This is the second of a three-part series where I’ll examine blockchain, why I don’t believe it is good for EVERY industry, the hurdles that I’m expecting it to face, and the industries (read: the government) that I believe should adopt it, like, yesterday. Check out the full conversation on The Great Blockchain Debate of 2018
In Part 1 of the article, I looked at why I don’t think blockchain is great for the private sector. Quick recap for those just joining us, the private sector makes money based on what it can do that nobody else can. And when you give away your data for free, you also give away your competitive advantage.
In this article, we are going to imagine that somehow, that wasn’t the case. The genie from Aladdin came down, granted you three wishes and one of those wishes was that you can figure out how to monetize a public blockchain.
Although I’m not sure even the genie is powerful enough to grant that wish, this article is going to discuss what that would look like. And then scenario plan how your competitors would react.
The Stiff Headwinds of Progress
A blockchain network is built upon open data. And being able to use that data for the greater good. One such example of using that data for the greater good is smart contracts. Smart contracts are inherent to blockchain, and what makes them smart is that the contracts themselves are capable of proving that both sides have the ability to uphold their end of the transaction. Just as a quick example, lets assume that I want to buy an orange at the grocery store.
Using smart contracts, the system would need to verify that the person I’m purchasing from does in fact have the rights to that orange I’m trying to buy. It would also need to be able to verify that I have enough money to purchase that orange.
umm…guidance.
While that scenario is straight forward, think about what that means. It would need to track the ownership of that orange through its entire chain of custody. The orange was first grown on a tree, so the system would need to know who owns the tree. The ownership of the tree would then transfer into ownership of the orange. Then, it gets picked and bagged and “sold” to the grocery store (lets assume the owners of the tree sell directly to the grocery story — otherwise that adds multiple hops to the chain of custody). The smart contract would be able to verify each of those steps so it can prove definitively that the grocery store does own the rights to sell me the orange.
Separately, it needs to verify that I have enough money or credit to purchase that orange. It would need to go through my bank accounts and ensure that I have enough capital in some form (could be cash, check, or credit) to purchase.
Once both ends of the contract have been verified, the smart contract acts as a mediator. It takes my money, gives it to the grocery store. It takes the orange and gives it to me.
Now, that sounds like a lot of work just to purchase something as simple as an orange. But what about a bigger purchase. What about a house? Title Companies siphon off millions (billions?) of dollars annually to perform those tasks that we just went through with the orange. Only now, the blockchain will be performing those duties for free. How do you think that will make them feel?
Lobbyist Call to Arms!
If a company were to build a blockchain-based product, and it got to a significant scale in a market where secondary and tertiary players rely on obscurity of information to make their profits (i.e. real estate or medical care), these players would suddenly find that their “value” would no longer be needed.
And it wouldn’t just be the Title Companies identified above. Credit card processing would no longer be needed as it would be obvious who did and did not have enough credit to make the purchase. Healthcare would be turned on its head. These are HUGE industries full of companies that make a lot of money.
Players in these industries would not just roll over and allow it to happen. They would fight back the way that all major corporations, through congressional lobbying and/or litigation. So now, not only would a company be fighting to capture the interest of the public. But they would be fighting for their lives in Congress and in the Courts.
So add Lobbyists to the challenges previously identified in Part 1, of not being able to defend your position and needing to get a significant-enough market share, and as you can imagine the challenge becomes that much greater. Still, there is one industry where the transparency of data actually helps the product. And, this is an industry that, by its very nature, is impervious to competition. But, we’ll save that for Part 3.
Continue reading Part 3 where we examine what markets would benefit from a blockchain solution.