The Internet of information is evolving into an Internet of value. While the Internet, as we’ve known it, was the product of computing and communications technologies, its new iteration is powered by cryptography, mathematics, software engineering and behavioral economics.
Blockchain’s technology combines the transparency of the Internet with the safety of cryptography to provide a quicker, more secure way to verify information and, ultimately, to establish and build trust when information, money or assets move. Blockchain will change the way we buy and sell goods and services; the way we interact with government; and the way we confirm the accuracy, reliability and authenticity of the transactions we pursue.
The blockchain revolution is already starting to upend business models and disrupt industries. The financial, economic and societal implications will be enormous.
Whereas traditional transactions are accomplished through an intermediary or central authority such as a bank or a government, blockchain transactions are verified by the consensus of potentially large numbers of users.
A transaction is recorded and shared with all the computers in a blockchain network. It’s then combined with other transactions into a block, similar to a computer database. Every transaction is time-stamped, as is the block itself once it’s completed. Since all transactions are logged sequentially, duplicate transactions are avoided. And unlike conventional ledgers, the information blockchains store can’t be changed or deleted without other users knowing about it.
Blockchains do two things. They compile and organize data into blocks. And they link those blocks together using cryptography.
A completed block is distributed across a network where it’s added to a chain. At the same time, other people across the network may be sending out their own blocks. But since data is added in the right order and time-stamped, everybody always has the latest version.
The blockchain’s security, and thus its trustworthiness, is assured by a bit of cryptographic math called a “hash.” The hash makes the links between blocks virtually unbreakable.
The hash from each block is added to the next. And thus the chain is locked down. Since everybody has a copy of the whole blockchain, everyone knows to trust it only if all the blocks across the chain match up.
Blockchain is in its infancy and, as with any disruptive innovation, it must overcome obstacles:
Still, the prospect of a secure network where any transaction can be independently confirmed as unique and valid without an intermediary is extraordinarily appealing. Imagine the impact of trusted, paperless transactions between total strangers - - transactions authenticated by mass collaboration and driven by collective self-interests, rather than businesses motivated by profit or governments motivated by power.
Let’s encourage policymakers and regulators to promote the unfettered flow of information and direct interaction between contracting parties while protecting and advancing all of our personal interests.
Marc J. Lane is a Chicago attorney and financial adviser and the vice chair of the Cook County Commission on Social Innovation.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
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