The transition of various systems from a centralized and hierarchical structure to a decentralized and networked structure will drive new innovation. Dynamic, digital ecosystems will emerge in which constituents will interact collaboratively and autonomously.
Most people are connected to the internet. Importantly, an open and decentralized internet is changing social systems from a vertical, hierarchical structure into a flat, network-type configuration. Devices are connected to the internet too, and the “internet of things” (IoT) directly exchanges information between devices. The type of currency that circulates on the internet is digital money. In particular, cryptocurrencies, which circulate freely and do not rely on national governments or central banks to validate transactions are suitable for value exchange in a digital world without national borders. In manufacturing, a network of smart factories using decentralized decision-making systems are called Industry 4.0. Building urban functions on the internet is called a smart city. The goal is for infrastructure, public services and social systems to be connected via the internet for autonomous, optimal control of assets and resources in order to increase benefits for citizens.
The global number of devices connected to the internet in 2017 is estimated to have increased to 8.4 billion1 , exceeding the world’s population of 7.6 billion2 . Internet-connected devices for consumers are mainly automotive systems, smart TVs and digital set-top boxes. In the future, however, the number of smart homes and smart devices within them are expected to increase with connected smart speakers, lighting, appliances and locks. The IoT devices are expected to remotely control the operation of home appliances and vehicles, the adjustment of power consumption, and the ordering of foods and other necessities based on remaining quantities, even alerting users when food products expire. In addition, more natural, wearable devices will likely be developed to monitor exercise, diet and other health-related habits, while providing advice on when to see a physician or take medications. Another benefit of smart homes in an aging population will be looking after remote family members. The future will probably see consumer IoT devices that support a wide variety of appropriate actions based on the context.
For industrial purposes, isolated data use such as smart meters and security surveillance cameras will probably be combined within a wider inter-corporate, cross-industrial sharing of data. Analysis of onsite data, which has been underutilized is also expected to advance, leading to real-time solutions of onsite issues and value creation. Infrastructure for electric power, water, gas, and public transportation and emergency services, as well as street lights, bridges and parking lots are all likely to be connected to the internet. This will improve the safety, convenience and efficiency of smart cities.
In a society permeated by IoT, a constant internet connection is required. Delayed or disrupted communication may result in serious consequences. Compounding this issue, many IoT devices remain vulnerable in terms of security. Targeted for hacking, infected devices can spread the virus to entire ecosystems. Consequently, it will be necessary to limit the impact of hacking attacks in order to allow society to function without disruption.
2 World Population Prospects, the 2017 Revision by the United nations (June 2017)
Cryptocurrencies, also called the “internet of money,” do not have centralized administrators. Devised as a core technology to support the virtual currency bitcoin, blockchain technology enables information exchange on open networks while guaranteeing reliability. Because each participant holds a ledger with the same content and updates it with everyone’s consent, blockchain is also called distributed ledger technology. Because the technology is highly transparent and fraud-resistant, its application to a variety of business purposes is anticipated.
Blockchain technology can enable payments and remittances without going through third-party intermediaries. As one would expect, it is attracting a great deal of attention from financial institutions and other organizations. Although the technology in its present state has issues with slow transaction processing speed, development is underway to augment blockchain technology to increase its speed of processing. In trade finance, where there are many involved parties and procedures are complex and time-consuming, distributed administration of common ledgers is expected to eliminate third-party intermediaries and speed the transmission of information.
The highly fraud-resistant characteristics of blockchain technology may be applicable for uses such as traceability of recorded food additives, storage conditions, and monitoring vibration and temperature changes of delicate drugs during transport. Although the data on blockchain is trusted only when the recorded data is not fraudulent, direct digital recording of measured values will improve reliability, and the technology can also be applied to the management of performance testing and quality control data in the manufacturing industry.
Smart contracts, which creates predetermined contracts when prearranged conditions are met on a blockchain, is a system that enforces execution without the intervention of a third-party organization. The predicted applications of such technology include automatic buying for when financial securities fall below a certain price, and delivery of smart keys in a sharing economy.
Although like the internet, blockchain technology has the potential to transform society, it is still at the proof-of-concept stage. It may prove to be a technology effective for an open, digital society. However, many challenges exist when applying such technology in a system fostered by a physically-oriented society. Recognition of redundancies within the existing system and acceleration of the aspiration for new technologies may help to change the current social system.3 Blockchain technology is so called because blocks containing multiple transaction records are chronologically chained together.
Funding methods for startups leading the migration to a digital society have become diverse. One method increasing in popularity is crowdfunding, in which investments, financing, loans, and subsidies from other companies, venture capitalists and financial institutions, receive funds from an unspecified number of entities through the internet. Crowdfunding does not incur any fees and is available to anyone. Financing through crowdfunding also functions as both market research and new customer acquisition, helping to mitigate barriers for startups. Some large companies also use it to finance new business ventures.
An initial coin offering (ICO), which offers investors crypto tokens in exchange for funds, is also attracting attention as another means for startups to raise capital. While this could make funding available to virtually anyone, there are many risks including contributions made for speculative purposes and potential loss of investment. Because much fraud has occurred, new regulations for ICOs are being considered and some countries have banned the practice. Whether or not this type of underwriting approach prospers as a new means of funding in the future deserves careful observation.
An open system in which anyone participates may be most suitable for a digital society, while knowledge fostered in a closed and managed system may be appropriate for a traditional society. The current world in which we live is one with national borders and individual companies and organizations. Nations and organizations compete mainly with closed strategies and cooperate mostly with open strategies4 . These different approaches coexist. As we become a fully digital society, we will likely seek to harmonize both open and closed systems.
4 An open strategy is inclusive and transparent allowing participation beyond organizational boundaries. A closed strategy enables the control and optimization of all the elements of any system for greater performance.