3. Trend two: use of blockchain technology

How might New Zealand businesses use, and be shaped by, technologies in the future? We take a deep dive into the emerging use of blockchain technology, with some insights into its role in productivity and wellbeing.

3.1. Why are we focusing on blockchain?

Technological change has always been with us and, in today’s times, is being driven by the exponential growth in and availability of data, the ways in which technologies are being combined, and the demand for solutions to pressing global and local challenges. As new technologies (digital and other) emerge and develop, they are applied in ways that change how businesses operate and create value (Policy Horizons Canada, 2021).

Blockchain is an emerging technology that offers businesses and other users new ways to store data, carry out transactions, and organise work. Use of blockchain can support efficiencies in time and cost savings, as well as having more transformational impacts, for example enabling digital trust that can support peer-to-peer transactions.

Yet blockchain is unfamiliar and hard for most people to understand. How do we make sense of the wide range of perspectives, from enthusiasm to scepticism, and new words such as web3, metaverse, DAOs, NFTs, DeFi, and tokens? What is it used for now and where is it heading? And how might this matter to the future of business here in Aotearoa New Zealand? These were some of the questions that led us to this part of MBIE’s Long-term Insights Briefing.

This section provides an overview of some of the trends in the current uses of blockchain, here in New Zealand and elsewhere, and what is likely or possible in future. It also provides broader insights about the future digital environment that businesses will need to be ready for.

Note: In this Briefing we cover the broader uses of blockchain technology, rather than focusing on Bitcoin or currency aspects of blockchain. At the time of preparing this Briefing, Parliament was holding an “Inquiry into the current and future nature, impact and risks of cryptocurrencies”, and the Reserve Bank of New Zealand was leading work on a central bank digital currency. We therefore chose to not focus on these areas.

3.2. What is blockchain?

Blockchain can be thought of as a type of database, shared across a network of computers. The majority of blockchains hold data in blocks that are linked together. What makes blockchain distinct from a regular database is the way in which data saved to a blockchain cannot normally be changed and is usually open to be viewed by anyone^[3].

Together these features give blockchain its ability to keep data secure and provide digital trust so that transactions can be peer-to-peer, with less need for intermediaries such as banks or central agencies. Blockchain can therefore be useful in situations where transparency, provenance and security is valuable.

Digital assets created on a blockchain come in different forms such as:

• cryptocurrencies or payment tokens, which are used as a means of payment (and sometimes called cryptoassets)
• security or asset tokens, held for investment purposes, and which include NFTs (non-fungible tokens)^[4]
• utility or consumer tokens, that support exchange or access to services.

Blockchain is one type of distributed ledger technology (DLT), a decentralised peer-to-peer digital system to record transactions between parties, with data stored across nodes. Blockchain is a subset of DLT, with features of generally being public and permissionless. Blockchains can, however, also be private and permissioned, giving more control over who can participate. It is useful to consider blockchain as part of wider DLT as it has similar implications with respect to shifting business and economic activity toward more decentralised, open and networked forms.

Web3 is another term commonly used in association with blockchain. Enabled by blockchain infrastructure, web3 is an emerging new phase of internet which has more decentralised features compared with the current internet. Web3 will, for example, allow more user control of digital content and assets and integrate other advanced technologies such as artificial intelligence.

In this Briefing, we use the term blockchain most often, but also refer to DLT and web3 to encompass these related, though wider, domains.

3.3. A visual: use of blockchain technology over time

For this Briefing we group insights into past, present and future stages:

Pae mahara/the past 1990–2014 Emergence of Bitcoin and cryptocurrencies

Pae Herenga/the present 2015–2022 Emergence of smart contracts and decentralised autonomous organisations (DAOs)

Pae tawhiti/the future 2022–2050 A range of probable and possible future developments

These stages and key events are described further in the following sections and shown visually in Figure 5.

3.4. Pae mahara/the past

Blockchain originated through the novel combination of various existing technologies, such as cryptography, game theory and algorithms.

Bitcoin was the first application of blockchain and was intended as a peer-to-peer e-currency, as an alternative to electronic cash. It was released in 2009, following publication in 2008 of a white paper by Satoshi Nakamoto titled “Bitcoin: a peer-to-peer electronic cash system”^[5], and before widespread awareness of blockchain as a technology.

Although Bitcoin wasn’t widely adopted in its early years, it laid the foundations for the development of blockchain and associated applications, such as NFTs and the use of “tokens”. What we now refer to as blockchains (eg Ethereum, Cardano, NEO and Stellar) are essentially developments of the underlying technology used for Bitcoin.

3.5. Pae herenga/the present

The period from 2015 until 2022 was marked by the emergence of the Ethereum type of blockchain and with that a range of new uses and market activity.

3.5.1. Emergence of smart contracts enabling decentralised applications

The market release of the Ethereum blockchain in 2015 enabled smart contract functionality of blockchain. A smart contract is a computer protocol that digitally facilitates, verifies, or enforces the negotiation and/or performance of a contract (which may or may not be a legal contract). A smart contract’s programmable rules must be met before any data can be validated and added to the blockchain. Smart contracts allow less or no human involvement so they can make business transactions faster and more efficient.

The addition of these programmable software elements has driven a lot of innovation and meant that blockchain has become known as digital infrastructure, an underlying platform for decentralised applications and business models.

Smart contracts are currently used in supply chains (see Box 9) and in the finance sector. Their use is also expanding to other purposes, such as data management, digital identity, copyright verification and royalty payments, and in areas such as healthcare, government administration, environmental management, and supporting online web3 environments.

Smart contracts also form the basis of non-fungible tokens (NFTs). Currently these are best known for their role in verifying digital art and collectibles (and as a speculative asset), but are increasingly used for other purposes such as ticketing for access to services, such as sporting, music and cultural events.

New Zealand-based examples of NFTs use include the Rhythm and Vines music festival, which is using collectible NFTs to support authenticated access to event experiences, and the Voxel virtual world, one of the first metaverse platforms.

In part driven by the business opportunities opened up through Ethereum and similar programmable blockchains, blockchain venture investment grew from US$3.1 billion in 2020 to US$25.2 billion in 2021.^[6] Investment slowed in 2022, but grew for web3 firms. Gartner has estimated that blockchain will generate US$3.1 trillion in business value by 2030^[7].

There is more to blockchain than cryptocurrency. Just as we don’t use internet for just email, we don’t use blockchain for just cryptocurrency – Alison Mackie, BlockchainNZ

3.5.2. DAOs can enable more networked approaches to governance

The advent of decentralised autonomous organisations (DAOs) based around smart contracts has been another key development in recent years. First created in 2015, DAOs are a new organisational form for business, economic or social activity. In a conventional firm, a board of directors makes decisions. With DAOs, agreement on proposals is reached through token-holders representing a wider network community, and to rules set and enforced by a smart contract. A fully automated version of DAOs would eliminate managers and directors from any operational or corporate governance decisions allocated to the DAO.

DAOs are being used in decentralised finance, for investment, charitable fundraising, and NFT purchase, and to offer services of members, such as training.^[8] DAOs also have the potential to be used to manage access to resources such as water.

DAOs could extend the capabilities and reach of corporate and network governance, reduce transaction costs and allow more participatory governance and operations (Sims, 2021).

The challenges of DAO governance are being worked through, as removing centralised governance and allowing more participatory decision-making is complex.

As DAOs do not fit with current governance practice and regulatory regimes, they are turning to legal recognition to allow them to fully operate as businesses and to limit their token holders’ liability (Sims, 2021). This is raising questions for countries about whether and how to provide that legal recognition. A number of US states, including Wyoming and Vermont, enable legal registration of DAOs, and Australia is working toward this following a 2021 Parliament recommendation (Parliament of Australia, 2021).

In July 2022, there were 103 DAOs world wide with investments worth more than US$1 million. This group of DAOs had a total of 3.8 million token holders, and assets valued at US$9.7 billion.^[9] Amongst these is Metacartel DAO, which was co-founded by New Zealanders and supports app

development, and Decentraland DAO, which supports governance of the Decentraland virtual world.

Besides DAOs, blockchain/DLT can also support collective work through the use of consortium blockchains. An example is R3, which supports collaboration amongst financial institutions.

Decentralised organisations are not new but they have been relatively few and far between because creating and operating a decentralised organisation is far more difficult and complex than using a centralised organisational structure. Properly designed DAOs now offer a viable alternative to centralised organisational structures – Associate Professor Alex Sims, University of Auckland

Corporations have shaped the world over the last few centuries, DAOs have the potential to do the same – Joshua Vial, Enspiral

3.5.3. Hypes, risks and challenges are driving the need for quality governance

The development of uses of blockchain over the past few years has been accompanied by the sort of cultural experimentation, market turbulence and hype that is typical of early-stage technology adoption. Many regard these patterns as evidence of a risky, “wild west” of blockchain; others accept them as typical of the hype cycles and innovation that accompany emerging technology.

An example of this is what is known as the “The DAO hack” in 2016. This high-profile incident occurred three months after the 2016 launch of “The DAO”, a venture capital initiative, and involved the stealing of US$50 million of cryptocurrency ether (which was later recovered).

Non-fungible tokens (NFTs) provide another example. In 2021, sales of NFTs grew tenfold from US$1.3 billion to US$10.7 billion.^[10] COVID-19 lockdowns were one driver for this growth, as artists used NFTs to reach new audiences and markets. At the same time there were, and still are, concerns that NFTs, and cryptocurrency investments more generally, are a bubble and there is a need for measures to manage financial risks, particularly for less experienced investors.

Blockchain also presents a range of risks and challenges at a societal level (Frizzo-Barker, 2020) (Bodo, Brekke, & Hoepman, 2021). For example:

• Distributed data systems such as blockchain can inhibit the policing and prevention of criminal activities such as money laundering (although, it can also be easier to track criminal usage of cryptocurrencies than it is to track usage in banking systems).
• There is potential for increased inequality if limited digital skills impact on business development or employment options, or through algorithmic execution of blockchain activities that reinforce inequities or privilege certain demographic groups over others.
• Private blockchains could consolidate power, and could lead to, or reinforce, inequities.
• the inability to change or delete data means blockchain is unsuitable for all data storage systems, with sensitive information held off-chain.
• Reduced use or the changing nature of intermediaries, for example less of a role for banks, could impact negatively on things such as consumer protections and conflict resolution that are part of the role of conventional intermediaries.

Some of these risks may seem paradoxical: if blockchain supports secure data and digital trust, why is there still risk of harm? Some of the answers to this relate to pre-existing risks: incorrect or fraudulent data can still be saved to a blockchain; bad actors who use hacks or scams to extract money from people vulnerable to these methods can do so equally with blockchain. Contributors to this Briefing also told us that blockchain can, because of its complexity, obscure and compound some of these risks, or be a partial solution that means that more important underlying issues are not resolved.

The risks also reflect the fact that blockchain is an emerging technology, which still has many technical challenges related to scalability, interoperability, security, and energy use (Box 10).

In recent years, new types of blockchain have been developed to overcome these challenges and there are now more than 70 types of blockchain^[11]. An example is the Red Belly Blockchain developed in Australia which is reported to be completing 30,000 transactions per second in large-scale experiments, which is much higher than the 20 per second rate of Ethereum (Australian Government, 2020).

There is a need to avoid the current hype and tread carefully as we respond to the risks and challenges the technology presents – Institute of Directors

These challenges and opportunities are driving countries to develop governance^[12] approaches for blockchain applications. These take various forms, for example:

• Switzerland has established a legal framework for cryptocurrency and cryptoassets.
• Japan has sandbox programmes which provide test environments for innovation and associated regulatory change.
• Australia released a National Blockchain Roadmap in 2020, with a focus on regulatory systems, standards, skills and investment, and is moving toward legal recognition of DAOs.
• The US issued an executive order in March 2022 to develop policy on cryptocurrency, covering aspects such as consumer protection and responsible innovation, and an assessment of the potential for a central bank digital currency that could encompass cryptocurrency.
• China has introduced bans on cryptocurrency transactions.

A July 2022 study of the macroeconomic impacts of regulatory possibilities for cryptocurrency identified that “allowing cryptocurrency to play a regulated role in the economy” would bring the highest net benefit to society (compared with other scenarios of “let present trends continue”, “ban the use of cryptocurrency”, and “make legal tender”) (World Economic Forum, 2022). This assessment found that regulatory certainty could enable innovation through the broader uses of blockchain and protect against illicit activity.

3.5.4. Use of blockchain in Aotearoa New Zealand

In Aotearoa New Zealand, blockchain is being used mainly by entrepreneurs and early-adopter businesses in the technology and creative sectors. There are lower levels of awareness, use and capability in the wider business community, in universities, and in government. We heard that young people were driving the use of blockchain/DLT/web3 in other countries but not so much here.

Awareness and use is growing. BlockchainNZ^[13] has seen membership numbers grow from 16 in 2019, to 73 in 2022. Business consultancies and government agencies are growing their knowledge to help clients and other users understand and manage the risks and opportunities of blockchain technologies.

As with digital technologies more broadly, skills will be one factor influencing the use of blockchain in New Zealand (Box 11). The development of blockchain solutions requires business skills in two main areas:

• A general understanding of its potential, for example the situations where it can, and cannot, add value and how suppliers and customers are using the technology.
• Technical skills, particularly in software engineering and coding.

Internationally, both of these skills are in high demand from business, and a lack of talent has been reported as a persistent barrier for business (ESRI, 2021). Contributors to this Briefing indicated that New Zealand has pockets of excellence, but not widespread capability.

Table 6 outlines several current uses of blockchain/DLT in New Zealand – some are in the market while others are in development stages. Blockchain/DLT won’t be useful for any or all business activity but there are trends of growing use and a broadening range of applications.

3.5.5. Governance of blockchain use in Aotearoa New Zealand is at the early stages

New Zealand’s approach to blockchain and related technologies is in the early stages. Regulation covers uses classified as financial services or products through the Financial Markets Authority, virtual asset service providers^[14] and cryptoassets (also known as digital assets) for taxation.

Cryptoassets and NFTs are not directly regulated, but New Zealand’s Council of Financial Regulators, which includes the Reserve Bank of New Zealand and other government agencies, is actively looking at whether existing regulatory regimes are fit-for-purpose.

The development of New Zealand’s digital identity system^[15] is supporting discussion about the governance of identity technologies, including approaches to data sovereignty for Māori data as taonga. While not focused on blockchain, this work is likely to offer lessons for the future governance of blockchain/DLT/web3.

3.6. Pae tawhiti/the future

While there is a lot we don’t know about how the use of blockchain will develop, we have drawn insights about the long-term implications from current trends and New Zealand’s past experience with technological development. This has been supported through the input we received during our engagements and by published research. It builds in assumptions that the oversight and use of blockchain by government and businesses will develop, but will be similar in nature and scale to what it currently is.

This section focuses on the uses of blockchain that we are likely to see in Aotearoa New Zealand over the next 10 years and more – a probable future. To this we add some of the other possibilities arising from some of the unknowns about how this technology will develop and be adopted.

Like with any tech development, the story we tell about it now will be different from the one we tell in the future – Inland Revenue

3.6.1. Blockchain becomes more embedded in businesses and systems

With the current patterns of investment and diversification of applications, we anticipate that the use of blockchain is likely to continue to grow over the long term, rather than decline in use or development. As seen with the mid-2022 significant drop in market value of some blockchain-based assets, this growth is not likely to be steady.

Blockchain will be used at an individual business level, but also increasingly in broader systems, such as across industries or economies. In these broader settings blockchain may be used to lower the cost of coordination and governance between firms or people, and also provide a platform to build in incentives and network effects through tokens (Box 13).

Blockchain technology will increasingly become ubiquitous, like other technology we will use it without even realising – Associate Professor Alex Sims, University of Auckland

Broader system applications of blockchain could include uses such as water rights management, construction waste management, renting out underutilised land for car parking, tracking parts and ticketing across air travel systems, improving efficiency of energy systems, enabling a circular economy and carbon emission tracking (Box 14). Uses for government services could be in areas of regulation, health services such as immunisation systems, public contracts, taxes and accounting (AWS, 2020) (Jennath, 2019) (CB Insights, 2022). In Estonia, a significant portion of its public administration is now based on its own blockchain technology, and other countries and cities are also beginning to implement blockchain-based solutions across public systems (U4SSC, 2020).

As part of these wider system developments, blockchain is also likely to become more integrated, and perhaps less visible, as part of a wider suite of tools that support distributed and decentralised data systems and business forms. Blockchain will serve functions in these systems, such as to support security and transparency, though won’t be useful in all cases, and in any case will be only one layer in multi-layered, open, technology-enabled systems. As described by a number of contributors to this Briefing: “it’s not all about blockchain”.

Developments in existing barcode technology will revolutionise distributed data exchange for consumers, businesses, and governments, and do not necessarily need the use of blockchain which is currently an energy intensive ledger – Nick Allison, GS1 New Zealand

Decentralised digital identifiers (DIDs) are an example of one of these technology-enabled systems. DIDs are a type of unique identifier which are likely to become more commonly used to verify the credentials of, and support traceability of, products in value chains, and to support the identity of people and organisations (Decentralised Identity Foundation, 2022).

DIDs are being enabled by international regulatory and policy developments, including the development of standards, particularly in Europe, US and Asia. DIDs are based on the self-sovereign identity paradigm which puts users in control of their data. They are designed to work with any decentralised data system, which may or may not involve blockchain.

The opportunity to turn a brand promise into a brand proof for New Zealand’s primary sector can be solved with DIDs. Farmers and growers can benefit from compliance work and turn it into real value through the decentralised data sharing framework. DID’s can be used to prove digital identity for almost everything such as individuals, organisations, paddocks, tractors, IoT devices, certification/consent or any other data point – Klaeri Schelhowe, Trust Alliance NZ.

3.6.2. DAOs are a growing part of the business landscape

Accompanying the embedding of blockchain in the business environment, decentralised autonomous organisations (DAOs) are likely to become more common, most often integrated with current business operations, but also as stand-alone business forms. The emergence of DAOs is likely to lead to:

• growing numbers of distributed and network-based organisations
• more decentralised systems that can support people to work together, developing their own customs and rules, and managing resources through a token economy
• changes in work, with loss of some administrative tasks as well as creation of new or different jobs, such as establishing or working for DAOs
• organisations having less need for auditing, as unauthorised actions cannot take place.

Regulatory and related policy settings for DAOs will develop in parallel to these changes, with some countries moving proactively to support DAOs for economic development.

New Zealand’s small and largely experimental use of DAOs is likely to grow gradually in the years ahead. If settings change to enable legal registration of a DAO in New Zealand, then more use of this novel business form in New Zealand could be expected.

3.6.3. Blockchain ‘for good’ to help tackle big challenges

Low energy blockchain technology is starting to be used to improve environmental sustainability and address climate change. This can be seen in examples of its use to support supply chain transparency for the fishing industry, decentralised resource management, and sustainable finance (UNEP, 2020) (PwC and World Economic Forum, 2018). Blockchain technology is also being applied to support Sustainable Development Goals, such as financial inclusion for unbanked people, healthcare, and legal identity (UNDP, 2019).

Going further, some proponents suggest that the decentralised nature of blockchain/distributed ledger technology (DLT) could help transform the structure of our economy to one that is more regenerative and circular, rather than extractive. This idea captures the way in which peer-to-peer approaches could support a cooperative commons-based economy with local production systems (Bauwens, M and Pazaitis, A, 2019).

These ‘for good’ developments have potential as enablers for scaling community and business action, though come with caution that, like all digitally-enabled networks they may not in themselves be as good at sustaining communities and social cohesion as real-world human connections.

MBIE learned of several innovative Aotearoa New Zealand initiatives that are developing ‘for good’ uses of blockchain/DLT (Box 15).

3.6.4. Blockchain by Māori, for Māori, with Māori

In preparing this Briefing we heard about the potential of blockchain/DLT for Māori. These included insights from the founders of Āhau (Box 15) and Blockchain Māori, an enterprise supporting rangatahi to use blockchain technology creatively and safely through the development of Aotearoa- focused NFT art. Both founders were motivated by the potential of distributed data technology for Māori and the desire to ensure Māori are seizing opportunities to develop and own technology businesses.

Aotearoa New Zealand’s Māori digital sector is growing and has successful businesses that are embedding Māori values into creative and high-tech ventures. Like Māori business generally, many Māori digital start-ups can be described as purpose-led, with a distinctive focus on environmental, social and cultural outcomes as well as commercial bottom lines. While the sector is growing, it is proportionally small – Māori constitute only four per cent of the IT workforce.^{[16] [17]}

Being decentralised, blockchain/DLT has important potential to enable Māori-led initiatives, particularly through the ownership of data consistent with Māori needs and interests.^[18] There is also potential for blockchain/DLT to enable iwi-owned or Māori business to support the security and provenance of supply chains, for example in fisheries and agriculture.

Technology for good is a growing trend. Where New Zealand is a leader is the emergence of Māori techpreneurs, the role of the Māori value system, and for storytelling – Āhau

3.6.5. Other possibilities for the future of blockchain

There are many other ways in which blockchain/DLT/web3 may develop depending on events, often uncertain, in the wider economic or social environment.

One of these areas of uncertainty is the extent to which public trust and confidence in blockchain may develop. Based on experience with other digital technologies in the past, it is likely that confidence in blockchain will gradually increase with familiarity and improved functionality.

It is also possible that blockchain suffers a major loss of trust and use. While blockchain itself has uses in societal contexts characterised by low trust in authorities, what we are considering here is loss of trust in the technology itself. This could be a result of ongoing market volatility, a security challenge due to criminal activity, or developments in other technologies such as quantum computing, the new ultra-powerful computer technology that may challenge all systems that use encryption. Loss of trust could also arise if blockchain was used by corporations or other actors to strengthen control of data in ways that undermine privacy or autonomy. Misuse of other technologies, for example through deepfakes, could spill over and affect trust and confidence in blockchain and other technologies.

Other areas of uncertainty are the pace of business adoption and how blockchain will be used by businesses. Some people think blockchain/DLT/web3 will herald a highly transformed and decentralised economy; others consider it is unlikely to become mainstream as existing or competing methods provide adequate alternatives.

Scenarios are a tool to support thinking and decisions in the face of uncertainties. We used some pre-existing scenarios about blockchain to inform our insights about the range of ways in which blockchain and business could co-evolve, extending to more unlikely futures (Box 16).

3.7. So what? Implications for productivity and wellbeing

From these ideas about probable and possible future development for the use of blockchain/DLT/ web3, we consider some implications for business, and more broadly for productivity and wellbeing in Aotearoa New Zealand.

A changing environment for business

It is unclear how much change blockchain/DLT/web3 will bring to the business environment, and how fast. Any significant shifts toward more open and decentralised systems will bring challenges as well as opportunities.

For example, growth in DAOs could compete with traditional organisations for employees, as well as create new markets and opportunities for participation. Intermediaries that have long been part of an economic system may be less needed or bypassed altogether. This may have upsides for efficiency, but also implications for loss of functions in a system.

Over the longer-term, government may take on different roles in the economy if more work can be coordinated directly in smaller units and through digital channels. Looking back to the past, we know that nation states are relatively new and that much smaller units, such as city states, were the norm for thousands of years. Decentralisation at significant levels would also challenge our notions of power in society and organisations, underlining a need for societal dialogue to anticipate and manage impacts.

Decentralised technologies give us an opportunity to rethink how we, as a society, make decisions and organise ourselves – The Wellbeing Protocol

Things like data sovereignty, classes of data and their processing will need to be understood and may challenge existing systems and processes. How will lock-ins and monopolies be avoided, and how might “trust” be migrated from platform to platform, and why? In peer-peer token economies and communities, what are the long-term implications for taxation and government funding? On the flip-side, might the technologies enable different, agreed value systems in new ways – for example, if “wellness” is the founding principle for a token, might “gross national happiness” be measurable and implementable in novel ways? – Redvespa

Low awareness could bring risks

MBIE’s work on this Briefing suggests there is low awareness about blockchain/DLT/web3 technologies in New Zealand. This will be partly because there has been limited uptake of the technology in New Zealand. But we think that low awareness is also due to some distinct features of the technology: it is technically complex, sometimes contentious and polarising, and with its peer-to-peer capabilities and growing embeddedness is less visible to those not directly involved.

Sometimes it can be a good thing not to be at the frontier of a new technological wave as this can allow others to develop real world uses and iron out risks. But blockchain/DLT/web3 is borderless and, like other digital technologies, New Zealand businesses and the public will be exposed to them through global digital platforms and supply chains.

The expanding use of blockchain for applications such as NFTs and DAOs is giving rise to new risks and opportunities, and regulatory measures are being considered. However, governments can sometimes be risk-averse, leading to either over- or under-regulation of uses of new technologies. Striking the right regulatory and legislative balance is crucial to the adoption, implementation and successful use of a new technology.

All kinds of strange things are going on – it is important for the public to be able to understand the technologies as well as the surrounding cultural context – Walter Langelaar, Te Herenga Waka Victoria University

Slow adoption could be a barrier to business

Aotearoa New Zealand will need the skills to use and benefit from blockchain, as with other emerging technologies. Those we spoke with indicated that business capability to adopt and embed blockchain solutions are limited and skills are in short supply, both internationally and in New Zealand. We heard that government is also at early stages of understanding and that this is limiting its ability to provide financial and legal guidance to businesses.

Low or slow uptake of blockchain and related technologies in Aotearoa New Zealand could become a barrier to firms and industries that rely on global markets and supply chains. Uptake of advanced digital technologies is already relatively slow among New Zealand firms, with the provision of digital services (including cloud computing services) comprising only 1% of value added, half the OECD average.

International research has indicated that only 20 per cent of adoption barriers with blockchain are technology related, with 80 per cent due to current business practices and models that result in costs of switching and lack of familiarity with blockchain (Frizzo-Barker, 2020). Those we spoke with indicated that the same is likely to be the case in New Zealand if marked improvement in adoption does not occur. In their experience, the biggest challenge is implementing blockchain solutions across supply chains and in systems, and building workers’ familiarity with this new technology and new ways of thinking.

However, we can also anticipate that the challenges of adopting blockchain/DLT/web3 will increasingly be something that will be addressed by the market, for example through platforms, services, and “wallets” that streamline accessibility.

Multiple impacts on productivity and wellbeing

There are a range of ways in which blockchain/DLT/web3 could impact on productivity and wellbeing. Table 7 lists some of these impacts and notes both the benefits and challenges. These impacts are indicative as the links between use of the technology and outcomes are highly complex and not readily generalisable.

The system level and transformational potential of blockchain/DLT/web3 is an important lens to these considerations. If leveraged responsibly, it could enable step changes in efforts toward national productivity and wellbeing goals.

3.8. Now what? Some strategic choices for government

The preceding discussion indicates the way in which blockchain is likely to develop globally and in Aotearoa New Zealand, and some of the implications.

These insights suggest that government could consider, at a high level, a strategic choice about the extent to which it wants to realise and shape the potential benefits, and manage the risks, of uses of blockchain technology. In the table below we present three sets of ideas about what different choices for government could look like. Each builds on the previous one, rather than being a distinct alternative.

These ideas are offered as inputs to any work that may be initiated in the next few years by government, not as a recommended framing or advice.

Because this is a fast-moving technology, any new work should carry out additional scoping to assess how things may have changed.

3.8.1. What the people we talked to thought about the different choices

Here we outline some additional ideas on what these strategic choices could involve, including what we heard from contributors.

Continue as is with roles in regulation and broad settings

With this choice, we assume that worldwide developments in blockchain/DLT/web3 would continue, as would activities by New Zealand business and industry to develop and use blockchain where opportunities are evident and as skills allow. Initiatives led by industry to support awareness of blockchain/DLT/web3 would also continue to develop. Government would proceed with steady development of technology governance and regulatory settings to provide more certainty and oversight.

The early stage, turbulent and borderless nature of blockchain underlines the importance of technology governance approaches that consider both opportunities and risks, are flexible, and allow participation for multiple stakeholders including users and citizens. This type of approach has been identified in OECD work on policy for blockchain (OECD, 2019), and is also broadly suited to other emerging technologies characterised by uncertainty.

The Digital Strategy for Aotearoa provides a suitable high-level framework with its focus on Mahi Tika – Trust, Mahi Tahi – Inclusion, and Mahi Ake – Growth. We heard we could also take guidance from New Zealand’s experience with space industry regulation and its use of principle-based, technology-neutral and adaptive regulatory approaches (Hutchinson, MacNeill, Mumford, & Sim, 2017). As with emerging technologies generally, good regulatory design and stewardship will manage risks yet also enable innovation to support broader social value.

Contributors noted that with blockchain/DLT/web3 there is a particular role for national level governance and policy activities to signal ethical and legitimate uses of the technology to the market, developers, and business and public users, as this can support timely and responsible development and adoption. For Aotearoa New Zealand this signalling would have regard to Te Tiriti o Waitangi obligations, respect Māori data as taonga, and reflect te ao Māori perspectives where relevant. Regulation can have a role, but so too can other policy levers and communications.

Contributors suggested that communications about the technology could usefully build from already familiar uses, for example internet ‘cookies’ are a type of token.

As this strategic choice would not involve significantly more active or targeted government interventions, it would be unlikely to allow New Zealand to realise the full potential of the technology and some contributors suggested that it could carry some risks of loss of business or economic opportunity. Government familiarity and use of blockchain/DLT/web3 for government services would develop to an extent but not substantively. Contributors to this Briefing indicated this was similar to our current approach. Some said that we were about two to three years behind other countries such as Australia which are taking more proactive approaches.

Support greater awareness and knowledge about blockchain/DLT/web3

This choice would involve greater investment in communications, plus horizon scanning of emerging technologies and developments, and related policy analysis/advisory capability. It would build government’s awareness of the technology and strengthen connections with the technology sector. Support for SMEs and business could be incorporated, for example to develop their awareness of technology developments, help them navigate regulatory requirements, or use a DAO model for a start-up.

A watching brief could cover not only applications of blockchain/DLT/web3 but also other established and emerging technologies (such as AI, the internet of things, and manufacturing technologies) and how a changing global context (and global challenges) is influencing the use of technologies. With this breadth, it could also provide an input to future Long-term Insights Briefings.

Integral to this choice is the need for government and business to work more closely together, and to build government’s own capability for innovation in government services. There is potential, for example, for the use of blockchain/DLT to strengthen the value and performance of regulatory systems. This could be done through using these technologies to support information gathering and sense-making, or as a store for validated information viewable across parties to provide cost and time-savings, and improved security. Co-benefits of government use of technology include the support for broader based learning that can inform robust regulatory and policy responsibilities, and the regulatory certainty it can provide to the market.

Contributors noted that achieving opportunities for Māori business would require efforts to ensure equitable access to opportunities and capability development, consistent with Te Tiriti o Waitangi and Māori aspirations that enable ambitious success. These opportunities should build on strengths, as well as recognise the socio-economic context for many Māori which may limit their ability to fully participate. In a similar way, Pacific business would also benefit from measures to support capability and access to opportunities, and in their context also recognise that their current levels of engagement with purpose-led business or advanced technologies are likely to be low or at an early stage.

Specifically with respect to DAOs, New Zealand researchers suggest government should monitor the developments in DAOs and build capability to advise and regulate appropriately (Jayasuriya, 2020) (Sims, 2021). As noted by the Institute of Directors, these sorts of developments matter for governance as they are a signal that current settings may be too costly or not fit for purpose, and could also reflect a lack of confidence in current settings (Institute of Directors, 2022). They suggest consideration of a generic governance approach reflected in legislation that could provide for incorporation, limited liability and governance settings for DAOs as well as other existing and emerging business and other organisational forms.

If we think about how business relates to government this should be our superpower – Centrapass

We are interested in boards’ ability to steer their organisations through emerging technological changes. We see the use of blockchain within a wider technology and digital transformation context that embraces developments such as the Metaverse, and more generally – Institute of Directors

Enable optimal use of blockchain/DLT/web3 in Aotearoa New Zealand to achieve goals and address challenges

This choice would encompass activities that are focused on technology firms, as well as business and other users as adopters, and across systems. This more active choice would in itself require further consideration of New Zealand’s approach – for example where could we position ourselves as a leader, and where should we be a fast follower? This choice may offer more upsides, but could involve trade-offs with resources, with a risk that government is unable to deliver.

A number of contributors to this Briefing noted the leadership potential that Aotearoa New Zealand has in ‘for good’ uses of blockchain/DLT/web3 technology that is responsible, ethical and innovative. We heard how New Zealand could lead on values-driven, zero-carbon solutions that could both address real-world societal challenges and encourage investment and skills development in New Zealand. Use of only next generation low energy blockchains was an expectation of contributors on this topic.

Contributors also noted New Zealand’s ability to operate as a test bed for the development of technology.

More work would be needed to fully understand where and how New Zealand could leverage blockchain/DLT/web3, and what barriers to this there may be. A key barrier mentioned by some contributors was current thinking that solutions need to be centralised. With respect to compliance, Callaghan Innovation is also aware of a number of New Zealand web3 and blockchain businesses that are concerned about legal, regulatory and taxation costs, which for some had involved more than $100,000 in legal fees or up to 70% of their initial capital.

Young people/rangatahi were commonly mentioned as holding the key to any leadership role for Aotearoa New Zealand, but this relied on them having the chance to develop the skills they need to support their future wellbeing.

We heard suggestions that the growth of skills for the development and use of blockchain/DLT/web3 in New Zealand could be supported through a range of training and qualifications, designed around the needs of industry and learners. Approaches could include integrated learning, place-based and online courses, informal learning, and approaches that seek to support inclusion of groups currently under-represented. An existing model is the innovative cross-disciplinary Blockchain Bootcamp taught through Victoria University of Wellington’s School of Design.

Rangatahi need digital skills – they are leveraging technology to start a business, but they need to build business development experience around that to fully realise the opportunity – Pacific Business Trust

With the increase of remote work it is certainly conceivable that we could become known for having an innovative ecosystem in this area. There is no putting these technologies back in the box. They will grow and lead to more innovations. The question is whether we want to be part of that conversation and lead the way forwards proactively – Steven Moe, Parry Field Lawyers

This is not just about finding use cases for traditional business models to utilise. The explosion of innovation we are seeing overseas on the back largely of Ethereum’s development (largely in the USA) is creating a whole new ecosystem and way of doing business. The question should be “How can Aotearoa take advantage of these new web3 business models? – Sally Hodges

New Zealand can win as values matter more than size – Centrapass

There is an opportunity for the New Zealand Government to provide clarity and certainty on regulation and taxation of digital assets which will also make New Zealand a highly attractive location for new and emerging international web3 businesses – Callaghan Innovation

Footnotes

[3] | For more on how blockchain works see BlockchainNZ(external link) — BlockchainNZ; Callaghan Innovation (2018),

or the OECD’s Blockchain Primer(external link) — OECD

[4] | NFTs are a unit of data on a blockchain that can be sold or traded. Non-fungible means unique. NFTs can be associated with anything digital, including digital art, computer game or virtual world assets, music, film, and tickets for access to services or events.

[5] | This work can be accessed at Bitcoin:

A Peer-to-Peer Electronic Cash System [PDF 180KB](external link) — Bitcoin

[6] | State Of Blockchain 2021 Report(external link) — CBINSIGHTS

[7] | Gartner Identifies the Four Phases of the Blockchain Spectrum(external link) — Gartner

[8] | For a visual see DAO Landscape:

DAO Landscape(external link) — Coopahtroopa

[9] | Organizations(external link) — DeepDAO

[10] | NFT sales surge to $10.7 billion in Q3 as crypto asset frenzy hits new highs(external link) - Reuters

[11] | Blockchain Consensus Encyclopaedia: https://tokens-economy.gitbook.io/consensus/blockchain-consensus-encyclopedia-infographic

[12] | By governance we mean the set of regulatory rules, standards, incentives, institutions, and other mechanisms that shape the development and use of technology.

[13] | A not-for-profit membership organisation, part of the NZTech Alliance. BlockchainNZ’s membership includes blockchain technology developers and solution providers, government agencies, artists, individuals, and larger New Zealand businesses, banks and law firms.

[14] | This includes activities such as cryptoasset wallet provision, investment services and exchanges but does not cover cryptocurrency and NFTs which are not viewed as financial products. Virtual asset service providers have responsibilities as part of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, and are supported in meeting these by the Department of Internal Affairs.

[15] | Work in this area includes the development of a legal framework for digital identity, through a Digital Identity Services Framework Bill.

[16] | NZ Digital Skills Forum, 2021

[17] | One of the goals of the draft Digital Technology Industry Transformation Plan is to build Māori participation in the sector.

[18] | A Māori data governance model for government data is underway as part of the development of a digital strategy. This work is co-led by the Data Iwi Leaders Group and Stats NZ and aims to develop an approach to data governance that reflects Māori needs and interests in data.

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