Bitcoin and cryptocurrency have dominated headlines in recent years, but many financial experts argue that the real revolution lies in the technology behind them: blockchain. Lule Demmissie, president of Ally Invest, describes blockchain as the transformative force that deserves far more attention. It has driven disruptive innovations such as smart contracts, artificial intelligence and decentralised finance.
Blockchain is essentially a distributed database shared across a computer network. It stores information electronically in groups known as blocks. Once a block is filled, it closes and links to the previous block, forming a chronological chain. This structure makes blockchain secure, transparent and extremely difficult to alter. New blocks are stored linearly, and changing a previous block's contents would require consensus from the majority of the network. Even if a hacker attempted such a change, users could "hard fork" to a new version of the chain, rendering the compromised token worthless.
Blockchain's decentralised nature allows digital information to be recorded and distributed without being edited. Users can view transactions through personal nodes or blockchain explorers. If most network users agree an upgrade is sound, the system can update. This creates trust without relying on a third party.
Thousands of projects now aim to use blockchain for purposes beyond recording transactions. Smart contracts, for example, are computer code built into blockchain to facilitate, verify or negotiate agreements under predefined conditions. As the world emerges from Covid‑19, the question is whether blockchain can help address the political and economic challenges that the pandemic intensified.
Covid‑19 and the strain on globalisation
Covid‑19 reshaped social and economic structures worldwide. Lockdowns created unprecedented challenges for the global economy and nearly halted Europe's single market. The EU's perceived lack of solidarity fuelled economic nationalism, adding to existing tensions caused by immigration and political fragmentation.
Governments imposed temporary movement restrictions to slow the virus's spread. While necessary, these measures led to a resurgence of protectionism. Countries shifted industrial policies and strengthened screening processes to protect major industries from foreign takeover. The crisis also created a political hierarchy between "my nation" and others, as states prioritised national interests.
The EU's proposal for "corona bonds" illustrated this divide. Countries such as Greece and Portugal supported mutualising risk across Euro‑zone members, while Finland and the Netherlands opposed it. Restrictive measures also extended beyond Europe. For example, the EU introduced an export ban on certain medical products to ensure sufficient supplies within the bloc.
These developments paint an unwelcoming picture for globalisation. Multilateral trade and investment slowed, and trust between nations weakened.
Can blockchain help untangle global political and economic tension?
Blockchain's decentralised structure may help ease some of the pressures facing globalisation. Cryptocurrency's immutability can facilitate cross-border trade by bypassing issues such as inflation, currency manipulation, and regulatory constraints. Peer‑to‑peer technology removes barriers between businesses and lets capital circulate freely.
This is particularly relevant for the UK. Asset digitisation could help create a frictionless global marketplace, giving the UK a competitive edge and supporting international trade agreements. It may also help safeguard the economy from the long‑term effects of a no‑deal Brexit.
Blockchain can also promote governmental agility and social equality. It can support seamless civic participation and improve democratic policy‑making. For example, electronic voting could be executed with greater accuracy and transparency.
Its most significant impact is likely in the financial sector. A decentralised network lets parties transfer assets freely without third‑party interference, addressing global uncertainty and distrust.
Blockchain may also accelerate the transition to Industry 4.0. This new era aims to create fully digital enterprises through smart technology. Decentralisation is becoming a major trend in finance, and blockchain could help create "smart factories", making digital transformation more appealing to businesses.
The possibility of a "virtual nation"
Some financial operators envision blockchain‑based virtual nations. These would replace traditional nation‑states with apolitical governance systems and introduce a new form of global citizenship. The idea is to create collective identities and new opportunities for civic participation in a post‑national world.
The concept is controversial. Libertarians support it as a way to reduce government intervention and create societies governed solely by market forces. Others see it as a means to rebuild trust in institutions by forming new global communities.
However, citizens cannot easily revoke allegiance to their nation‑state. The social contract between governments and citizens is not negotiable. While individuals can acquire additional citizenships, they cannot simply discard existing ones.
Despite its potential, blockchain has not yet persuaded policymakers to abandon conventional practices. Public institutions continue to rely on outdated technology. Nevertheless, blockchain offers qualities that could enhance transparency, accountability and democratic governance. It could materially support sustainable development worldwide.
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