Last updated on February 4th, 2018 at 08:09 am
If you’re new to the blockchain concept, you’re not alone. It sounds more complex than it really is. However, the impact that the blockchain will have on digitally transforming the global economy will be dramatic. From banks to fintech, e-commerce to self-service, the blockchain is redefining (and disrupting) the way we transmit value to each other.
This week, William Mougayar, author of The Business Blockchain, presented a compelling argument at the BCTECH Summit in Vancouver, of how the blockchain will revolutionize how we transmit value, specifically currency, similar to how the Internet revolutionized how we transmit information.
The blockchain is a new technology that enables the peer-to-peer transmission of electronic value, without any intermediary. – William Mougayar
The Blockchain in a Nutshell
BitCoin, for example, is a blockchain solution that solves the Byzantine Generals Problem. For a quick overview, see the illustration below. For the scary details, see the 1982 research paper here. BitCoins are single, virtual, value-based transactions that cannot be copied, just like real money. Not to be confused with BitTorrent technology, once I send you a coin (or token) using the Bitcoin protocol, I lose my coin and you gain one. If we share a file using BitTorrent, I don’t lose my copy of the file. The blockchain, like a virtual bank statement, only stores the transaction history (or record) of the Bitcoin token in blocks of encrypted data.
Three Dimensions for Viewing the Blockchain
- Technology: where a back-end database maintains a Distributed Ledger
- Business: an Exchange Network for moving value between peers
- Legal: a Transaction Validation mechanism, not requiring intermediary assistance
Source: Thomson Reuters
The genius behind the blockchain is that it brings together Cryptocurrency, Game Theory and Software Engineering without requiring a centralized database. And because financial institutions like banks are heavily regulated and centralized, you can see how the blockchain will disrupt traditional database-driven enterprises.
Six Ways the Blockchain Will Disrupt the Global Economy
- Cryptocurrency: encrypted, bank-agnostic digital transactions that do not require a middleman
- Distributed Ledger Technology: open, shared documents (Google Docs vs. Microsoft Word)
- Proof of X: writing on the blockchain is permanent and every record can be retrieved at any time.
- Decentralized Applications: open, peer-to-peer apps with no one in the middle and no fees. Think of it as eBay without eBay.
- Token-Based Modules: tokens are a “reward unit” to compensate for your attention. In other words, rather than Facebook using your attention to make money, new social media companies looking to disrupt Facebook using the blockchain could instead compensate you for the time you spend and the data you share on their network.
- Initial Cryptocurrency Offering: ICOs are a new way to raise funds for projects that are based on blockchain and cryptocurrencies. Ethereum is an ICO funded company that already has a market cap at over $3.5B.
It is clear that the blockchain will fundamentally change the financial sector on a global scale. It is a matter of when, not if. Chatbots are good example of how banks and other transaction-based companies are already digitally transforming the way they do business using the blockchain. The good news for consumers is that blockchain systems are able to compensate them for sharing their attention and data because those systems enforce and empower trust. The bad news for heavily regulated and centralized institutions is that there is a lot of digital transformation and digital maturity work to be done in order to benefit from the blockchain. As the old saying goes, change or be changed.
Disruption is a reality, it always has been. The Internet needed the World Wide Web in order fully disrupt the way we share and transmit information. The blockchain will require a similar interface, but it is coming.