Creation of a healthy cyber ecosystem

Makoto Yano 14 April 2020

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The 2019 fiscal year marks the final year of the Research Institute of Economy, Trade and Industry’s (RIETI) fourth medium-term plan covering the four-year period beginning in April 2016. The main goal of this plan is to investigate how we will build a society that can make the best use of emerging industrial technology, represented by artificial intelligence (AI), internet of things (IoT), and Big Data. Prompted by this plan, in 2018, we started a study group at RIETI to examine the future prospects of blockchain technology, which is a technology that makes it possible to assign a unique owner to every data piece.

As Baldwin (2016) points out, “revolutionary changes in communication technology fundamentally changed globalisation around 1990.” One such change was brought about by data. Twenty years ago, very few people thought that data would become a new economic resource next to labour and capital. Now, we are witnessing the formation of a global cyber society in which data play a central role in the production process. At this moment, data are collected and accumulated by a handful of high-tech giants, which function as defaults into which a large volume of data are flowing. In an economy in which a new productive resource is born, as Coase (1961) points out, it is important first to determine who should own that resource. Once the ownership is set for data, blockchain technology can assign data ownership, leading to the formation of a market that could bring out the full power of data. Such a society, however, does not come about automatically. It is important to build a healthy ecosystem in which all economic actors can forge a healthy collaboration.

Data as a new resource

Many people may think of cryptocurrency when hearing the word ‘blockchain’. I believe, however, that the true use of blockchain lies elsewhere. The balance on a bank account is, for example, just a piece of digital data (number) that is associated with the account owner. This data piece is valuable because nobody other than the account owner can change it without the account owner’s permission. Whenever the account owner makes a withdrawal from or a deposit into the account, the balance will be adjusted accurately. Cryptocurrency has proved to be capable of replacing this function of commercial banks at a much lower cost. More fundamentally, however, it proved that blockchain can be an indispensable technology for the coming digital economy in making a permanent record of ownership. In this way, blockchain technology can facilitate data trade for all sorts of data pieces, including not just deposits and withdrawal, but also ownership of securities, tickets, real estates, births, and addresses. 

Cyber ecosystem

In order to promote technological innovation while incorporating a completely new resource, it is also necessary to explore ways to shape new economic and social systems. Many computer scientists believe that a system resembling an ecological ecosystem is needed to enable the development of information and communication technology (ICT).

Building such a cyber ecosystem will require the collaboration of people from various areas of expertise. It is crucial to involve not only engineers but also entrepreneurs and businesspeople, who would start and operate new businesses, as well as experts with in-depth understanding of financial and monetary systems. Even more important is to involve potential users of new services made possible by technology and businesses. While those people carry out their respective activities, they become linked with one another and share information, becoming involved in the development of an information and communications infrastructure, engaging in productive activities, and forming a market to exchange their products—all based on their free decision-making. In order to build market infrastructure to support this system, it is also necessary to involve economic, legal, and policy experts – those who understand market movements and the law, and those capable of designing and implementing business-related rules. A high-quality market will be formed only in a resourceful and balanced—i.e. healthy—cyber ecosystem.1

Market quality dynamics and need for a healthy cyber ecosystem

It is wrong to assume that a healthy cyber ecosystem will evolve spontaneously as innovation advances. Ever since the First Industrial Revolution, industrialisation has always led to the concentration of resources within specific industries and businesses. As is shown in Figure 1, great technological advancement leads to a degradation in the quality of the market. And when the market quality is degraded to a certain level, the social structure begins to change, causing various social problems. These include the labour exploitation after the First Industrial Revolution, the creation of industrial monopolies after the early stage of the Second Industrial Revolution, and the securities market failure leading to the Great Depression after the last stage. 

Figure 1 Market quality dynamics

The ongoing innovation in information technology is no exception. Massive amounts of data have been accumulated in a single group of companies referred to as GAFA – Google, Amazon, Facebook, and Apple. While such concentration of resources has contributed significantly to improving the productivity of these companies, it has also caused problems such as the Cambridge Analytica data scandal.2

In order to build a healthy cyber ecosystem by preventing the concentration of resources in the hands of large companies, it is important to ensure that resources (i.e. data) are shared, distributed, and used widely throughout all of society. To this end, it is necessary to return data ownership to the individuals who generate the data. A blockchain can keep self-directed records of data ownership for an unlimited number of people. Once ownership is established, data can be traded and used for all sorts of purposes. Only then can we derive the true value of data and create a healthier cyber ecosystem with a high-quality data market.

Building a healthy cyber ecosystem 

In order to sustain a healthy cyber ecosystem, we need to design an effective framework for establishing data ownership from both legal and economic perspectives. Blockchain technology enables us to define the ownership of each piece of data and makes data searchable by assigning ownership to the specific individuals who generated it. Indeed, by taking advantage of this technology, we can attribute the ownership of digital data to individual data producers. Currently, a huge amount of data flows into the hands of information tech giants, which act as default data collectors. To avoid such a winner-takes-all situation and build a healthy cyber ecosystem, we must first decide who should own the data.

Momentum is building for individual ownership of data. This would imply attributing the ownership of a piece of data to its producer, for instance, by including provisions to that effect into the Act on the Protection of Personal Information. However, there is little compatibility between the protection of personal information and the use of data for industrial purposes. Digital data are of little value in industrial terms when analysed on an individual basis. Only when collected from as many individuals as possible and used for statistical analysis can digital data have significant value. Such digital data can be anonymised, and when done properly, it would provide sufficient privacy protection. Even so, concerns over data ownership infringement would not disappear. A separate system, other than the system under the Act on the Protection of Personal Information, needs to be established to attribute the ownership of the data to their producers.

Blockchain technology is advancing exponentially. However, technology alone cannot solve the issue of data ownership. We need to take advantage of evolving technology and develop it as an industry. In designing a cyber ecosystem necessary to achieve that end, we must address various cross-disciplinary issues that encompass the legal and economic spheres. These issues should be analysed from the perspectives of law and economics in order to enable the holistic design of relevant institutional frameworks. The forthcoming book by Yano et al. (2020) explores this issue. 

References

Baldwin, R (2016), The Great Convergence, Information Technology and the New Globalization, Cambridge: Berknap Press of Harvard University Press.    

Coase, R (1961), “The Problem of Social Cost,” Journal of Law and Economics 3(1): 1–44.

Yano, M (2019), “Market Quality Theory and the Coase Theorem in the Presence of Transaction Costs,” RIETI Discussion Paper 19-E-097. 

Yano, M, C Dai, K Masuda and Y Kishimoto (2020), Blockchain and Crypt Currency: A High-Quality Marketplace for Crypt Data, Tokyo: Springer, forthcoming.

Endnotes

1 Market quality is a new normative measure to capture the performance of a market from the efficiency of an allocation and the fairness of transaction. See Yano (2019) for more explanations.   

2 Cambridge Analytica Ltd., a British political consulting firm, is accused of having used the personal data of tens of millions of Facebook users to influence the US presidential election and the Brexit referendum, both in 2016.

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Topics:  Frontiers of economic research

Tags:  blockchain, Coase Theorem, data ownership, cyber ecosystem, data

Chairman, Research Institute of Economy, Trade and Industry (RIETI)

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