Fiscal 2019 marks the final year of RIETI's fourth medium-term plan covering the four-year period beginning in April 2016. The main goal of this plan is to determine the relationship between emerging industrial technology—as seen in the Fourth Industrial Revolution and exemplified by artificial intelligence (AI)—and society, with an eye on developing a leading global center of excellence for social science research regarding AI. The Ministry of Economy, Trade and Industry (METI) defines the term "Fourth Industrial Revolution" as the process of incorporating new information technology—AI, Internet of Things (IoT), big data analytics, and so forth—into society, and using it as a driver to promote the development of the economy and society.
We must look into the future beyond these trends, and it was with that intention that RIETI established a study group to examine the future prospects of blockchain technology in 2018. We invited not only engineers and business people working at the forefront of the development and commercialization of the constantly evolving blockchain technology, but also lawyers and administrators well-versed in the field, to join the group, and we have been considering how blockchain technology can be industrialized and what social systems will be needed to support the process. We compiled the study group findings and published them as a book entitled Next Blockchain: Creation of a new ecosystem for future industries (Nikkei Publishing Inc.). In this article, I will briefly introduce the ideas discussed in the book.
In relation to the publication of the book, RIETI will hold a symposium under the same title on Monday, October 7, 2019. Among the speakers at the symposium are Chris Dai, one of the co-authors of the book, Fabian Vogelsteller, the developer of ERC-20, the technical standard used for the Ethereum blockchain, and Steven Pu, the founder of Taraxa.io, and readers are encouraged to take advantage of this opportunity to listen to their stories and ideas.
Data as a new resource
Many people think of cryptocurrency when hearing the word "blockchain." Today, however, blockchain technology is increasingly expanding its utility, with new technologies emerging and the scope of applications beginning to extend beyond the financial sector into other areas. Blockchain expected to serve as an interface between information technologies—such as AI, IoT, and big data—and people's lives. As such, blockchain technology has a lot of potential and is subject to growing expectations, but what will it take to enable blockchain to spark technological innovation across the board? In order to find the answer to this question, we need to look at the entire information industry from a completely new perspective.
The current phase of technological innovation is unique within the series of technological innovations that began with the First Industrial Revolution. The latest technological innovation builds on data, a completely new resource. In the old economy of the not-so-distant past, people found little—if any—industrial value in data. However, the development of the internet changed everything, and people suddenly began to find enormous economic value in data. In the past, certain commodities suddenly became valuable as a result of technological innovation, with examples including coal and oil.
However, what differentiates data from coal and oil is the fact that while both coal and oil were replacements for other existing commodities, with coal replacing firewood and charcoal, and oil replacing coal, data emerged as a completely new resource and not as a replacement of something that already existed. It is thus quite natural that high expectations are being placed on data-driven technological innovation.
In order to promote technological innovation while at the same time incorporating a completely new resource, it is also necessary to explore ways to shape new economic and social systems. Recently, computer scientists and engineers in the United States are increasingly using the word "ecosystem" to describe the whole picture of information technology and its underlying social systems. Originally used in biology, the term refers to a natural environment in which diverse living things carrying out their respective activities and yet balance is maintained overall. Living things adapted to their local environments of forests, oceans, rivers etc. supported by the sun and other resources, and are born, grow, and produce the next generation.
Many pundits believe that a system resembling such an ecological ecosystem is needed to enable the development of information and communication technology (ICT). There is a very resource-rich realm of cyberspace called the internet, where various engineers write programs and develop new pieces of software. And there are users who select only the elements of the ecosystem they find the most useful. The system needs investors who can assess the process and put up funds to enable computer engineers to develop more advanced communication systems and computers. This should prompt further flows of funds into the development of programs and software for a new era, thereby giving rise to next-generation technology. In other words, there will be no development in information and communication technology without a balanced cyber ecosystem in which technology, people, and the economy thrive together.
Building such a cyber ecosystem will require the collaboration of people from various areas of expertise. It is crucial to involve not only engineers but also entrepreneurs and businesspeople, who would start and operate new businesses, as well as experts with in-depth understanding of financial and monetary systems. Even more important is to involve potential users of new services made possible by technology and businesses. While those people carry out their respective activities, they become linked with one another and share information, becoming involved in the development of information and communications infrastructure, engaging in productive activities, and forming a market to exchange their products—all based on their free decision-making. In order to build market infrastructure to support this system, it is also necessary to involve economic, legal, and policy experts, i.e., those who understand market movements and the law, and those capable of designing and implementing business-related rules. A high-quality market will be formed only in a resourceful and balanced—i.e., healthy—cyber ecosystem.
A healthy cyber ecosystem and blockchain
However, it is wrong to assume that a healthy cyber ecosystem will evolve spontaneously as technological innovation advances. Ever since the First Industrial Revolution, industrialization has always led to the concentration of resources within specific industries and businesses. Great technological advancement leads to a degradation in the quality of the market. And when the market quality is degraded to a certain level, the social structure begins to change, causing various social problems. The ongoing innovation in information technology is no exception. Massive amounts of data have been accumulated in a single group of companies referred to as GAFA, i.e., Google, Amazon, Facebook, and Apple. While such concentration of resources has contributed significantly to improving the productivity of these companies, it has also caused problems such as the Cambridge Analytica data scandal (Note 1).
In order to build a healthy cyber ecosystem by preventing the concentration of resources in the hands of large companies, it is important to ensue that resources (data) are shared, distributed, and used widely throughout all of society. To this end, it is necessary to return data ownership to the individuals who generate the data. A blockchain has the potential to keep self-directed records of data ownership for an unlimited number of people. Once ownership is established, data can be traded and used for all sorts of purposes. Only then can we derive the true value of data and create a healthier cyber ecosystem.
Building a social system that can sustain a healthy cyber ecosystem
In order to sustain a healthy cyber ecosystem, we need to design an effective system of establishing data ownership from both legal and economic perspectives. Blockchain technology enables us to define the ownership of each piece of data and makes data searchable by assigning data ownership to the specific individuals who generated the data. Indeed, by taking advantage of this technology, we can attribute the ownership of digital data to individual data producers. At the same time, however, information tech giants can hoard massive amounts of data cheaply by utilizing blockchain technology. To avoid such a winner-takes-all situation and build a healthy cyber ecosystem, it must be decided who should own the data?
Momentum is building for individual ownership of data, i.e., attributing the ownership of a piece of data to its producer, for instance, by including provisions to that effect into the Act on the Protection of Personal Information. However, there is little compatibility between the protection of personal information and the use of data for industrial purposes because digital data are of little value in industrial terms when analyzed on an individual basis. Only when collected from as many individuals as possible and used for statistical analysis, can digital data have significant value. Such digital data can be anonymized, and when done properly, it would provide sufficient privacy protection. Even so, concerns over data ownership infringement would not disappear. A separate system, other than the system under the Act on the Protection of Personal Information, needs to be established to attribute the ownership of the data to their producers.
Blockchain technology is advancing exponentially. However, technology alone cannot solve the issue of data ownership. We need to take advantage of evolving technology and develop it as an industry. In designing a cyber ecosystem necessary to achieve that end, we must address various cross-disciplinary issues that encompass the legal and economic spheres. These issues should be analyzed from the perspectives of the law and economics in order to enable the holistic design of relevant institutional frameworks.
September 5, 2019