big-ideasBlockchain, Cryptocurrencies & Distributed Ledger: Bringing Blockchain Technologies to the Mass Market—What’s the Impact on Consumers?

Key points:

  • Blockchain technology potential goes far beyond the consumer space and might likely stretch in impact beyond the complete current financial system and central bank model as well as open up new communication and collaboration models unimagined today.
  • Blockchain might be to transactions, what “Web” was to communication. Many might have recognized the early internet as a communication platform and potential threat to mail and fax… but nearly nobody saw impact on retail, information access, learning, collaboration, communication, in the early days.

When the internet came onto the scene in the early 1990s, forward thinking people could see a potential impact of email for postal services and fax machines. Nearly nobody, though, imagined what the Internet would do for banking, not to mention access to retail, information, advertisement, entertainment, media, communication and collaboration.  Since the 1990s e-mail and web browsing has been possible on mobile devices, but only after Apple (who was not a mobile computing player before) introduced the iPhone in 2007, did complete adoption and transformation happen in under 5 years.

The situation with Blockchain is similar, and the financial transaction impact is just the very tip of the iceberg.

What makes Blockchain combined with the power of the internet so different?  Imagine you take a picture. You can easily “copy” and share it via web technologies with as many people as you like. You don’t give up anything by sharing the picture, so there is no “unique value” with that particular picture.

However, if you were to take a picture and attach it to a blockchain, the moment you transfer the ownership of this picture with your private (encrypted and secure) key; only the new “blockchain recorded” owner can access the picture. But the record of the transaction of past and new ownership is immutable and visible to all.

Essentially, blockchain technology is the concept of a shared, immutable (public) ledger. Any digital asset attached to the blockchain is unique and rare and can have a (negotiated) monetary value. The digital asset can be a token or coin (e.g. Bitcoin) or a property record, IP or something else that we haven’t even started to imagine.

Distributed vs. centrally controlled ledger

While a centrally managed database provides a variety of benefits (including speed), they have been relatively easily compromised by insider attacks or targeted outside hacks.

A truly distributed ledger holds millions of copies that are constantly synchronized and verified as long as the majority of computers within the blockchain community are not compromised or malicious. While theoretically possible, the malicious attack on a blockchain would require the computing power only (maybe) available to a nation state. All players in the distributed system are highly motivated to keep the system uncompromised and functioning as a successful attack would, at the same time, destroy the value of the system going forward and all past investments made.

A key benefit of a public and broadly distributed Blockchain is the immutability. While the size and system of the original (and not centrally managed) Bitcoin blockchain has so far stood this test; others like the foundation managed Ethereum, have “changed” previous ledger entries by community decision (as reaction to the spectacular DOA issue) and therefore (unfortunately) demonstrated that a central authority managing the Blockchain MIGHT actually be detrimental to the concept and acceptance in the original key value of the technology.

Economic value

There is strong and convincing evidence in history, that technology will sooner or later remove inefficiencies from existing systems. From an economic perspective, the traditional transaction services (moving capital from one individual or organization to another) are a charge of over $1.7 Trillion to individuals and organizations by the banking system (The Economist, 2014). The question going forward is who can benefit from this increased efficiency and what will that mean for relocating that capital elsewhere in the global economy?

Where do we see blockchain technology first?

The first transactions handled via blockchain are the traditional “cash transactions”, but without the necessity to be at the geographical same place. Remittances, wire and international peer-to-peer transfers are likely another early market.

Blockchain technology is still in its infancy. Speed, frequency and volume of transactions are today’s key limiting factor of the Blockchain technology. Blockchain is (currently) too slow, for example, high speed trading transactions. And like in traditional banking, timestamping and time inaccuracies are potential issue often overlooked when looking at fast transactions and synchronization. But innovators across the globe using blockchains, providing growing services and accelerating the merge of finance and technology.

Many key questions including security and trust models, community and government approaches, impact on legal systems, control and enforceability still need to be deeply understood and addressed.

Nevertheless, most people deeply involved in the blockchain technology agree, that many more usage scenarios will emerge over the next decade.

Blockchain + data + AI = Big Change Coming

Combining the transparency of the blockchain ledger with big data and artificial intelligence (AI) technologies could create new scenarios in transparency and insight on flow of value, currency, irregularities, purchasing behavior, early signals in markets as well as community/crowd vs. expert decisions. Blockchain combined with Micro financing platforms, where peer-to-peer loans would be secured by liens recorded on blockchain, might be other areas to provide more working capital to small business and the unbanked population of the world.

What makes technology (and business model) transformations so quick is the networking and synergetic effect between technologies. While today some aspects of the blockchain technology ecosystem are far from perfect, it will benefit from improvements and requirements of recordkeeping in networking, cloud computing, IoT, encryption, mobile technologies and many more.

Is Blockchain going to radically change banking in the next 5 years? Not likely. But remember, the internet did not change retail, entertainment, how we hail a taxi … and even banking in 1995 yet, either.

Mark Mueller-Eberstein is one of the world’s leading experts on how businesses can leverage key technology trends, transform organizations and to drive a competitive advantage. He is an internationally renowned business leader, entrepreneur, investor, consultant, best-selling author, and teaches at RutgersUniversity’s Business School. He leads “The Innovation Economy Research Institute”, works with the Shenzhen (China) based Qianhai Institute for Innovation Research (QIIR), APEC, delivers guest lectures at e.g. Seattle University. Mark is the founder and is leading the Adgetec Corporation’s consulting business since 2010. Discovering, understanding and explaining future trends of technology and communication technologies and what they mean for business, are the key focus area of Mark and Adgetec. Mark is now also actively invested into organizations focusing on the Internet of Things (IoT), Blockchain technology and crowdfunding. Mark’s books have been translated into a dozen languages and have been recommended by leading publications from the US over Russia and China to Germany. As speaker, Mark has excited audiences in many countries and continents. His appearances include TEDx,APEC, World CIO Forum, Central Asian Economic Forum, SIC, Microsoft’s WPC.