Could blockchain be the operating system of the cities of the future?

Servers, of the sort which you might need for blockchain, maybe. Look this is quite hard to illustrate, okay? Image: Getty.

Many trends on the horizon offer opportunities that could transform our cities. From self-driving vehicles and the sharing economy through to cloud computing and blockchain technologies, each of these trends is quite significant on its own. But the convergence of their disruptive forces is what will create real value and drive innovations.

Take blockchain and the sharing economy as an example. Bringing these two forces together can potentially disrupt established companies like Uber and Airbnb. The success of these companies is largely due to their ability to make use of existing assets people owned, that had been paid for, but from which new value could be derived.

Effectively, these companies set up digital platforms that harnessed “excess capacity” and relied on other people to deliver the services.

The same applies to other so-called “sharing economy” companies that merely act as service aggregators and collect a cut off the top. In the process, they gather valuable data for further commercial gain.

But can this business model be challenged and enhanced for the benefit of those who are delivering the service and creating the real value? Can technology be used to bypass the third party and allow direct peer-to-peer collaboration within a distributed governance structure? What could a “peer-owned” and “peer-run” marketplace look like?

Blockchain technology could just be the answer.

What is different about blockchain?

You can think of blockchain as the second generation of the internet – a transformation from an internet of information to an internet of value.

Blockchain allows suppliers and consumers – even competitors – to share a decentralised digital ledger across a network of computers without the need for a central authority.

The assets that can be described on the blockchain can be financial, legal, physical or electronic. No single party has the power to tamper with the records – sophisticated algorithms keep everyone honest by ensuring data integrity and authentication of transactions.

Image: Zenobia Ahmed/The Conversation.

But the impacts of blockchain go well beyond financial services and transactions. Its real value is in establishing trust-based interactions and accelerating the transfer of governance from centralised institutions to distributed networks of peer-to-peer collaboration.

The impact can be profound: a centralised institution acting as intermediatory in a transaction of value is now at risk of being disrupted because the same service can be provided on the blockchain through peer-to-peer interaction.

Blockchain gives service providers a means to collaborate and derive a greater share of the value for themselves. Smart agents on a blockchain could do just about everything provided by a service aggregator.

The technology’s trust protocol allows autonomous associations to be formed and controlled by the same people who are creating the value. All revenues for services, minus overheads, would go to members, who also control the platform and make decisions. Trust is not established by third parties, but rather through an encrypted consensus enabled by smart coding.

The transformation has already begun

We already have examples of this technology in action.

Arcade City, a global community of peer-to-peer services, is planning to offer a ride-sharing service on the blockchain. To catch a ride, the user buys digital currency (known as tokens), creates an offer and commits funds for the ride. A driver claims the offer, matches the funds to signal their commitment to provide the service, and picks up the passenger. The blockchain releases the funds as soon as the user acknowledges completing the ride.

Arcade City has a city council, which will overlook the system for three years until it is fully decentralised and up and running.

The same concept of using distributed public record technology can be applied to a wide range of urban applications.

For example, an energy startup in Perth is looking to trial a peer-to-peer technology solution that would allow consumers to offer excess energy, available through their solar panels, on the blockchain. Clever code matches the suppliers with consumers without the need to go through the energy provider.


Still more questions than answers

The blockchain technology and ecosystem around it are evolving rapidly, and are probably raising more questions than answers. How do we establish a system of transparent governance to ensure the longevity of the blockchain? What about security, speed, cost and, more importantly, regulations?

As with other disruptive technologies, there will be winners and losers. If the technology is successfully managed for scalable growth, it could very well disrupt established norms and transform our societies. Large layers of data generated by consumers today, which are controlled by hubs, can become public. In a world driven by blockchain, consumers can monetise their own data to derive greater value.

By knowing when and how to take advantage of this technology, we have an opportunity to transform the digital platforms for tomorrow’s cities. The blockchain becomes the city’s operating system, invisible yet ubiquitous, improving citizens’ access to services, goods and economic opportunities.

Today, the technology is yet to mature. It remains to be seen if the expectations can live up to reality.

But, in many ways, this is quite reminiscent of the internet in the mid-1990s. Not many people would have predicted its significance back then. Had we understood the impacts of the internet 20 years ago, what could we have done differently to create more value?

That is where we stand today with blockchain. The power of this transformation will become more compelling as the hype settles down and we begin to unleash the possibilities.The Conversation

Hussein Dia is an associate professor at Swinburne University of Technology.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.