Yo dawg, I heard you like blockchains, so I put a blockchain on your blockchain, so you could blockchain
Blockchains will lead to a complete reshaping of economic activity. It’s pretty #important. The first task is explaining why blockchains are so significant and not just for geeks. Despite the echo chamber that we all exist within, most normal people have no idea what the blockchain is. The second challenge is then to articulate the difference between Bitcoin, the cryptocurrency, and the underlying technological breakthrough, the blockchain. The Bitcoin blockchain and other alternative blockchains are distributed, cryptographically secure, open-source ledgers for digital transactions. Bitcoin is one asset that can be exchanged on a blockchain, but it should only be viewed as the first asset. Just as email was the first application on the Internet, Bitcoin is the first on a blockchain.
Blockchains mean there is no need for a central authority to sit in the middle of a market providing trust and extracting economic rents. The blockchain itself provides the trust. This is a revolutionary breakthrough in the history of human commerce. When traders bought and sold their products face-to-face, and with a handshake, it was easy to build up trust. As it became faster and globalised, entities were created to enforce trust and protect buyers and sellers. Legal and auditing services were required and people built financial exchanges. Markets had to have middle-men because at a fundamental level; we had no way to scale trust.
It is important that we explain why people need blockchain. Not just say because it’s decentralized or because it’s immutable. That’s not good enough and doesn’t explain the value it can bring to the world.
Blockchain technology is currently racing up the incline towards the peak of inflated expectations in the Hype Cycle. People are pointing to blockchain technology as the solution to everything from efficient back-office systems in banks to wiping out corruption across global supply chains. As with most transformative technologies, the impact will be overestimated in the short term but underestimated over the long term.
One does not simply trade assets
The development of the Internet offers some good pointers on how blockchain might develop. The Internet reduced the costs of communication and distribution. The cost of a Whatsapp message is much cheaper than an SMS. The cost of selling software is much cheaper than having to sell it through shops. Near zero-marginal costs have brought profound change to the software, telecommunication and media industries. Blockchains result to near zero marginal costs to all transactions. It will cost me no more to transfer a house, a bitcoin, or my data.
Once assets are on the blockchain, whole new areas of innovation open-up. We can create all sorts of services that add new value. Slock.it are creating smart locks that only allow access to authorised individuals and automatically takes payments. Data can be encoded on the blockchain and shared only with authorised companies such as health providers or insurers. Everledger are tracking diamonds throughout the supply chain to reduce fraud.
Blockchains are a low-cost market disruption to any business that acts as a middleman in a market. But just as excitingly they enable things that have never been viable using existing financial infrastructure. We can trade things that, until now, have not been seen as assets. Things like our data. Our reputation. Unused bandwidth or electricity. The possibilities are are vast as the imagination, but that doesn’t mean that each use case will make for a profitable business.
What if I told you… blockchains will change everything
As we ascend towards the peak of inflated expectations, blockchain is a hammer looking for nails. You should never start from the technology and go in search of a problem. The best businesses come from identifying customer pain points and solving them. Blockchain tech is valuable for use cases where data needs to be shared and edited by many untrusted parties. The blockchain is infrastructure. It’s plumbing. The value comes from the services that are built on top at the application layer.
We are in the infrastructure phase of the blockchain market, and we lack any standards or clear winning platforms. As the technology develops, it will be easier for developers and entrepreneurs to use the blockchain as part of the technology stack in much the same way that MySQL or MongoDB are the databases used today. And in the same way, normals do not care what database you are using. All that will matter is that things can be tracked and exchanged simply and cheaply.
Once we get past the infrastructure phase, things really will get exciting. Blockchains will form the core data management layer as we build out the Internet of Things. Connected devices will collect the data; blockchains will secure, share and transact the data; and artificially intelligent applications will automate activities. Imagine vertical farms where produce is grown and picked using robots, delivered to our homes using drones after the connected fridge figured out we were out of carrots. An AI manages the system with a goal to perfectly match supply and demand.
Blockchains are so much more than just Bitcoin. They are nothing less than the building blocks of our future world.