Data Marketplaces: Value Capture in Web 3.0

Marketplaces are critical elements of the entire Convergence ecosystem; the element that incentivises data to be collected, shared and utilised. We now have the ability to open up the machine economy and need to think of ‘trading’ beyond the scope of human interaction. The sorts of marketplaces that are being developed in the crypto community are decentralised, automated and tokenized. These marketplaces are made possible because of the distributed ledgers, consensus mechanisms and interoperability protocols at the lower levels.

We will see the emergence of a whole host of new types of marketplaces beyond just today’s cryptocurrency exchanges like Binance or Coinbase. We are seeing the emergence of data exchanges that work with specific types of data; machine data from IoT networks, artificial intelligence data, personal data, and complex digital assets like crypto-collectables (pioneered by ERC 721 non-fungible tokens like CryptoKitties) and bots. It’s likely that over time marketplaces will expand into enabling all types of data and if that does occur we could end up with a dominant data and digital asset marketplace for Web 3.0 like Amazon for the Web 2.0. It’s interesting to think where the points of leverage will be in the Web 3.0 especially if value and data are interoperable across blockchains. Anyway at least for now, we see four types of decentralised data marketplace.

IoT Data Marketplaces

IoT data is already being collected in vast quantities, but the sprawl of devices has created a fragmented ecosystem. On the consumer side, operating system providers like Apple, Google and Amazon are attempting to leverage their dominant positions in smartphones and retail to sell more devices to collect more data. The Apple Watch and CarPlay, Google Home and Next, Amazon Echo and Dot; these are all attempts to grow their walled gardens of data. Smaller consumer IoT device makers like Fitbit, Wink, or GreenIQ struggle to collect enough data to make do meaningful machine learning to improve their products as quickly as the tech giants.

On the enterprise side, the same dynamics are at work. The internet of things (IoT) and industrial internet in the United States, Industrie 4.0 in Germany, and 物联网 (wù lián wăng) in China all promise to use low-cost sensors and big data analytics to dramatically improve productivity and usher in a new age of data-driven manufacturing. But the promise has not been realized for a number of reasons. Core to the failure has been the lack of data sharing. This lack of data sharing has been the case across all industries that are trying to utilise IoT technologies including aviation, agriculture, and utilities. The problem, as we have already highlighted, is that there is no incentive to share data because it is seen as the competitive advantage to be protected. Current data infrastructure is coarse: data is either hoarded and valuable, or shared with limited commercial viability. IoT marketplaces begin to offer new business models for the monetisation of machine data. The IOTA data marketplace, Streamr, Datum and Databroker DAO are all examples of these marketplace emerging to enable the sharing of sensor and machine data.

AI Data Marketplaces

Just like IoT data, or any data for that matter, data for AI algorithms tend to be accumulated by the largest companies. Society is becoming reliant on data, and as it applied to AI algorithms, we are facing a situation in which a select group of organisations are amassing vast datasets and building unassailable AI capabilities. With the emergence of deep learning as the most useful machine learning technique for a range of AI applications like computer vision and natural language processing, data has become like digital oil. Digital monopolies like Facebook, Google and Amazon, today get data from users for free. Every like, search and purchase feeds the learning system to further improve the algorithms; in turn bringing more customers and engagement. In value chain terms, data is supply, and AI algorithms are demand. Digital monopolies are searching everywhere for more and more data to feed their algorithms: Facebook buying WhatsApp and Instagram, Google with self-driving cars and Google Home, and Amazon with Alexa Echos and Dots.

“Traditionally proprietary data and technology have been significant defensibility mechanisms for companies. In the blockchain industry this is all open source, leading to an incredibly rapid innovation cycle, but also shifting defensibility more towards the sheer size of the community and thus the distribution power. This is an industry where increasingly users decide what technologies they want to use.” — Teemu Paivinen, Founder, Equilibrium Labs & Author of Thin Protocols

Decentralised AI data marketplaces will reduce, and eventually remove, the competitive advantage of hoarding private data by enabling anybody to monetise data. Again in value chain terms, these marketplaces increase supply. An AI data marketplace will make it easy for people and increasingly agents and bots to recommend, price and therefore find value in different types of data. A market for data will lead to more efficient allocation of data, rather than giving it away for free or not using it at all. As more and more machines, individuals and organisations upload data to sell on a data marketplace, it becomes more attractive to data buyers. As this data commons grows with more datasets, it will attract more data buyers, creating powerful network effects. More than anything, decentralised AI data marketplaces are a bulwark to the rapacious AI data monopolies that have the potential to become the most powerful organisations ever built (if they aren’t already), controlling ever-increasing numbers of industries and markets with their superior AI capabilities. It is, for this reason, we invested in the Ocean Protocol, whose mission is “to unlock data, for more equitable outcomes for users of data, using a thoughtful application of both technology and governance.”

“The aim of Ocean Protocol is to to equalize the opportunity to access data, so that a much broader range of AI practitioners can create value from it, and in turn spread the power of data. To respect privacy needs, we must include privacy-preserving compute. Our practical goal is deploy a tokenised ecosystem that incentivizes for making AI data & services available. This network can be used as a foundational substrate to power a new ecosystem of data marketplaces, and more broadly, data sharing for the public good.” — 

Trent McConaghy, Co-Founder, BigChainDB & Ocean Protocol

We also expect to see these marketplaces become ever more automated and efficient. Another of our portfolio companies, Fetch, is building a solution that uses decentralised machine learning to enable marketplaces to self-evolve around popular or valuable datasets, improving discoverability. In some senses they are embedding marketplaces directly into the ledger to truly enable the machine economy.

Personal Data Marketplaces

After peer-to-peer payments, control of personal data has been one of the most talked about applications for blockchains. This is related to but separate from self-sovereign identity and SII networks like Sovrin, in the sense that once an individual controls their own identity, they can choose who can have access to it. The same principle can be applied to other personal data. This choice puts the individual in the position of the seller and the party who wants access to the data as the buyer. Personal data is an economic asset that we currently give up in return for services. Some data is handed over consciously, like entering an email address or a telephone number; other data is captured without us knowing about it: likes, tweets, our online behaviour and other forms of digital data exhaust. The value comes (albeit it is much less understood by individuals) when different datasets are aggregated, and an individual psycho-demographic profile is created and sold to all sorts of organisations like insurers, market researchers, and political organisations. A multi-billion dollar data industry exists just to trade personal data.

Individual pieces of personal data are not particularly valuable on their own. According to the Financial Times, general information such as age, gender or location is worth just 0.0005 dollars per person. Buyers will have to fork out 26 cents per person for lists of people with specific health conditions. Genomic data would likely fetch much more. The challenge is that at an individual level, there is very little economic value. Value comes in aggregate. This is where blockchains, self-sovereign identity, and personal data wallets combine.

In today’s Web 2.0 paradigm, Google, Facebook and other data monopolists capture the profit. In the future, blockchain infrastructure, self-sovereign identity and personal data marketplaces will empower individuals. They can choose to allow Google and Facebook to use their data, or they can auction it off to get the best price. They might decide to only sell general information, but not their genomic data. Others will rent access to genomic data to cancer research charities but not insurers. New business models will emerge as buyers give sellers discounts based on aggregating family data for instance and new startups will emerge differentiating on consumer trust. Metâme is a UK-based startup working on creating a universal unit of trade enabling bundles of personal data to be packaged and exchanged. A data marketplace is not necessarily about making the most money. It is about giving individuals choice and control of how they want to invest their most valuable economic asset.

“Self-sovereign personal data marketplaces need to address two key hurdles before they can take off: 1) the need for a universal unit of trade that transforms personal data into assets which people can tangibly trade and own, 2) ensuring anonymity and then incentivising consented identifiability as new legislation like GDPR effectively calls for anonymity by default. Without solutions to these problems personal data marketplaces cannot scale sustainably.”

Dele Atanda, CEO, Metâme Labs

Digital Assets Marketplaces

The final category of marketplace we expect to evolve are digital asset marketplaces. Unlike traditional physical assets or money, distributed ledger-based crypto-tokens can be programmable. This gives them more flexibility and variety than their physical counterparts. Cryptocurrencies, or tokens designed to be a medium of exchange, are already reasonably well-defined and projects are innovating around how to create the optimal token for this use in mind with rules around supply, distribution, privacy, and other attributes being tweaked. Cryptocurrencies confer the fact that the crypto-token is a medium of exchange. Most tokens are incorrectly referred to as cryptocurrencies. This is because Bitcoin began life as a cryptocurrency and has over the last ten years become more of a crypto-asset, predominantly because of the programmed deflationary economics (Layer 2 solutions like Lightning may change this classification however). However, currencies and assets require different economic designs. Currencies need to have a high velocity; assets need to retain and ideally increase value resulting in low velocity.

Broader than cryptocurrencies, digital assets will come to include all digitals assets that use distributed ledgers to create scarcity. Today there isn’t a clear distinction between cryptocurrencies and crypto-assets, but as the market matures, it will become more evident which tokens are designed to be a medium of exchange and which are designed to be a store of value. It is challenging to be both. Ether, for example, is intended to be used as a medium of exchange to redeem decentralised services from applications. But as its price rises, it becomes more of a store of value and less of a medium of exchange as holders refrain from redeeming Ether in anticipation of value appreciation. This non-fungible subclass of crypto-assets will be designed to be collectables and derive value through exclusivity and proof-of-ownership. Tooling for this is already emerging with the ERC 721 NFTs.

We expect to see a whole new ecosystem of digital assets like in-game weapons or costumes for gaming, AI bots and virtual avatar templates, such as those provided by SEED. Virtual reality land such as Decentraland; objects with real-world counterparts like digital twins from Spherity; and even digital to physical assets like 3D printed items, many of which will be collaboratively made and collectively owned. With digital scarcity comes the ability to artificially limit supply which has up until now been almost impossible with existing digital and Internet technologies.

The possibilities are endless and we are at the very beginning of a whole new age of digital assets created, bought, licensed, rented and sold in decentralised peer-to-peer marketplaces.

This excerpt is the latest in a series from Convergence Ecosystem vision paper. Go and read the full thing here which can be read here. Or take a look at the previous excerpts which have covered core themes from the paper:

Building the Internet of Blockchains

I have said it before so I will say it again, the new data value ecosystem see data captured by the Internet of Things, managed by blockchains, automated by artificial intelligence, and all incentivised using crypto-tokens. For a summary of the thesis take a look at the introductory blog.

Clickbait headline aside, if we aren’t careful we are going to end up replicating data silos we hoped blockchains and decentralised technologies would remove. This is why the transport layer of our investment thesis: the Convergence Ecosystem, is so important. For us the transport layer includes but not limited to four components: data interoperability like say haja networks; value interoperability like Polkadot, AION, Cosmos and atomic swaps; transport and messaging protocols like telehash and whisper, and state communication protocols like Lightning Network for Bitcoin, Raiden Network for Ethereum and IOTA’s Flash Channels.

The technologies of this layer are less mature than the layers below, but will become ever more critical as blockchains and DLTs proliferate if we are to avoid the same data silos that exist today in the Web 2.0 era. It is at this layer where interoperability protocols are developing for messaging, value, data and state — and we are beginning to see the contours of a so-called ‘Internet of blockchains’. In the full paper we explore each of the interoperability protocols, this blog is an extract of value and data interoperability.

Value Interoperability

Value interoperability across multiple blockchains refers to the ability of digital assets in one blockchain to interact with assets in another. The most straightforward example for an interoperable transaction would be one in which an individual transfers a cryptocurrency on one blockchain in exchange for cryptocurrency on another, for example, Bitcoin exchanged for Litecoin or XRP. Interoperability matters as it enables multiple ledgers to compound the benefits offered by each. Through limiting the flow of value in a blockchain to a single ledger, one risks creating new “decentralised” DLT-based siloes that cannot interact with each other at scale. By enabling ledgers to interact with one another with a communication protocol layer, improvements in security, speed, cost of transactions can be attained.

There are multiple approaches to obtaining interoperability, each with a focus on a specific function. One of the simplest forms is through a relayer. These utilities check for transactions in one chain and “relay” that information to another. BTC Relay, for instance, allows Ethereum smart contracts to verify a Bitcoin transaction without any intermediary. This enables Ethereum DApps and smart contracts to accept Bitcoin payments. A new generation of cross-chain transaction enablers allows exchanges to occur without a centralised party. Atomic cross chain swaps use hash time locked contracts to enable two parties to interact with tokens from different ledgers with each other without the need for an intermediary.

Atomic cross chain swaps will be crucial in creating a new generation of decentralised exchanges. Cosmos, Polkadot and Komodo are a handful of projects with an explicit focus on the space. Interoperability protocols also often enhance privacy through zero-knowledge proofs. They enable verifying the accuracy of a computation without knowing the variables involved. Through sending a transaction across multiple ledgers, tracking the source and recipient of a transaction can be made drastically more difficult. One could also consider decentralised exchanges such as EtherDelta as an interoperability enabler. Although restricted to ERC20 tokens, they allow individuals to trade their tokens for another one without relying on a central authority. One could trade their Storj tokens received as payments for leasing their computer’s storage space out and buy INS tokens to receive discounts at a retail outlet without having to move coins from their wallet with the help of the likes of 0x and Kyber. While decentralised exchanges come with new challenges — especially liquidity — they offer the promise of delivering significant security improvements over centralised exchanges.

Value interoperability will allow value that is stored in siloed blockchains to break free. This applies equally to value stored in both public and private blockchains. NEO is already enabling cross-chain asset agreements with NeoX. Users do not need to set up wallets for every blockchain they want to use and rely on third parties every time they have to interact on a different chain. Interoperability protocols further add value to the Convergence Ecosystem by allowing multiple industry-oriented tokens to communicate with each other. For instance, one could make payments in MIOTAs for leasing IoT based sensors that pass on data using the Ocean Protocol OCN token. Similarly protocols would be used in connecting and incentivising functions in mobility and robotics. A machine can pay for access to a resource in the native token of one ledger and receive the resource itself through another ledger. As projects and protocols start delivering real-world utility at scale, the need for exchange infrastructure will increase. One could compare these protocols to hubs that route value without an intermediary.

In a world of seamless value interoperability one can expect a complex interplay between users holding tokens for particular service utility and others for store-of-value; the wallet or ‘portfolio’ balance likely optimised by a personal AI. This AI will be personalised by risk appetite, values and services; the weighting of which will lead to a new field of TPO (token portfolio optimisation) an extension of search engine optimisation (SEO) and social media optimisation (SMO). If purchasing and holding tokens is a reflection of one’s values, it’s interesting to think that token portfolios could become a new sort of social or political badge.

Data Interoperability (Off-chain)

Today, incredible amounts of data are stored on the private servers of a relatively small amount of organisations. The internet’s client-server architecture makes data-sharing inconvenient, while privacy and data protection laws limit the cases where it can be done legally. Even if this were not to be the case, there is no rational economic incentive for individuals to do anything other than give away their data. While strides are being made towards increased data accessibility, such as open Application Programming Interfaces (APIs) and open-data regulations like PSD2, the benefits are one-sided. Indeed, users can now benefit from open data, but there is still no market, and data contributors remain largely unpaid. So, are blockchains the solution?

Blockchains are not databases; they are ledgers. It sounds almost flippant to say that, but the distinction is essential in understanding why data interoperability is just as important as value interoperability. Value interoperability means tokens can be moved across chains; data interoperability allows data to move across databases. Blockchains must be lightweight with limited on-chain storage so that “anyone” can download a full history of the blockchain. If blockchains become too large, fewer people will be able to participate in the network, thus reducing the decentralisation of the network and overall security. When it is said: “blockchains will enable large datasets to be shared or stored” actually it is not blockchains where the data itself will be stored. We are talking about decentralised and distributed data storages like IPFS and Swarm. Each blockchain implementation uses different data storage for “off-chain” data, and the balance between “on-chain” and “off-chain” data depends on the use case requirements. Just like the design of the Internet and the internet protocol suites, we expect blockchains to remain as light as possible to ensure speed and reliability; it will be the “off-chain” storage that will hold the majority of the data.

But what we must avoid is a world in which value is interoperable, but the underlying data is not; leading to the same monopolistic market dynamic as we have today. Projects like Haja Networks are vital in enabling data sharing throughout the ecosystem. We need protocols that permit data to be shared seamlessly across both centralised and decentralised databases. Innovations in cryptography such as zero-knowledge proofs, differential privacy, Fully Homomorphic Encryption (FHE), and secure Multi-party Computation (MPC) will enable data to remain private and secure but still move through public networks. Without data interoperability, the Convergence Ecosystem does not work.

Only when both value and data can be shared securely, can marketplaces be built that will drive the Convergence Ecosystem. Tune in next week for more on the importance of data marketplaces to the future Web 3.0 vision.

Innovations in Blockchains: All You Need To Know About Crowdsales

Outlier Ventures Research has just released our latest research report titled ‘All You Need to Know About Initial Coin Offerings’.

Further to our commitment to open-source: our data (Blockchain Angels Blockchain Ecosystem Tracker — 1070+ startups and growing) and our analysis (Monthly Blockchain Market & Investment Update) to support and help the ecosystem grow, we are going to be publishing regular free research reports that investigate developments in the community.

Some key findings from the report include:

  1. 12% of all bitcoin and blockchain projects that have raised money have used a network token presale
  2. Crowdsales have raised roughly $240 million to date. TheDAO was the largest crowdfunding campaign in history raising at the peak $180 million.
  3. The debate around whether or not tokens are securities misses the broader business model innovation that network token presales are driving

In the report we look into 5 themes in the Crowdsale/ICO/Appcoin/Network Token Presale space:

  1. How terminology around blockchains, initial coin offerings (ICOs) and tokens is leading to dangerous levels of market misunderstanding
  2. Where network token presales fit into the broader crowdfunding market
  3. Regulatory challenges around network token presales & securities law
  4. Business model implications of network token presales
  5. Broader potential of tokens to enable blockchain-chartered companies

“In time tokens may come to represent a fundamental shift in the structure of companies, but already network tokens are having an impressive impact by providing a new business model for open-source and protocol development.”

As a venture builder and investment partnership, we ourselves wanted to understand the role of ICOs in the broader context of fundraising. Specifically to see if there was still a role for a dedicated equity-based crowdfunding platform for blockchain startups. Our findings, the highlights of which are broken down below, confirmed our view ICOs whilst truly revolutionary still have many risks and limitations and are best suited to very specific instances:

  • ICOs are broadly used to fund highly technical blockchain infrastructure for which only early adopter developers can understand the need and where the capital requirement is immediately high.
  • This is particularly important now private money in the VC world, especially Silicon Valley money is drying up, due to the lack of big exits.
  • The ICO seems to be less relevant where a startup is an application (or DApp) whose use-case should be clear to a traditional professional investor who can provide not just capital but an address book and vertical expertise to help make it happen.
  • The majority of startups are put off by both the legal uncertainty and additional complexity of managing so many smaller investors early on in their development cycle.

5 Things We Learned From Analysing the Location of 950+ Blockchain Startups

by the Outlier Ventures Research Team

200 New Startups added in 6 Weeks

After the launch of the blockchain angels startup tracker in late May and fast growth throughout June, we now have 967 startups listed in the tracker. In just over 6 weeks, we have had over 200 new startups list themselves! Thank you very much to the community.

To help us reach 1000 blockchain startups by the end of July, please make sure you company is listed here.

After the launch, we asked for feedback from investors, startups, incubators and media to guide the development of the product to make sure we added as much value to the community as possible. What we heard loud and clear was that the most important piece of missing data was location. So we decided to add the country and region for every one of the 967 startups in the tracker!

5 Trends in the Blockchain Ecosystem

1. UK second only to the US as global blockchain hub, will Brexit threaten this?

As expected, the blockchain market is dominated by the United States with 38.9% of the startups either registered or with development work taking place in the country. The second most important country is the United Kingdom with 16.7% of all blockchain startups based there. It will be interesting to see how Brexit impacts the blockchain industry; early feedback suggests investors see the weakening pound as an opportunity rather than as a cause to panic. That said, Berlin is already hard at work attempting to attract disillusioned tech talent to the city. Germany actually comes in joint 6th with Israel representing 2.5% of startups led by Canada in third place with 3.3%, China in fourth with 3.2% and Singapore in fifth with 2.6%.

2. The US has a heavy Bitcoin bias

When you dig below the surface, each country has a slightly different makeup of startups. The United States is heavily invested in Bitcoin. This is a function of entrepreneurs and investors being first to market before other alternative blockchains and use cases had been developed. Companies and products have been built around the Bitcoin blockchain, and as culture develops, it is harder for these companies to innovate and use resources to explore alternatives both culturally and practically. This explains why some of the most interesting Ethereum-based startups have based themselves in Europe, specifically the UK and Germany.

3. London is the centre of the Blockchain Fintech scene

The UK is, unsurprisingly, heavily-weighted toward blockchain use cases in FinTech. With 115 companies that we know of there is a lot of diversity but we do see a lot of companies building products around settlement and clearing, insurance and financial trading. The high regulatory barrier of financial services means that domain expertise is very highly valued, which limits the ability for say, a Bulgarian startup to come along with a blockchain solution and disrupt the industry. For that reason, we expect to see the UK to lead on FinTech and Insurance use cases, as talent, resource and funding are shared between startups and incumbents.

4. There is limited location clustering around use cases

Beyond London and financial services, however, the data does not show any clear sign of startups clustering in the same countries to solve the same problems. Use cases, such as supply chain and logistics, are being targeted by startups around the world, in Israel, Singapore, Italy and the United States for example. Internet of Things startups using the blockchain are based in Kenya, Germany, the UK and the US. Equally, there is diversity in the use cases being targeted in countries. German startups are exploring everything from data & analytics to financial services, to provenance & notary to social messaging. The reason for the lack of regional clustering could be either; the market is too nascent and clusters will emerge, or that physical clustering is a relic of the old industrial world without the Internet and zero marginal costs of communication and distribution. There is a case to be made for both positions.

Is this the end of clustering?

Clustering occurs when companies in the same industry move close together to benefit from economies of scale. Companies close together can benefit from a shared pool of talent, expertise, suppliers and customers. Modern clustering in the tech industry is usually around universities; Silicon Valley benefits greatly by being located close to Stanford. However, the blockchain, distributed systems, and cryptography courses are not taught widely at universities, at least yet. Blockchain talent to date has come generally speaking from hacker communities online. The industry is one of the first to grow from the Internet and therefore is inherently distributed. Networks are global, expertise is shared globally on GitHub, suppliers are cloud-based and distributed over the Internet, and customers can be anywhere in the World. Clustering no longer provides the economies of scale it once did.

Will clusters emerge in time?

The lack of clustering could be the result of a very nascent market with relatively few startups. Over the next few years, it is possible we will see the emergence of clusters. Berlin for decentralisation technologies, Tel Aviv for security, Singapore for supply-chain and London for insurance. While it is true that The Internet enables global knowledge sharing and distribution to billions of people, one area which isn’t global and borderless is; finance. Despite the potential of blockchain itself, right now finance is highly regulated, and national licenses are required to engage in lending. This means for a blockchain startup that needs to raise funding; they need to be located near VCs and angel investors. This is why Silicon Valley, New York, London, Berlin and Singapore still attracts blockchain startups. Clustering still makes sense in the digital world, because finance, and specifically venture capital, is not, yet, digital although as we know the DAO and what follows are very much looking to realise this vision.

5. Location might not matter at all anymore

In undertaking this micro-exercise, we have uncovered a more macro trend. Not only is there very little regional clustering, but just as the blockchain itself is distributed so too are the teams working for blockchain startups.

With 28%, startups with ‘no HQ’ constitute the second largest ‘location’ of blockchain startups and projects.

Now, it is possible to hunt down the lead developers and figure out where they are physically located, but that is to miss the broader point. Companies building products from decentralised technologies are themselves decentralised and distributed around the world. It is common to see team members based in London, Thailand, Warsaw and Madrid.

Is the blockchain startup scene stateless?

Wherever I lay my laptop, is my home. (As long as there is coffee)

50 years ago a company would be registered, pay taxes, have workers and undertake all operations in the same country. Globalisation has peeled off each of these layers. Blockchain startups are some of the first post-Internet, post-mobile companies predicated on the assumptions of zero-marginal costs of communication and distribution. The company, staff and customers can all be based in different countries because of the Internet. Many blockchain startups are raising money and paying developers in Bitcoin and Ether, so they don’t bring money into the state environment and can avoid capital gains.

I posit, does it even make sense to ask where a company is based anymore? The answer for many in the blockchain community is ‘the Internet’. It’s interesting to think that while all talk is about Brexit and new trade deals that must be negotiated between countries, for blockchain startups the nation-state is increasingly irrelevant.

For deeper research around location or analysis of the blockchain ecosystem more broadly, please get in touch.

Deeper analysis of the startup tracker

As the tracker gets larger, our free monthly newsletter helps cut through the noise, providing context to the most important blockchain stories of the month. The July Newsletter included analysis of funding news from @circlepay, Colu, @quoinexchange, Wavesplatform, and Mediachain Labs.

Sign up here.

Story orginally published at

Blockchains: The building blocks of our future

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. 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.