Four years have passed since Alex Tapscott, then a Canadian investment banker, published a seminal white paper that pictures bitcoin blockchain’s potential financial use free of intermediaries.

The 32-page paper titled “A Bitcoin Governance Network” -- generated upon the request of his father, the author of “Wikinomics” Don Tapscott -- laid the foundation for the 368-page “Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World.”

Published in May 2016, the book has been translated into 17 languages including Korean.

The Tapscotts were often described as visionaries by the media in the book’s year of publication. And over the course of time, the world has been seeing what he and his father had envisioned at a closer range.

The general public has become increasingly aware of the idea and concept of digital distributed ledger systems like blockchain, and of how they could reshape the way the new world works, pretty close to what “Blockchain Revolution” had suggested, Alex Tapscott said in an interview with The Korea Herald.

“The technology has gone from this curiosity of internet community and a few people in technology to something that everyone is talking about,” said the 32-year-old co-author and entrepreneur during a recent visit to South Korea.

In retrospect, Alex Tapscott’s decision to quit his job as an investment banker dedicated to the equity market was “the best decision ever made.”

At the time, he delved into what he had pinned faith on -- a blockchain-powered financial system free of intermediaries -- and collaborated with his father, who was then also conducting research on blockchain.

“There is no reason why, when you clear settlement transactions in stock, it takes three days to involve different intermediaries if there should be a peer-to-peer transaction,” he said.

Moreover, a blockchain-powered digital identity would solve problems occurring in a centralized system and instead allow people to take back control of their information, he argued.

For instance, a blockchain platform could prevent accounting fraud, he said, as each time a financial statement is recorded, it would need a consensus from the blockchain system’s participants.

“(Through) the idea of having (an) accounting system (on blockchain), we can know with clarity at any point of time about what’s happening inside the organization to stop fraud and wrongdoing.”

Post-crypto frenzy

However, the promising space with rosy outlooks has been subject to influence by bad actors: fundraisers duping investors by using digital coins that lack foundation, those committing money laundering or tax evasion, and cryptocurrency exchanges swindling money from customer accounts.

Of those raising funds by listing digital coins, 81 percent turned out to be scammers, according to advisory firm Satis Group in March.

Adding fuel to this was the rollercoaster ride of the global crypto market, where the price of bitcoin, the largest cryptocurrency in market cap, tests $20,000 and dips below $10,000 in the same year.

The rise of bad actors and its fallout raised the need for crypto investors to be more cautious in investing in futuristic technologies, Tapscott said.

“(Investors) are not going to invest in a project unless that project has had its code audited whether or not it has reviewed from independent analysts,” he said. “As a result, the market itself becomes more sophisticated.”

Such efforts will lead to a virtuous cycle in the blockchain space, estimated to grow to $400 billion as of late April, he added.

“The more sophisticated the market becomes, the more (investors) demand greater disclosure and greater transparency.”

To fulfill the needs of sophisticated investors, he suggested a framework that investors and fundraisers could abide by.

Tapscott offered two suggestions. One is self-regulation by different stakeholders in the blockchain industry, through which independent auditors or analysts review the business plan of a blockchain platform operator. The other is to have disclosure requirements that are similar to those in the equity market, like prospectus and private offering term sheets, or offering memorandums.

As a result, a coin offering’s risks -- in terms of business, regulation and market -- could be measured and made public.

“In the end, there is a bit of ‘buyer beware’ in the sense we don’t want scammers or criminals to be here,” he said.

Tapscott opposed the idea of having independent government auditors review material, saying it would “take years to implement” due to a government’s lack of resources.

Let players in

To ensure legitimacy in the blockchain space, there is a prerequisite for a community involving regulatory frameworks and sophisticated investors -- letting players in.

It is unlikely in South Korea for now.

While Korea can be seen as a crypto trade powerhouse, the nation cannot be seen as a blockchain tech stronghold, due to the nonexistence of guidelines with regards to the issuing of a virtual coin or token.

Since a regulatory ban on initial coin offerings by the Financial Services Commission took effect in September 2017, parts of South Korean startups have gone to nations or crypto-free zones that have clear regulations in their business and fundraising.

“That’s not the same thing as a ban,” Tapscott said. “It’s a result of uncertainty about the rules in the local area.”

Describing Korea as a “legal gray area” that suffers uncertainty in ICO regulation while at the forefront of the industry, he said Korea would fail to properly cope with the shift in tech infrastructure, due to the lack of a post-crypto frenzy plan.

“If the industry itself is in the legal gray area, then self-regulation is impossible,” Tapscott said. “The less legal clarity there is on something, the more activities move into the shadows.”

He added a foundation cannot be created at once to adopt an ICO in Korea, urging financial regulators to take proper actions.

Alex and Don Tapscott are two of the most renowned writers among those who cover blockchain-related topics.

The Korean edition of “Blockchain Revolution,” published in January 2017, came alongside the Korean crypto investment boom that peaked early this year. It topped monthly sales among books related to blockchain technology or cryptocurrency for four consecutive months from December 2017 to March 2018, according to data compiled by Kyobo Book Center, the nation’s largest bookstore in terms of floor space.

In January, the book recorded the 48th-highest sales volume of all books.

75 new pages

The father-son duo spent the entire 2015 authoring “Blockchain Revolution,” Alex Tapscott said.

The book was lauded for its comprehensive look at how blockchain would shape the technological shift in various industries including finance, health care, education, entertainment and governance.

On the other hand, the book also drew criticism for “talking in analogies” based on “promises,” while falling short of discussing real-world applications.

Acknowledging that what he and his father dealt with in 2015, including blockchain’s security and distributed applications, were then mostly “theoretical,” Alex Tapscott said he is now seeing blockchain’s real-use cases happening.

“We didn’t explore in as great detail (in the 2016 edition) as we are doing now,” Tapscott said, “The enterprise adoption of the technology has skyrocketed since the book came out.”

Reflecting these changes, the new edition of “Blockchain Revolution,” slated for release in the second week of June, features two new chapters that span 75 pages. 

One pillar of the new edition is a new taxonomy for crypto assets.

Compared to the 2016 edition that talked about cryptocurrencies, the new edition will distinguish cryptocurrencies from protocol platforms, utility tokens, security tokens, natural asset tokens, crypto collectibles, crypto fiat coins and stable coins.

Another pillar is the smart contract, a computer protocol that allows trackable and irreversible transactions online. Its concept and theory have existed since 1998 but there had been few cases of use.

“We talked about smart contracts in the book but we didn’t go too deeply into details because they really didn’t exist,” he said. “They were mostly theoretical and conceptual. Now they exist, and now with the challenge, but there are lots of real world applications of smart contracts.”

The updated edition also includes the newly coined term ICO, which the previous edition had called “global blockchain IPO.”

The research was based on observations of the Blockchain Research Institute run by the Tapscott family.

By Son Ji-hyoung (consnow@heraldcorp.com)