What is the big deal about blockchain technology? A look beyond Bitcoin & Co.

The goal of this article is to help myself (and possibly you) to develop a more solid opinion on what exactly is going on with blockchain right now and what the excitement is all about. While there is a lot of material being produced daily on this topic, I am looking to develop this with simple examples to learn about important concepts rather getting lost in technical mumbo-jumbo.

So let us get started.

What is the big deal about blockchain technology?

You may have noticed that the word blockchain has been thrown around quite a bit recently, not only in the context of Bitcoin but generally in the context of startups and new business models.

I presume that because you are reading this you are familiar with the terms Bitcoin and blockchain, at large.

However, let me give you a quick refresher, in the simplest form I know.

Bitcoin is a digital currency that has been around for years. Its brand has reached the mainstream end of 2017 when the price rallied from USD 1000 to USD 20000 a coin. While some expect Bitcoin to take over the world by gradually replacing fiat currencies such as the US dollar, others are more skeptical wondering about the intrinsic value of a currency that is currently highly illiquid and possibly difficult to scale due to current technology limitations.

With the rise of Bitcoin, its underlying decentralized technology has also risen to fame and entrepreneurs quickly found new applications for it, with the idea to disrupt other unrightfully centralized business models. The first version of this decentralized technology is also known as blockchain. Blockchain has now become the synonym for a democratic revolution and freedom from suppression and economic monopolies. In short decentralized technology allows for a creation of databases that are distributed across large computer networks without single points of failures and without a single controlling entity.

Having the definitions out of the way, I would like to focus on two specific properties of decentralized technology that I find particularly important when thinking about other use-cases, new business applications, and society at large.

So what are we talking about?

Tokenization (Application) and Immutability (Consequence of Decentralization).

Let us look at some basic examples to illustrate the power of these concepts in order to hopefully be able to extrapolate these properties onto new ideas.

Tokenization: Crowdfunding and Finance

The idea of crowdfunding was around for many years already. Crowdfunding is basically a modern concept that evolved with the rise of the internet that allows thousands of people to support projects with a small financial contribution. Such platforms were extremely successful, however, somehow the equity crowdfunding (share of ownership of a business vs only project support for early access to a product) never took off in the retail market and we have not seen the general population having access to alternative investments or startup projects like the big players did.

I think the reason for that might have been that the regulations were easily imposed on the centralized crowdfunding websites so that a real momentum could never develop. While crowdfunding is great for society and a new way to finance startup projects, it was a serious threat to the traditional financial institutions and investment banking. If I remember correctly, it was a regulatory nightmare to actually provide equity crowdfunding online and the audience was not really there or it had not yet defined itself. At the same time, there was no robust technological solution to govern the share ownership online, without having serious centralized points of failure.

While projects like Kickstarter provided the possibility to fund business projects for early access to cutting-edge tech products, owning a share of the company was a totally different ball game and was not really possible. Again, I am not sure if there was not enough liquidity and interest from retail investors to make it happen or if it was a regulatory minefield that was the obstacle – the outcome was clear: My mom did not become a venture capitalist from the comfort of her home.

Only with the rise of Bitcoin in 2017 sufficient momentum was developed by the tech-savvy early adopters and with the help of social media marketing to finally mobilize people with a natural affinity towards financial markets and technology to join the movement that was happening in a decentralized parallel universe that the regulatory bodies did not have access to until it was “too big to fail” and worth paying attention to.

In short, tokenization is not a new concept but it has now a good chance to be realized in a decentralized economy without centralized players dominating the tools of the trade to realize this concept. Tokenization platforms such as Ethereum are making this possible now.

Let us look at another very interesting point and property of the decentralized technology.

Immutability: Security and Safety

The concept of immutability describes the idea that data cannot be changed or deleted once it has been recorded in the database. You may wonder why this is so important?

Well, let us have a look at a few problems in the digital world.

Online everything is virtual, everything can be edited, duplicated and deleted at virtually no cost. This is a problem that industries dependent on intellectual property learned the hard way. An example is the music industry. Music was copied and shared across the internet completely disrupting the very traditional record selling business. While this is only indirectly related the immutability concept, it hopefully illustrates the problem of the virtual world compared to the physical world.

Here is another problem. Proving your identity online is also problematic as on the internet as there is no such thing as a widely excepted passport or id. Only platforms such as Facebook were able to approximate online identity by using social proof to distinguish between real and fake identities.

Something was missing.

These two examples show us that in order to fully master the benefits of the internet we are lacking important social governance technology that would allow us to create digital scarcity for virtual goods, establish unique identities and solve other governance problems without a single point of failure or a potentially biased intermediary.

Well, I have had personal experiences with people directly manipulating data in databases by altering business information. While often this is done to cover up for errors or to sabotage the work of others, manipulated business information can have very profound consequences when this faulty business information is used for business decisions by people not involved in the scam.

In the context of digital marketing, this could involve lead conversion data such as traffic origin for example. Manipulation of such data will lead to the wrong attribution of what worked and what did not which in turn will affect budget distribution in the marketing mix in the future.

What looks like an innocent data manipulation at first, will be the foundation of decisions that will be made in the future.

Do you see how dangerous this can be in a data-based economy we are living in?

A manipulation there could take a business down a wrong path for years costing tens of millions just because of an employee having unsupervised centralized access to a business database.

Now, if the database was immutable it would not be possible to alter this data.

And now the question arises, what type of business problems would benefit from immutability to a degree that it could disrupt the existing industry?

In fact, there are many interesting use-cases for this. We could mention land ownership, car service history or event last wishes that could be recorded into a decentralized databased never to be altered or manipulated without a public record.

This would stop corrupt government officials in 3rd world countries from manipulating land ownership records. This would stop 2nd hand car dealers from manipulating car mileage. The possibilities are endless.

You hopefully see, how important this technology is.

These are only a few examples of how decentralized technology is changing the world right now.

If you are contemplating to start a tech business today you simply cannot avoid the decentralization conversation even if your product or service does not benefit from tokenization or immutability.

You may need to rethink your business idea now.

Please feel free to add comments or other interesting ideas to contribute to this conversion. Thank you.

©2020 Feraz Zeid

Log in with your credentials

Forgot your details?