Is NZ dragging the blockchain?

  • Technology
  • August 6, 2019
  • Radio New Zealand
Is NZ dragging the blockchain?

In 1995 the "internet" became the hip new thing. Media marvelled at the technology, and in a time capsule video from America's Today show, its presenters are baffled. One asks, "What is 'internet' anyway?" while reporter Katie Couric says an @ symbol either means "about" or "around," and even Microsoft founder Bill Gates likens the internet to a fashionable trend. A stuffy, older-looking executive belies his appearance to boldly predict that within five years every business, "no matter how large, no matter how small," will be on the internet.

Almost 25 years later, the same is being said of blockchain - an emerging technology that has been described as the biggest thing since the internet. Yet you would be forgiven for not having heard of blockchain - and if you have, you probably can't explain how it works.

Auckland University associate professor Alex Sims often plays the Today show clip to make a point about blockchain. "Back in the mid-90s, people were scratching their heads asking how the internet worked. But today, how many of us really know? It's about what you can do with it."

When Sims teaches students about blockchain in her classes at the university's business school, she doesn't bother explaining the technical details. "There's a famous book on blockchain that calls it the first technology that is fundamentally difficult for otherwise capable and intelligent people to comprehend."

But that's just fine, she says. "I'm one of these people who believe it will impact everything… There's not an industry or an enterprise that won't be affected, and everything we take for granted will change." And all people will ask, she says, is, "Does it work?"

Explaining the unexplainable

Blockchain may verge on being unexplainable, but deep breath, here goes.

A blockchain is essentially a digital record of data that isn't managed by one central authority (like a bank or a company). Anyone in the world can update or view that record - depending on what permissions they have. Each update is known as a "block."

Blockchain's biggest proponents, who often have an inherent distrust of big and powerful corporations, say it's a game-changer in terms of transparency. Everyone could control and view their own data on their phones or laptops - whether it's their money, their health records or their vote in an election. Blockchains also mean less paper.

But that's bigger picture stuff. In the meantime, blockchains are more often being utilised by businesses. For instance, Walmart has begun using the tech for its supply chain. Each block represents a step that food has taken on the way to the store. Whereas it typically took seven days to trace the source, it now takes about two seconds.

The retail company introduced blockchain after an E. coli outbreak last year led to millions of dollars of lettuce being thrown out. Blockchain would prevent it happening again, as Walmart can now immediately identify exactly where each lettuce has come from. 

 

Aaron McDonald, the co-founder of one of New Zealand's biggest blockchain companies, Centrality, has a succinct way of describing it to newbies. "Imagine a spreadsheet that everyone in the world can update, but there's a set of rules to make sure only the right people can do so." If that fails to register, he compares a blockchain to a modern-day cooperative, "a bit like Fonterra", that's run by a community of people.

McDonald is a tall, softly-spoken entrepreneur who has managed tech portfolios worth more than $1 billion. Centrality, which builds blockchains and supports other New Zealand startups, raised $100 million in six minutes when it listed last year. Newshub recently rated Centrality's worth as similar to The Warehouse. But McDonald demures. "We're still quite valuable by New Zealand standards, but our last valuation was a bit over $100 million - we're not at the level of The Warehouse yet." 

Centrality ceo Aaron McDonald. Photo: Richard Parsonson CINEDESIGN Ltd 

He is one of those big picture types. He says blockchains can show exactly how aid is being sent to a developing country, or be applied to personal data security, which would restrict the power of companies like Google and Facebook. "We can lift people from being users of systems, to owners of systems."

'I want to reclaim every piece of data about me'

Eighteen months ago, Kaye-Maree Dunn didn't know what blockchain was but she'd heard it was a game-changer. "So straight away I wanted to make sure Māori weren't left behind."

She is co-developing a blockchain platform called Āhau, which will trace people's whakapapa. Ms Dunn, who grew up in Feilding as the youngest of 11 children, defines herself as a Māori social entrepreneur. "The number one thing that connects Māori is whakapapa, so we want to look at what that means," she says. "How are we preserving our matauranga Māori and our taonga and the aspects of our culture we care about?". 

The same week she talked to RNZ, she started meeting tribal leaders to discuss how comfortable Māori are digitising their material. She hopes once Āhau grows as an archive, it could assist in how whānau and iwi communicate and make decisions - for example about land ownership - or allow stories and artwork to be stored on a blockchain that can only be accessed by whānau.

She plans to have a version of Āhau live in December, but isn't taking anything for granted. "There's no such thing as an unbreakable technology - what's going to make or break this is whether it's usable."

For Mrs Dunn, a big part of the appeal of blockchain is its decentralised nature. She believes people are no longer comfortable with financial institutions and massive corporations owning their data and arbitrarily making decisions on their behalf. "If I'm looking at the potential of blockchain, it's about increasing trust... People are one day going to say, 'I want to reclaim every piece of data about me - I want it all back.'"

When she first heard of blockchain, she wanted to create a Māori cryptocurrency - "Our people need to find a system and a process that helps us build our own wealth" - and she's still holding on to that dream. "Our tupuna were wise - they saw opportunities and they went with whatever was going to create the best outcomes for their whānau and hapū. That's the same for us."

'We stand to lose the most'

The blockchain life has been good to Mark Pascall. The executive director of advocacy group Blockchain NZ speaks to RNZ moments before driving north to hit the central North Island slopes. "One advantage of blockchain is you really can work remotely - I've been in a video conference call with someone on a beach in Bali."

His description of blockchain? "An immutable source of truth."

In June, Facebook announced plans to launch cryptocurrency Libra, which would allow people to make payments using its apps. Like other cryptos, Libra will run on blockchain technology. Uber, Visa, Spotify and Mastercard have all backed the venture.

Mr Pascall says while it's unhelpful that blockchain is once again lumped in with a cryptocurrency, Facebook's announcement "has definitely brought the timeframe right forward" and further legitimised the technology.

Last month, Mr Pascall and Blockchain NZ wrote to Prime Minister Jacinda Ardern, urging her government to focus on blockchain, "or it could prove costly to the New Zealand economy". Some of New Zealand's biggest companies, like Air New Zealand, ANZ and Spark, as well as the Education Ministry and IRD, are members of Blockchain NZ.

In the letter, Mr Pascall, who has also urged a select committee to take action, suggested a new ministerial responsibility or cross-agency taskforce. "There are other countries taking a more holistic approach... It's frustrating. We should be starting the dialogue as soon as possible." The government is yet to respond.

Technology is New Zealand's third biggest export sector and brings in more than $16bn a year. ,Mr Pascall says it's an industry that is constantly changing. "In a way, we stand to lose the most as a smaller country in the global ecosystem, and we could become irrelevant if we're not careful."

You would be hard-pressed to find a major economic player in New Zealand that hasn't, in the past year or two, announced it was toying with blockchain. But so far, Pascall says the corporates are generally just "experimenting", perhaps simply because they feel they have to. "You can guarantee most CTOs [chief technology officers] are telling their bosses that this is something they need to be looking at."

Take Fonterra, for instance. Last year the cooperative announced it was using the tech to improve its supply chain. By looking at a blockchain - which traces goods every step of the way - Fonterra's Chinese customers can ensure what they're getting is legitimate.

Similarly, NZ Post last year said it wanted to incorporate a blockchain to better track its customers' orders. Air NZ saidit wanted to use blockchain to track cargo and baggage, while Stuff reported Ports of Auckland was serious about investing in blockchain. Yet despite blockchain being in vogue, all three organisations were extremely lukewarm when contacted by RNZ.

NZ Post says the "person who was leading NZ Post's work on blockchain technology has recently left the organisation" and no one else could comment, while Ports of Auckland says it has completely pulled the plug: "We have given it thought previously, but that hasn't turned into anything." Air NZ didn't respond to repeated requests for comment. 

Despite the relatively "conservative attitude" of our biggest companies, Mr Pascall is upbeat. "A lot of the experimenting is happening behind closed doors."

Alex Sims suggests a domino effect has to happen for New Zealand to become a big player. "Blockchain in its nature requires coordination and multiple organisations agreeing to use it - I always say the tech is the easy part, it's getting people to work together that isn't." She says right now, there are a lot of trials happening, but businesses seem "hesitant," perhaps because of the cost of change.

Auckland University professor Alex Sims says NZ faces the risk of being left behind. Photo: Supplied 

Centrality's Aaron McDonald is a save-the-world type, but he also wants to make money. He says blockchain can give power to everyday people, but still provide massive economic opportunities for the companies that have historically had it all. He accepts that corporations aren't going to willingly concede their greatest assets - like data - but like Kaye-Maree Dunn, he believes people will one day want to reclaim their digital identities.

For now, people still trust brands. "It's going to take a long time for that part of our human nature to go away," he says. "But hopefully this creates a bit more balance in the force." 

'NZ Industry is lagging behind' 

In a recent speech at a Centrality event, Statistics Minister James Shaw told a very techie crowd that it once took 17 tries for someone to explain blockchain to him before the lightbulb moment.

Speaking to RNZ at Green Party HQ, he readily accepts the government "needs to be better educated about blockchain and its implications". Right now, the government doesn't have a good enough grip on the technology, he says. "I wouldn't even say we're dipping our toes in the water, I'd say we're looking at the water and trying to make that decision."

He's old enough to remember when the internet arrived, and while he resists predicting blockchain will have a similar effect, he says, "I wouldn't be surprised if it did."

At the end of last year, a report by the country's innovation agency, Callaghan Innovation, found blockchain could have a "significant impact" in many sectors, including primary industries, financial services, public services, arts and culture, science and research and foreign aid.

At the time of the report, more than $30 billion had been spent on blockchain startups around the world, yet it found "the New Zealand industry is lagging behind". The report said the government needed to be "willing to engage," and suggested a cross-agency working group.

Aaron McDonald says his conversations with government officials have been positive, yet a lack of clarity is proving a hindrance to companies trying to incorporate blockchain. "The number one thing that would help the industry right now is for the Reserve Bank to provide some clarity on how it would like to see the industry evolve." That, he says, would make banks less nervous.

Mr Shaw agrees. "The Reserve Bank needs to weigh in at some point. I don't necessarily think it will lead to a regulatory framework, but we need to be ready to decide whether regulations are necessary, and I'm not sure we are."

In a statement, the Reserve Bank says developments in blockchain may require it to change its "supervisory approach," and look at which entities fall within its regulatory purview. "At the same time, the Reserve Bank … [will] ensure that New Zealand provides an environment that does not hinder digital innovation."

Alex Sims says it should be up to the government to bring blockchain "out of the shadows", because right now in New Zealand, "no one really knows what's going on."

The bad press  

There's a strong air of mystery surrounding blockchain. In 2008, it was announced as the creation of Satoshi Nakamoto, yet to this day, no one knows who this pseudonym (if it even is a pseudonym) belongs to. Tech detectives, journalists and hackers have tried to trace Nakamoto, but to no avail.

Blockchain was created for the controversial cryptocurrency Bitcoin, and has always been, in McDonald's words, "lumped into the Bitcoin bucket". But while Bitcoin can't exist without blockchain, the underlying technology can be used in vastly different ways.

Mr Pascall says clarity from the government would help separate blockchain from the dodgy reputation and "bad press" of Bitcoin, which has wildly fluctuated in value over the past few years.

Yet while blockchain may be a world-changing technology, it's not without its flaws. Developers are still figuring out the environmental cost of the huge amount of computing power it requires, while some blockchains can become laggy as they grow in data.

This year, an article in the MIT Technology Review found that hackers are successfully targeting blockchains increasingly often. While they mostly aim for cryptocurrencies, it's a blemish for a developing technology. "Marketing slogans and headlines that called the technology "unhackable" were dead wrong," the article's authors wrote.

And as the tech has mushroomed, legislators haven't kept up. The lack of regulation - which some argue is a positive - is making users and enterprises nervous. Even US president Donald Trump weighed in last month, albeit about cryptocurrencies, saying digital money was "not money".

Yet if blockchain fails to take off, Aaron McDonald says it would be because of over-regulation. After a pause, he adds, "Or apathy - people may just be comfortable with what they have."

But the world's biggest companies aren't resting on their laurels. More than 60 percent of the world's Fortune 500 companies are investing in blockchain. "We've passed the tipping point," says Mr McDonald. "It's not something I thought would happen this quickly."

A layer on top of the internet  

Mr Pascall refuses to believe in a future where blockchain hasn't made a significant impact. Not in a billion permutations. "I can't see a scenario where blockchain isn't a part of the world's infrastructure and has failed to become a layer on top of the internet."

His prediction is that over time, the word "blockchain" goes away, in the same way people no longer use terms like HTTP to describe the internet.

James Shaw insists it's not too late for New Zealand to play a leading role in blockchain. For instance, in the short term he would like to see it used to improve the government's digital services.

Meanwhile, Aaron McDonald sees it making an immediate impact in our primary industries. "If we were to develop our supply chains, that would allow smaller players in the market to participate in more meaningful ways." There's also the building sector, which is struggling with traceability issues in its supply chain.

When Walmart announced it was switching to blockchain, some of its suppliers resisted, preferring the traditional way. "There does need to be some sort of carrot offered to businesses," Alex Sims says. "But now Walmart's chain is working and has been very successful."

She issues a stark warning: "If we don't establish a good base here and keep on growing it, the work will happen overseas and other companies will improve their processes far more quickly. As a country, we can't keep relying on tourism and agriculture, which aren't good for the climate."

She returns to her favourite analogy. "Before the internet, businesses ran just fine with filing cabinets and paper." In some ways, she says the internet hasn't changed the world. "We still have a lot of the same institutions and processes as before 1995. Things always worked - we've just adapted."

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