©Christine Duhaime, 2016.
For three months during 2015, the Digital Finance Institute participated with THNK School of Creative Leadership on their “Future of Capitalism” innovation leadership startup challenge with, among others, the City of Vancouver, PBS and Stanford University, to explore how digital currencies could be used to increase access to affordable housing in Vancouver (download the report from the Challenge here).
Part of our mandate is to study, promote and become engaged in digital finance and its innovation and to solve financial inclusion problems. Vancouver has made a commitment to become a digital city, which contemplates establishing the infrastructure and environment to become a more connected smart city – a city with a system of interconnected systems including public services, residences, transportation, health care, retail, municipal services and energy distribution that are all tied together by information and communications technologies (ICT) that can transmit and process data all over the connected city. Smart connected cities, such as Vancouver, will need to have what we call intelligence infrastructure in place underpinning and supporting its ICT and the transactions and communications of the people living in it. It will also have to have machine-to-machine (M2M) capability and communications.
This is where we come in as digital finance experts; every smart connected city will need a financial component tied into the public ICT infrastructure so that consumers can make efficient and immediate payments in their interconnected world for a wide range of goods and services. One day, our iPhone will manage all these services and payments for us in our smart connected cities.
At the Digital Finance Institute, we look at the intersection of the Payment of Things with the Internet of Things (IoT) – that emerging area of financial technology (FinTech) that focuses on micropayments for smart connected cities in the IoT environment.
Vancouver is emerging as a vibrant FinTech hub where its digital payments companies could be positioned to pivot into the Payment of Things on a global level because the smart and connected cities of the world are being built on identical tech infrastructure. As it becomes a digital city, Vancouver has the breadth to support the talent and growth of its FinTech companies. But FinTech is expensive on the R&D side and the one thing Vancouver lacks is the private and public investment needed to sustain its lead in FinTech long-term, particularly with emerging markets like Iran, with 80 million highly educated young connected citizens, vying for their place as leaders in FinTech.
Benefits of the Blockchain
During the THNK challenge, participants looked at alternative payments to bring housing inclusion to the people of Vancouver in ways that incorporated smart connected systems, and they found creative ways that digital currencies and the Blockchain could serve as a critical underpinning for new housing solutions.
The advantage of using alternative currencies like Bitcoin and the Blockchain as the payment system in smart and connected cities is that transfers of value with the Blockchain are already M2M.
Technically, the digital component of such transactions is a math-based transfer of one item of value to another virtually instantaneously on the Bitcoin protocol, relying on cryptographic software to validate each transaction, rather than a central administrator. All transactions are recorded on a public online ledger called a blockchain. The Bitcoin protocol validation process prevents anyone from spending money (or Bitcoin) they own twice, known as the “double spend” problem.
Other online currencies or payments systems, such as bank credit cards or PayPal, involve a central administrator or financial institution middleman. These intermediaries reconcile transactions to avoid the “double spend” issue. In contrast, Bitcoin relies on computer software, cutting out the institutional go-between in all financial transactions. It is extremely efficient, reliable and inexpensive.
So for the first time in history, it is now possible to buy currency, shop for goods or services and remit money overseas instantaneously, purely M2M without the need for institutional middlemen for almost no fees. For global consumers, Bitcoin eliminates the need for traditional banking services and eliminates banking fees, credit card fees and currency exchange fees, and because it can be anonymous, consumers can conduct financial transactions with privacy and without the risk of identity theft. For municipalities like Vancouver, this means they reduce liability risks from hacking to shared databases.
Putting FinTech to work for a better future
Digital financial services like Bitcoin adapt easily to smart connected cities with minimal connectivity costs. It goes without saying that there are enormous financial savings to be gained by the integration of digital finance with smart connected cities. Cities that invest in the R&D for digital finance on a M2M rail, will be way ahead of the game and will save billions down the road because they will not have to build M2M payments infrastructures through traditional banking systems. Looking at the world at large, the Blockchain and Bitcoin have other applications that are more humanistic.
At the Digital Finance Institute, we launched the first financial inclusion program in 2014 to explore how we could use FinTech like the Blockchain and Bitcoin to provide emergency payments for crisis situations in a way that eliminates leakage payments and administrative fees that eat up more than 30% of funds donated.
As Innovation Partners in the THNK challenge in Vancouver, we discovered that there were additional promises with digital currencies that emerged during the collaborative process – they have the added advantage of being able to improve housing options and accessibility. THNK participants explored and shared ways in which digital currencies could be used as a reward system to subsidize rent to make housing available and affordable (mitigating housing inclusion problems), share renting spaces in a shared economy and reward behaviors that support renewable energy choices.
Our hope for participating in and driving these dialogues is that the technology developed for such projects in Vancouver might form the basis of a wider financial institutional infrastructure on the Blockchain that, since it is already M2M and digital, can ultimately be connected to any smart city around the world. This could, for example, connect refugees, no matter where they are, to access their funds and participate in the smart connected cities of the future. And indeed, facilitating the provision of payment solutions for everyone in the cities of the future.