Blockchains and Refrigerators
Many people are entering getting curious about blockchain of late. There’s such a steep learning curve, and people hit the “why does this matter?” question early on. To help those in my circle, I’ve thought about the best way to describe the upside blockchains and crypto will have.
So, I’ve turned to our favorite in-home appliance to help answer the “why does this matter” question— the refrigerator.
150 years ago, we started commercially mining ice from lakes and shipping it to households all over the world. Ice was cut from pond surfaces, stored in big ice houses, and shipped via ships and trains to city hubs. From there, large networks of ice wagons delivered it to households and businesses. Your ice likely came from the American Northeast or Norway, and you were really lucky if you had some to keep perishable foods and serve cool drinks for a few nights (source).
Around the 1910s, we largely began manufacturing ice. It could be artificially created in factories much closer to big markets and hubs and was also safer (contaminated water became a problem). Ice no longer needed to be harvested seasonally and shipped to cities thousands of miles away; ~20–50% of ice was wasted on these large journeys. This made ice cheaper and more available. It was still a hassle to ship ice from factories, and large networks of ice wagons were required.
It wasn’t until the 1930’s and 1940’s that refrigerators became common in households and supermarkets. All of a sudden, people had ice made in their kitchens! This rendered the ‘ice industry’ obsolete. The fridge quickly began revolutionizing food production, transportation, storage, and consumption.
The effect of the in-home refrigerator was tremendous — imagine how it would feel to suddenly be able to buy and keep perishable groceries, freeze meats to use months later, and eat ‘leftovers’ days later. Food prices dropped due to larger availability, and mealtime options now expanded beyond seasonal + local foods. Food quality greatly increased, and there was much less food waste for families. Not only did the home refrigerator save families so much time, money, and energy; food consumption patterns totally changed, new industries blossomed (frozen dinners, baby!), and families could now be self-sufficient and provide for their own needs. How game-changing.
Blockchains are like refrigerators
Most of our world today mimics the world of factory-made, artificial ice.
Ice creation before the refrigerator was a centralized function, and a ton of effort was involved in getting ice to your house. To begin with, it was created in a big factory with big, heavy, and expensive machinery. Then, large logistical systems and processes were set up and maintained to transport it across cities and towns in a timely fashion (so that it was still ice when it arrived) so that your family could have ice every day to use.
This now seems absurd in a world with refrigerators. This great power of keeping things cool and making ice happens in each of our kitchens. It renders this massive complexity obsolete and makes it look archaic.
What’s this got to do with blockchains?
In today’s world, money, data, and identity largely live in a federated world. That is, the permission to take action with your money, data, and identity lies in the hands of a few organizations; they hold the majority of control, have a ton of information about you, and have cumbersome processes to get things done.
Read: many important functions we rely on today look a lot like the world of ice factories and network of wagon delivery systems before the introduction of refrigerators.
- Banking is annoying — opening a bank account requires tons of documentation, interfacing, and cross-referencing identities and reputations with several players. Banking is also too expensive for many people, leading to swaths of people being unbanked.
- Payments between people is actually complex, involving at least 3 middlemen; When you use a credit card, twobanks and visa/MasterCard are involved to transfer funds, and you bet your bottom they make money in the process. Your information is also often cross-referenced with several sanction lists.
- Financial Services like loans, Mortgages, and Escrows are all processes that are complex, require tons of paperwork, and several intermediaries to see processes through. Ever go through the process of buying a home?
- Contractual Litigation to enforce simple contracts regarding the above is long, complex, expensive, and annoying. You almost always also need to work with lawyers, making things more complex and expensive.
But just as the movement from factory-manufactured ice in the early 1900s to kitchen refrigerators in the 1930s brought on unimaginable autonomy and benefits to end consumers, so too will blockchains allow people use new protocols to replicate necessary services in an autonomous and effortless way. In other words, blockchains will bring people simplified, decentralized ways to get things done.
I call this phenomenon convenient decentralization: in the long run, we trend towards decentralized solutions because they bring convenience and ease for people.
We already live in a world where it’s becoming clear how blockchains can replicate the same services above without the inherent middlemen, processes, and complexity. Blockchains will provide an autonomous mechanism for folks to perform crucial services.
A few things blockchains can bring to the people
- Bitcoin is quickly turning into a store of value, where people can effectively be their own bank.
- Several blockchains exist where payments and moving money costs pennies to the dollar.
- Smart contract platforms like ethereum introduce a world where people can enforce simple contract functions, such as escrows, loans, financial derivatives, and bets amongst themselves. That is, people can write their own strictly enforceable contracts between each other. In fact, a whole ‘decentralized finance’ (aka ‘DeFi’) movement has started to blossom, where actors can lend and borrow all through these smart contracts.
- Cryptographic primitives make it possible to trust other counter-parties and can be used to provide one’s identity or credentials. Take a look at zero-knowledge proofs or platforms like GlobaliD (disclaimer: I work here) and Indicio.
- Non-fungible tokens (NFTs) have recently seen a boom. They may be a powerful way to allow content creators to monetize their creations without the need for a complex and expensive process of distribution and authentication, or rent-seeking middlemen. Artists, gaming companies, athletes, and others can easily create, manage, and directly be paid for their own collectibles, tickets and music, and art pieces.
These blockchain-oriented solutions are in-market today and remove tons of complexity in transacting with one another. They’re not perfect, and they’re not quite as easy to use as they should be. But they’re getting better, more robust, and more widely accepted.
This is why blockchains matter
This is why bitcoin and the larger blockchain movement really matters — it will make complex processes and logistics around money, contracts, data, and collectibles something that people can do easily and autonomously. People can directly send money to one another, create their own simple business contracts, and exchange value +tickets trustfully — all on their own, with ease, in a peer-to-peer fashion.
Blockchains and cryptocurrencies will open up the same level of possibilities that the refrigerator brought to food and grocers in the 1940s. People couldn’t really fathom the future refrigerators would bring to their kitchens and the food industry. Similarly, this will generate unimaginable wealth for society as people can more easily engage with each other online and offline.