Why Blockchain matters?

Since 2016 I have been using hundreds of hours to get familiar with blockchain. In 2022 I participated to Oxford University Strategic Blockchain course. When someone mentions blockchain - most of us are thinking about Cryptocurrencies. And Bitcoin. Correct?

Technically there’s a lot different kind of blockchains out there. I am not going to cover technicalities here, but if you want to read into different types of blockchains like: Public Blockchain, Private Blockchain, Hybrid Blockchain and Consortium Blockchain - You can read more about blockchain technology types from here. Here I will tell you a bit about why I believe blockchain matters and why I believe it have enormous value in future (and today). To be able to understand why blockchain matters, you need to be able to understand the following things:

1. Brief History of money - what issues we have with current monetary system
2. Technology - blockchain is a technology, not an ideology
3. Network effects - what are they and how do they work
4. Real world use cases - how it creates value already today
5. Environment around laws and regulations - how regulation is hindering but yet enabling the blockchain revolution

1. Brief History of Money

Why some might say believe money could be broken? Let me open that up for you. Near the end of World War II inn 1945, 30 countries established new monetary system - called Bretton Woods System. This model kept the US dollar fixed to gold and the other 29 countries’ currencies fixed to the US dollar. Eventually there was 44 nations involved. It remained all the way until 1971 when President Nixon ended it. It ended in 1971 largely due risk of recession and high unemployment in US. That started a new time of Petrodollar.

Today currencies such as USD (the world's principal reserve currency) is not backed by gold or any certain asset as such. But it is backed by the belief that people (me & you) have in the ability of the state and central banks to defend our economic interests. Most money today is largely represented not as physical money but as digital money. As information. Central banks can expand and shrink the amount of that information in our economy. Today money is more data in the system versus cash in our hands. You can take a look into the exact figures for example how much US-dollars have been printed in the past years here: https://fred.stlouisfed.org/series/M1SL. So what do you think? Could money be broken? I would not agree 100%, but I would not agree 0% either...

2. Value of Blockchain

Why blockchain's have value? And how we can define who will be the survivors & winners in this environment? One of the main things we need to consider are network effects. In the early days - internet was a resource only for military and scientist’s. As it eventually became more accessible for everyone, people started to create more content and services on top of it. More content, more users, more value.

Exact same applies to blockchain projects around network effects. But Unlike in the internet where mostly centralized organizations are owning it and profiting from it - in Blockchain-network the monetary value is given back to users who hold that network’s tokens. Those tokens are called cryptocurrencies. If you own cryptocurrency of certain blockchain-network you actually own part of that particular blockchain network.

If you own stocks of a certain company, what you actually pay for the stock is the price or the market price of the stock. Value what is resident in the asset. Value is derived by what the stock worth, which in turn is dependent on how much cash flow the company can generate in the future. But when you own a cryptocurrency you also own a part of that actual blockchain network.

Besides network effect's there are multiple things blockchain project needs to pay attention in terms of being successful. Like for example: Ease of use, Interoperability and Governance. I don't believe in maximalism in any way. I believe there will be many blockchain's in future which will create the network effects and that will be successful on their behalf. Question about, which are the projects that are going to be most successful - I don’t know? And I am not here to guess it for you. There’s different kind of blockchain projects out there that we should be aware of. On high level you could put blockchain projects into the following 3 baskets:

1. Currencies digital peer to peer currencies like Bitcoin.
2. Platforms complete de-centralised ecosystems which are working as operating systems to different kind of applications. As we have centralised ecosystems like iOS or Android.) These decentralised platforms have their own blockchain network and they are called as Layer-1 blockchains. Like Ethereum, Avalanche, Polkadot, Solana, Cardano etc.
3. Tokens which are created into the platform. Therefore they are the Layer-2 solutions which do not have their own blockchain network, but they are utilizing the Layer-1 blockchain’s network.

3. Pre-requisites for mass adoption?

What needs to happen for blockchain industry, before we can talk about the mass adoption? Before mass adoption - General Public need to be able seamlessly perform actions without needing to know which blockchain networks they are utilizing in the background. If blockchain aims to follow the internet’s adoption curve - the complexity needs to be hidden.

Today in most cases it takes a lot of knowledge and studying to utilize blockchain services out there. Like for example using DeFi (Decentralised Finance) via electronic wallets (like metamask). We cannot talk about mass adoption before the complexity is hidden from the end users. Not partly, but completely.

Customer Experience and intuitive designs will be also key factors to enable the real mass adoption. At the moment I believe blockchain industry is in many cases just talking about it. Interoperability among the big players in Web-2 like Google, Amazon, YouTube, Meta and X enables anyone to have seamless experience of using "one internet". This is an experience many Web-3 developers in blockchain are just dreaming to generate at the moment. I am not saying there aren't any great customer experiences in Web-3. But for Web-2 it is a standard to have a great CX, in Web-3 it is still more like an exception. So far Internet have been moving in these following “Web-waves“:

• Web1 was about us being able to read data from web pages
• Web2 was about us being able move and create data on web pages or in social media platforms
• Web3 is about to move value in web. It is about being able to monetize any digital asset you may touch or own. In web, in games, in metaverse, etc.

When we are talking about moving value, it will make the regulations necessary. Right?

4. Laws and regulations - ?

From the Oxford University Strategic Blockchain course I learned that existing laws are far from suitable with Blockchain Technology. In DAO's (Decentralised Autonomous Organisation) the decision making power is purely based on the amount of tokens each person have. With those tokens each owner have a right to vote about the upcoming changes & developments. Both Organizational and Technological developments. Decision making is indeed 100% transparent and 100% democratic.

Because of the speed that blockchain projects have been entering into the markets - legal and regulatory systems have lag far behind. Many of the existing laws are incompatible with the fundamental precepts of blockchain. Reconciliation is impossible between existing legal frameworks and Distributed Ledger Technology. The lack of a hierarchical structure in a decentralized systems presents a mismatch between it and the ordinary rule of law.

In DAO's you may even say that "code is the law". That may cause situations where something is valid in Protocol rules, but invalid in Legal rules. Any blockchain project, should pay close attention to relevant laws that have been enacted or are under legislative consideration. Data, privacy, securities, tax, and antitrust are all areas of focus in the digital space and will have unique impacts on blockchain. As we can see, in blockchain projects it's about much more than just the technology. In addition to technological innovation - blockchain projects need to pay a lot attention into laws and regulations, data protection, and as well as to their unique human resource needs.

For each blockchain project out there, it would make a lot sense to work with lawyers from the beginning to make sure they cooperate with the laws and regulations and stay on a "safe" side. Although this would guarantee nothing since the laws are constantly updating - as they should. And also regulators such as SEC (Securities and Exchange Commission) are trying to do their best with the constantly evolving environment.

5. Blockchain use cases

What makes blockchain use cases valuable? There are different ways you can create value with blockchain. In blockchain world there are Entrepreneurs and Intrapreneurs. Blockchain-intrapreneurs create blockchain solutions inside a centralized companies to create value for those companies. While blockchain-entrepreneurs build own blockchain solutions to own blockchains (Layer-1) or on top of networks like Ethereum, Avalanche Polkadot and so on (Layer-2).

With blockchain - You need to choose from what it offers versus centralized database's or SaaS Services are not able to offer? Those things may be such as: - Network Security - Performance - Reliability - Scalability - Data Integrity, etc. Following questions are the main questions you need to be able to answer YES to, to ensure blockchain is the right solution for you:

1. Is the process repeatable and/or can be automated? (Yes/No)
2. Is solution part of an ongoing process? (Yes/No)
3. Are there Multiple stakeholders involved in process? Is there a need to verify each participant is acting honestly? (Yes/No)
4. Are there Multiple parties involved in reconciling the #data that accumulate throughout the business value chain? (Yes/No)
5. What is the Value being transferred between stakeholders, in a form of information, money, assets? (Yes/No)
6. Is it Essential for all transactions between stakeholders to be permanent? (Yes/No)

Blockchain can indeed add a lot of value. And it have huge potential to track and monetize different kind of assets (digital and physical) which would not have been possible in the history. But yes - you need to make sure that it's right technology for you. If you CAN build the solution into centralized database - don’t bother to build do it into a blockchain. There are plenty of centralized databases which could help you. Here are few centralized database examples named:

• Centralized payment network: Visanet
• Centralized Ledger: Amazon Quantum Ledger Database
• Distributed Database: Oracle, MS or Orbit DB
• Cloud Service Providers: Amazon S3
• Other distributed ledgers like: Hashgraph or IOTA to name a few

Outro

Blockchain indeed is here to stay. And it is in the very beginning of it's adoption curve. But it should not be used just for fun. Every use case should be carefully evaluated and researched. Like in business generally.

Wait what! Did I really say not just for fun? Yes, BUT I believe the best way to learn and get used to blockchain is to start using it. Just for fun. And learn while doing. Using cryptos is the best way to learn from blockchain. That is also the best way to get motivated to get familiar with different kind of projects and protocols out there. If you will buy cryptos my suggestion not to do it for the profits but for the fun! Do not expect to get huge profits fast. Profits only should not be the reason to start investing anything. Not even to blockchain.