Why open networks and pseudonymity lowers entry barriers for digital markets

Many personal and business transactions in everyday life are pseudonymous actions on an (more or less) open protocol:

• When transferring money from account A to account B, I may only know the account numbers, but not necessarily the associated company or person.
• When sending documents by email, I know the recipient’s email address, but not necessarily the associated company or person.
• When calling a telephone number, I know the number I’m dialing, but I don’t necessarily know the associated company or person.

These examples show two important success factors of widely accepted communication platforms: openness and pseudonymity.

Openness
Since the underlying protocols (email, banking, telephone) are more or less openly available, the entry barriers are quite low: As soon as I have email access, I can communicate with all other email participants worldwide. The privatization of networks led to competition, price reduction and even more simplification.

Pseudonoymity
All transactions mentioned above require only the knowledge of an ID (telephone number, email address, bank account number) to exchange data. This “pseudonymity” supports a wide range of usecases on the protocol, since a user can also use several IDs to separate private from business data, or to guarantee a certain degree of confidentiality and discretion. The widespread distribution of cash (pseudonymous!) and email addresses (pseudonymous!) indicate the need for such “pseudo-anonymous” transactions. Platforms and protocols that do not support pseudonymity will always be less accepted.

Blockchain
Blockchain technology picks up the idea of open protocols and pseudonymity — but goes several steps beyond:

• Anyone can join a public blockchain network immediately and without registration (no telco provider or bank needed). The network operates in a completely decentralized way — fully self serviced.
• Blockchain technology allows the transfer of digital data between the participants: Data will no longer be copied (as with email) but transferred in a highly secure manner (as with a bank transfer). Thus blockchain combines the features of existing protocols — in a single digital model which is globally available. These digital transactions can now be used to create “real digital assets”: The blockchain documents tamper-proof who owns what and when.
• Each participant in the Blockchain network can assign any number of IDs or addresses to himself/herself, e. g. address A for private transactions, address B for transactions with partner XYZ, etc. This means that all requirements from “confidential” to “certified” can be realized on the same protocol.
• Last but not least: All these features work across all applications on protocol level — there are no transaction boundaries between different platforms and applications as today.

Simple mapping of new digital business models
It is this combination of features which will significantly reduce the entry barrier for new digital business models: Once the blockchain infrastructure has found a certain distribution and acceptance, any kind of business transaction can now be realized very quickly. The open and unified infrastructure called “blockchain” will already be in place and pseudonymity ensures that every market participant has flexible control over the usage of his or her identities.

Establishing a new financial services provider or insurer will be easier than ever before — and many new players will take this opportunity.