2021 has been all bitcoin, and the numbers don't lie - it's literally blown up. In one year, bitcoin has increased in value by more than 280% according to Coinbase.
But, many retail investors who've invested in bitcoin (myself included) don't understand the underlying technology powering it. This past month, I've been trying to understand bitcoin, and it took me to "blockchain".
P.S: If you're curious on learning more about blockchain, a concise resource is Blockchain - the Next Everything by Stephen P. Williams.
Blockchain has several differentiating factors compared to a typical database that you host on Amazon Web Servers, Google Cloud, Heroku, etc. Also, I'd love to hear what my network thinks to help refine my thinking.
Let's just say Facebook has your data on Amazon's web servers. If Facebook or Amazon didn't have the proper security protocols they have today, hackers could easily access that data. Blockchain doesn't allow hackers to access your data because it relies on previous blocks of data for reference (increased security), and there's other peers on the public blockchain who would have to verify that it's you accessing your data. In that sense, 51% of the peers on the blockchain would have to verify and allow the hacker to access your data, which is impossible because of the amount of people there are on the public blockchain. There's also incentives to cracking each code that is algorithmically processed (which is $). You would also have to assume that the hacker has the hash necessary to access your data in the first place.
There are scalability problems with applications on top of blockchain (like bitcoin/ethereum), but verifying activities on the blockchain is still faster than many traditional industries. I'll be writing a piece about the scalability of blockchain soon, so be sure to subscribe and I'll shoot you a quick email when it's up.
Once you put data onto the blockchain, it's there forever. This is super important because it establishes truth. You can also upload things like PDFs/images that you normally would in your Google Drive, but once you do this, it spits out a hash in return. A hash is basically a bunch of numbers and letters that are coded to specifically represent that value. The reason why this is important is because it's a lot more secure than Google Drive, and allows you to ensure that the data can never be erased. It also makes it alot harder to hack.
“Blockchain will do for transactions what the internet did for information.” - Ginni Rometty, CEO of IBM
We've heard it all - blockchain will revolutionize industry after industry, including, but not limited to:
Based on my research, I agree - but I do think that certain industries will be innovated upon faster than others.
I'm excited for the future of blockchain and the future in general, but two questions instantly come to mind:
I don't think that all industries by 2050 will run on blockchain. So the key question here is - what criteria can we generate to see if there's blockchain-market fit? This term is coined similarly to the startup term "product-market fit."
There's two main criteria to assess if blockchain can revolutionize certain markets.
Let's do a quick exercise.
Think of the first 3-5 industries or companies that you might not trust.
Again, there are good players and bad players in each industry, but think of industries that you think are murky, secretive, and honestly just hard to trust. It doesn't even have to be the majority of the companies in an industry that are hard to trust.
What's obvious is that there are bad companies in each of these industries that taint the entire market as a whole. There's confidential info in which the general public doesn't know about, or there's incentives at play that don't allow companies to establish truth. This leads to inefficiencies.
In no particular order, here are mine. Over the year, we've heard "scandals" applicable to all of the industries mentioned:
For example, news surfaced the past year about the We Scandal involving Justin Trudeau and the Government of Canada. Investigation is important, but proactive prevention and real-time detection is ultimately a lever that would streamline decision making processes.
Instead of spending hours, days, and our human capital on focusing on the WE Charity Scandal, it would be a lot more efficient if 1) it didn't happen in the first place, 2) if it did happen, it would be nice if people knew right away that the financial budget was shifted accordingly, 3) enforce proactive protocols to reduce the risk of this happening (through methods such as triple ledger accounting which we won't get into).
Society can have different opinions and interpretations, but we all need to be able to agree on an event that happened.
Everybody talks about AirBnb and Uber getting replaced by blockchain and decentralization. In fact, both Blockchain - the Next Everything by Stephen P. Williams. and the Blockchain Revolution by Don Tapscott reference AirBnb and Uber as glorified "data aggregation" companies over the sharing economy.
This is true. Data in the 2010's and 2020's is a competitive moat. The more information that you have on your customers, the more companies are able to build further network and data pools that become increasingly harder to compete with.
However, I believe that AirBnb will be a relevant company for the next 20-30+ years. They won't be disrupted by the blockchain for a long time because they have done such a good job of being a minimal intermediary presence within the transaction between the seller and buyer.
AirBnb provides a degree of trust and transparency (I'm arguing that there's minimal data security issues compared to tech companies like FB), and speed is just as fast as the blockchain in many cases with features such as instant booking (I didn't include Uber strictly because of self-driving cars and regulation).
My guess is that there won't be a mainstream AirBnb that is decentralized and built on the blockchain in the next 2-3 decades.
So what businesses will arise?
Blockchain will directly innovate industries where companies take high intermediary fees and are slow in transaction processing speed. High intermediary fees could be anywhere from 7.5%+, and "slow in transaction speeds" refers to middle-men and brokers. The more middlemen there are, the more important blockchain will become and the faster it will be adopted.
Ultimately, that's why payments (crypto) is first to be mainstream.
Western Union is a perfect example and let's break this down side by side. Most people dislike Western Union because they control the percentage they take, yet provide pretty underwhelming service.
For example, if I wanted to send you bitcoin from Canada to Japan, it would take around 10-20 minutes. If I wanted to send money to my mom in Japan with Western Union, it would take a minimum of three business days.
So if you're looking to build a blockchain business - identify monopoly-like industries that take a high intermediary fee and lack customer empathy.
Likewise, monopolies that focus on the end customer obsessively (Amazon) will take 20-30+ years for eventual blockchain disruption.
The key challenge with blockchain adoption isn't from consumers, but the resistance from corporations and institutions for the following reasons:
In essence, only when there's overwhelming demand from the consumer side will businesses be willing to adapt.
I hope you found this useful - I certainly learned alot :)