Just last week, I listened to presentations to master’s students of the University of Syracuse, where the topic of discussion was “Blockchain”. I noticed that Blockchain still elicits wonder, and there’s still a lot of confusion. Here’s an executive summary on how you should be thinking about Blockchain.
- Consider Blockchain as the Operating System.
- Consider Cryptocurrency as an application, driven by the Operating System, Blockchain.
- Do not focus on the complexity that Blockchain is, behind the scenes. As business people, focus on the potential.
- Blockchain is not a panacea to solve all your problems. If you have an existing technology that serves your needs, Blockchain isn’t an option as it is slow and expensive (and complex).
- We need to have an intuitive user interface for Blockchain- driven ap0plications, especially in supply chain and logistics, and digital identity management. Make it easy to read the data, make it easy to access. Regardless of the underlying complexity.
- Cryptocurrency is designed for one universe. We live in another universe. Financial institutions around the world are not going to give up $ Billions in service and middleman revenues. Governments around the world are not going to forego taxation revenue. Criminal organizations will not be allowed to transact via a backdoor. For all of these reasons, and probably some more, CRYPTOCURRENCY IS DEAD.
So where will Blockchain play a role?
In 2017 cryptocurrencies took the world by a storm. The price of Bitcoin shot up to nearly $20,000. The average ICO returned well over 10x. ICO funding surpassed traditional VC funding. Blockchain technology emerged as the new buzzword of choice by executives. Is this all just hype?
Prediction # 1: Government Crypto
The price of bitcoin could nosedive to zero
The price of bitcoin could nosedive to zero, a top investor in the crypto space told me, in a conversation which focused on the future of the underlying technology known as blockchain.
Cryptocurrencies had a wild year in 2018, with over $480 billion of value wiped off the entire market, according to data from Coinmarketcap. After hitting a record high in 2017, bitcoin, the world’s largest cryptocurrency by market capitalization, fell dramatically. It was trading at $3,571 at around 11.15 am London time Wednesday.
Some experts believe it could go even lower. I do believe it will go to zero. I think it’s a great technology but I don’t believe it’s a currency. It’s not based on anything.
It might be that the role of bitcoin in the system could be to bring value back, to hold your value there while you have tokens that have other use cases that you aren’t using at the moment,”
The focus for an investor is on the underlying technology known as blockchain.
I would be much less interested in investing around bitcoin as a currency unit or a currency equivalent, or even the blockchain as an accounting ledger. I am thinking much more about the protocols. In other words, what is the underlying protocol going to do as a consequence of which, which tokens are valuable or not.
In the case of bitcoin, the blockchain is a decentralized public ledger of activity, that is not owned by any individual. Instead, it is maintained by a network of people running specialized computers to solve complex cryptographic problems. But bitcoin has many issues including slow transaction times with a high cost.
The industry is now trying to create “open decentralized systems.” These would essentially be next generation protocols or infrastructure that businesses could run on, similar to cloud computing today.
The next generation of blockchain technology is currently being developed. I expect more widespread adoption of blockchain in about five years, while Schumacher said that it is three years off. Ultimately, consumers will not be talking about what blockchain is being used, they will just care how good the use case of a product is.
When you send an email out today, you don’t think about the underlying technology you are using … So you can hear us talk about … what protocol, what token, what technology solutions, how many transactions per second, but eventually what’s going to happen is you are going to put something of value in, something of value will come out the other side and you are not going to care what the underlying technology is. And that’s when you know we’re successful.
Prediction #2: Trillion-Dollar Protocols
By 2030, there will be more trillion-dollar tokens than there will be trillion-dollar companies.
There is a race among the four most valued companies in the world (based on stock market valuation) as to which one will be the first to reach one trillion dollars in value. Apple, Amazon, Alphabet (Google), and Microsoft are in a race to the “4-comma club.”
These companies are all representative of the new economy — one that should perhaps be called the no-longer-so-new economy. This new-ish economy is one based on the decades-long transition to digital business and online connections. It is the Internet economy or what blockchain advocates call “Web 2.0” (anticipating the next era, the blockchain era, as “Web 3.0”).
The old (traditional, pre-internet) economy is analog, brick-and-mortar, based on oil and resource extraction, on manufacturing of raw materials and cultivation of foodstuffs and accouterments, and on the transportation and sale of these through traditional physical channels. Obviously, the real world will not disappear. It is where we live, breathe, eat, and ambulate. But its economic role has declined in the grand scheme of things.
The new-ish economy is a layer of value on top of the physical substrate. It has not yet fully diffused through all corners of the globe and economic sphere. Its impact will continue to grow, hence the high and growing valuation in stock markets. It is possible that after the first trillion-dollar company, others will also cross that threshold, and there may be three or five.
But the next era is emerging, and that may follow a different pattern than previous waves of economic transformation. What the old economy and the new-ish economy have in common is that they are both predicated on the notion of a company. In business, there is a long-standing notion of the theory of the firm, articulated in 1937 by Ronald Coase. The theory of the firm seeks to address questions as: Why do firms exist? Why do they grow?
How are they structured? What are the different functions of a firm? And so on.
In my view, looking at a company resembles looking at a single- cell organism, looking at its internal subsystems, and at the semi-permeable membrane that permits the flow of certain substances across that boundary. Coase’s theory is that firms exist because the cost of certain transactions or business processes inside the membrane is much lower than having to cross the boundary. Other transactions and processes must cross the boundary (to do business with other entities), but certain functions naturally gravitate inside the walls of the organization or organism.
Blockchain technology changes the nature of this equation. It dramatically reduces the costs of transactions and information flows. Where there was friction and impedance, these levels were lowered. Doing so erodes the traditional rationale for a firm, especially a trillion-dollar firm. Large firms exist, in part, because there is a huge schism between processes that occur inside the walls versus those that cross to the outside. Blockchain technologies change the equation and favor frictionless flows of tokens and other digital assets.
What this means is that, in the future blockchain era, trillion- dollar firms will be replaced by trillion-dollar tokens — tokens that support a decentralized ecosystem of entities that together fulfill the role of the mega-corporation. We are in the dawn of that era, and there will be more trillion-dollar tokens in 10 years than there will be trillion-dollar firms.
Prediction #3: Blockchain Identity for All
By 2030, a cross-border, blockchain-based, self- sovereign identity standard will emerge for individuals, as well as physical and virtual assets.
If e-mail proved to be the “killer app” for the Internet, identity solutions will prove to be the “killer app” for blockchain. Identity systems, as we know them today, are highly dysfunctional, operating in silos, and insecure. Blockchain-based identity systems will solve these problems. These systems will provide a single source of verification for individuals’ identities and assets.
Blockchain-based identity decentralizes the data collection, cross- verifies the collected data via a consensus mechanism, and stores this information on a decentralized immutable ledger. It enables reduced risk of security breaches, significantly higher efficiencies, higher reliability, and most importantly self-sovereignty.
According to various data sources, 1.5 billion people in the developing world lack proof of identity, including more than 65 million refugees. Blockchain-based self-sovereign identity platforms will provide the disenfranchised population with tools to obtain and maintain legal documentation. The new identity platform will be more secure and reliable since it will be stored on a distributed ledger rather than being in the possession of a central authority. Blockchain-based identity platforms will also enable self-sovereignty, which ultimately means individual privacy. The decision to disclose identity information will be within each
individual’s control. With recent Facebook data-breach scandals dominating the news, blockchain-based identity creates a viable and important solution to many data privacy issues.
Some use cases for the types of data stored on a blockchain-based identity platform include (but are not limited to):
- Government records (e.g., date of birth, )
- Reputation & trust scores (e.g., credit history)
- Certificates & attestations (e.g., university diploma)
- Healthcare & medical records
- Tax identification records
- Employment records
- Educational and professional credentials
While it is unlikely that, by 2030, a clear end-to-end solution will emerge as a clear winner, a high degree of interoperability among identity platforms will enable ease of use and global cross- verification.
Furthermore, a blockchain-based asset identity platform will collect, store, and share data for both physical and virtual assets. More than 20 billion IoT devices are projected to exist by 2020. From your smart refrigerator to an airplane engine, these “smart” chips are already pervasive. By their nature, IoT devices are continuously connected to the internet. They collect, store, and transport unique sets of data. Blockchain will provide a secure, reliable, and efficient mechanism for these devices to transact among one other. Blockchain will keep an immutable record of all interactions and will enable instantaneous payment settlements (e.g., two IoT devices transferring assets between each other).
Virtual assets will also have a unique identity on a blockchain. One example of virtual assets would be crypto kitties, fictional cats existing in a virtual game and living on the Ethereum blockchain. With the power of blockchain, these virtual objects are turned into tokenized assets which, similarly to physical assets, will have their unique identity. Ultimately, blockchain will enable an automated operating system seamlessly connecting individuals with assets in physical as well as in virtual worlds.
Prediction #4: World Trade on a Blockchain
By 2030, most of the world trade will be conducted leveraging blockchain technology.
One of the most promising areas where blockchain can provide significant business value is global supply chain. In its current state, world trade is conducted via a chaotic, fragmented set of business relationships among parties that are untrusted. This results in inefficiencies, errors, and fraud. This is a set of real-world business problems that are currently unsolved and cannot be fully solved without using blockchain technology.
Some examples of real-world supply chain problems that need to be solved are:
- Counterfeit medicines in the pharmaceutical industry
- Food supply chain in China (the tragic case of adulterated infant formula)
- Fake Louis Vuitton handbags and other fashion apparel in Asia
- Counterfeit auto parts in North America
- Grey market or counterfeit electronic equipment, including medical devices (World Health Organization (WHO) estimates that 8% are fake)
- Enterprise IT equipment — a major manufacturer of enterprise networking equipment estimates 10% of products in its multibillion-dollar supply chain are grey market
As is evident, the problems in global supply chains are significant and, in some cases, life-threatening. According to WHO, tens of thousands of people die from counterfeit drugs every year. The solution to these problems is difficult because the business ecosystems are fragmented, siloed, only partially automated, and lacking a trusted central authority with jurisdiction, resources and credibility to track provenance and certify authenticity.
Unlike the example of the banking industry, where there is an existing system (SWIFT) that works correctly and reliably, in the supply-chain examples, there is no proven, working system. There is no order, only chaos. Therefore, disruption is not an option, because disruption implies disintermediating or dismantling an existing system.
What is required is “anti-disruption” — i.e., bringing order to chaos by using blockchain technology as a force for unification: to unify disparate flows of payment, physical goods and information. This won’t be easy, and complete solutions will take years to build. In effect, one is constructing an ERP system for a business ecosystem, which means it will take longer and be more difficult than building an ERP system for a single company.
Also, as mentioned earlier, the technology does not yet have functional scope, flexibility, performance, efficiency, and maturity. Once it matures, the problems in supply chains are real enough and important enough that solutions will eventually be built, and blockchain will play a critical role in these future solutions.
Prediction #5: (Blockchain4Good)
By 2030, significant improvements in the world’s standard of living will be attributable to the development of blockchain technology.
Poverty and income discrepancy are arguably the hardest problems for humanity to tackle. More than 10% of the world population, more than 750 million people, live on less than $2 a day. More than 2 billion people are considered to be unbanked and have no access to financial services. Though the overall living standards increase and world’s GDP is on the rise, the rich get richer and the poor get poorer.
Blockchain technology has the potential to shrink the poverty gap. How? It can be done by increasing financial inclusiveness, reducing corruption, and enabling decentralized access to value- creating assets. Here are three examples.
Financial inclusiveness is the most obvious benefit of cryptocurrencies like Bitcoin. As is already evident today, Bitcoin and blockchain enable the unbanked population to get banked, and therefore, get paid. One no longer needs to rely on a centralized institution, such as the government or a bank, to give you permission to open a bank account. You can buy and sell Bitcoin on an open market (provided access to a crypto exchange) with access to a smartphone. A number of merchants around the world already accept cryptocurrencies. By 2030, cryptocurrency will serve as a de facto standard, similar to how the US dollar is widely accepted today.
Second, blockchain technology reduces corruption by creating transparency of official records. Whether you are a farmer in rural Latin America or a house owner in Russia, you will no longer be driven out of your land by corrupt official tampering with the land registry. All assets, including land, will be recorded on a transparent, tamper-free distributed ledger open for the public to see.
Solving this problem alone will have massive financial implications on the global economy. According to a prominent economist, Hernando DeSoto, “dead capital,” or, in other words, property or asset which is held but not legally recognized, is estimated at $20 trillion. Uncertainty around asset ownership reduces asset price and tradability potential. Therefore, by creating a transparent, tamper-proof property and asset tracking system, blockchain technology has the potential to increase global wealth.
Lastly, blockchain technology enables massive-scale tokenization of value-generating assets only available to the rich right now.
Think about buying The Plaza Hotel in New York City or an expensive piece of gold mining equipment producing a steady, recurring income stream over several years. To purchase such an asset today, one has to borrow large sums of money from a bank and take an upfront risk on the purchase. Blockchain enables tokenization of large-scale assets. This means that even if you are a farmer in rural Africa, you can now become a fractional owner of a revenue-generating asset such as a gold mine.