Blockchain as a Commodity
One of the struggles new technologies often face is how difficult they are to use at the beginning of their life. In this article, we will take a look at some of the steps that blockchain, also known as distributed ledger technology (DLT), has taken towards commodification, when it can simply be used and integrated without difficulty.
A brief history of DLT
While most people say that the emergence of Bitcoin in 2009 marked the birthdate of blockchain, in actual fact the ingredients for the technology preceded Bitcoin by years, if not decades. As DLT entered mainstream consciousness, and especially after Ethereum launched, it became readily apparent that it was the perfect technology to implement financial products and to be used for payment processes.
This fit was so vastly successful that, in the years between the launch of the first (successful) ICO in 2014 by the Ethereum Foundation and the dark “crypto winter” of 2018, the one thing that everyone interested in DLT talked about was the market cap of cryptocurrencies and tokens, whose numbers were steadily growing. Everyone wanted to be in Crypto, and billion dollar-valued startups were built on this foundation.
However, there was, and still is, a catch. Everyone working with DLT and financial products outside of the traditional banking system faces the stiffest competition possible; a system rigged against them; a nemesis that is the stuff of nightmares in the form of banks and governmental regulators. Neither of these entities are the fastest when it comes to adapting to new technologies. In fact it took five years until regulators noticed Bitcoin at all. When they finally did it was largely due to the well publicized heists from failed crypto exchanges like Mt. Gox that led to people losing millions.
Then slowly, but with the determination of a glacier, regulatory constraints were introduced and new laws were passed. One by one entrepreneurs faced the prospect of either giving up their businesses, moving to another, more favorable jurisdiction, or complying with regulation and doing all the things that were the exact opposite of the idea of a free and decentralized transaction, one of the main selling points of blockchain. This meant acquiring customer data (KYC), checking identities, backgrounds, and the source of funds (AML), and sharing this data with governments. It also meant the blocking of funds, recording of transaction pathways (travel rule) and so on. These days, whether it is existing banks and financial institutions taking over the crypto and token business, or startups from the early days slowly morphing into banks and financial institutions themselves, ultimately everything that has something to do with financial products or means of payment, e.g. stablecoins, will ultimately evolve until it looks just like the traditional banking system.
The end of blockchain?
To be clear, this is not ultimately a bad thing. It’s simply that we most likely have seen the maximum expansion of startup entrepreneurship in the crypto and token space. This includes NFTs, which have so far been useless for practical applications and served only as an outlet for all the speculative energy that got pent up from all the pressures on crypto.
So is this the inglorious end for blockchain? In a word, no. Financial products and tokens are certainly not the only uses for DLT. There is another promising area of applicability for blockchain technology outside of financial products. Regular businesses across many industries have been working on digitalization since the beginning of the century. Every big company now has a CDO (Chief Digital Officer), and while their task is not exactly to introduce blockchain technology itself, sooner or later they will discover that it is a tool that can’t be ignored when looking for solutions to digitalize their business processes.
Four benefits of DLT for enterprise digitalization
Why should enterprises take a closer look at blockchain technology? We have four good reasons to propose, all of which we’ve written about in the past as “token economy essentials.”
The first reason is that DLT can perfectly authenticate data. If things are documented on blockchain, these records are immutable (unchangeable) for the rest of time and, together with an immutable timestamp, this can be used for a wide variety of occasions where you need to prove something in time. Some examples here would be copyright topics, intellectual property (e.g. song texts or music), contract details, provenance of goods, a series of events to track shipments, litigation cases (e.g. non-disclosure agreements), damage reports, or proof that one is not responsible for certain damage. It’s also ideal for documenting the details of financial assets, e.g. to digitalize a prospectus, or for all kinds of audits. Land registry would also be a viable use-case for blockchain, and there are many more.
Accounting is the second reason DLT makes sense for businesses. Blockchain is perfect when several entities need to collaborate on numbers, especially because it naturally prevents race conditions from occurring. This means it prevents double entries or transactions from happening. For example, if two valid transactions for the same token are signed, DLT only allows one to be executed, and will dismiss the other.
But being ideal for accounting doesn’t necessarily mean that it must be financial products being accounted for. It can be anything; goods on stock (e.g. a daily report on an inventory) or really anything that has a known quantity. Most people know this as “Tokenization.” This collaboration can also include entities which otherwise wouldn’t trust each other enough to let one party control the data if there was a centralized database.
Apart from the mere accounting and transfer of units between accounts, DLT can also be used for other purposes. A token can represent access rights, and a simple mechanism, which we call “proof-of-key” can be used to translate the token ownership into a real-world action, such as unlocking a physical lock in real time, or granting the owner permission to print a 3D model. It could also be used to transport information through a decentralized command bus.
The third way that businesses can put DLT to good use is governance, or the enforcement of rules. The benefit of blockchain is, yet again, that there is no single party in control of the enforcement. Rather, execution is automatic and based on mathematics, so there is no way to bend or break rules. A very simple example of these rules is that the smart contract may determine who may and who may not get a unit through accounting.
The fourth, and possibly the most powerful reason, is value conversion. This is most commonly known as trading or, in financial cases, “DeFi.” In this case, blockchain has some digital tricks that are just not possible in the real world. Every trade incurs two transactions. If good A is purchased against money M, then the buyer transfers M to the seller and the seller transfers A to the buyer. Even if A and M are just coupons for the actual underlying values such as e.g. the SWIFT transaction that enables the bank to increase the numbers on the sellers account or the entry in the ERP system of the seller, which says that the buyer will get a shipment of A after he has paid. In the real world, both transactions happen step by step. There is no way to make them one, to link them with each other so that either both happen at once or don’t happen at all. It can always be the case that one transaction happens (e.g. the buyer pays M to the seller) but the other party defaults on its obligation. The only way to overcome this issue would be if the SWIFT protocol would adopt ERP mechanisms, or an ERP would be granted the right to access the SWIFT network, though this would not reliably solve the problem. And in any case, the transaction would still be controlled by a single party (the seller in this case). Whereas on blockchain it actually IS possible to do both transactions at the same time, and either both happen successfully, or none happen at all. This is called an Atomic Swap, and it is an inherent feature of DLT. Beyond trading, there are many other industry use cases where the linking of two transactions into one makes sense.
DLT as an accessible commodity
These are just four of the many good reasons why blockchain technology is extremely valuable to any enterprise that’s looking to digitalize and access new customers. Ultimately, however, it’s just a tool, and it should also be regarded as one, not as a hype product or a miracle cure. Our world is becoming ever more connected and digital, sometimes even unexpectedly so as with the Covid lockdowns which made us all interact virtually instead of meeting in person. But we still need to do things physically, like prove the origin of products and services in the real world, or to verify their CO2 neutrality, their compliance with rules and regulations, etc., and we still need to save both time and energy doing it. That’s why blockchain is increasingly interesting for every business on the planet, large or small.
But implementing such a new technology is not always straightforward, and new technologies are not usually something you can just go out and buy. Think of it like this: when you need light these days, you expect to simply flip a switch. You don’t expect to have to first smelt copper into wires, build a generator, put wires in your house, form a light bulb, and so forth. No, you want to just buy a nice lamp, plug it into the wall, and have it light-up when you switch it on.
It’s same with any new technology, even blockchain. Nobody wants to develop their own smart contracts, maintain them (perhaps on different blockchains), get them audited, develop an entire backend ecosystem of databases, servers, transaction protocols, public-key infrastructure, scalable silos, and so forth (a multi-million dollar investment). No, they want to just use DLT in the same way that we use electricity every day; they want to use it as a commodity. Unfortunately, it’s not usually so simple when it comes to new technologies, especially when talking about enterprise-grade blockchain.
This is exactly why CoreLedger has spent the past few years developing blockchain technology into a commodity that is easily accessible through our Token Economy Operating System (TEOS) platform, API, and white label solutions. The four areas of blockchain applicability described above are ideal reasons for every business to look into the technology and try it out for their own use cases, and we’ve made it as easy as possible for them to do so.
At CoreLedger, we believe that blockchain is a practical technical solution to improve and solve a wide variety of issues across industries and sectors, which is why we try to cut through the hype and focus on real-world applications, not just what’s technically possible.
CoreLedger’s mission is to help businesses of all sizes quickly and affordably access the benefits of blockchain technology. From issuing a simple token to enterprise-grade token economy solutions, we have all the tools and components you need to quickly and affordably integrate blockchain into your business whether you’re a new startup or a big multinational enterprise.
Interested in our results-focused, real-world approach? Visit our website for more information, or get in touch with us directly to discuss your project.
