Friday, December 14, 2018

I often hear it. “Blockchain? That is Bitcoin’s thing. ” Or: “That’s just something for technicians.” Not so. Blockchain is, in my humble opinion, a technology that has the potential to thoroughly shake up some aspects of business and commercial transactions. I sometimes call Blockchain WTF, Wondrous and Totally Fundamental.

Blockchain is a family celebration

Yes, blockchain is technologically ingenious. You can lose yourself technically. But in essence, blockchain is a way to collectively – in other words decentralized – write history, to mutually create a truth of who has now received something from whom. Which can be money, but also ‘something of value’. I sometimes compare the mechanics of blockchain with a wedding. Imagine, the bride’s father gives a speech during the party and gives the new bridal couple a car as a gift. At that moment all those present witnessed that that car now belongs to the couple. Because if someone asks: “Who owns that car?”, Everyone in the room will give the same answer: “From the couple.”

Well then you actually ‘played’ blockchain with all the guests.

How so? Just imagine that every family member, every friend, the DJ, everyone present, is actually one ‘Computer’ in a decentralized network. ‘Decentralized’ because not everyone knows each other equally well. But everyone has, according to the same protocol – the eyes – verified that transaction. So it happened. And everyone has used his brain to store that ‘transaction’. And our collective brain has all seen the same and so it is true. No discussion. Blockchain is about irrefutability, which is not defined by a central third party, but by a consensus protocol.

Blockchain for my business 

So a decentralized database? In a sense, yes. But there are four components that make the opportunities for businesses more advanced. A first element is the concept of irrefutable conditions. Certain blockchains, such as ethereum, have their own programming language. This way you can create applications and business logics, which – in line with the concept of irrefutability – will always perform for which it programmed. You can create apps on top of the ‘irrefutability’ layer. I’ll compare it with: If This, Then Absolutely That. If you have not paid your insurance, your car won’t start. Or if you show good driving behavior, your contribution automatically changes. And irrefutable. Bye bye, auditing. Second important element for companies: Not all blockchains are open, like the bitcoin blockchain.There are also shielded versions of blockchains, often called a ‘permissioned’ one. In that case you actually set up a network of computers between parties, eg different companies in a supply chain that trust each other enough to set up such a system and arrange governance together. An advantage is that you get control. Companies are not that eager yet to use totally open networks like bitcoin or ethereum. And three: it is not always about money. Tokenisation is the idea that you represent something of value with a unique digital token. You give ‘something’ a digital identity, after which it indisputably and under certain conditions can be passed on to another party.For example, a number of countries are digitizing the land register. But a token can also represent a right, eg to pick up a container in the port. That has a certain value and is now subject to fraud.Every company does transactions of something of value, under certain conditions. So a lot companies, and governments too, are currently setting up investigations to look at: what can blockchain possibly mean to us? A simple tool that I sometimes use with customers is Value Mapping. In which steps of the process does that party deliver added value? And where can that process benefit from ‘blockchain-ing?’ You can imagine that there are quite a few possibilities to optimize a number of steps in the process. Often it are the steps in the process that require validation, trust or conditions to check. Result: faster and / or cheaper and / or more transparent. A Dutch bank had as purpose in their blockchain experiment: how can we simplify the transactions between all parties involved in the trading of a barrel of oil. Conclusion: their own, manual interventions would drop from 3 hours to 25 minutes

Blockchain is WTF 

But there is more than optimization. On a deeper and more radical level, blockchain is a technology that allows parties to exchange value with each other without it having to rely on 3rd parties. And that goes deep. Then we are talking about real peer-to-peer, about a form of barter, on scale. That means that some of the functions that we have outsourced in the past decades to traditional companies and organizations could be replaced by blockchain. Now we trust our banks to keep our money. Is that still necessary in the future? We trust Uber to validate the identity of their drivers and to ensure that my money does indeed goes to that driver. Is that still necessary in the future?For smart entrepreneurs there are opportunities for new business models. But they are different. They have less to do with shareholder models, and more with network economies. And here comes the fourth aspect of blockchains. What makes (open) blockchains special is the concept of inline interests. Just because there is no central party to rely on, blockchains come with new ways to reward ‘good behavior’. On his simplest: if you cheat, you lose (a lot of) money. If you cooperate with the public interest you are rewarded. And then we come back to tokens, coins, coins, …. Call it like you want, but in certain blockchains you can create your own value system, tokens that represent something, which can be switched to other coins, which you can pass on to other people. Project management platforms where tasks are outsourced, in exchange for project tokens? Colony is working on it. Browsers who pay out tokens directly to the websites that I visit frequently? Check Brave and their BAT token. Uber competitors who do not skim a percent more, but set up their own token economy, so that everyone ‘works’ for the value of the coin? Check Swarm City.Facebook that has no shares, but Facebook coins, which are paid to everyone who create value, even if it is just clicking on Like? Some people have already philosophized about it. That too is blockchain. So, in addition to the possibilities in terms of optimization, I will leave you one concept. Companies of the future are ‘groups of people’ who manage to align the interests of ‘all’ stakeholders and to ensure that who creates added value is also rewarded for it.

Ergo …

You notice, blockchain has become a very broad concept: from bitcoin to enterprise blockchains for optimization to network economies. And we still don’t have a clue where we are going, because decentralization is in fact very difficult. But the technology is going to have an impact on companies, that’s what I assume. So, don’t drop your coins just yet.

Gerrie Smits – Speaker at the ISE Innovation conference – Author of ‘Blockchain is WTF – Wondrous and Totally Fundamental’.