While there are many uses for Blockchain the bulk of what is coming is still unknown. What we do know is there is a coming paradigm shift to the economy where a high level of current transactions will be automated. This will be accomplished via decentralization, programmable contracts, decentralized applications (dApps), and tokenization. It will require most companies to rethink how they can maintain their competitive advantage, where they can add value, and where they are at risk. The good news is that, while decentralization will be highly disruptive for most industries, there also may opportunities. Our mission is to help our clients navigate this global shift.
When most people mention Blockchain they are referring to Distributed Ledger Technologies (or DLT’s) which allow for a database to be maintained over several computers on a peer-to-peer network. For our purposes, we refer to Blockchain as a DLT but also as related technologies which are equally promising including Smart Contracts, Distributed File Storage, Distributed Apps, Tokenization, and others. The coming economic shift will involve all of these and more.
Public Blockchain is what most people think of when they hear “blockchain”. An example of a public blockchain is Bitcoin. It is a decentralized blockchain where each member of the blockchain validates transactions in a fairly democratic way. The bulk of the benefits from blockchain will come from the public side.
Private blockchain is a single user or single company blockchain. The benefits to this type of blockchain typically involve creating a record that is immutable and easily validated for legal or other purposes.
Consortia or Federated blockchain is a group of companies or individuals that leverage a decentralized network to accomplish a goal – for example, a group of food distributors may leverage a shared blockchain to record transactions making it easy for a food recall. These types of blockchains are similar to public but have a limited base of users that are accepted by the group of companies.
We believe that the current primitive stage of blockchain will quickly move toward companies and consumers leveraging decentralized networks. The benefits of these systems are too much to ignore and while there are still many issues being worked out, it is only a matter of time before real change begins. Eventually, a programmable economy will arise out of the current R&D which will allow consumers to do business without many of the current intermediaries. What this means: consumers will be able to trade stock, buy movies, obtain a loan, transfer wealth, sell an automobile, purchase insurance, store health records, and many other transactions without a trusted 3rd party managing these transactions.
Tokenization is currently being developed in the cryptocurrency world via bitcoin and the host of related “alt-coins”. An interesting aspect of the coming decentralized economy is the need for a unit of exchange that can effect transactions real-time via smart contracts. These “Tokens” may range from Bitcoin to coins that allow transactions, data storage, identity, and a range of other useful online services. In addition, tokens will begin to replace traditional securities over the next 5-10 years in the areas of currency, stocks, bonds, vehicle titles, deeds, and business interests. As exchanges and secondary exchanges open up most assets will become very liquid.
As the future economy shifts away from centralization and the concept of “Trusted 3rd Parties” managing all transactions we believe there will be opportunities for startups and existing corporations alike.