What The World Will Get From Blockchain
Here’s a list of the benefits of blockchain that will enable many transformative consumer experiences and businesses.
Let’s assume blockchain succeeds.
This post explores the benefits of blockchain, how blockchain might fit into business strategy, and sticks to the conclusions and implications of blockchain realizing its potential.
Very roughly — blockchain is the idea that, in ten to twenty years, a farmer in a developing country will have access to better and cheaper financial services than upper middle class Americans do today.
Blockchain creates benefits for consumers and businesses.
1. Self-sovereign assets and identity
Blockchain enables personal, absolute control of your digital cash and assets. The “password” to these assets is a short sentence of random words. No thumb drive needed.
A refugee can walk over a border with her life savings in her head. A Venezuelan can’t have his assets seized by the bank or government. A borrower can keep secret her “identity password” when applying for credit, mitigating identity theft.
2. Fractional assets
Blockchain facilitates ownership of less than one unit of an asset. You can own $100 worth of Bitcoin (even as one Bitcoin is currently priced at ~$4000); half a Netflix share; 2% of a Manhattan real estate deed; or transfer of half a penny.
An extended family can jointly own a vacation home without a c-corp and shares. A young investor can buy 0.1% of one share of Berkshire Hathaway. Vanguard can reduce costs by replacing index fund machinery with asset slices owned directly by clients.
3. Automated financial agreements
Blockchain automates many types of financial agreements. This automation will interact with, not replace, our existing legal system and traditional contracts.
A farmer’s crop insurance settlement cannot be withheld or delayed if it rains less than three inches. A “decentralized autonomous organization” (so-called “DAO”) governs itself via global shareholder votes, with corporate laws codified on the blockchain, without residing in any specific country. Sales tax is remitted to county, state, and federal governments at the instant a purchase is completed.
4. Global, point-to-point transfer of assets
Blockchain enables you to “hand over cash” or digital assets to any individual in the world. No intermediaries required. No borders. Services like refunds and chargebacks are obviously valuable and will be rebuilt on blockchain.
An immigrant can send money to family in the old country as easily as handing it to her neighbor. A buyer can pay cash directly to his foreign supplier, bypassing international banking and credit systems. A global trading exchange improves price discovery and liquidity.
5. Censorship-free participation
Blockchain doesn’t require anyone’s permission for you to use it, nor can anyone stop you from using it.
A farmer in a developing country, who may have never had a bank account, needn’t ask or tell anyone to start getting paid digitally on her cell phone. A Costa Rican can freely buy a share of Netflix stock without access to the NASDAQ. A financial startup can permissionlessly integrate with an existing liquidity pool.
6. Reduced transaction costs in general
Blockchain reduces monetary and non-monetary transaction costs for sending and receiving money; ecommerce purchases and other financial agreements; proof of ownership; and proof of identity.
A low-income borrower can draw $20 on a line of credit collateralized by one share of Netflix stock she owns. An employee can withdraw his accumulated wages at any time, instead of getting paid biweekly. The same employee can draw on a line of credit that’s automatically paid back by future wages, with global competition from lenders mitigating the predatory aspect of the “payday loan”.
7. Reduced operational cost
Blockchain allows businesses to freely reuse global financial infrastructure, similar to reusing open source software.
A retailer needs to build less technology when expanding to a new country because their ecommerce platform is automatically global. A consumer loan platform needn’t build per-bank or per-region technology to allow consumers to draw funds. A sports betting service can focus on their website and brand by relying on an open-source betting framework as a “back office”.
The benefits of blockchain will enable many transformative consumer experiences and businesses.
These benefits aren’t isolated line items — they will combine in ways that are unexpected or industry-specific.
Things that leverage blockchain can naturally interconnect, like servers on the internet. These connections will amplify the benefits of blockchain.
Most things need to be rebuilt in whole or part to take full advantage of blockchain.
The internet and cell phones — at certain critical mass — allowed consumers to get involved easily and with great benefit.
By the late 90s, anyone could make a GeoCities website or buy a cheap cell phone (in the West).
The internet and cell phones were an “overnight success”, decades in the making.
Blockchain will have a similar critical mass story.
Most things needed to be rebuilt to take full advantage of the internet, whereas cell phones are largely independent from other infrastructure.
Blockchain is more like the internet: most things need to be rebuilt in whole or part to take full advantage of blockchain — banking systems, financial services, ecommerce platforms, digital wallets, credit cards, social networks, mobile operating systems, etc.
Blockchain extends the market.
Adam Smith, the father of modern economics, wrote “the division of labour is limited by the extent of the market”. Smith knew that it takes a big village to have a dedicated specialist (like a massage therapist), and wealth increases with the proliferation of these specialists.
Blockchain will add new dimensions and accessibility to our global trade network, yielding transformative products and services with increased quality, specialization and variety, and reduced cost.
