The Age of Trust — the problem blockchain solves that others cannot.
The past 10 years of blockchain and 10 years from now on
When you search for “What is Blockchain?” the Internet will give a number of definitions. However, the truth is that nobody cares about the definition of Blockchain; people only care about what problems Blockchain can resolve for them. So the question is “What does Blockchain do that wasn’t possible prior to its development?”
The beginning
In 2007–2008 the world experienced a global financial meltdown which, in hindsight, seemed to be the perfect setup for the introduction of Blockchain to the world. The staggering $8.3 trillion¹ lost during the global financial crisis made people search deeper for the root cause of all, failure in financial regulation, unethical acts of financial institutions and rating agencies? The answers were way deeper, yet simpler than you would ordinarily expect — the root cause of the financial crisis lay in the structure of how trust is built and maintained within the world financial system. This crisis caused enormous financial loss to many individuals and fundamentally damaged citizens’ trust in their institutions. The figure below highlights European citizens’ confidence levels in the European Central Bank before and after the financial crisis.
In the aftermath of the crisis, people were seeking for a more trustworthy system till they discovered what Satoshi Nakamoto brought to the world on the night of Feb 11th 2009, “I’ve developed a new open source P2P e-cash system called Bitcoin. It’s completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. Give it a try, or take a look at the screenshots and design paper.” The rest of story that you are already familiar with. So, for the first time in our existence we have a trust mechanism that is trustless. In other words, it is independent of where it resides and who operates it, as the trust mechanism is mathematically proven. This removes the need for human intervention in the trust system all together. That, my friend, is the problem that Blockchain solved for the world — a problem no one was able to solve before it.
10 years later…
Arguably, bitcoin has failed in its intent so far — to be used as a mass currency. Instead, it has been used more as a store of value (in the sense of an investment) and a tool of speculation. The raising of ICO (initial coin offering — the means of fundraising that is based on cryptocurrency) and its controversy clouds the future of Blockchain. Some extreme anti-Blockchain tech futurist called out, “Ten years in, nobody has come up with a use for Blockchain — besides currency speculation and illegal transaction”. This obviously is not true. For example, Alibaba / Ant Financial launched the world’s first Blockchain e-wallet cross-border remittance service in Hong Kong on 25th June 2018. That said, it is true that the world is lacking a killer app/use case of Blockchain besides bitcoin. Why?
· Is it because of transaction speed? On average Bitcoin processes 7 transactions per second, as opposed to Visa which processes 24,000 transactions per second;
· Security? Mt. Gox, established in 2010, was once the world’s most popular bitcoin exchange and was handling over 70% of BTC transaction worldwide, filed for bankruptcy due to the loss of approximately 850,000 BTC in 2014. The loss is worth approximately USD $4.7B at today’s BTC price;
· Complexity? Blockchain has made cryptography more mainstream, but the highly specialized industry is chock-full of jargon.
Again, the reasons are deeper but simpler than you think — it is about how money works!
What’s the motivation of doing business when you can’t profit from it? Since Blockchain was designed to be a trustless and 100% distributed & decentralized system, it means there is no centralized entity who can benefit from the system. For comparison, how can Uber or Airbnb operate (without changing the business model) if they can’t charge users for using the platform?
10 years from now…
Gartner forecasts that the business value from Blockchain will reach $360 billion by 2026, surging to $3.1 trillion by 203⁰². Whether you believe it or not, the best way to predict the future is to look at the past, since it is what gives birth to the future. The Internet started as early as 1965 in a MIT laboratory with only two computers communicating with each other using packet-switching technology, ARPANET, as the earliest form of Internet released in 1969 and used by the US Department of Defense. The term Internet was born after University College London (England) and Royal Radar Establishment (Norway) connected to ARPANET in 1973. The foundation and commercial aspect of the Internet was significantly enhanced after the TCP/IP suite was adopted by ARPANET in 1983. Finally, the first killer app of the Internet arrived when the European Organization for Nuclear Research (CERN) introduced the World Wide Web (WWW) to the public in 1991.
Bear in mind, I am not suggesting Blockchain as an alternative to the Internet with these benchmarks, but rather as a supplement to the Internet. Why? Because the internet and Blockchain solve two different problems. The internet solves the problem of accessing information, whereas Blockchain solves the problem of trust and removes human intervention from the equation.
Do we have an equivalent of TCP/IP in the blockchain world today? The answer is no, but we are getting there. However, there will be two versions of it as there are two worlds of Blockchain namely:
Public Blockchain — A public network that maintains an immutable record of transactions. Anyone can publish a transaction and participate in the network by adhering to a set of published rules. Examples: Bitcoin
Private Blockchain — A private network that maintains a shared record of transactions. The network is accessible only to those who have permission and transactions can be edited by administrators. Examples: Ripple, Hyperledger and R3 Corda. They also tend to refer themselves as Distributed Ledger Technology (DLT) instead of Blockchain.
In the open Blockchain realm, it will continue to evolve and emerge i.e. Ethereum 2.0 (Casper + Sharding), Stellar etc. I think it will take a few more years to know which one will become the standard.
In the closed Blockchain world, it progresses much faster and further. For example, Fabric from Hyperledger and Corda from R3 both attracted impressive portfolios of MNCs. It is a race of who will become world’s most influential consortium; a game of capital. For example, R3 has bought more than $100 million from existing members, allowing it to invest heavily in building technology without having to rely solely on membership fees³.
Regardless who forms the new standard, the big question remains where and when the first killer app will emerge and where it will take us to. At CoinDesk’s Consensus 2018 conference this year, Joseph Lubin, founder of Ethereum company, Consensys, agreed to wager “any amount of bitcoin” with Jimmy Song of Blockchain Capital that within five years, Blockchain would have a number of working applications serving real users. MNCs like JPMorgan, Barclays, IBM, Google, and Visa are all trying and betting millions of dollars that a decentralized ledger can do things that other forms of technology cannot. Personally, I think this million-dollar question will remain open for a few more years. However, similar to how the Internet evolves, it will slowly, but surely reveal itself.
Among all the business potentials above, the ones that address the fundamental problem will prevail over others — where trust is mostly required yet most difficult to obtain and maintain.
Among all the business potentials above, the ones that address the fundamental problem will prevail over others — where trust is mostly required yet most difficult to obtain and maintain.
Reference
1. The financial crisis of 2007–2008, Wikipedia, https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008
2. Blockchain-Based Transformation: A Gartner Trend Insight, Gartner, 2018. https://www.gartner.com/doc/3869696/blockchainbased-transformation-gartner-trend-insight
3. Banding together for blockchain, Deloitte, 2017
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