of the expectation that they would make money on it—hopefully. It looks a lot more like a security than it does this new kind of token framework. That actually is fine, and I think that we will end up seeing a large portion of the token offerings that happen in the future, as security token offerings where basically what you are doing is you are buying equity, or you are buying some kind of economic value in a project.

Security tokens can apply to most types of financial assets, but they work specifically for assets where there is no underlying physical delivery of a commodity, basically. If you think about a stock, a stock is a fractional share of a common enterprise where, as the bearer, you are entitled to a set of cashflows if they pay dividends. That is what a share in a company is. There is no delivery of oil or gold or some other commodity. A stock is just a contract. It is a conceptual thing. All of the business logic—all of the clearing, settling, the payment of dividends, proxies, etc.—can be collapsed into a digital token, can be paid out as a smart contract. That means that the $110 trillion global equity market is poised to be transformed by this technology.

The next kind of token are these natural asset tokens. Again, these are like security tokens, but where there is a physical asset that requires delivery on the back end. For certain kinds of assets, this is a marginal improvement. It would reduce settlement times from days and weeks to seconds, but someone still needs to actually deploy and deliver that commodity to someone. We cannot actually put the delivery of pork bellies onto the blockchain, I do not think. What this really creates, to me, are opportunities to enter into new markets, to use tokenization to open up carbon markets or markets for water or air. These are important issues, because they could help us solve global problems.

The second to last one is crypto collectibles. This is going to be a very revealing question. Who here owns a CryptoKitty? Andre? No. Smart money does not own one. A CryptoKitty is an application that was launched in December of last year where you can basically go out and purchase or breed or mate a crypto collectible cat. This became very, very popular on the Ethereum network. It became so popular that it actually shut the Ethereum network down for a period of time. People were really into these things, like, in an almost unhealthy way. The proof is that the price that someone paid recently for a CryptoKitty, the most expensive CryptoKitty, to date, that has been sold, sold for $140,000 USD. To be fair, it was a really nice CryptoKitty.

Why would someone pay that much money for a digital cat, other than because he or she has an unhealthy love of cats and too much money to spend? The reason, basically, is that you can prove with 100% accuracy effectively that when you own one of these things, that it is the only one of its kind. Whereas, if you own this CryptoKitty, nobody else can own it in the same way that if I send a bitcoin to someone, I cannot send the same one to someone else. If you think about bitcoins, it is going to be 21 million bitcoin. If you think about the capital of a company, it is going to be X number of shares, however many millions of shares. With a crypto collectible, there is only one of a kind. It turns out there are tons of asset classes that are one of a kind—artwork, for example, in-game purchases, purchases of real estate in virtual worlds, which is going to become huge as virtual reality and augmented reality converge with blockchain. Also, we can use this crypto collectible technology for assets in the real world: Real art, cars, sports memorabilia—all these assets where there is only one of a kind. There is only one CryptoKitty, but there is also one of a certain Van Gogh or Rothko or Matisse or what have you. All of a sudden, we have a technology standard to help us authenticate and prove unique assets, which I think is going to be massively disruptive.

The final category are these things called crypto-fiat currencies and stablecoins. Stablecoin basically tries to maintain the same price over time, benchmarked to some other thing like the dollar. There is this thing, US Dollar Tether, which is supposed to always be worth $1. I am very skeptical of stablecoins because, basically, they change the issuer question from the Central Bank to some company who is now re-issuing this token. I am much more interested in the crypto-fiat, which are cryptocurrencies issues by central banks and governments.

The Federal Reserve, the Bank of England and all these fancy institutions have spilled a lot of ink talking about cryptocurrencies, but they were not the first ones to do anything about it. The first ones to do anything about it were actually the Venezuelans. If anybody owns any bolivars in their portfolio, I am very sorry because they are not really known to be paragons of fiscal responsibility. They kind of went ahead and did this. The Venezuelan government, apparently, issued this thing called the Petro in an ICO a few months ago, and it is claimed to be, effectively, a coin that is backed by oil, that is in the ground; it is decentralized. It is cryptocurrency. There is no evidence really to support many of their claims, but it does demonstrate two things. Number one, the central bank can actually do this. Number two, if you look at the central banks and governments that are thinking about this seriously—Venezuela, Russia, Iran—you see that these things have a few features in common. They have lots of oil. They are under economic sanction, and they are not loved by the United States. A lot of them are looking for a separate payment rail to enable transactions in the thing that they have the most of, which happens to be oil. If they can do that, then they can potentially circumvent the U.S. dollar system, which has been the dominant monetary system for 75 years. It is sort of an interesting concept, which means that the Bank of Canada and the Federal Reserve and others need to get serious.

This is seven crypto-asset types, which is one of six new features, which is part of the new edition of Blockchain Revolution. Looking back at everything that was in the first edition, everything holds up great, so I hope that you are all able to enjoy this new edition of the book.

I want to end on one thing, which is the question of regulation. Blockchain attacks or affects value industries. The Internet attacked or affected information industries, so information industries like media, publishing, communication, et cetera. They are regulated industries, but they are more lightly regulated than value industries, like financial services, supply chains, government services, et cetera, which means that regulators are going to play a much more active role, and they are going to be an important stakeholder in helping you shape how this moves forward.

The SEC, just a few days ago, made an important announcement where they basically said that bitcoin and ether are not securities, because they are decentralized, but that a lot of these other tokens could be. That is going to be the central challenge here, and it is going to help shake out what this industry looks like.

I do not pretend to know where this regulatory landscape is going. I look at the work that is happening in Canada and the U.S., and I am actually pretty optimistic that the people who are making decisions are really working hard to figure out all the facts. There is one warning, which is that you want to be careful not to create rules that have unintended consequences. During Victorian England, with the introduction of the automobile, the City of London created these laws called the Red Flag Laws. The Red Flag Laws said that you needed to have three people to operate a motor vehicle, what they called a horseless carriage, at the time. You needed a driver; you needed a navigator; and you needed a red flag man. The purpose of the red flag man was to walk in front of the car waving a red flag, which, if you think about the car, kind of defeats the purpose of it. You are supposed to be able to go fast and be able to go anywhere. It is hard to do it if there is a chubby mustachioed man waving a red flag in front of you. Why did they do that? The thing that was occupying the roads at the time were horses. They were concerned that the horses were going to be scared off by this contraption which, at the time, was actually burning coal. It was a steam engine, so it was really loud and obnoxious. The regulations were being used to fit to the way the world used to work, not to the way the world was going. As a result, some economic historians say that the UK lost leadership in the automobile industry to the United States because of the unintended consequences of these rules. We need to think very carefully before we proceed.

I am going to end on a brief note. This is a parable that was popularized by Ray Kurzweil, who is a very important technologist and futurist. It is about the invention of chess. It goes something like this. The king of the land is so pleased with this invention that he offers the inventor anything he wants, whatever his heart desires, as a reward. The inventor says, “Oh, sire, I am but a humble servant and humble man. All I need is some rice to feed my family, but I want you to give it to me in this way: one grain on the first piece of the chess board, two grains on the second, four on the third, eight on the fourth, 16 and so on.” The king, who I gather is not like a math guy, says, “Yeah, sure, whatever, how much rice could that be? A barrel of rice, a bag, your wish is granted.” Of course, 16 becomes 32, becomes 64, becomes 128 and so on, and so on, and so on. By halfway through the chessboard, it is more rice than the whole kingdom produces in a whole year. By the end of the chess board, it is enough rice to bury yourself in six feet of rice. Small side part of that story, the king was really irritated and chopped the guy’s head off, which does not fit my analogy so well. That is kind of where we are at.

I think that the world has changed profoundly because of digital technology. We are at this sort of middle of the chessboard, but there is a lot more to go. This is the period where exponential growth really starts to become difficult to control and becomes faster than we can anticipate. We are just very grateful for the opportunity to be here to speak to all of you, to the Empire Club for hosting us, and for all of you for sharing an interest in blockchain technology. With that, I am going to end my remarks—I know I have gone over time, one of the many lessons I have learned from my dad, and hand it over to Don to do the second half. Thank you very much.

Don Tapscott

I am delighted to be here, and I really mean that. One of the reasons is that I get to share a stage with Alex. Every time he speaks, there is this profound, witty stuff comes out of his mouth. It is a great accomplishment, as a parent, to have a situation where your son is really a tough act to follow. Last time that happened to me, I think it was Bill Clinton. It has been a joyous experience collaborating with Alex, I think in part because we share DNA, but we have also shared a pretty common experience in our family, together. We did a TV show when the book first came out. Someone asked Alex, live on TV, how long he has been collaborating with his father, and he said about 30 years.

We are very excited about the new edition of the book, and we hope that you enjoy it. Alex talked about the middleman. These are central to establishing trust in our society, but, increasingly, they need help. I do not know if you can remember where you were on September 16th, 2008, two days after Lehman Brothers fell, but I was on the stage doing the closing keynote for Sibos, the biggest congress of bankers in the world—10,000 bankers. They were sort of like deer in the headlights, an analogy that works in Canada, and I have learned not elsewhere. Although, if you look carefully at this picture, you can see on the right a couple of thousand empty seats. These are all people who had lost their jobs in the last three days. These intermediaries do need help. They are centralized, which means they can be hacked. They exclude a couple billion people from the global economy.

They slow things down. It should not take seven days for money from a Filipino housekeeper in Toronto to go to her mom in Manila. She should not be charged 20% for that. Overall, we need to rethink the banking system, but we need to rethink everything. Alex has referred to this as the second era of the Internet. I think that is an analogy that we used, which is quite helpful. For decades, we have had an Internet of information, and now we have an Internet of value, where anything of value from money to stocks to music to intellectual property, votes—things of value that belong to somebody—can be managed or transacted in a secure and a private way and where trust is not achieved by a middleman, but by cryptography and collaboration and some clever code, which is why we call it the trust protocol. Trust is native to the medium.

Banks are not going to go away; they are embracing their technology to reinvent themselves, but one of the benefits for traditional institutions is that this has a much more secure computing environment. I came up with this great analogy to describe why it is really almost impossible to hack a blockchain. You would have to hack bitcoin; you would have to hack that ten-minute block, plus the previous block, because they are connected with a digital wax seal, not just on one computer using the highest level of cryptography, but across millions and millions of computers all around the world simultaneously while the most powerful computing resource in the world is watching you to make sure that you do not mess around. I will not say it is unhackable, but it is infinitely more secure than the computer systems running in the big banks on Bay St., for example.

I had this great analogy, and then John Oliver on late-night TV did a whole half hour show on blockchain and well, you will see what happened.

[VIDEO.]

My body is whole, but what of my soul? Anyway, I still think it is a good analogy. Let me just talk about four of the new things that you are going to read in the new edition of the book.

First of all, as Alex has pointed out, this is not fundamentally about currencies; it is about a new operating system for our economy that will profoundly change every institution in the economy, including the enterprise. In the book, we hypothesized you could have a highly complex organization like a company that was highly automated, that had no CEO, no management, no people; it would essentially be a number of smart contracts, as Alex explained, and autonomous agents. What is going to happen to AI? AI is not going to run on some supercomputer; it is going to be a whole bunch of little, software agents that move around and learn and learn how to do things that they were not programmed to do. You have these all running on a blockchain. Could you have the upper right quadrant there—we called it a decentralized autonomous enterprise? We almost did not publish it because we thought this is just too futuristic; it is a fine line between vision and hallucination that over the years, I have tried to manage, always effectively, but we went ahead and we published it.

A week after the book came out, an entity was launched called the Decentralized Autonomous Organization. It was a venture capital company with no CEO, no management and no people. It was a bunch of smart contracts and autonomous agents on the Ethereum blockchain. Its first job was to go and raise some money. In three weeks, this thing with no people raised $164 million USD and set about its work.

Those of you who know the story, it is not a happy ending, because there was a coding error in one of the smart contract facilities, and the creators of this thing decided to give the money back to the investors. Just the fact that this could exist—you know Bob Dylan: There is something going on here, and you do not know what it is. We are in the early years of some profound changes to the deep structure and architecture of the corporation. Companies are going to look more like networks. That does not mean they will be smaller. They could be big, but this is a change in how we orchestrate capability in society to innovate to create goods and services to engage with the rest of the world.

We have these new blockchains such that if bitcoin was like email for the internet of value, these new platforms, as Alex described, look more like the web or could look like a smartphone. Hyperledger, brought to you by the Linux Foundation, led by IBM, Ethereum has gone enterprise now, creating an alliance with big companies that are adopting Ethereum. We have r3, 180 banks that got together to try and create a new transactional platform for the banking system and a killer app that is turning out to be the $50 trillium supply chain industry in the world, the business of moving things around. Imagine, you have a whole bunch of suppliers and all these things come together. I remember the CEO of Boeing saying a 787 Dreamliner is sort of a whole bunch of parts flying together in close formation. You want to get that right, and you want to know the provenance of all of the parts. Right now, things move through faxes and trains and boats and planes and trucks and emails and little bits of paper inside railway cars. Imagine if you could have what we call a shared network state, a global ledger where everyone sees in real time what is happening, and so it would be reducing errors, reducing friction, speeding up the metabolism of supply chains—there would be fewer lawyers, sorry about that lawyers. My sister, I see her, is in the audience, a fine lawyer. Overall the shared network state would revolutionize a $50 trillion industry of how things come together in the world.

This is not a theory. This is a picture from three weeks ago at a conference called Consensus, with 8,000 people in New York. I gave the opening talk and then I interviewed Fred Smith, the legendary CEO of FedEx and Rob Carter, the legendary CIO. They got the audience to applaud during the interview three times as people were just staggered by what a profound view the leadership of FedEx has about how blockchain can move their chain of custody, which they were famous for, knowing where a parcel is, to a whole next new level.

Then, we have these extraordinary new companies like Sweetbridge wanting to transform the supply chain industry. Here is one. Sweetbridge enables you to issue a currency backed by your own supply chain. That currency is pegged to a fiat-currency, like the US dollar, the Canadian dollar, the pound, whatever. Then, because you have this currency, you can borrow money from yourself to fund the advancement of your supply chain. If that does not hurt your head, then your head is different from mine. That is one of a dozen things that this company is doing.

One Belt, One Road is linking Hong Kong and Rotterdam, the new Silk Road, which is a trillion dollar project led by China. There are 22 countries involved, hundreds of companies, all of the trade finance. You have a buyer and a seller, and in the middle are all these various players, and agents, and tax authorities and so on, all passing things along. Now, they can see a common single version of the truth. That is a big one. It is not about cryptocurrencies only; it is about a change to the way business operates, probably the biggest one, certainly in my lifetime and maybe ever.

Number two, there is a big issue here that has to do with identity. This is not just about identification; it is about something much, much bigger. Here is the way it works. I am looking over here at my niece, Emma. Emma, as a virtual Emma knows more about Emma than she does in all kinds of areas, because the virtual Emma does not know what she bought a year ago or what she said a year ago or exact location a year ago or what medication she had or what diagnosis she had or what she got on that test or what her heart rate was. All this data is collected into the virtual Emma that constitutes her identity. This is the new asset class of the digital age. It is the new oil. Emma creates it, but she does not get to keep it. She cannot use it to plan her life; she cannot monetize it; and other companies are getting wealthy because of this, and her privacy is undermined. To people who say to me, “Don, privacy is dead, get over it,” I think that is a dumb point of view. Privacy is the foundation of freedom. We need to get our identities back, so that we can manage them responsibly.

In the first edition of Blockchain Revolution, we moved this topic right up into chapter one, and, in the new edition, we have written about it a lot more because it is going to a next level. You know about the genome. Well, there is this thing we call the menome such that your identity includes all this DNA evidence now and this deep, deep real-time medical evidence as well. This is a really big problem and it is a really big opportunity, because it means that you can have your own identity that you control in a black box. It is on a blockchain. This thing will sweep up all this transactional information in a way that you can use it. You can decide to animize it and sell it if you want and you can protect your privacy. I cannot think of a more important issue in this digital age as we go forward, in terms of getting our identities back and this technology provides an ability to do that. We are working very hard on a number of projects on the Blockchain Research Institute to ensure that this occurs.

This is an existential issue for Facebook, for sure, because they are of the old feudal model that we all work the land and we get to keep some cabbages. Remember feudalism, the system prior to capitalism, according to which the landlord kept everything that you made. Emma wants more than a few cabbages. She wants to have all of those vegetables. This analogy is going nowhere. Emma, eat more vegetables.

What is going to happen is there will be a new generation of data brokers that will negotiate with her. She is probably going to say, “If I am found unconscious in an accident, my entire medical record can be released to any certified medical person.” She also may say, “I am going to anonymize certain parts of my medical record and let people use it for research or maybe I am going to sell it to certain people,” or whatever. I speak passionately about this, because not every book I have written has been a bestseller. I have had a few studies in bad timing. This was a 1995 book that I wrote with Ann Cavoukian. Back then everybody said, “Privacy? Huh, I do not get it, Don.” My mother, thankfully, came through with a big volume purchase on this book, but nothing so powerful as an idea whose time has come again. At the Blockchain Research Institute, we are spending a lot of time, thanks to Gowling and some of our other partners, KPMG, who is here. We held a big roundtable a couple of months ago, where we brought many of the world’s leading thinkers together.

Number three: If this is the second era of the Internet, where is Silicon Valley going to be? That is kind of a pertinent question, because look at Silicon Valley, what an economic engine that is. People there make more money in the whole Bay Area than anywhere else in the world, practically. Maybe New York is higher because they have the banking industry. There are jobs; there is wealth; there is lots of money for government and infrastructure and all the rest. What are the criteria? It turns out that Canada is pretty good. We have got some good government support. In our Blockchain Research Institute, we have the Bank of Canada, the federal government, the Ontario government, the City of Toronto. If you talk to John Tory, he will tell you about blockchain as will our prime minister. We have a pretty good market here, in Canada. It is not the same as say Shanghai. The regulators in Canada are pretty good. They certainly are not doing really dumb things like are being done in some other places in the world.

This is a great ecosystem. I remember Alex was asked to speak at this meetup, and the first one had 100 people show up, and the second one had 300. The next one had 600. He showed up, and there were 1,100 people, and 400 were trying to get in the door and seeing it in all kinds of other off-campus TVs and so on. We have five big banks, not 100, and they can actually get together and rebuild the whole banking system if they willed it.

We have leadership now, the Global Centre for Thought Leadership is in Toronto, through our Institute. Funding for investment was never really great in Canada—lousy angel, not so good venture capital. And the real problem was when you would get to be a $30 million company, you want to do a Series A or Series B round, and Sequoia would say you have got to move to Silicon Valley. We not only had a brain drain; we had a company drain. Thanks to Donald Trump, the brain drain is being reversed, but also the company drain is being reversed, too, because of ICOs that you do not need to go to Sequoia now to get funding.

We have got a great labour force, lots of young people, great universities, great computer science, and big companies are starting to pay attention to this. Where is Luke? Tomorrow, we are announcing—you get to see it here first—a big analysis that we are doing. It is going to be real time, and it is going to be on the Internet, on the internet of information— top 15 centres in the world according to our weighted analysis. We are going to hold a world’s cup of blockchain where those top 16 will be in four quadrants, and we are going to go on to Twitter and let the world decide who wins the first round, who wins the second round and, ultimately, who will win the world’s cup. Do come to blockchainresearchinstitute.org. Is that where it is going to be? Yes, blockchainresearchinstitute. org and vote for your favourite. It is amazing that Canada is even on that list, a Canadian centre is even on that list.

Finally, I wanted to just close by saying thanks for your support. We are doing a lot of great stuff at the BR. We have, actually, 80 projects underway right now. They are funded by many of the world’s largest companies and a growing group of governments.

We are looking at the strategic implications of all this technology. I would like to just pause for 15 minutes while you read through this, then we will have a question period. Breakthrough Ideas No. 8 is particularly fascinating.

No. These are the projects that we are doing. Each of the projects, after it has been available to our members for six months. We are going to open under creative comments, and the world is going to be able to see it. That is going to be really exciting.

Alex mentioned regulations, so I just pulled off a few of the reports that we are doing on that topic. We have the world’s leading scholars on regulation, the world’s leading policy thinkers, and we had a regulation roundtable where we brought many of these regulators together. It is a tough time to be a regulator because you have the irresistible force of this new technology meeting up with the immovable object of the need to protect consumers and investors. We think tinkering is not really going to work. We are going to need some important new thinking on this topic. These are four of the new topics. This is a pitch on why you ought to read the new material in the book. We hope that you will find it helpful.

This is a time of big change. It is a new paradigm. New paradigms are often received with coolness, or worse, mockery, hostility, vested interest, fight against change. Leaders of old paradigms often have great difficulty embracing the new. How will your company find leadership? How will Canada find leadership? Can we do this?

Our view is that the future is not something to be predicted; the future is something to be achieved. You all self-selected to come to this event. Thank you very much for that. That means that you, collectively, are part of the nascent leadership that perhaps can build an innovation economy in this country and contribute to solving some of the most intractable problems in the world.

Technology does not solve these problems; people do. The first era of the Internet resulted in some things that are not so great: undermining of our privacy, bifurcation of wealth; fragmentation of social discourse where anyone can end up in their own self-reinforcing echo chamber and believe whatever they want. There are many, many problems. Blockchain is not going to solve them, but, once again, this technology genie has escaped from the bottle. It was summoned by this anonymous person or persons at this uncertain time in human history, but it is giving us another kick at the can, another opportunity to rewrite the economic power grid, the old order of things and maybe build a world that is more just, more open, more fair and more sustainable, but only if we will it. Thank you very much.

Note of Appreciation, by Richard Carleton, Chief Executive Officer, Canadian National Stock Exchange

Thank you very much, Barbara. Everybody, on behalf of the Empire Club of Canada, it is my privilege and honour to thank Alex and Don for their remarks this afternoon and to congratulate Don for perhaps dropping the first F-bomb in the history of the Empire Club of Canada—did not see that coming, I have got to tell you, and to report from the frontlines that, in fact, Canadian business is going to take a leadership role in the adoption of blockchain technologies.

We are going to provide a safe, well-regulated home for these new digital securities that are being created. We are going to provide investors with new kinds of investment products. We are going to reduce costs for issuers, and we are going to dramatically lower costs for investment dealers participating in the marketplace.

This really is going to be a revolution, and it is going to change things in our small part of the world. I think all of you here today are going to see the impact a lot sooner rather than later.

Finally, I would like to congratulate Barbara on a successful year as President of the Empire Club of Canada. It has been a privilege and honour to work with you as well. Thank you very much, everybody.

Concluding Remarks, by Barbara Jesson

For over 100 years at the Empire Club, we have prided ourselves on bringing important topics to public discourse, but we could not do it without our sponsors. We are extremely grateful for the sponsors for today’s event, IBK Capital, the Canadian Securities Exchange and our book sponsor, Cobalt Blockchain Inc., and gold sponsor, KPMG LLP, for making this event possible. We are just extremely grateful that you have allowed us to bring this important discussion to our podium.

I would also like to thank mediaevents.ca, Canada’s online event space for webcasting today’s event for thousands of viewers around the world, and also to the National Post, our print media sponsor.

Although the club has been around since 1903, we have moved into the 21st century, and we are active on social media. You can follow us at @Empire_Club and visit us online at www.empireclub.org. You can also follow us on Facebook, Instagram and on LinkedIn.

This concludes our 2017/2018 season, but we are already hard at work on next season, and I am pleased to let you know that our first event will be Victor Dodig, CEO of CIBC on September 11th.

Thank you so much for your attendance, today. Richard and everyone, thank you for your support this past year. It has been a marvelous ride.

This meeting is now adjourned