Blockchain: The Next Great Disrupter?

The internet killed and refined many businesses, upsetting industries and settled ways of doing things (business, personal, social, etc)—whether such change is inherently good, a potential source of good, or some inevitable dialectical force of history.   Similar fanfare surrounds the new networking opportunity of blockchains.  Although still early in the process, it is receiving more hype and attention than the internet (and its various and competing, complementary, and coincidental variations) at a similar point on the timeline of its development.  A great deal of money is already flowing into the development of blockchains, some actual blockchains, others merely using the name[1], with the too big to fail banks jumping in, as well as many small start-ups.  The potential seems to be enormous and the promises even greater—the elimination of corruption, near completion removal of transaction costs, perfect transparency, and IBM’s blockchain introductory, explanatory website even referring to it as “a single source of truth”[2].  Without ascribing it with such glory, the notion of blockchains will likely be implemented by banks and other financial intermediaries soon, as a means to lower transaction costs and lower risk on complex financial transactions.[3] 

 

Once the protocols are established, which are not insignificant and from a conceptual point of view are not much different that the current system—protocols, rules, etc. have to be established, agreed upon and followed, and the cryptography is in place, again assuming it will be far superior to previous attempts, and the ledger is secured (can it be absolutely secure and incapable of manipulation) and other terms and conditions known and yet to surface (including contract terms) are in place, then the system of decentralized nodes can operate.  Again, the assumption that the nodes are incapable of manipulation because they are perfectly transparent—that doesn’t eliminate potential tampering before or when entered into the ledger or misuse, abuse, or manipulation of human and business relationships.  Additionally, hacks will occur, there are will be mistakes, etc.  There have already been cases of theft and hacking involving bitcoins, including a very prominent hedge fund.  So while humanity continues to seeks to improve itself and eliminate corruption and continue to simplify life and business processes, the truth remains that no system created will ever eliminate corruption, will perfectly streamline transactions, or for that matter eliminate risk.  They are built into the system—whether you believe in a creator or a chain of spontaneous events.  Will this make commerce more streamlined?  Probably, but let’s not see it as the solution to all our problems.

 

(For more see Ito, Joichi, Neha Narula, and Robleh Ali, “The Blockchain Will Do to the Financial System What the Internet Did to Media”, Harvard Business Review, March 8, 2017.)

 

[1] Ito, Joichi, Neha Narula, and Robleh Ali, “The Blockchain Will Do to the Financial System What the Internet Did to Media”, Harvard Business Review, March 8, 2017.

[2] https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/

[3] Ito, “The Blockchain Will Do to the Financial System What the Internet Did to Media” 2017.