The Importance and Impact of Blockchain Technology and Decentralization
Dear friends and family,
This is an open letter and a plea to each of you about the importance of blockchain technology, decentralization and how it will impact the world moving forward. To start, let’s discuss what Blockchain is…
Bitcoin has been a buzz word as a result of its explosive rise in usage and value over the past year. Though Bitcoin and blockchain are often referred to interchangeably, they are not the same. Blockchain is Bitcoin’s underlying technology and is built upon a version of a blockchain.
A blockchain is an open, decentralized ledger that can record transactions between two parties efficiently in a verifiable and permanent way without the need for a central authority. The key qualities of this distributed ledger is a time-stamped record of the transaction, speed, transparency (ledger is public), and decentralization (the ledger exists on the network and can be validated by computers in the network, often referred to as nodes).
Blockchain technology has been hailed as revolutionary and can dramatically lower cost, increase speed, and present transparency of all transactions. Take, for instance, a typical stock purchase or bank wire transaction. The transaction can be executed in minutes but the settlement — the ownership transfer of the stock or funds — takes a few business days. This is because the parties have no access to each other ledgers and therefore can not automatically verify that the assets are in fact owned and can be transferred. A number of intermediaries (i.e. banks, escrow, credit card companies) act as guarantors of assets as the transaction is verified and the ledgers are individually updated. On the other hand, blockchain transactions reside on a public ledger and are not controlled by a central authority. Decentralizing control removes the need for intermediaries and middle-men. As a result, these transactions can be executed and settled between both parties in minutes with verification that is transparent, public, and validated by the network itself. Whether an emergency or just a normal transaction, this is particularly advantageous where the transfer and reciept of funds are required immediately. While this is just one example, these benefits will collectively alter existing business processes, disrupt industries, and create new business models; similarly as the Internet did during the digital revolution.
Governments, financial institutions, non-profits, etc. are going to experience a radical change as entrepreneurs seek alternative solutions to disrupt and relinquish control of single governing bodies. Decentralization offers:
- Consensus — decentralization ensures a distributed model where the participants are the collective owners and decision makers of the network or organization. Thus ruling out any single authority, leader, or ruler.
- Fault tolerance and attack resistance — decentralized systems are more expensive to attack, destroy, manipulate, or fail because they lack a single point of failure
- Collusion resistance — decentralized systems protect collusion and prevent participants to act in ways that benefit them at the expense of others in the network or organization (as opposed to the central leadership of corporations and governments that collude in ways that benefit themselves but harm the citizens, customers, employees, and the general public
While still early, we are already experiencing the benefits of this technology and its principles. For example, Bitcoin itself has carved itself a place as a financial asset built upon blockchain technology. Thus resulting in a millions of transactions a day and achieving a market cap of approximately $71B at the time of this writing. I truly believe that we are only on the cusp of a new revolution that will be driven by blockchain technology and decentralization. Therefore, I challenge each of you to learn more about both and think of how you can leverage it to create impact rather than allowing it to impact you. Below are some resources to get you started:
- Harvard Business Review: The Truth About Blockchain
- Harvard Business Review: The Promise of Blockchain Is a World Without Middlemen
In then event that you have any questions, please do not hesitate to reach out.
Much love and respect.