Before trying to understand blockchain, understand why we need it…
I was recently intrigued by an interview from TechCrunch Disrupt in which Vitalik Buterin, founder of Ethereum Blockchain platform, describes what it is. He positions it as a platform in which many other applications will be built on top of. Slowly, Blockchain is becoming more normalized, not some crazy mystical idea, but rather something that is truly game changing.
That being said, I non-apologetically put myself in the bucket of having a hard time wrapping my head around blockchain until recently. The big revelation for me, was to stop thinking about how it works and start thinking about what it means.
I’m still very much a student of blockchain, but am very keen to immerse myself in it. In my view, it boils down to essentially one key problem, that many people might not immediately see.
But first… here’s a quick primer.
We’re forced to use “Trusted” Third Parties for Everything
Each time we carry out a transaction, contract or interaction, we’re normally forced to use a third party. From banks and credit cards to social networks and cell providers, these third parties come with what Jeremy Epstein calls a “Trust Tax.” He breaks it down very well, so I’ve borrowed some of his slides below.
Each time you engage with a third party, you incur cost, risk and time, that is not really necessary in order for that interaction to take place. Let’s first look at time as an example.
TRUST TAX #1: TIME
When it comes to information, like emails, SMS, photos and files, today you can almost instantly transfer that from yourself to another person almost anywhere in the world, using the internet. This is possible because you are simply sending information and by nature of it not having tangible value, it is authenticated on the basis that is coming from YOU. There is not the need for a high level of scrutiny, because the risk of lost value is low.
This is entirely different when you consider the movement of defined VALUE, particularly those financial in nature. As seen above, financial transactions often take DAYS or MONTHS to occur. This is because of the slowness of third party verification, which even when automated can take time and what’s worse, can’t actually always be trusted.
Imagine you could track the exact path of your money and the things you buy (car, home, collectibles), which is automatically authenticated by a decentralized network and immediately carried out. Every time. Blockchain enables this.
Another example is a business contract that indicates certain levels of service or financial payout terms. These are often heavy documents that are bound simply by a signature and a handshake. If the contract is met (or not met), then the next steps of executing or enforcing it can be very cumbersome (timely and costly).
Imagine that when you signed a contract, the performance against the terms were quickly authenticated against a decentralized network and then automatically executed against. In other words, if the contract says you need to get 1000 new customers to get a bonus, then is automatically authenticated that this is true and then immediately pays out your bonus. No proof necessary. Blockchain enables this.
TRUST TAX #2: RISK
The second piece of the Third Party Trust Tax is RISK. When you take part in financial transactions, you’re trusting the third party to carry out what you asked, with often little transparency to what is actually happening and little recourse if something goes wrong. When we transfer money between accounts, the cash disappears for a couple days and then magically reappears. Why is this necessary? All a bank really is, is a glorified record/proof (or ledger) of transactions taking place. Peter paid Paul.
Imagine you didn’t need to “trust” a bank with your money, but you could transfer money directly to others and it is authenticated by a 100% accurate record of all transactions ever made, via a decentralized network. Blockchain enables this.
This is not limited to the banking world. Think of many of the products you buy. For example, the ever growing ORGANIC FOOD section at the grocery store that makes you all kinds of promises about where the food comes from and how it is produced. We trust those companies, often via their labels or an independent third party. But, to be fair, we really have no idea what is actually happening and what their definition of that process is.
Imagine you could see an exact history of every step that this food had gone through since origin and it was validated by thousands of independent decentralized sources? Blockchain enables this.
TRUST TAX #3: COST
This is perhaps the easiest of the three to understand. When you use third parties, there is an inherently greater cost associated with it as they have to cover their own operating expenses.
Imagine you didn’t need third parties to be intermediaries and thus all transactions and interactions with others were significantly cheaper? Blockchain enables this.
What is perhaps less obvious, is the opportunity cost associated with third parties. Countless third parties are profiting from your personal data right now. Take Facebook for example. It is the owner of your social network, but why aren’t YOU the owner of your social network? Facebook is just one example, but the reality is that this is the way it is with most companies you interact with. Your bank owns your financial history, your grocery store owns your food purchase history, NEST thermostats owns your home climate history, NETFLIX owns your TV viewing & preference history, Telco’s own your mobile phone usage history, the list goes on.And they all over leverage it, without you having any ability to do much about it.
Imagine all of your personal information was actually YOURS? It lived on a decentralized network that was automatically authenticated and you could take with you to any service provider that you choose? Blockchain enables this.
When you start to think about what might happen if you didn’t have to rely on these third parties and YOU were empowered to take control, the scale of impact from blockchain is truly staggering.
Now, I haven’t really explained what Blockchain actually is, but there are a lot of great resources out there, that will do it better than I can. See below for a video from Jeremy Epstein that is the source for a lot of the content in this blog. Definitely worth a watch to help demystify blockchain and it’s huge potential.
I’m just dipping my toe in the blockchain world, but I’m particularly interested in how it might impact industries outside of finance… particularly design and marketing. More to come.
Very interested in any thoughts in the comments-