Disclaimer: This post is not intended to be used as financial or investment advice, nor should be used as investment recommendations. The examples and companies listed below are being used as examples only & should not be seen as “best-in-class” or recommendations for investment. Please do your due diligence and consult a licensed financial advisor or tax accountant prior to any investments.
By now, most of you have heard of Bitcoin. It’s the trendy buzzword du jour — for better or for worse. Despite all the hype around bitcoin and cryptocurrency, the underlying technology — blockchain — seems to be getting pushed to the side in most casual conversations — likely because it’s insanely technical. However; despite the fact that the technology behind blockchain is likely more technical than most of can, or want to, understand, it’s a highly important topic. In my opinion, blockchain will have the single greatest impact on our lives since the internet.
What is Blockchain
Blockchain is a continuously growing list of records (blocks), which are linked and secured using cryptography. Each block is linked to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data.
At the most basic level, The Harvard Business Review describes it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”
It’s essentially an accounting book to track all transactions 🙂
So why should you care about a “digital ledger?” The impact that blockchain will have on nearly every industry and vertical will change the way all of us do business. So let’s talk about some common use cases.
The intent here is to not be technical, so a lot of these use cases will be basic in nature. I want to structure it this way so you can first have a low-level understanding of how blockchain functions. Also, if it’s niche, why would most of you care?
If you look at where we are in the adoption cycle, we’re only a few minutes into the “innovators” stage. Most of the early work is focused on the financial space (e.g. bitcoin, ethererum, ripple). While this is a natural spot to start, I don’t want to dive too deep into banks and financial institutions here as that’s a post by itself. Just know that every major bank and financial institution in the U.S. is currently testing and working on blockchain.
Rather than looking at specific use cases with individual financial institutions, let’s take a step back and look at the broad picture of financial transactions. When it comes to P2P payments, we can look at the most basic use case — financial remittance between friends/family/acquaintances.
Let’s say little Billy runs a neighborhood snow removal business during the winter months. It’s Saturday afternoon and your neighborhood just got 6 inches of snow. Little Billy puts his boots on, goes across the street to the Mueller’s and shovels their driveway. If the Mueller’s are home, he collects his payment and moves on to the next “customer.” This continues until little Billy is finished removing snow for all his customers. But what happens if one customer isn’t home when Billy shoveled their driveway? What happens if one of his customers didn’t have cash on them & had to pay with a check? The Billy has to collect funds & Billy’s parents have to take Billy to the bank to deposit the checks. It slowly becomes tedious and more work than it should be for a little child to earn some money shoveling snow. While not the biggest pain point in the world, it still remains a scenario where there should be a more efficient method to conduct business.
Now imagine an application that has the protocol to where Billy could indicate which driveways were shoveled, his customers could indicate Billy did an acceptable job, payment could be transferred automatically & be deposited into Billy’s account. Now, replace Billy shoveling his neighbor’s snow with Bob the business owner completing services to hundreds of customers throughout Los Angeles.
Billy is just one example — albeit a small and not really important example. However, it shows –on a very basic level — the impact that blockchain could have within the financial space. But, now, let’s take a look at a bigger and more serious issue: credit.
There are more than 2 billion people worldwide who don’t have access to a bank account. Approximately 26 million people in the U.S. are “credit invisible.” And credit scoring (in the U.S.) is controlled by one organization — FICO.
Those statistics alone are, in my opinion, worth looking into alternatives to credit scoring. But what about when someone relocates to a new country? How about someone who’s trying to start establishing credit? And then there’s the whole Equifax breach. Is it starting to make a bit more sense?
One company looking to change all of this is Bloom. *Disclosure: I invested in Bloom’s initial token sale. Other companies in the identity verification space: Civic, Stratis, IBM, BlockAuth & a few others.
There are three core components with Bloom’s protocol:
- BloomID (Identity Attestation): BloomID creates a global secure identity, allowing lenders to offer compliant loans globally, without forcing borrowers to expose personal information.
- BloomIQ (Credit Registry): BloomIQ is a system for reporting and tracking current and historical debt obligations that are tied to a user’s BloomID.
- BloomScore (Credit Scoring): The BloomScore is a metric of consumers’ creditworthiness. This decentralized score is similar to FICO or VantageScore score, but with updated models.
The Bloom protocol seeks to improve the current credit ecosystem by creating a globally portable and inclusive credit profile, reducing the need for traditional banking infrastructure and opaque, proprietary credit scores. This means both traditional lenders and digital asset lenders will be able to also securely serve the 3 billion people who currently cannot obtain a bank account or credit score.
The financial space is one of the most important verticals for blockchain and while I outlined two examples, there’s immense opportunity within financial services.
Did you know that in the U.S. alone, there are more than 6,500 entities that can issue birth certificates on 14,000 different forms?
Of all the kinds of cases that I’ve ever done, whether you’re talking about the Hell’s Angels, marriage fraud, the bank officer I prosecuted for impersonating dead people or the criminals I’ve prosecuted using cryptocurrency, they all have one thing in common: there’s always been, somewhere along the way, a forged, counterfeit or stolen public document — even a murder case I tried” – federal prosecutor, Kathryn Haun.
The majority of public records are currently being kept on centralized databases, which makes them easy targets for fraud and tampering. This was the case in 2008 when a network administrator in San Francisco became disgruntled and changed all the admin passwords and kept the records hostage. Or what happens if a natural disaster comes and wipes everything out? These issues could all be solved using blockchain.
One company looking to help solve this issue is Bitfury, who has partnered with the Republic of Georgia to build the world’s first blockchain-based land-titling project. Additionally, Sweden is currently working on leveraging blockchain for land registry.
One of the most technologically advanced industries, though it usually isn’t the first example people think about when it comes to tech, is agriculture. Have you sat in a combine lately? It makes sense, though, as its critical for farmers to have deep data insight into their livestock and crops. For example, farmers can use sensors to gather data about their crops starting from seeds. This information is then written onto blockchain, with insights into varying identifying factors such as pH levels, as well location data to link the entry to a particular crop. This data can than trigger insights into when the crop should be harvested as well as linking individual crops back to particular farms.
From a consumer standpoint, this allows for an incredible show of food and nutrition transparency. You can now track the journey, literally, from farm-to-table. Blockchain improves transparency, monitoring, efficiency, access to market, labor conditions and food quality.
As I mentioned in the introduction of this post, blockchain is set to completely disrupt our future. Not since the internet, which wasn’t that long ago, has an innovation come along that has the power to impact the entire world. While we’re only in the infancy stage, and most work and conversation if focused around currencies, the impact will truly span across our entire ecosystem. Blockchain improves trust, transparency, speed, access & collaboration; which is exactly what society has come to expect from businesses and one another.