What Is the Data Economy?
The New Oil or Electronic Contracts?
“Data is the new oil.” Many commentators picked up this mantra, suggesting that the explosion of Big Data technologies and techniques are beginning to make fundamental changes how the world’s economy works. It is a tempting metaphor, in the sense that oil was a major economic driver in the 20th century and the effective exploitation of data will undoubtedly be an economic driver in the 21st century. However, one could as easily claim that data is the new electricity, since that, too, was a major economic driver. In fact, it provides a slightly better metaphor, because data rides on the back of electricity, enabling far more commercial activity than oil ever did.
To me, it seems more accurate to consider the proposition that “digitized information is becoming the new contractual document.” This may not be such a headline-grabbing sound bite, but the reason for thinking in these terms is that the technology that has governed economic contracts had always been based on paper until recently, and now it is starting to be based on digitized information. I shall explain.
Modern accountancy dates back to the fourteenth century, and double entry bookkeeping is, by any reasonable definition, a fundamental data processing technique that underpins commercial activity, even though it was paper-based for centuries. That same century, Johannes Gutenberg’s invention of the printing press gave the world an effective document creation and data distribution technique. Taken together, these two developments can be thought of as enabling commerce in a multitude of ways. It took many years, especially compared with the current IT-driven rate of change, but gradually the economies of Europe were transformed by these foundational developments.
What happened was that proof of ownership (a title to value) became paper-based and paper-verified, in many different ways. Perhaps most important was the advent of paper money, which began life as a bearer bond that was exchangeable for bullion. The birth of the modern banking system followed. Soon, a host of financial mechanisms were implemented on paper and supported by law, such as promissory notes, checks, stock trading, business contracts and insurance policies. Thus, the idea of a paper-based ‘title to value’ gradually took root. Legally, paper title usurped actual goods and property, so an exchange of ownership could be achieved via the legal exchange of paper.
As accounting became more sophisticated, so did the capitalist economy. Yet despite more than six decades of information technology, these fundamental paper-based mechanisms have yet to be fully superseded. While banks and businesses are now driven by IT and data volumes are exploding, these paper-based mechanisms are only now being challenged by technology – blockchain technology.
The sudden emergence of Bitcoin – a true digital currency – was surprising, although it could be argued that it was long overdue. In any event, it now exists, and whether it survives as a currency hardly matters, because the broad capabilities of underlying blockchain technology is what will change the game. Blockchain technology demonstrates that it is possible to create an open interactive public ledger, where all transactions are recorded and which is truly secure. You could have such a ledger for many different contexts: to record the ownership of money, stocks and bonds, real estate or any kind of property, insurance policies, music and video, digital identities and so on. It can serve as a ledger for anything that any person or organization owns or has some rights to.
The Bitcoin blockchain records the ownership of the Bitcoin digital currency. It has proven to be unbreakably secure over the nine years of its existence. Ownership of the Bitcoin currency is established by a public key/private key encryption mechanism where the Bitcoin owner holds the private key and is thus the only person able to trade with the Bitcoin related to that key. When the ownership of some or all of the Bitcoin changes, another transaction is added to the blockchain, recording the change (it is called a blockchain simply because the data store consists of whole series of blocks of chained transactions.)
As with many software developments, the blockchain lived for quite a while as a niche activity among a small group of developers, even after Bitcoin was launched. However, when Bitcoin became popular and its exchange rate climbed, it began to attract attention. Perhaps the most important aspects of Bitcoin are that its transaction fees are very low, and it has been built to allow micro-payments down to 0.00000001 of a single Bitcoin (which equates at current exchange rates to about $0.00000485). This makes it feasible to use micro-payments in a software driven manner to trade in a high-volume low price way. An example would be to charge a very small amount for accessing a single webpage to read the news or to watch a YouTube video. With this capability, digital currency becomes the “new oil,” greasing the wheels of the digital world.
In my view, the move to a data-driven economy will not be complete until digital currencies and digitized ownership are a capability that all software can exploit. The reason main reason that this will make a huge difference is that it will become possible to trade ownership (of anything) at the speed of software – and no doubt software developers will invent entirely new applications to enable this.
Transactions will happen much faster, and they will have a very low cost. Those two factors have always been primary drivers for the business use of IT, and in this area, it is no different. And, of course, analytics will make a major contribution to this, but the business opportunity it presents will be driven by the blockchain.