If you’re like us, it was probably around 2011-12 when you started hearing murmurings about Bitcoin. Whether you heard it from your “fringe” buddy who bought a mining rig (or knew a guy who did) or from tech media covering how cryptocurrency was being used for dark web dealings, you probably found yourself in the same situation most people did – either deeply skeptical, irretrievably confused, or suddenly very, very sleepy.
Maybe you didn’t dig much deeper. There wasn’t much incentive to – Bitcoin was viewed by many “serious” people as more of a joke than a future-defining technology. It was something cyber criminals and Alex Jones fans used to avoid being tracked by government types and lizard people. Saying you owned Bitcoin was kind of like saying you were learning Esperanto. “Ah, s/he’s into THAT. Noted.”
Cut to summer 2017. You’re at a dinner party with your normal, intelligent friends (you think), and suddenly they start talking about Bitcoin. Maybe they talk about how the price of a Bitcoin has shot up to multiple thousands of dollars in recent months (note to self: check in on that buddy with the mining rig). But more importantly, you hear the conversation shifting to the underlying technology that makes Bitcoin possible, blockchain.
Whoa. What is going on here?
Blockchain has already evolved – and is continuing to do so. Today, it’s about so much more than Bitcoin, and companies across industries are beginning to recognize how it can reshape their industries and change the way money and information flow among private parties and institutions.
If you’re feeling left behind, you’re not alone. It’s a big topic to unpack, but this post will give you an overview of where and why Bitcoin started, how the blockchain has evolved, and why it’s something companies and individuals should start paying attention to.
Maybe you’ll get ideas for the future of your own company or industry. At the very least, you’ll be able to techsplain blockchain at your next dinner party.
Transitioning from the information age to the value age
“This is a very exciting time to be a digital business leader, and that’s because the technology that’s likely to have the biggest impact on the world of business has arrived,” said Alex Tapscott, author of Blockchain Revolution and member of the World Economic Forum’s Global Future Council on Blockchain, in his talk this summer at HITEC in Toronto. “Blockchain represents the second generation of the Internet.”
Blockchain originated as an alternative way of addressing what’s known as the “double payment” problem.
Back in the day, when cash reigned supreme, transactions were easier to understand and manage. If you gave someone $20 in exchange for a t-shirt, they possessed that $20, and you did not. Simple.
However, the digital exchange of currency gave rise to a potential problem. The Internet is great at helping people share copies of information while retaining the original. For example, if an author emails her manuscript to an editor, she still has the original file. But payment for goods doesn’t work if the buyer is only sending a “copy” of their money.
“When I send you $20, it’s important you know you have it, it’s yours, and I can’t turn around and send the same $20 to someone else,” Tapscott explained.
So for online monetary transactions to become possible, financial institutions and third parties like Paypal stepped in to add a layer of accountability to the process. When you send money to someone online, banks and payment gateways own the responsibility of verifying the identification of both parties, ensuring the sender has sufficient funds to complete the transaction, removing the funds from the sender’s account and keeping records of each transaction.
Though this process has helped in reducing double payment issues, it has brought about new issues of its own, including:
– Hacking vulnerabilities. Because banks and other intermediaries are centralized, they are vulnerable to errors and hackers.
– Intermediaries add additional costs and slow the payment process down. Ever dealt with the frustration of being in “transaction limbo,” in which your funds are frozen for 3-5 days for processing? It can certainly add issues for individuals living paycheck to paycheck or just trying to keep close track of their finances.
– The system doesn’t account for inequalities. There are billions of people around the world without access to financial services, which has enormous implications for economic inequality and slows the growth of businesses.
– The intermediaries capture and retain your data. Even though this data is about you (whether you’re the consumer or business) and it’s created by you, it isn’t owned by you. And there’s no way around participating in this system if you want to fulfill essential activities, like paying your mortgage.
To rectify these flaws, the blockchain and its pilot cryptocurrency Bitcoin were devised in 2008 via a white paper published by someone named Satoshi Nakamoto. No one is sure who that is, and it’s widely believed to be a pseudonym. (Theories abound, of course.) But this kicked off the early days of Bitcoin, and after a few years, your buddy bought his rig and started boring you with his strange predictions.
Then in 2014, a new blockchain language and cryptocurrency called Ethereum was introduced. Ethereum took blockchain technology one step further by adding the ability to not only execute exchanges of cryptocurrency, but creating “smart contracts” that verify and record agreements among people and/or businesses.
Back up – explain blockchain a little more.
Right. Let’s do that. Blockchain is a way of recording transactions and hosting information in a way that makes data hacking inefficient and impractical. Rather than hosting data within a single bank or centralized location, public blockchain serves as a global ledger, keeping a history of all past information and transactions distributed across numerous computers owned and run by people like you (and your buddy with the mining rig).
As more information is recorded, pieces of data are combined with other incoming data every few minutes, then stored as a compact “block.” Each block is signed (so it can be shared across peer networks) and timestamped, and it also contains all the data of the previous block, which creates a strictly organized “chain” of data entries. Because each block references the one prior, a hacker would have to change the information on every block in the chain to modify or fake a transaction.
In other words, blockchain technology can be used for much more than anonymous criminal transactions. It can store and protect a wide range of information, such as health records, loans, stocks and more.
Three ways blockchain will change the game
This technology is clearly exciting for financial-based sectors, but blockchain actually has the potential to disrupt a multitude of industries. Here’s how:
1. Blockchain cuts out the middlemen, saving money, time and privacy for businesses and consumers alike.
Smart contracts make it possible to remove intermediaries, plus open up new realms of possibility for more direct contact between consumers and businesses. Tapscott provided one timely example of a booming economy that could be gutted by the blockchain revolution: the sharing economy, including major players like Airbnb, Uber and Zipcar.
“It’s a nice notion that we all share in the value that’s being created [by the sharing economy], but it’s a bit of a misnomer,” Tapscott said. “These companies are not successful because they share. They’re successful because they don’t share; they aggregate excess capacity and, in doing so, they receive a fee. But they also capture most of the value.”
The value Tapscott is referencing is not strictly financial. In recent years, another type of “currency” has become just as valuable for companies to capture as money — user data.
Consider what happens every time you take an Uber. As a rider, your primary focus is on getting from point A to point B. But behind the curtain, Uber takes on a variety of roles and responsibilities, including verifying the location, identity, and needs of each rider and driver; enforcing contracts for riders who are picked up and dropped off at the proper location; and obtaining, recording and transferring payments to the correct parties.
What happens to all of this data after your ride is over? You’ve probably stopped thinking about that ride as soon as you step out of the vehicle, but Uber retains all of the aforementioned data collected on your journey. Additionally, this set of data is completely inaccessible and unusable by you or any other parties — unless of course Uber takes further action to monetize your data by selling it.
Now, let’s examine how this process would occur if a blockchain were used. Drivers could be automatically vetted using data on them stored in the blockchain, and connected directly with riders. Riders, who now have the power of making their own data-driven decisions, may have increased control over their ridesharing experience; for example, by requesting a specific make of car. Unfortunately for Uber, this entire process could now be executed without them. The rider and driver would maintain complete privacy as to their location history or, as we’ll discuss in a minute, have the option of monetizing this data themselves.
Smart contracts are already being used in real life and showing success in action. Ever since the Internet made it possible to illegally download music, the music industry has suffered greatly.
Blockchain may have the potential to solve this enormous problem, thought to be virtually unreconcilable by many jaded industry experts. Musician Imogen Heap formed a collective of creatives to explore ways to transform the music industry using blockchain.
Heap has already started leveraging blockchain to release her music. To stream Heap’s music, listeners must pay a fee using the Ethereum cryptocurrency. Each song is coded with a smart contract, so Heap receives a microamount of Ethereum every time it is played. Additionally, she can add additional payment recipients to the smart contract, so that their producers, bandmates and other involved parties get paid automatically as well. She can even denote what percentage each party should receive per play.
This not only puts musicians in total control of their own music sales, diminishing (or totally eliminating) the role of record labels. It has the potential to alleviate the enormous toll on the music industry that pirating software set into motion over a decade ago.
2. Blockchain puts consumers back in control of their data.
For years, we’ve been conditioned to be a bit too trusting in terms of sharing our personal data with nearly any company who asks for it online, whether our end goal is to complete a purchase or enter a sweepstakes. But now that you’re thinking about it, wouldn’t it be nice if your personal data was once again…yours?
Once middlemen are removed from transactions, blockchains can fill the role of verifying user information, such as identities or bank account balances, because they already have that information stored in a “black box” on the blockchain. Further, the blockchain will automatically provide businesses with the information they need — and only the information they need — to fulfill their contracts.
If you’re a marketer, your heart may be sinking, wondering how you will carry out data-driven marketing and sales strategies. This is where it is clear to see how blockchains put users back in control of their own data; they can even monetize their own data by choosing to continue to share elements of it with businesses who want it for marketing efforts.
If a consumer wants to tell a business their age or location or give them access to their social history, they may do so — and charge the company a fee for the insight.
But don’t worry; there are huge benefits for businesses as well. While your team may face a new line item on their marketing budgets, blockchain could still actually save businesses money by removing intermediaries and their corresponding costs, like processing and transaction fees.
3. Opportunity abounds, and the time is now.
Large corporations, including Google, Walmart, IBM and Microsoft, began investing in blockchain long ago. But you certainly haven’t missed the window of opportunity to join these major players in shaping the way we will use this technology.
In fact, Tapscott believes it’s crucial for a range of businesses to begin exploring and leveraging blockchain, starting now. But where to start?
Tapscott suggests hiring a transition team of IT experts versed in blockchain and ready to explore applications for the corporate world. Then, partner up with major tech players and blockchain startups alike to develop a plan for bringing those applications to life. (Shameless plug: And if you need a marketing team to help, let us know.)
We’re just scratching the surface here. If you’re interested in digging deeper, Tapscott’s book Blockchain Revolution is a great primer on where blockchain is going and why some people are so excited about the implications.
But the first step is recognizing that blockchain is not as fringe as it once seemed, and major companies are incorporating it into their near- and long-term strategies. The blockchain revolution is ramping up, and now is the time for your business to take advantage and guide the future of this technology — or risk losing to competitors who are.