This article outlines some of the conclusions from a 2016-17 research project conducted by the Tapscott Group on behalf of Innovation, Science and Economic Development Canada and written by Don and Alex Tapscott. The full report is available here.
The first era of the Internet was based on information and content being available anywhere and any time. Now, the second era – powered by blockchain technology – is bringing us the Internet of value: a new, distributed platform that will help us reshape the world of business and transform the old order of human affairs for the better.
Blockchain is a distributed ledger in which anything of value can be stored, ranging from money, stocks, bonds and intellectual property, to votes, art, music, loyalty points, carbon credits, health-care records and student accomplishments. Even our identities can be stored, transacted, communicated and managed securely and privately.
In addition to revolutionizing financial services, blockchain will be the foundation for integrating into our economy technologies such as artificial intelligence, autonomous vehicles, the Internet of Things and robots. Governments will shift their computer systems to blockchain. Even the Canadian dollar could become a digital dollar based on blockchain.
In Internet parlance, this is "1993" for blockchain. In 1993, we talked about the information highway and how it would transform every aspect of our society. And it did, dramatically. The coming decade will see blockchain technology affecting the way we do business, govern, communicate, manage our affairs and build value. There will be astonishing creative destruction.
Could the second era of the Internet be centred in Canada?
There will be winners and losers – companies, industries and countries. But if we do this right, blockchain technology could deliver prosperity for all citizens, and Canada could lead the way.
Canada has a head start on becoming the second era's global hub or, at least, one of a handful of such hubs. The tech corridor between Toronto and Kitchener-Waterloo is emerging as Canada's first "technology supercluster." This region is already a world leader in quantum physics and artificial intelligence. Blockchain is ideally placed to be the third leg of the Tech North stool.
Canadian entrepreneurs and companies are on the leading edge of blockchain innovation. Ethereum, viewed by some as the most important blockchain company in the world, recently surpassed $1-billion (U.S.) in value. And Consensus Systems is building decentralized applications that could transform a number of industries, including financial services, professional services, manufacturing, telecommunications, music and film. Many of the bitcoin core developers are Canadian and many work in the startup community. A growing constellation of entrepreneurs and technologists (Paycase, Protocol Fund, Tendermint, Nuco, Smartwallet, BlockStream and others) are trying to build the future with companies in Toronto, Vancouver, Montreal and elsewhere.
Canada's banks – strong, stable and innovative – are ideally situated to foster blockchain growth. Because we have a small number of big banks, the likelihood of collaboration between them to build a new transactional infrastructure for banking is higher than other countries, such as the United States.
The Bank of Canada is a big asset, too. Executives such as deputy Govenor Carolyn Wilkins are viewed by their peers globally as insightful innovators on blockchain and financial technology.
Canada has a growing number of powerful incubators and accelerators, such as the Ryerson DMZ, rated No. 1 in North America. We have world-class computer-science schools that can work with other centres of excellence in business, innovation and public policy.
Still, Canada needs to overcome significant obstacles if it is to cement a leadership role in blockchain technology. A key handicap is the absence of a clearly defined strategy for governments and other stakeholders to exploit blockchain technology. For example, governments focus on investing in related technologies such as artificial intelligence and quantum computing while missing the critical underlying blockchain infrastructure.
Funding entrepreneurs in Canada has been a chronic problem for mid-stage companies, which need larger investments than startups. Most end up migrating to the United States, where the funding and development atmosphere is more conducive to success.
We are also losing the global competition to attract capital. In 2015, Canada attracted just 1 per cent of global venture-capital investments and about 2 per cent of the capital invested in Europe and the United States, well below our relative GDP. Further, Canada's spending on research and development has been well below the OECD average and is still falling.
Creating the Global Hub in Canada
This report outlines seven proposals to cement Canada's position as a global leader in blockchain technology:
1. Canada needs a strategy
In the early 1990s, two government advisory committees were created to develop strategies for Canada and the first era in the Internet. This work contributed significantly to Canada's adoption of the Internet, among other things, catalyzing the opening of the telecommunications marketplace. With the Internet entering a second era, it makes sense for the federal government to set up a national commission, with representatives of government, financial institutions, the research community, technology entrepreneurs, civil society and, not least, consumers. It would develop concrete recommendations that would enable Canada to achieve a leadership role in imminent blockchain revolution
2. Stimulating R&D through blockchain-based flow-through shares
The report explains how the flow-through shares model that has been effective in Canada's mining, oil and gas industries could be applied to technology. The key is to use blockchain to track all investments, real-time in R&D to ensure all tax benefits go directly into innovation. This would offer Canada a double-barrelled opportunity: a massive new source of funds to spur research and development in the technology sector, and a highly visible, real-time demonstration of blockchain's capabilities and benefits.
3. Create a Blockchain Research Institute
It's time to conduct deep research into killer applications – identifying the most important opportunities for blockchain in business and government and drawing the road map for how to get there. Canada needs a Blockchain Research Institute, to unlock the potential of blockchain across industries and also within the functions of organizations. The institute could operate as a research centre for projects that potentially benefit a wide range of players, and where competitive issues are not a concern.
4. A Blockchain Centre of Excellence
Round-table participants and others expressed strong support for a Blockchain Centre of Excellence. The centre would not be dissimilar to those that have helped propel many other emerging technologies. However, new thinking is required. For example, it would be the focal point for a cluster of a set of blockchain-related businesses, encouraging them to feed off each other.
5. Government as a model user
One of the most important steps government can take is to adopt the technology to transform its own operations – federal, provincial and local. This stimulates innovation, creates a stronger domestic market for entrepreneurs and among other things could dramatically improve the performance of government.
6. Protect and expand access to the United States
Building an innovation economy in Canada does not mean isolating ourselves from the rest of the world. Indeed, with calls for protectionism growing louder in countries such as the United States and Britain, we must build bridges and strengthen ties to key markets, expand our trading partners and work constructively with foreign governments.
Given Canada's relatively small domestic market, it is vital for the blockchain community to expand access to the United States. The U.S. is by far the largest source of financing for blockchain startups, the biggest market for their products and, outside Canada, the biggest supplier of talent for blockchain and other fintech ventures.
7. Education and cultural change
Revolutionary products and services often run into early skepticism, even mockery and hostility. Entrenched interests resist change and established leaders are often the last to embrace the new, if they ever do. Blockchain is no exception. It has already brought dislocation, conflict, confusion and uncertainty, and is sure to bring more. This is especially true in Canada, where regulators and policy makers have tended to favour stability over innovation.
Canada needs a wake-up call. The report sets out challenges to Canadian business and government leaders.
The Internet's second blockchain era will produce even more upheaval than the Internet's first information era. It is an unstoppable force that will make itself felt in almost every facet of our lives. We dare not ignore it. Working together as Canadians, let's seize this once-in-a-generation opportunity to lead the world.