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Death to databases come the blockchain revolution?

Den Howlett Profile picture for user gonzodaddy June 7, 2015
Summary:
The blockchain changes everything we know about commerce. And it may only be a few short years before the revolution it brings sweeps through business.

DigitalChains
When I first wrote about the blockchain I described it as:

At its simplest, the blockchain is the fully decentralized global ledger used to record all Bitcoin (or digital currency) transactions. In book-keeping terms it is a vast open ledger that anyone with the right technology can mine. In technical terms, the blockchain represents the infrastructure upon which Bitcoin exists and through which Bitcoin is mined for profit.

That definition turns out to be both a bit simplistic and unrepresentative of its potential. I was on the right track when I said:

The possibilities and potential for blockchain technology are extraordinary at every level of business and society. If you’re not keeping up then you should.

That was kind of on the right track but far too vague. A mere six weeks on and I have changed my position. Today, I prefer to think about the blockchain in more expansive terms. Adapted from Vinay Gupta (slide 6):

The blockchain is the database for the network.

That's a very different concept that releases the blockchain from its close association with Bitcoin, the most well known but only one of many cryptocurrencies currently in existence. The blockchain has specific characteristics that make it perfect for the network. Again and adapted slightly from Gupta:

It is a robust, distributed, open source database that allows for no edits, no deletions, holds 100% of transactional history, has no inherent privacy and therefore no inherent secrecy.

In accounting terms, the blockchain is the (near) perfect ledger that has no audit requirement but it has so much more potential capability because of what can be built upon it and in what circumstances.

For example, in the under developed world and Africa in particular, huge swathes of people are unbanked, have no access to traditional forms of finance, are not your ideal risk profile and generally considered a risky bet but the more traditional banking fraternity.

There are numerous projects to bring banking to the unbanked that rely upon mobile technology. So far so good. But those efforts, laudable though they are, continue to be rooted in a largely traditional form of banking framework and economic model. What about all those people who don't fit into the traditional view or model? And what about fraud, an ever present risk that is tough enough to manage? What about all those people trapped in transit or refugee camps? What do they do? Gupta thinks that the blockchain solves many of the problems attached to these scenarios in large part because the blockchain redefines the nature of 'currency.'

Where to next? Gupta is of the view that the blockchain can serve as the basis for more democratic crowd funding of new ventures. Right now, Seedrs is probably the closest thing we have to the model he has in mind but as he points out, the management of hundreds or thousands of small investors is a significant cost. If you plan on raising funds through Seedrs, the costs to the business raising capital are substantial. Using the blockchain? Almost zero.

The burning question though is whether this is a likely set of scenarios or wishful thinking by libertarians who would love nothing better than to break the mold of business today? An MDI survey entitled: The Millennial Generation: Banking's Big Problem- Opportunities in Digital Finance provides some interesting clues. Check this out:

MDI-key-findings

Regardless of where you stand on these topics, the survey results suggest a very different future. Why? It seems that millennials' priorities are born out of circumstance where, according to surveys, they have lower earning potential but higher debt. Hence they are not so disposed to property ownership for example and prefer the models loosely bucketed as the 'sharing economy.' Investment for them is a lower priority but they would do so in businesses with purpose beyond the financial gains that are seen as the reason for being among stockholders.

And as if to second guess the direction this is all going, Overstock plans a $25 million bond issue using the blockchain.

Paradoxically, money is pouring into fintech startups from traditional routes. Coinbase for instance has raised over $106 million with $75 million in the last round. Legislators are taking notice but so far have not brought down the hammer on the ideas behind Bitcoin and the blockchain. Banks are investing directly in the technology as are many of the well known VC funders, IBM and Intel. In short, fintech is hot and the blockchain is here to stay.

To give you another idea what's happening, Blockstream raised $21 million in seed funding with the intention of building:

  • Smart contracts, legal agreements that are executed on the blockchain public ledger, eliminating the need for lawyers and the exchange of signed documents.
  • Equities trading without centralized exchanges, where users can buy and sell public stock in companies through a peer-to-peer system without brokers.
  • Sidechains, a method of developing parallel public ledgers – blockchains – which allows the creation of new applications on a common platform without modifying bitcoin’s core operational code.

Sound familiar? Gupta has spoken about all these kinds of initiative.

We will continue to track this topic. It holds tremendous promise.

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